KITTY HAWK INC, 8-K, EX-99.2, 2000-08-22

KITTY HAWK INC
8-K, EX-99.2, 2000-08-22
AIR TRANSPORTATION, NONSCHEDULED

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EXHIBIT 99.2

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF TEXAS
FORT WORTH DIVISION

IN RE: ss. Chapter 11
ss.
KITTY HAWK, INC., ss. CASE NO. 400-42141-BJH-11
KITTY HAWK AIRCARGO, INC., ss. CASE NO. 400-42142
KITTY HAWK CHARTERS, INC. ss. CASE NO. 400-42143
KITTY HAWK INTERNATIONAL, INC., ss. CASE NO. 400-42144
KITTY HAWK CARGO, INC. ss. CASE NO. 400-42145
OK TURBINES, INC. ss. CASE NO. 400-42146
LONGHORN SOLUTIONS, INC. ss. CASE NO. 400-42147
AIRCRAFT LEASING, INC. ss. CASE NO. 400-42148
AMERICAN INTERNATIONAL ss. CASE NO. 400-42149
TRAVEL, INC. ss.
FLIGHT ONE LOGISTICS, INC. CASE NO. 400-42069-BJH-11
ss.
Debtors. ss. Jointly Administered

--------------------------------------------------------------------------------
DISCLOSURE STATEMENT UNDER 11 U.S.C. SS. 1125
IN SUPPORT OF THE DEBTORS' JOINT
PLAN OF REORGANIZATION DATED AUGUST 21, 2000
--------------------------------------------------------------------------------
THIS DISCLOSURE STATEMENT HAS BEEN PREPARED BY (COLLECTIVELY, THE "DEBTORS," OR
THE "KITTY HAWK") AND DESCRIBES THE TERMS AND PROVISIONS OF THE DEBTORS' JOINT
PLAN OF REORGANIZATION DATED AUGUST 21, 2000 (THE "PLAN"). ANY TERM USED IN THIS
DISCLOSURE STATEMENT THAT IS NOT DEFINED HEREIN HAS THE MEANING ASCRIBED TO THAT
TERM IN THE PLAN.

Dated: August 21, 2000

Robert D. Albergotti John D. Penn
State Bar No. 00969800 State Bar No. 15752300
Haynes and Boone, LLP Haynes and Boone, LLP
901 Main Street, Suite 3100 201 Main Street, Suite 2200
Dallas, Texas 75202 Fort Worth, Texas 76102
Tel. No. (214) 651-5000 Direct Tel. No. (817) 347-6610
Fax No. (214) 651-5940 Direct Fax No. (817) 348-2300

Sarah B. Foster
State Bar No. 07297500
Haynes and Boone, LLP
600 Congress Ave., Suite 1600
Austin, Texas 78701
Tel. No. (512) 867-8400
Fax No. (512) 867-8470

COUNSEL TO THE DEBTORS AND THE DEBTORS-IN-POSSESSION
<PAGE>
TABLE OF CONTENTS

PAGE

SUMMARY OF THE PLAN..........................................................1

I. INTRODUCTION...........................................................2
A. Filing of the Debtors' Chapter 11 Reorganization Cases...........2
B. Purpose of Disclosure Statement..................................2
C. Hearing on Confirmation of the Plan..............................4
D. Sources of Information...........................................5

II. EXPLANATION OF CHAPTER 11..............................................6
A. Overview of Chapter 11...........................................6
B. Plan of Reorganization...........................................6

III. VOTING PROCEDURES AND REQUIREMENTS FOR CONFIRMATION....................8
A. "Voting Claims" -- Parties Entitled to Vote......................8
B. Return of Ballots................................................9
1. Voting Record Date.........................................9
2. Special Procedures for Ballots of Holders of Debt
Securities.................................................9
3. Deadline for Submission of Ballots........................10
C. Confirmation of Plan............................................10
1. Solicitation of Acceptances...............................10
2. Requirements for Confirmation of the Plan.................11
3. Acceptances Necessary to Confirm the Plan.................12
4. Cramdown..................................................13

IV. BACKGROUND OF THE DEBTORS.............................................14
A. Nature of the Debtors' Business.................................14
B. Overview of the Debtors' Current Corporate Structure............14
C. Creditor Claims Against Multiple Debtors........................15
D. Existing and Potential Litigation...............................15
1. Claims Against the Debtors................................15
a. Securities Litigation Against the Debtors or Their
Officers and Directors..............................16
b. Other Claims Against the Debtors....................16
2. Claims Held by the Debtors................................16
a. Preference Claims...................................16
b. Potential Avoidance Claims Against the Noteholders..17
c. Litigation with International Brotherhood of
Teamsters...........................................19
d. Litigation with Conrad Kalitta......................19
e. Miscellaneous Litigation............................19

V. EVENTS LEADING TO BANKRUPTCY..........................................19
A. Events Leading to Chapter 11 Bankruptcy Filing..................19
....................................................19

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VI. PROGRESS DURING BANKRUPTCY AND SIGNIFICANT EVENTS.....................21
A. Fort Wayne Hub Improvements.....................................21
B. Financial Performance...........................................21
C. Revenue Performance Improvement.................................22
D. Administrative Consolidation....................................22
E. Asset Sales.....................................................22
F. Significant Orders Entered During the Case......................23
G. Appointment of Creditors' Committee.............................25
H. Professionals' Being Paid by the Estates and Fees to Date.......25
1. Professionals employed by the Debtors.....................25
2. Professionals employed by the Creditors' Committee........26
3. Fees to Date..............................................26

VII. DESCRIPTION OF THE PLAN...............................................26
A. Introduction....................................................26
B. Designation of Claims and Interests.............................27
1. SECURED CLAIMS............................................27
2. UNSECURED CLAIMS..........................................27
3. INTERESTS.................................................27
C. Treatment of Claims and Interests...............................28
1. Administrative Claims.....................................28
a. General.............................................28
b. Payment of Statutory Fees...........................28
c. Bar Date for Administrative Claims..................28
(1) General Provisions............................28
(2) Professionals.................................28
(3) Ordinary Course Liabilities...................28
(4) Contractual Employee Claims...................29
(5) Tax Claims....................................29
2. Treatment of Pre-Petition Priority Tax Claims.............29
D. Classification and Treatment of Classified Claims and Interests.29
1. Class 1 - Bank Claims.....................................29
2. Class 2 - Noteholders' Secured Claims.....................30
3. Class 3 - Secured Claims Other Than Bank Claims and
Claims of the Noteholders.......................30
4. Class 4 - Priority Claims.................................31
5. Class 5 - Convenience Claims..............................31
6. Class 6 - Unsecured Noteholder Claims.....................31
7. Class 7 - Other Unsecured Claims..........................31
8. Class 8 - Old Common Stock................................32
9. Class 9 - Securities Claims...............................32
E. Acceptance or Rejection of the Plan.............................32
1. Voting Classes............................................32
2. Presumed Rejection of Plan................................32
F. Manner of Distribution of Property Under the Plan...............32

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1. Distribution Procedures...................................32
2. Distribution of New Common Stock..........................33
3. Distributions by Indenture Trustee........................33
4. Surrender and Cancellation of Old Securities..............34
5. Disputed Claims...........................................34
6. Manner of Payment Under the Plan..........................34
7. Delivery of Distributions and Undeliverable or Unclaimed
Distributions.............................................34
a. Delivery of Distributions in General................34
b. Undeliverable Distributions.........................35
(1) Holding and Investment of Undeliverable
Property......................................35
(2) Distribution of Undeliverable Property After
it Becomes Deliverable and Failure to Claim
Undeliverable Property........................35
8. De Minimis Distributions..................................35
9. Failure to Negotiate Checks...............................35
10. Compliance with Tax Requirements..........................35
11. Setoffs...................................................36
12. Fractional Interests......................................36
G. Treatment of Executory Contracts and Unexpired Leases...........36
H. Means for Execution and Implementation of the Plan..............37
1. Exit Financing............................................37
2. Rights Offering...........................................37
3. Merger of Corporate Entities..............................38
4. Board of Directors of the Reorganized Debtor..............38
5. Post-Confirmation Management..............................38
6. Cancellation of Old Securities............................39
7. Authorization and Issuance of New Common Stock............40
8. Registration Exemption for Debtor's New Common Stock......40
9. Charter and By-Laws.......................................40
10. Corporate Action..........................................40
11. Release of Fraudulent Conveyance Claims...................40
12. Other Releases by Debtors.................................40
13. Preservation of Rights of Action..........................41
14. Objections to Claims......................................41
15. Retiree Benefits..........................................41
16. Exemption from Stamp and Similar Taxes....................41
I. Conditions to Effectiveness of the Plan.........................42
1. Conditions to Effectiveness...............................42
2. Waiver of Conditions......................................42
3. No Requirement of Final Order.............................42
J. Effects of Plan Confirmation....................................42
1. Binding Effect............................................42
2. Moratorium, Injunction and Limitation of Recourse For
Payment...................................................42
3. Exculpation and Limitation of Liability...................43
4. Revesting.................................................43
5. Other Documents and Actions...............................43
6. Post-Consummation Effect of Evidences of Claims or
Interests.................................................43

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7. Term of Injunctions or Stays..............................43
K. Confirmability of Plan and Cramdown.............................44
L. Retention of Jurisdiction.......................................44

VIII. FEASIBILITY OF THE PLAN...............................................44
A. Feasibility.....................................................44
1. Business Strategy.........................................44
2. Factors Enhancing Kitty Hawk's Future Business Prospects..46
a. Diversified Revenue Base............................46
b. Large Market in an Under-served, Growing Industry
Segment.............................................46
c. Efficient, Utilitarian Aircraft Fleet...............47
d. Low Cost Operator of B727-200F......................47
e. Significant Opportunity to Expand Fort Wayne Hub....47
f. Substantial Leverage to Attract Strategic Partner(s)47
B. Alternatives to Confirmation of the Plan........................48
1. Dismissal.................................................48
2. Chapter 7 Liquidation.....................................48
3. Confirmation of an Alternative Plan.......................49

IX. RISK FACTORS..........................................................49
A. Kitty Hawk Related Risks........................................49
1. Dependence on Significant Customers ......................49
2. Employee Relations........................................50
B. Aircraft Related Risks..........................................50
1. Future Operations Based on Continued Acceptance of
Scheduled Airfreight......................................50
2. Dependence on Aircraft Availability.......................51
3. Capital Intensive Nature of Aircraft Ownership............51
4. Aging Aircraft Regulations; Potential Compliance Costs ...52
C. Industry Related Risks..........................................52
1. Cyclicality and Seasonality of Business...................52
2. Volatility of Air Freight Services Market.................53
3. Government Regulation.....................................53
a. General.............................................53
b. International Regulation............................53
c. Stock Ownership by Non-U.S. Citizens................53
d. Noise Abatement Regulations.........................54
e. Safety, Training and Maintenance Regulations........54
f. Hazardous Materials Regulations.....................54

X. CERTAIN FEDERAL INCOME TAX CONSEQUENCES...............................54

XI. CONCLUSION............................................................55

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<PAGE>
INDEX TO APPENDIX

EXHIBIT A: Projections of Reorganized Debtor's Operations

EXHIBIT B: Liquidation Analysis

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<PAGE>
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF TEXAS

FORT WORTH DIVISION

IN RE:CHAPTER 11 ss.

ss.
KITTY HAWK, INC., ss. CASE NO. 400-42141-BJH-11
KITTY HAWK AIRCARGO, INC., ss. CASE NO. 400-42142
KITTY HAWK CHARTERS, INC. ss. CASE NO. 400-42143
KITTY HAWK INTERNATIONAL, INC., ss. CASE NO. 400-42144
KITTY HAWK CARGO, INC. ss. CASE NO. 400-42145
OK TURBINES, INC. ss. CASE NO. 400-42146 SS.
LONGHORN SOLUTIONS, INC. ss. CASE NO. 400-42147
AIRCRAFT LEASING, INC. ss. CASE NO. 400-42148
AMERICAN INTERNATIONAL ss. CASE NO. 400-42149
TRAVEL, INC. ss.
FLIGHT ONE LOGISTICS, INC. ss. CASE NO. 400-42069-BJH-11
ss.
DEBTORS. ss. JOINTLY ADMINISTERED

--------------------------------------------------------------------------------

DISCLOSURE STATEMENT UNDER
11 U.S.C. SS. 1125 IN SUPPORT OF THE DEBTORS'
JOINT PLAN OF REORGANIZATION DATED AUGUST 21, 2000

SUMMARY OF THE PLAN

KITTY HAWK'S PROJECTIONS AND VALUE ESTIMATES INDICATE THAT 15% OF REORGANIZED
KITTY HAWK SHOULD BE WORTH APPROXIMATELY $22 MILLION (OR 1/3 OF THE GENERAL
UNSECURED CLAIMS). Third, holders of Allowed Unsecured Claims

DISCLOSURE STATEMENT UNDER 11 U.S.C. SS. 1125 IN SUPPORT OF THE
DEBTORS' JOINT PLAN OF REORGANIZATION DATED AUGUST 21, 2000

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<PAGE>
THAT ARE NOT NOTEHOLDER CLAIMS may elect to receive a discounted amount of cash
in lieu of stock conditioned upon the Reorganized Debtor's ability to raise cash
through a rights offering. The Plan gives the old shareholders of Kitty Hawk the
right to buy up to 10% of the stock in Reorganized Kitty Hawk through a rights
offering in which they will pay the estimated value of the stock on the
Effective Date for the shares they purchase.

INTRODUCTION

A. FILING OF THE DEBTORS' CHAPTER 11 REORGANIZATION CASES

The Debtors filed their petitions for relief under Chapter 11 of the
Bankruptcy Code on May 1, 2000(1) (the "Petition Date"), in the United States
Bankruptcy Court for the Northern District of Texas (the "Bankruptcy Court").
Pursuant to an Order entered by the Bankruptcy Court on the Petition Date, the
Debtors' bankruptcy cases were procedurally consolidated and have been jointly
administered under Case No. 00-42141-BJH-11. Since the Petition Date, the
Debtors have continued to operate their businesses and manage their properties
and assets as debtors-in-possession pursuant to sections 1107 and 1108 of the
Bankruptcy Code.

B. PURPOSE OF DISCLOSURE STATEMENT

This Disclosure Statement is submitted in accordance with section 1125 of
the Bankruptcy Code for the purpose of soliciting acceptances of the Plan from
holders of certain Classes of Claims. The only Creditors whose acceptances of
the Plan are sought are those whose Claims are "impaired" by the Plan, as that
term is defined in section 1124 of the Bankruptcy Code and who are receiving
distributions under the Plan. Holders of Claims that are not "impaired" are
deemed to have accepted the Plan.

The Debtors have prepared this Disclosure Statement pursuant to the
provisions of section 1125 of the Bankruptcy Code, which requires that a copy of
the Plan, or a summary thereof, be submitted to all holders of Claims against,
and Interests in, the Debtors, along with a written Disclosure Statement
containing adequate information about the Debtors of a kind, and in sufficient
detail, as far as is reasonably practicable, that would enable a hypothetical,
reasonable investor typical of Creditors and holders of Interests to make an
informed judgment in exercising their right to vote on the Plan.

Section 1125 of the Bankruptcy Code provides, in pertinent part:

(b) An acceptance or rejection of a plan may not be solicited after
the commencement of the case under this title from a holder of a claim or
interest with respect to such claim or interest, unless, at the time of or
before such solicitation,

--------
(1) With the exception of Flight One Logistics, which filed its voluntary
Chapter 11 petition on April 27, 2000.

DISCLOSURE STATEMENT UNDER 11 U.S.C. SS. 1125 IN SUPPORT OF THE
DEBTORS' JOINT PLAN OF REORGANIZATION DATED AUGUST 21, 2000

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<PAGE>
there is transmitted to such holder the plan or a summary of the plan, and
a written disclosure statement approved, after notice and a hearing, by
the court as containing adequate information. The court may approve a
disclosure statement without a valuation of the debtor or an appraisal of
the debtor's assets.

* * *

(d) Whether a disclosure statement required under subsection (b) of
this section contains adequate information is not governed by any
otherwise applicable nonbankruptcy law, rule, or regulation, but an agency
or official whose duty is to administer or enforce such a law, rule, or
regulation may be heard on the issue of whether a disclosure statement
contains adequate information. Such an agency or official may not appeal
from, or otherwise seek review of, an order approving a disclosure
statement.

(e) A person that solicits acceptance or rejection of a plan, in
good faith and in compliance with the applicable provisions of this title,
or that participates, in good faith and in compliance with the applicable
provisions of this title, in the offer, issuance, sale, or purchase of a
security, offered or sold under the plan, of the debtor, of an affiliate
participating in a joint plan with the debtor, or of a newly organized
successor to the debtor under the plan, is not liable, on account of such
solicitation or participation, for violation of any applicable law, rule,
or regulation governing solicitation of acceptance or rejection of a plan
or the offer, issuance, sale, or purchase of securities.

[THIS DISCLOSURE STATEMENT WAS APPROVED BY THE BANKRUPTCY COURT ON
SEPTEMBER ___, 2000.] Such approval is required by the Bankruptcy Code and does
not constitute a judgment by the Bankruptcy Court as to the desirability of the
Plan, or as to the value or suitability of any consideration offered thereunder.
Such approval does indicate, however, that the Bankruptcy Court has determined
that the Disclosure Statement meets the requirements of section 1125 of the
Bankruptcy Code and contains adequate information to permit the holders of
Allowed Claims, whose acceptance of the Plan is solicited, to make an informed
judgment regarding acceptance or rejection of the Plan.

THE APPROVAL BY THE BANKRUPTCY COURT OF THIS DISCLOSURE STATEMENT DOES NOT
CONSTITUTE AN ENDORSEMENT BY THE BANKRUPTCY COURT OF THE PLAN OR A
GUARANTEE OF THE ACCURACY OR COMPLETENESS OF THE INFORMATION CONTAINED
HEREIN. THE MATERIAL HEREIN CONTAINED IS INTENDED SOLELY FOR THE USE OF
CREDITORS AND HOLDERS OF INTERESTS OF THE DEBTORS IN EVALUATING THE PLAN
AND VOTING TO ACCEPT OR REJECT THE PLAN AND, ACCORDINGLY, MAY NOT BE
RELIED UPON FOR ANY PURPOSE OTHER THAN THE DETERMINATION OF HOW TO VOTE ON
THE PLAN. THE DEBTORS' REORGANIZATION PURSUANT TO THE PLAN IS SUBJECT TO
NUMEROUS CONDITIONS AND VARIABLES AND THERE CAN BE NO ABSOLUTE ASSURANCE
THAT THE PLAN, AS CONTEMPLATED, WILL BE EFFECTUATED.

DISCLOSURE STATEMENT UNDER 11 U.S.C. SS. 1125 IN SUPPORT OF THE
DEBTORS' JOINT PLAN OF REORGANIZATION DATED AUGUST 21, 2000

3
<PAGE>
THE DEBTORS BELIEVE THAT THE PLAN AND THE TREATMENT OF CLAIMS THEREUNDER
IS IN THE BEST INTERESTS OF CREDITORS, AND URGE THAT YOU VOTE TO ACCEPT
THE PLAN.

THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THE STATEMENTS CONTAINED HEREIN. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.

THIS DISCLOSURE STATEMENT AND THE EXHIBITS TO IT CONTAIN FORWARD-LOOKING
STATEMENTS RELATING TO BUSINESS EXPECTATIONS, ASSET SALES AND LIQUIDATION
ANALYSIS. BUSINESS PLANS MAY CHANGE AS CIRCUMSTANCES WARRANT. ACTUAL
RESULTS MAY DIFFER MATERIALLY AS A RESULT OF MANY FACTORS, SOME OF WHICH
KITTY HAWK HAS NO CONTROL OVER. SUCH FACTORS INCLUDE, BUT ARE NOT LIMITED
TO: WORLDWIDE BUSINESS AND ECONOMIC CONDITIONS; RECRUITING AND NEW
BUSINESS SOLICITATION EFFORTS; PRODUCT DEMAND AND THE RATE OF GROWTH IN
THE AIR CARGO INDUSTRY; THE IMPACT OF COMPETITORS AND COMPETITIVE AIRCRAFT
AND AIRCRAFT FINANCING AVAILABILITY; THE ABILITY TO ATTRACT AND RETAIN NEW
AND EXISTING CUSTOMERS; JET FUEL PRICES; NORMALIZED AIRCRAFT OPERATING
COSTS AND RELIABILITY, AIRCRAFT MAINTENANCE DELAYS AND DAMAGE; REGULATORY
ACTIONS, THE DEMAND FOR USED AIRCRAFT AND AVIATION ASSETS, CONTEST FOR
CONTROL OF KITTY HAWK; AND KITTY HAWK'S ABILITY TO NEGOTIATE FAVORABLE
ASSET SALES. THESE RISK FACTORS AND ADDITIONAL INFORMATION ARE INCLUDED IN
KITTY HAWK'S REPORTS ON FILE WITH THE SECURITIES AND EXCHANGE COMMISSIONS.

C. HEARING ON CONFIRMATION OF THE PLAN

The Bankruptcy Court has set November ____, 2000, at o'clock, a.m. Dallas,
Texas Time, as the time and date for the hearing (the "Confirmation Hearing") to
determine whether the Plan has been accepted by the requisite number of
Creditors and holders of Interests and whether the other requirements for
Confirmation of the Plan have been satisfied. Holders of Claims against or
Interests in the Debtors may vote on the Plan by completing and delivering the
enclosed ballot to ____________on or before 5:00 p.m. Dallas, Texas time on
October , 2000. If the Plan is rejected by one or more impaired Classes of
creditors or holders of Interests, the Plan, or a modification thereof, may
still be confirmed by the Bankruptcy Court under section 1129(b) of the
Bankruptcy Code (commonly referred to as a "cramdown") if the Bankruptcy Court
determines, among other things, that the Plan does not discriminate unfairly and
is fair and equitable with respect to the rejecting Class or Classes of
creditors or holders of Interests impaired by the Plan. The procedures and
requirements for voting on the Plan are described in more detail below.

DISCLOSURE STATEMENT UNDER 11 U.S.C. SS. 1125 IN SUPPORT OF THE
DEBTORS' JOINT PLAN OF REORGANIZATION DATED AUGUST 21, 2000

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D. SOURCES OF INFORMATION

Except as otherwise expressly indicated, the portions of this Disclosure
Statement describing the Debtors, their businesses, properties and management,
and the Plan have been prepared from information furnished by the Debtors.

THE INFORMATION CONTAINED HEREIN HAS NOT BEEN SUBJECTED TO A CERTIFIED
AUDIT AND IS BASED, IN PART, UPON INFORMATION PREPARED BY PARTIES OTHER
THAN THE DEBTORS. THEREFORE, ALTHOUGH THE DEBTORS HAVE MADE EVERY
REASONABLE EFFORT TO BE ACCURATE IN ALL MATERIAL MATTERS, THE DEBTORS ARE
UNABLE TO WARRANT OR REPRESENT THAT ALL THE INFORMATION CONTAINED HEREIN
IS COMPLETELY ACCURATE.

Certain of the materials contained in this Disclosure Statement are taken
directly from other readily accessible documents or are digests of other
documents. While the Debtors have made every effort to retain the meaning of
such other documents or portions that have been summarized, the Debtors urge
that any reliance on the contents of such other documents should depend on a
thorough review of the documents themselves. In the event of a discrepancy
between this Disclosure Statement and the actual terms of a document, the actual
terms of such document shall apply.

The authors of the Disclosure Statement have compiled information from the
Debtors without professional comment, opinion or verification and do not suggest
comprehensive treatment has been given to matters identified herein. Each
creditor and holder of an Interest is urged to independently investigate any
such matters prior to reliance.

The statements contained in this Disclosure Statement are made as of the
date hereof unless another time is specified, and neither the delivery of this
Disclosure Statement nor any exchange of rights made in connection with it
shall, under any circumstances, create an implication that there has been no
change in the facts set forth herein since the date hereof.

No statements concerning the Debtors, the value of their property, or the
value of any benefit offered to the holder of a Claim or Interest in connection
with the Plan should be relied upon other than as set forth in this Disclosure
Statement. In arriving at your decision, you should not rely on any
representation or inducement made to secure your acceptance or rejection that is
contrary to information contained in this Disclosure Statement, and any such
additional representations or inducements should be reported to counsel for the
Debtors, Robert D. Albergotti, Esq., Haynes and Boone, LLP, 901 Main Street,
Suite 3100, Dallas, Texas 75202, (214) 651-5000.

DISCLOSURE STATEMENT UNDER 11 U.S.C. SS. 1125 IN SUPPORT OF THE
DEBTORS' JOINT PLAN OF REORGANIZATION DATED AUGUST 21, 2000

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II.

EXPLANATION OF CHAPTER 11

A. OVERVIEW OF CHAPTER 11

Chapter 11 is the principal reorganization chapter of the Bankruptcy Code.
Pursuant to Chapter 11, a debtor-in-possession attempts to reorganize its
business and financial affairs for the benefit of the debtor, its creditors, and
other parties-in-interest.

The commencement of a Chapter 11 case creates an estate comprising all the
legal and equitable interests of the debtor in property as of the date the
petition is filed. Unless the Bankruptcy Court orders the appointment of a
trustee, sections 1101, 1107 and 1108 of the Bankruptcy Code provide that a
Chapter 11 debtor may continue to operate its business and control the assets of
its estate as a "debtor-in-possession," as have the Debtors since the Petition
Date.

The filing of a Chapter 11 petition also triggers the automatic stay,
which is set forth in section 362 of the Bankruptcy Code. The automatic stay
essentially halts all attempts to collect pre- petition claims from the debtor
or to otherwise interfere with the debtor's business or its estate.

Formulation of a plan of reorganization is the principal purpose of a
Chapter 11 case. The plan sets forth the means for satisfying the claims of
creditors against and interests of equity security holders in the debtor. Unless
a trustee is appointed, only the debtor may file a plan during the first 120
days of a Chapter 11 case (the "Exclusive Period"). After the Exclusive Period
has expired, a creditor or any other party-in-interest may file a plan, unless
the debtor files a plan within the Exclusive Period. If a debtor does file a
plan within the Exclusive Period, the debtor is given sixty (60) additional days
(the "Solicitation Period") to solicit acceptances of its plan. Section 1121(d)
of the Bankruptcy Code permits the Bankruptcy Court to extend or reduce the
Exclusive Period and the Solicitation Period upon a showing of adequate "cause."
The Debtors' Exclusive Period and Solicitation Period will expire on August 29,
2000 and October 28, 2000 respectively, unless extended by Court order.

B. PLAN OF REORGANIZATION

A plan of reorganization provides the manner in which a debtor will
satisfy the claims of its creditors. After the plan of reorganization has been
filed, the holders of claims against or interests in a debtor are permitted to
vote on whether to accept or reject the plan. Chapter 11 does not require that
each holder of a claim against or interest in a debtor vote in favor of a plan
of reorganization in order for the plan to be confirmed. At a minimum, however,
a plan of reorganization must be accepted by a majority in number and two-thirds
in amount of those claims actually voting from at least one class of claims
impaired under the plan. The Bankruptcy Code also defines acceptance of a plan
of reorganization by a class of interests (equity securities) as acceptance by
holders of two- thirds of the number of shares actually voted.

DISCLOSURE STATEMENT UNDER 11 U.S.C. SS. 1125 IN SUPPORT OF THE
DEBTORS' JOINT PLAN OF REORGANIZATION DATED AUGUST 21, 2000

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Classes of claims or interests that are not "impaired" under a plan of
reorganization are conclusively presumed to have accepted the plan and, thus,
are not entitled to vote. Acceptances of the Plan in this case are being
solicited only from those persons who hold Claims in an impaired Class (other
than Classes of Claims which are not receiving any distribution under the Plan).
Holders of Interests in the Debtors will receive no distribution under the Plan
and, therefore, are deemed to have rejected the Plan. A Class is "impaired" if
the legal, equitable, or contractual rights attaching to the Claims or Interests
of that Class are modified. Modification does not include curing defaults and
reinstating maturity or payment in full in cash.

Even if all classes of claims and interests accept a plan of
reorganization, the Bankruptcy Court may nonetheless still deny confirmation.
Section 1129 of the Bankruptcy Code sets forth the requirements for confirmation
and, among other things, the Bankruptcy Code requires that a plan of
reorganization be in the "best interests" of creditors and shareholders and that
the plan of reorganization be feasible. The "best interests" test generally
requires that the value of the consideration to be distributed to claimants and
interest holders under a plan may not be less than those parties would receive
if that debtor were liquidated under a hypothetical liquidation occurring under
Chapter 7 of the Bankruptcy Code. A plan of reorganization must also be
determined to be "feasible," which generally requires a finding that there is a
reasonable probability that the debtor will be able to perform the obligations
incurred under the plan of reorganization, and that the debtor will be able to
continue operations without the need for further financial reorganization.

The Bankruptcy Court may confirm a plan of reorganization even though
fewer than all of the classes of impaired claims and interests accept it. In
order for a plan of reorganization to be confirmed despite the rejection of a
class of impaired claims or interests, the proponent of the plan must show,
among other things, that the plan of reorganization does not discriminate
unfairly and that the plan is fair and equitable with respect to each impaired
class of claims or interests that has not accepted the plan of reorganization.

Under section 1129(b) of the Bankruptcy Code, a plan is "fair and
equitable" as to a class if, among other things, the plan provides: (a) that
each holder of a claim included in the rejecting class will receive or retain on
account of its claim property that has a value, as of the effective date of the
plan, equal to the allowed amount of such claim; or (b) that the holder of any
claim or interest that is junior to the claims of such class will not receive or
retain on account of such junior claim or interest any property at all.

The Bankruptcy Court must further find that the economic terms of the plan
of reorganization meet the specific requirements of section 1129(b) of the
Bankruptcy Code with respect to the particular objecting class. The proponent of
the plan of reorganization must also meet all applicable requirements of section
1129(a) of the Bankruptcy Code (except section 1129(a)(8) if the proponent
proposes to seek confirmation of the plan under the provisions of section
1129(b)). These requirements include the requirement that the plan comply with
applicable provisions of the Bankruptcy Code and other applicable law, that the
plan be proposed in good faith, and that at least one impaired class of
creditors has voted to accepted the plan.

DISCLOSURE STATEMENT UNDER 11 U.S.C. SS. 1125 IN SUPPORT OF THE
DEBTORS' JOINT PLAN OF REORGANIZATION DATED AUGUST 21, 2000

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III.

VOTING PROCEDURES AND REQUIREMENTS FOR CONFIRMATION

If you are in one of the Classes of Claims whose rights are affected by
the Plan (SEE "Summary of the Plan" below), it is important that you vote. If
you fail to vote, your rights may be jeopardized.

A. "VOTING CLAIMS" -- PARTIES ENTITLED TO VOTE

Pursuant to the provisions of section 1126 of the Bankruptcy Code, holders
of Claims or Interests that are (i) ALLOWED, (ii) IMPAIRED, and (iii) that are
RECEIVING OR RETAINING PROPERTY ON ACCOUNT OF SUCH CLAIMS OR INTERESTS pursuant
to the Plan, are entitled to vote either for or against the Plan (hereinafter,
"Voting Claims"). Accordingly, in this Reorganization Case, any holder of a
Claim or Interest classified in Classes 1, 2, 3, 4, 5, 6, 7, and 8 of this Plan
may have a Voting Claim and should have received a ballot for voting (with
return envelope) in these Disclosure Statement and Plan materials (hereinafter,
"Solicitation Package") since these are the Classes consisting of IMPAIRED
Claims that are RECEIVING PROPERTY. Note that holders of Claims against or
Interests in the Debtors that are classified in Class 9 of this Plan should NOT
have received ballots in their Solicitation Packages since they are impaired and
are NOT RECEIVING OR RETAINING ANY PROPERTY on account of their Claims or
Interests pursuant to the Plan (I.E.,these Classes are deemed to reject the
Plan, pursuant to section 1126(g) of the Bankruptcy Code, and their votes need
not be solicited, pursuant to section 1126(g) and Bankruptcy Rule 3017(d)).

As referenced in the preceding paragraph, a Claim must be ALLOWED to be a
Voting Claim. The Debtors filed schedules in this Reorganization Case listing
Claims against the Debtors. To the extent a creditor's Claim was listed in the
Debtors' schedules, and was not listed as disputed, contingent, or unliquidated,
it is deemed "allowed." Any creditor whose Claim was not scheduled, or was
listed as disputed, contingent or unliquidated, must have timely filed a proof
of Claim in order to have an "allowed" Claim. The last day for filing proofs of
Claim for amounts owed pre-petition is August 30, 2000. Absent an objection to
that proof of Claim, it is deemed "allowed." In the event that any proof of
Claim is subject to an objection by the Debtors as of or during the Plan voting
period ("Objected-to Claim"), then, by definition, it is not "allowed," for
purposes of section 1126 of the Bankruptcy Code, and is not to be considered a
Voting Claim entitled to cast a ballot. Nevertheless, pursuant to Bankruptcy
Rule 3018(a), the holder of an Objected-to Claim may petition the Bankruptcy
Court, after notice and hearing, to allow the Claim temporarily for voting
purposes in an amount which the Bankruptcy Court deems proper. Allowance of a
Claim for voting purposes, and disallowance for voting purposes, does not
necessarily mean that all or a portion of the Claim will be allowed or
disallowed for distribution purposes.

BY ENCLOSING A BALLOT, THE DEBTORS ARE NOT REPRESENTING THAT YOU ARE
ENTITLED TO VOTE ON THE PLAN. BY INCLUDING A CLAIM AMOUNT ON THE BALLOT, THE
DEBTORS ARE NEITHER ACKNOWLEDGING THAT YOU HAVE AN ALLOWED CLAIM IN THAT AMOUNT
NOR WAIVING ANY RIGHTS THE DEBTORS MAY HAVE TO OBJECT TO YOUR VOTE OR CLAIM.

DISCLOSURE STATEMENT UNDER 11 U.S.C. SS. 1125 IN SUPPORT OF THE
DEBTORS' JOINT PLAN OF REORGANIZATION DATED AUGUST 21, 2000

8
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If you believe you are a holder of a Claim in an impaired Class under the
Plan and entitled to vote to accept or reject the Plan, but did not receive a
ballot with these materials, please contact __________ (the "Solicitation
Agent"); or Linda Breedlove, Haynes and Boone, LLP, 901 Main Street, Suite 3100,
Dallas, Texas 75202, Telephone (214) 651-5000, Telecopy (214) 651-5940.

B. RETURN OF BALLOTS

If you are a holder of a Voting Claim, your vote on the Plan is important.
EXCEPT WITH REGARD TO BENEFICIAL HOLDERS OF DEBT SECURITIES THAT MAY BE VOTING
THROUGH A RECORD OR NOMINAL HOLDER (SEE DISCUSSION BELOW), completed ballots
should either be returned in the enclosed envelope or sent to:

[SOLICITATION AGENT]

1. VOTING RECORD DATE

Pursuant to Bankruptcy Rule 3017(d), September , 2000 is the "Voting
Record Date" for determining which Noteholders and holders of Old Common Stock
may be entitled to vote to accept or reject the Plan. Only holders of record of
Claims against the Debtors on that date are entitled to cast ballots.

2. SPECIAL PROCEDURES FOR BALLOTS OF HOLDERS OF DEBT SECURITIES

WITH REGARD TO DEBT SECURITIES, any person who is a "record holder" of a
debt security (a person shown as the registered holder of a security in the
registry maintained by a trustee or registrar of a debt security) on the Voting
Record Date -- including any bank, agent, broker or other nominee who holds a
debt security of the Debtors in its name (the "Nominal Holder" or "Nominee") for
a beneficial holder or holders -- should receive Solicitation Packages for
distribution to the appropriate beneficial holders. A Nominee shall, upon
receipt of the Solicitation Packages, forward the Solicitation Packages to the
beneficial owners so that such beneficial security holders may vote on the Plan
pursuant to Code section 1126. The Debtors shall provide for reimbursement, as
an administrative expense, of all the reasonable expenses of Nominal Holders in
distributing the Solicitation Packages to said beneficial security holders.
Nominal Holders will have two options for obtaining the votes of beneficial
owners of securities, consistent with usual customary practices for obtaining
the votes of securities held in street name: (i) the Nominal Holder may
prevalidate the individual ballot contained in the Solicitation Package (by
indicating that the record holders of the securities voted, and the appropriate
account numbers through which the beneficial owner's holdings are derived) and
then forward the Solicitation Package to the beneficial owner of the securities,
which beneficial owner will then indicate its acceptance or rejection of the
Plan and otherwise indicate his choices to the extent requested to do so on the
ballot, and then return the individual ballot directly to the SOLICITATION AGENT
in the return envelope to be provided in the Solicitation Package, or (ii) the

DISCLOSURE STATEMENT UNDER 11 U.S.C. SS. 1125 IN SUPPORT OF THE
DEBTORS' JOINT PLAN OF REORGANIZATION DATED AUGUST 21, 2000

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Nominal Holder may forward the Solicitation Package to the beneficial owner of
the securities for voting along with a return envelope provided by and addressed
to the NOMINAL HOLDER, with the beneficial owner then returning the individual
ballot to the Nominal Holder, the Nominal Holder will subsequently summarize the
votes, including, at a minimum, the number of beneficial holders voting to
accept and to reject the Plan who submitted ballots to the Nominal Holder and
the amount of such securities so voted and shall also disclose any other
individual choices made in response to requests in the ballot, in an affidavit
(the "Affidavit of Voting Results"), and then return the Affidavit of Voting
Results to the Solicitation Agent. By submitting an Affidavit of Voting Results,
each such Nominal Holder certifies that the Affidavit of Voting Results
accurately reflects votes and choices reflected on the ballots received from
beneficial owners holding such securities as of the Voting Record Date.

Pursuant to 28 U.S.C. ss.ss. 157 and 1334, 11 U.S.C. ss. 105, and
Bankruptcy Rule 1007(i) and (j), the Nominees shall maintain the individual
ballots of its beneficial owners and evidence of authority to vote on behalf of
such beneficial owners. No such ballots shall be destroyed or otherwise disposed
of or made unavailable without such action first being approved by prior order
of the Bankruptcy Court.

3. DEADLINE FOR SUBMISSION OF BALLOTS

BALLOTS MUST BE SUBMITTED TO (A) THE SOLICITATION AGENT, OR (B)
ALTERNATIVELY, IN THE CASE OF DEBT SECURITIES, TO THE NOMINAL HOLDERS, AND MUST
ACTUALLY BE RECEIVED BY EITHER OF THOSE PERSONS, WHETHER BY MAIL, DELIVERY, OR
FACSIMILE, BY OCTOBER , 2000, AT 5:00 P.M. DALLAS, TEXAS TIME (THE "BALLOT
RETURN DATE"). ANY BALLOTS RECEIVED AFTER THAT TIME WILL NOT BE COUNTED. ANY
BALLOT WHICH IS NOT EXECUTED BY A PERSON AUTHORIZED TO SIGN SUCH BALLOT WILL NOT
BE COUNTED. IN THE EVENT THAT BALLOTS ARE SUBMITTED TO THE NOMINEES, AFFIDAVITS
OF VOTING RESULTS REQUIRED OF THE NOMINEES MUST BE RECEIVED BY THE SOLICITATION
AGENT WITHIN ONE (1) BUSINESS DAY AFTER THE BALLOT RETURN DATE, BUT MAY BE SENT
BY FACSIMILE TRANSMISSION, PROVIDED THAT AN ORIGINAL, SIGNED AFFIDAVIT OF VOTING
RESULTS IS RECEIVED BY THE SOLICITATION AGENT WITHIN FIVE (5) BUSINESS DAYS OF
THE BALLOT RETURN DATE.

IF YOU HAVE ANY QUESTIONS REGARDING THE PROCEDURES FOR VOTING ON THE PLAN,
CONTACT THE SOLICITATION AGENT OR LINDA BREEDLOVE, HAYNES AND BOONE, LLP, 901
MAIN STREET, SUITE 3100, DALLAS, TEXAS 75202, TELEPHONE (214) 651-5000, TELECOPY
(214) 651-5940.

THE DEBTORS URGE ALL HOLDERS OF VOTING CLAIMS TO VOTE IN FAVOR OF THE
PLAN.

C. CONFIRMATION OF PLAN

1. SOLICITATION OF ACCEPTANCES

The Debtors are soliciting your vote. The cost of any solicitation by the
Debtors will be borne by the Debtors. No other additional compensation shall be
received by any party for any solicitation other than as disclosed to the
Bankruptcy Court.

DISCLOSURE STATEMENT UNDER 11 U.S.C. SS. 1125 IN SUPPORT OF THE
DEBTORS' JOINT PLAN OF REORGANIZATION DATED AUGUST 21, 2000

10
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NO REPRESENTATIONS OR ASSURANCES, IF ANY, CONCERNING THE DEBTORS
(INCLUDING, WITHOUT LIMITATION, THEIR FUTURE BUSINESS OPERATIONS) OR THE
PLAN ARE AUTHORIZED BY THE DEBTORS OTHER THAN AS SET FORTH IN THIS
DISCLOSURE STATEMENT. ANY REPRESENTATIONS OR INDUCEMENTS MADE BY ANY
PERSON TO SECURE YOUR VOTE THAT ARE OTHER THAN HEREIN CONTAINED SHOULD NOT
BE RELIED UPON BY YOU IN ARRIVING AT YOUR DECISION, AND SUCH ADDITIONAL
REPRESENTATIONS OR INDUCEMENTS SHOULD BE REPORTED TO COUNSEL FOR THE
DEBTORS FOR SUCH ACTION AS MAY BE DEEMED APPROPRIATE.

THIS IS A SOLICITATION SOLELY BY THE DEBTORS AND IS NOT A SOLICITATION BY
ANY SHAREHOLDER, ATTORNEY, OR ACCOUNTANT FOR THE DEBTORS. THE
REPRESENTATIONS, IF ANY, MADE HEREIN ARE THOSE OF THE DEBTORS AND NOT OF
SUCH SHAREHOLDERS, ATTORNEYS, OR ACCOUNTANTS, EXCEPT AS MAY BE OTHERWISE
SPECIFICALLY AND EXPRESSLY INDICATED.

Under the Bankruptcy Code, a vote for acceptance or rejection of a plan
may not be solicited unless the claimant has received a copy of a disclosure
statement approved by the Bankruptcy Court prior to, or concurrently with, such
solicitation. This solicitation of votes on the Plan is governed by section
1125(b) of the Bankruptcy Code. Violation of section 1125(b) of the Bankruptcy
Code may result in sanctions by the Bankruptcy Court, including disallowance of
any improperly solicited vote.

2. REQUIREMENTS FOR CONFIRMATION OF THE PLAN

At the Confirmation Hearing, the Bankruptcy Court shall determine whether
the requirements of section 1129 of the Bankruptcy Code have been satisfied, in
which event the Bankruptcy Court shall enter an Order confirming the Plan. For
the Plan to be confirmed, section 1129 requires that:

(i) The Plan comply with the applicable provisions of the
Bankruptcy Code;

(ii) The Debtors have complied with the applicable provisions of
the Bankruptcy Code;

(iii) The Plan has been proposed in good faith and not by any means
forbidden by law;

(iv) Any payment or distribution made or promised by the Debtors or
by a person issuing securities or acquiring property under the Plan for services
or for costs and expense in connection with the Plan has been disclosed to the
Bankruptcy Court, and any such payment made before the confirmation of the Plan
is reasonable, or if such payment is to be fixed after confirmation of the Plan,
such payment is subject to the approval of the Bankruptcy Court as reasonable;

(v) The Debtors have disclosed the identity and affiliations of
any individual proposed to serve, after confirmation of the Plan, as a director,
officer or voting trustee of the Debtors, an affiliate of the Debtors
participating in a joint plan with the Debtors, or a successor to the Debtors
under the Plan; the appointment to, or continuance in, such office of such
individual is

DISCLOSURE STATEMENT UNDER 11 U.S.C. SS. 1125 IN SUPPORT OF THE
DEBTORS' JOINT PLAN OF REORGANIZATION DATED AUGUST 21, 2000

11
<PAGE>
consistent with the interests of Creditors and holders of Interests and with
public policy; and the Debtors have disclosed the identity of any insider that
will be employed or retained by the Reorganized Debtor and the nature of any
compensation for such insider;

(vi) Any government regulatory commission with jurisdiction, after
confirmation of the Plan, over the rates of the Debtors have approved any rate
change provided for in the Plan, or such rate change is expressly conditioned on
such approval;

(vii) With respect to each impaired Class of Claims or Interests,
either each holder of a Claim or Interest of the Class has accepted the Plan or
will receive or retain under the Plan on account of that Claim or Interest
property of a value, as of the Effective Date of the Plan, that is not less than
the amount that such holder would so receive or retain if the Debtors were
liquidated on such date under Chapter 7 of the Bankruptcy Code. If section
1111(b)(2) of the Bankruptcy Code applies to the Claims of a Class, each holder
of a Claim of that Class will receive or retain under the Plan on account of
that Claim property of a value, as of the Effective Date, that is not less than
the value of that holder's interest in the Debtor's interest in the property
that secures that Claim;

(viii) Each Class of Claims or Interests has either accepted the Plan
or is not impaired under the Plan;

(ix) Except to the extent that the holder of a particular
Administrative Claim or Priority Claim has agreed to a different treatment of
its Claim, the Plan provides that Administrative Claims and Priority Claims
shall be paid in full on the Effective Date or the date on which it is Allowed;

(x) If a Class of Claims or Interests is impaired under the Plan,
at least one Class of Claims or Interests that is impaired under the Plan has
accepted the Plan, determined without including any acceptance of the Plan by
any insider holding a Claim or Interest of that Class; and

(xi) Confirmation of the Plan is not likely to be followed by the
liquidation or the need for further financial reorganization of the Debtors or
any successor to the Debtors under the Plan, unless such liquidation or
reorganization is proposed in the Plan.

The Debtors believe that the Plan satisfies all of the statutory
requirements of the Bankruptcy Code and that the Plan was proposed in good
faith. The Debtors believe they have complied or will have complied with all the
requirements of the Bankruptcy Code.

3. ACCEPTANCES NECESSARY TO CONFIRM THE PLAN

Voting on the Plan by each holder of a Claim or Interest is important.
Chapter 11 of the Bankruptcy Code does not require that each holder of a Claim
or Interest vote in favor of the Plan in order for the Court to confirm the
Plan. Generally, to be confirmed under the acceptance provisions of Section
1126(a) of the Bankruptcy Code, the Plan must be accepted by each Class of
Claims that is impaired under the Plan by Class members holding at least
two-thirds (2/3) in dollar amount and more than one-half (1/2) in number of the
Allowed Claims of such Class actually voting

DISCLOSURE STATEMENT UNDER 11 U.S.C. SS. 1125 IN SUPPORT OF THE
DEBTORS' JOINT PLAN OF REORGANIZATION DATED AUGUST 21, 2000

12
<PAGE>
in connection with the Plan; in connection with a Class of Interests, more than
two-thirds (2/3) of the shares actually voted must accept to bind that Class. In
the Plan, the Interests are deemed to have rejected the Plan. Even if all
Classes of Claims and Interests accept the Plan, the Bankruptcy Court may refuse
to Confirm the Plan.

4. CRAMDOWN

In the event that any impaired Class of Claims or Interests does not
accept the Plan, the Bankruptcy Court may still confirm the Plan at the request
of the Debtors if, as to each impaired Class that has not accepted the Plan, the
Plan "does not discriminate unfairly" and is "fair and equitable." A plan of
reorganization does not discriminate unfairly within the meaning of the
Bankruptcy Code if no class receives more than it is legally entitled to receive
for its claims or equity interests. "Fair and equitable" has different meanings
for holders of secured and unsecured claims and equity interests.

With respect to a secured claim, "fair and equitable" means either (i) the
impaired secured creditor retains its liens to the extent of its allowed claim
and receives deferred cash payments at least equal to the allowed amount of its
claims with a present value as of the effective date of the plan at least equal
to the value of such creditor's interest in the property securing its liens,
(ii) property subject to the lien of the impaired secured creditor is sold free
and clear of that lien, with that lien attaching to the proceeds of sale, and
such lien proceeds must be treated in accordance with clauses (i) and (iii)
hereof, or (iii) the impaired secured creditor realizes the "indubitable
equivalent" of its claim under the plan.

With respect to an unsecured claim, "fair and equitable" means either (i)
each impaired creditor receives or retains property of a value equal to the
amount of its allowed claim or (ii) the holders of claims and equity interests
that are junior to the claims of the dissenting class will not receive any
property under the plan.

With respect to equity interests, "fair and equitable" means either (i)
each impaired equity interest receives or retains, on account of that equity
interest, property of a value equal to the greater of the allowed amount of any
fixed liquidation preference to which the holder is entitled, any fixed
redemption price to which the holder is entitled, or the value of the equity
interest; or (ii) the holder of any equity interest that is junior to the equity
interest of that class will not receive or retain under the plan, on account of
that junior equity interest, any property.

In the event one or more Classes of impaired Claims or Interests rejects
or is deemed to have rejected the Plan, the Bankruptcy Court will determine at
the Confirmation Hearing whether the Plan is fair and equitable and does not
discriminate unfairly against any rejecting impaired Class of Claims or
Interests.

The Debtors believe that the Plan does not discriminate unfairly and is
fair and equitable with respect to each Class of Claims and Interests that is
impaired.

DISCLOSURE STATEMENT UNDER 11 U.S.C. SS. 1125 IN SUPPORT OF THE
DEBTORS' JOINT PLAN OF REORGANIZATION DATED AUGUST 21, 2000

13
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IV.

BACKGROUND OF THE DEBTORS

A. NATURE OF THE DEBTORS' BUSINESS

The Debtors have three main businesses. First, they are a leading provider
of scheduled air freight services in the U.S., transporting air freight on
scheduled routes. Second, the Debtors provide dedicated air lift in the U.S. for
its scheduled freight division and customers like the U.S. Postal Service
through ACMI contractual arrangements.(2) Third, the Debtors are a U.S. air
logistics services provider, arranging expedited air freight pick-up and
delivery using either their own aircraft and third- party ground delivery
services.

The Debtors' scheduled air freight service provides overnight delivery to
and from a number of U.S. cities using its own aircraft and three "wet leased"
aircraft. As of March 24, the Debtors owned 105 aircraft and held another 15
under operating leases. The aircraft range in size from the Boeing 747-200 to
Mitsubishi MU2s. At March 1, 2000, the Debtors employed approximately 2,290
full-time personnel, of which approximately 426 were involved in sales and
administrative functions and approximately 1,864 in maintenance and flight
operations, including approximately 727 pilots. The Debtors stopped operating
their wide body aircraft (747's and L-1011's) and their DC-8's before they
commenced their cases. While the wide body aircraft had been used primarily for
international operations, they also provided some airlift capacity for some
domestic operations as well. Suspending these operations reduced both the number
of aircraft operated by the Debtors as well as the number of employees.

B. OVERVIEW OF THE DEBTORS' CURRENT CORPORATE STRUCTURE

The following description identifies the primary business functions of
each of the Debtors. The Liquidation Analysis attached as Exhibit "B" reflects
the assets, liabilities and claims against each Debtor.

Kitty Hawk, Inc. is the parent company of each of the other Debtors who
are all wholly- owned subsidiaries. Kitty Hawk, Inc. provides executive
management, accounting, administrative and financial management for the other
Debtors.

Kitty Hawk Aircargo, Inc. is a Part 121 certificated air carrier operating
a fleet of 41 Boeing 727s and five Douglas DC-9s. Many of the 727s are used in
Kitty Hawk Cargo's scheduled freight operation, while the remainder are used to
service dedicated aircraft contracts for the U.S. Postal Service and BAX Global.

Kitty Hawk Cargo, Inc. operates scheduled overnight freight service
through Kitty Hawk's hub in Ft. Wayne, Indiana. Kitty Hawk Cargo services
approximately 50 U.S. cities through 22 airports and serves another 28 cities by
truck.

--------
(2) According to the unaudited records, the USPS accounted for 24.0% of
the Debtors' revenue.

DISCLOSURE STATEMENT UNDER 11 U.S.C. SS. 1125 IN SUPPORT OF THE
DEBTORS' JOINT PLAN OF REORGANIZATION DATED AUGUST 21, 2000

14
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Kitty Hawk Charters, Inc. is a Part 135 certificated air carrier operating
a fleet of 19 Lear jets, one Falcon 20C jet, 8 Beechcraft BE8Ts and two
Mitsubishi MU2. Charters serves as Kitty Hawk's same-day, on-demand air
logistics service provider.

Kitty Hawk International, Inc. is a Part 121 certificated air carrier
operating a fleet of seven Boeing 747s, six L-1011s and six DC-8s. Three 747s
and one L-1011 are used in Kitty Hawk Cargo's scheduled freight operations.(3)

Longhorn Solutions, Inc. programs and sells aircraft maintenance
scheduling software and maintains the information systems of all of the
operating subsidiaries

American International Travel, Inc. manages all of the travel arrangements
for the various operating subsidiaries.

OK Turbines, Inc. buys and sells parts for engines used on small jet
aircraft.

Aircraft Leasing, Inc. is a non-operating entity that owns and leases
twelve (12) 727s and five (5) DC-9s to Kitty Hawk Aircargo.

Flight One Logistics, Inc. is a dormant Michigan corporation.

C. CREDITOR CLAIMS AGAINST MULTIPLE DEBTORS

Two creditor groups, the Bank Group and the holders of the Senior Notes,
have claims against each of the Debtors. The Bank Group's claim is secured by
the inventory and receivables of each of the Debtors. Additionally, the Bank
Group has liens on a number of other assets of the Debtors, including twelve
727s. The Bank Group's claim is approximately $108 million. The Debtors believe
that the collateral securing the Bank Group's claim is worth more than the claim
and that the Bank Group is fully secured.

The Senior Notes are a direct obligation of Kitty Hawk, Inc. and are
guaranteed by each of the other Debtors. The Senior Note obligation exceeds $350
million. The Senior Notes are secured by the Noteholders' Wide Body Collateral
and the Noteholders' 727 Collateral (as defined in the Plan). However, the value
of the Noteholders' collateral is insufficient to satisfy the Noteholders'
claim. The Debtors and the Noteholders acknowledge that the Noteholders will
have a significant unsecured claim ranging from $180 million to $225 million or
more. Pursuant to the settlement with the Noteholders incorporated in the Plan
and described in Section IV, D 2(b) of the Disclosure Statement, the Noteholders
have agreed that 15% of the New Common Stock will be distributed to the holders
of other unsecured claims regardless of the Noteholders' deficiency claim.

D. EXISTING AND POTENTIAL LITIGATION

1. CLAIMS AGAINST THE DEBTORS.
--------
(3) On April 30, 2000, immediately prior to the Petition Date, Kitty Hawk
suspended flight operations of Kitty Hawk International.

DISCLOSURE STATEMENT UNDER 11 U.S.C. SS. 1125 IN SUPPORT OF THE
DEBTORS' JOINT PLAN OF REORGANIZATION DATED AUGUST 21, 2000

15
<PAGE>
A. SECURITIES LITIGATION AGAINST THE DEBTORS OR THEIR OFFICERS AND
DIRECTORS. During April through July 2000, four purported class action lawsuits
were filed against Kitty Hawk, Inc. and/or certain of its officers and directors
in the United States District Court for the Northern District of Texas, Dallas
Division: (i) TODD HOLLEY V. KITTY HAWK, INC., M. TOM CHRISTOPHER AND RICHARD
WADSWORTH, No. 3:00-CV-0828-P; (ii) RUSSELL SCHWEGMAN V. M. TOM CHRISTOPHER,
CONRAD A. KALITTA, RICHARD R.WADSWORTH, JR. AND KITTY HAWK, INC., No.
3:00-CV-0867-P; (iii) DALE CRANDALL V. M. TOM CHRISTOPHER, CONRAD A. KALITTA,
AND RICHARD R. WADSWORTH, JR., No. 3:00-CV-1102- T; and (iv) CHARLES LANDAN AND
TRANS AMERICAN AIRLINES, INC. V. M. TOM CHRISTOPHER AND RICHARD R. WADSWORTH,
JR., No. 3:00-CV-1623-P. Each of the complaints alleges that the defendants
violated the United States securities laws by publicly issuing materially false
and misleading statements and omitting disclosure of material adverse
information regarding Kitty Hawk's business during the period from April 22,
1999 through April 11, 2000. Among other things, the complaints allege that the
defendants materially overstated Kitty Hawk's earnings and financial condition
by refusing to disclose that Kitty Hawk had deferred required maintenance and
repairs on its aircraft and engines, and by refusing to timely write down the
value of Kitty Hawk's obsolete aircraft that were beyond repair. Each of the
complaints alleges that as a result of such alleged improper actions, the market
price of Kitty Hawk's securities was artificially inflated at the time that the
stockholders in the classes acquired those securities. The complaints seek
monetary damages for the losses allegedly incurred by the members of the classes
on whose behalf these actions are brought and equitable or injunctive relief as
permitted by law. In May 2000, the court entered orders in the actions that had
named Kitty Hawk as a defendant staying all claims against Kitty Hawk due to its
filing for protection under Chapter 11 of the United States Bankruptcy Code. The
actions were not stayed as to the individual defendants. In July 2000, the
actions were consolidated into a single action. The court has entered an agreed
scheduling order that requires a consolidated amended complaint to be filed
after the court appoints a lead plaintiff. The individual defendants are not
required to file a response until after the consolidated amended complaint is
filed.

The Claims against Kitty Hawk, Inc. asserted in these lawsuits are treated
as Class 9 Claims.

B. OTHER CLAIMS AGAINST THE DEBTORS. The Debtors and their
subsidiaries are potential and/or named defendants in several other lawsuits,
claims and administrative proceedings arising in the ordinary course of
business, most of which have been automatically stayed pursuant to section
362(a) of the Bankruptcy Code. While the outcome of such claims, lawsuits or
other proceedings against Kitty Hawk cannot be predicted with certainty, the
Debtors expect that such liability, to the extent not provided for through
insurance or otherwise, will not have a material adverse effect on the financial
condition of Kitty Hawk or on distributions to be made under the Plan.

2. CLAIMS HELD BY THE DEBTORS.

A. PREFERENCE CLAIMS. During the ninety (90) days prior to the
Petition Date, the Debtors made numerous payments and other transfers to
creditors on account of antecedent debts. In addition, during the one-year
period prior to the filing date, the Debtors made certain transfers to, or for
the benefit of, certain "insider" creditors. While most of those payments were
made in the ordinary course of the Debtors' business; some of those payments may
be subject to avoidance and recovery by the Debtors' estates as preferential
and/or fraudulent transfers pursuant

DISCLOSURE STATEMENT UNDER 11 U.S.C. SS. 1125 IN SUPPORT OF THE
DEBTORS' JOINT PLAN OF REORGANIZATION DATED AUGUST 21, 2000

16
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to sections 544, 547, 548 and 550 of the Bankruptcy Code. Specifically, the
Debtors have identified payments to various creditors totaling millions of
dollars that merit investigation to determine whether some or all of those
payments are subject to avoidance and recovery by the Debtors. In determining
whether to pursue legal remedies for the avoidance and recovery of any
transfers, the likelihood of successful recovery must be weighed against the
legal fees and other expenses that would likely be incurred by the Debtors.
Inasmuch as the Debtors' investigation of such payments is in its initial phase,
the Debtors are unable to provide any meaningful estimate of the total amount
that could be recovered.

ANY CREDITOR THAT RECEIVED A PRE-PETITION(4) payment from the
Debtors after January 30, 2000 or, in the case of insiders, May 1, 1999, is
hereby notified that the Reorganized Debtor may sue it to recover those payments
if they constitute preferences under section 547 of the Bankruptcy Code.

B. POTENTIAL AVOIDANCE CLAIMS AGAINST THE NOTEHOLDERS (being settled
by Plan). The Plan proposes a settlement of various claims regarding the amount
and the enforceability of the subsidiary guarantees of the Senior Notes.
Subsidiary guarantees of a parent corporation's debt, such as the Kitty Hawk
subsidiaries' guarantees of the Senior Notes, may raise the issue of whether the
guaranties are fraudulent transfers under the Bankruptcy Code or applicable non-
bankruptcy law. To demonstrate that the guaranties are avoidable, the Debtors
must show that (a) each of the subsidiaries received less than reasonably
equivalent value in exchange for the guaranty obligation, and (b) the obligation
rendered the subsidiaries insolvent or left them with unreasonably small
capital. The analysis is done as of the time the obligation was incurred, here,
November 1997. In this case, the guarantees also include language that limits
the amount of debt guaranteed to an amount just less than the amount that would
make the guarantee avoidable as a fraudulent transfer. The guarantees also
include provisions specifically recognizing the rights of contribution among
guarantors. As a result of the rights of contribution, so long as the Debtors,
on a consolidated basis, were not rendered insolvent or left with unreasonably
small capital by the Senior Note obligations, no single Debtor should have been
rendered insolvent by becoming obligated on the Senior Notes guaranty since each
Debtor would have the right to recover from each of the other Debtors the
amounts, or a portion of the amounts, it had paid on the Senior Notes in excess
of its share.

The Debtors reviewed the potential claims to avoid the guarantees
and to limit the amount of debt guaranteed by each subsidiary. They also
reviewed potential evidence that would be relevant to the assessment of the
guarantees' enforceability and amount. Based on their review of these issues,
the Debtors proposed a settlement of those claims whereby general unsecured
creditors would recover more for their claims than those creditors would receive
if the guarantees were enforced according to their terms. The settlement also,
necessarily, provides less value to the Noteholders' deficiency claims than if
the guarantees were fully enforced.

Settling these disputes in the Plan is in the best interest of the
Debtors and their creditors for a number of reasons.

--------
(4) Payments after the May 1, 2000 Petition Date are not subject to
recovery as preferences.

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1. The risk that the Debtors will not succeed on the merits of any
fraudulent transfer claim combined with the cost and likely duration of any such
litigation supports settlement of the potential claims. Based on the appraised
value of the assets involved in the 1997 transactions, the value of the assets
acquired in the Senior Note transaction exceed by more than $100 million the
amount of the Senior Note liability incurred. The audited consolidated financial
statements for December 31,1997, reflect assets of $834 million and liabilities
of $655 million. Under that scenario, it is doubtful that the subsidiary
guarantees would be fraudulent transfers since the guaranteed liabilities would
never exceed the value of the companies' assets after taking into account the
contribution rights among the parties. In short, there would always have been
enough assets to pay all of the liabilities with a margin of error of $179
million (being 21.5% of the total assets).

2. Most importantly, however, the settlement in the plan provides general
unsecured with a greater recovery sooner than they would receive from the likely
outcome of such litigation. The Debtors' analysis of the scheduled assets and
liabilities of the subsidiaries indicates that the settlement will provide each
subsidiary's creditors with a significantly higher distribution percentage under
the Plan than they would receive if the Debtors pursued the litigation and were
unsuccessful. The settlement provides the anticipated benefit of litigation,
greater recoveries for unsecured creditors, without the costs and delays of
litigation. The settlement provides creditors with the right to receive
distributions of New Common Stock with a value equal to approximately 30% of the
creditor's claim. In contrast, without the settlement, the most that any
creditor of a subsidiary would receive would be approximately 12% of its claim
and creditors of many of the subsidiaries would receive substantially less.

3. The settlement eliminates litigation delay and expense. A fraudulent
transfer adversary proceeding would consume a significant amount of time and
expense. It is unlikely that a trial would occur within six months. Any
significant distribution to unsecured creditors would be delayed since a reserve
would have to be created for the total alleged amount of the Noteholders'
Claims. The value of the major assets of each subsidiary would be in issue, and
the Estates would likely incur significant expenses for forensic appraisals and
the depositions of the experts preparing those appraisals. If there were
material misrepresentations in 1997 regarding the assets, the possible causes of
action for those misrepresentations would be disputed and would require even
more expenditures.

4. Delaying confirmation to allow the litigation to proceed would increase
the bankruptcy burdens on the Debtors immeasurably. The Debtors would still face
all of the administrative and reporting burdens of debtors in possession.
Expenditures for bankruptcy professionals would continue (at a rate of
approximately $1 million per month). The "soft costs" of bankruptcy would also
continue and increase as the "light at the end of the tunnel" moved further
away: declining employee morale, increasingly lower employee productivity,
increasing questions by customers regarding Kitty Hawk's ability to survive.

5. Settlement also allows Kitty Hawk's management and employees to focus
their time, efforts and energies towards Kitty Hawk's future operations instead
of being required to devote material amounts of time and energy to events that
occurred years before.

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C. LITIGATION WITH INTERNATIONAL BROTHERHOOD OF TEAMSTERS ("IBT").
The IBT filed an adversary proceeding against International alleging substantial
claims based on International abruptly suspending its flight operations. The
suit alleges that, although the suspension occurred before the Petition Date,
claims under the Collective Bargaining Agreement ("CBA") and under the WARN Act
are effectively treated as super-priority administrative claims - claims ahead
of all other claims in the case.

The IBT alleges that International owes its flight crews and their
union over $9 million under a number of theories. The primary theory is that the
amounts owed under the CBA for unpaid salaries and benefits must be paid without
regard to their priority if the CBA has not been rejected. If the IBT prevails,
the recovery by the IBT would effectively eliminate all of the equity in the
International's bankruptcy estate leaving little or no available cash to pay
other claims. International vigorously disputes the IBT's position on the
priority of its claims.

D. LITIGATION WITH CONRAD KALITTA. In late May, 2000, Kitty Hawk
commenced an arbitration proceeding against Conrad Kalitta based on the 1997
merger of the Kalitta Companies and Kitty Hawk entities. Most of the allegations
in the arbitration focus on the condition of the wide body assets and whether
the substantially larger maintenance costs and reduced reliability caused
significant harm to Kitty Hawk. The arbitration demand alleges that either the
operating expenses were too large because the status of the engines was
misrepresented or there was an undisclosed material adverse event that harmed
the engines. Trial of the arbitration proceeding has been postponed until Spring
2001.

E. MISCELLANEOUS LITIGATION. The Debtors and their subsidiaries may
be potential and/or named plaintiffs in several other lawsuits, claims and
administrative proceedings arising in the ordinary course of business. While the
outcome of such proceedings cannot be predicted with certainty, the Debtors
expect that the potential recovery, as well as the costs of pursuing such
claims, will not have a material effect on the financial condition of the
Debtors or the distributions to be made under the Plan.

EVENTS LEADING TO BANKRUPTCY

A. EVENTS LEADING TO CHAPTER 11 BANKRUPTCY FILING

In 1997, Kitty Hawk expanded its level of operations and geographic scope
through the acquisition and merger of the Kalitta Companies, an entity engaged
in air transportation and aviation- related activities. The acquisition was
financed by Kitty Hawk through a public debt offering in the amount of $340
million dollars (the "Senior Notes"). After acquiring the Kalitta Companies,
Kitty Hawk commenced integration of the various entities into three units, which
at the time of it bankruptcy filing, included:

o Kitty Hawk International ("International"); a FAR Part 121 certificated
air carrier, which operated scheduled freight from the U.S. to various
countries in the Pacific Rim using a fleet

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of wide body Boeing 747 freighter aircraft ("B747F"), Lockheed L-1011
freighter aircraft ("L-1011F") and a fleet of long-range McDonnell Douglas
DC-8 freighter aircraft ("DC-8F"). Additionally, International operated
certain wide body aircraft in support of Kitty Hawk's scheduled overnight
airfreight operations located in Fort Wayne, Indiana.

o Kitty Hawk Aircargo, Inc. ("Aircargo"); a FAR Part 121 certificated air
carrier engaged primarily in the air transport of domestic freight using a
fleet of narrow-body aircraft ("B727- 200F") and to a lesser extent
McDonnell-Douglas DC-9 ("DC-9-15F") air freighters. Aircargo's operations
were substantially in support of Kitty Hawk's scheduled overnight air
freight hub located in Fort Wayne, Indiana.

o Kitty Hawk Charters, Inc. ("Charters"); a FAR Part 135 certificated air
carrier engaged primarily in the on-demand charter aircraft freight and
passenger market using a fleet of small jet and turbo-prop aircraft.

o OK Turbines, Inc. ("OK Turbines"); a small turbine engine repair and
parts-sales/support operation located in Hollister, CA, which supports
Charters and other similarly situated small airlines.

After acquiring the Kalitta Companies, Kitty Hawk proceeded to integrate
the operations of the Kalitta Companies with those of Kitty Hawk's. However, in
late 1999 and continuing into the first quarter of 2000, Kitty Hawk's financial
performance began to deteriorate due to: (i) the unscheduled grounding of
several wide body aircraft as a result of maintenance scheduling problems,
including premature engine failures, (ii) the unscheduled grounding of aircraft
(primarily operated by International) for repair of damage caused by various
minor unrelated accidents, (iii) higher than expected maintenance costs, on the
wide body fleet during the first quarter of 2000, (iv) the higher than expected
fuel expenses for Kitty Hawk's scheduled overnight airfreight operations, and
(v) general softness in customer demand. Kitty Hawk, as a result, experienced a
substantial decrease in projected revenues, an increase in expenses and
correspondingly, a substantial decrease in cash.

The bulk of Kitty Hawk's deteriorating operating and financial condition
emanated from International. Before and after acquiring the Kalitta companies,
International sustained significant losses due primarily to substantial capital
expenditures required to operate and maintain an aging fleet (including engines)
of B747Fs, L-1011Fs and DC-8Fs and poor overall revenue and operating
performance.

Covenants contained in the Senior Notes mandate compliance with certain
maintenance provisions for the aircraft collateralizing this debt. In April
2000, Kitty Hawk projected a cash requirement in excess of $30 million to comply
with these maintenance provisions. In an effort to improve its liquidity and
comply with the terms of the Senior Notes, Kitty Hawk unsuccessfully pursued
various asset sales, including sale-leaseback financing on its fleet of owned
B727-200F aircraft.

On April 11, 2000, Kitty Hawk publicly disclosed that as a consequence of
the aforementioned events it did not have sufficient cash to pay the $16.9
million semi-annual interest

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installment on its Senior Secured Notes due May 15, 2000. As a result of this
disclosure, general trade creditors, fuel suppliers, and other vendors
eliminated payment terms, demanded immediate payment on all outstanding
balances, and required pre-payment, deposits, or COD on all future purchases,
causing further deterioration of Kitty Hawk's cash position.

By late April 2000, Kitty Hawk had ceased payments on several of its
aircraft leases causing a default on virtually all its lease and loan
agreements. Kitty Hawk believed that various creditor actions were imminent,
including the seizure of aircraft and other operating assets as well as an
involuntary bankruptcy filing.

On April 30, 2000, Kitty Hawk suspended all flight operations of
International, resulting in the grounding of all of the B747F, L-1011F and DC-8F
aircraft and the termination of substantially all of International's employees
(including all of the flight personnel represented by the International
Brotherhood of Teamsters Union).

VI.

PROGRESS DURING BANKRUPTCY AND SIGNIFICANT EVENTS

After filing for Chapter 11 protection, Kitty Hawk focused its operations around
the core business lines and on the operation of a single aircraft type, the
B727-200F. In addition, Kitty Hawk commenced an aggressive program to streamline
maintenance, planning, administration and flight operations functions.

A. FORT WAYNE HUB IMPROVEMENTS

The operational results for the scheduled overnight freight operation have
improved significantly since the shutdown of International. Even though the
cessation of service by International reduced Fort Wayne's capacity by about
200,000 pounds per night, the resulting decrease in traffic is approximately
100,000 pounds per night, thereby improving load fact and decreasing cost per
pound.

B. FINANCIAL PERFORMANCE

The financial results achieved by Kitty Hawk have been significantly
improved from those pre- petition. In May 2000, on a fully accrued basis
(including various fees and costs related to the Chapter 11 filing), Kitty Hawk
earned over $1.0 million. In June 2000, the results were essentially breakeven
on a fully accrued basis. Kitty Hawk believes these results are significant
since they demonstrate a financial improvement as a result of the suspension of
operations at International and the ability of Kitty Hawk to concentrate on its
three primary business lines.

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C. REVENUE PERFORMANCE IMPROVEMENT

During June 2000, Kitty Hawk implemented an across-the-board 6 percent
price increase to the scheduled hub operation and further improved its yields by
increasing the premium rate for its higher yielding "EXPRESS" product and by
increasing the surcharge rate on oversized freight.

During June 2000, Kitty Hawk implemented price increases for two of its
single-route contracts with the USPS resulting in approximately 10 percent
improvement in revenues for these contracts. The contracts were renewed through
October 2000. The third single-route contract, which renews in October 2000, is
expected to yield similar increased results for Kitty Hawk.

During May and June 2000, Kitty Hawk restructured its contract with BAX
Global (which was unprofitable prior to the restructure) improving its revenue
performance by increasing rates under the ACMI contracts in excess of 10
percent. Restructuring the BAX Global contract also reduced the number of
dedicated aircraft from 13 to 7. The contract was extended to December 31, 2001.

D. ADMINISTRATIVE CONSOLIDATION

In connection with the suspension of International's flight operations and
the Chapter 11 filing, Kitty Hawk commenced a comprehensive review of its
various administrative departments for efficiency improvements. Kitty Hawk
consolidated all general and administrative personnel to its corporate
headquarters in Dallas, Texas, thus eliminating duplicative functions in
Ypsilanti, Michigan and Fort Wayne, Indiana. This process is ongoing with
continued improvements expected going forward.

E. ASSET SALES

Kitty Hawk has embarked on a series of asset sales designed to streamline
its operation, eliminate surplus and/or non-strategic assets, and provide the
requisite funding to expeditiously exit the Chapter 11 process as follows:

o Kitty Hawk has obtained court approval to sell its authority related to a
supplemental type certificate issued by the FAA for certain cargo
conversion modifications on B727-200F aircraft. The sale of the
supplemental type certificate is for $3.0 million with Kitty Hawk having
received a non-refundable deposit of $150,000. The remainder of the sale
is expected to close in August 2000.

o Kitty Hawk has reached a preliminary agreement to sell a hangar owned by
International and substantially all of Charters and OK Turbines for $22.4
million. The buyer must meet certain conditions in advance of the expected
closing in October 2000.

o Kitty Hawk has reached a preliminary agreement to sell its leasehold
interests (including the building improvements) in a long-term lease at
Honolulu International Airport. The buyer of the leasehold is a prominent
cargo airline with an agreed price is $4.45 million. The transaction is
subject to various approvals including the State of Hawaii.

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o Kitty Hawk has obtained court approval to sell the Part 121 Operating
Certificate of International for $200,000. In addition, the agreement
provides that the buyer of the certificate will assume a restructured
contract for pilots with the International Brotherhood of Teamsters Union.
The transaction is subject to certain other conditions including a non-
compete agreement by the buyer and is expected to close in August 2000.

o Kitty Hawk has reached a preliminary agreement to sell two of its surplus
DC-9-15F aircraft for $5.9 million. The transaction is expected to close
in September 2000.

o Kitty Hawk has scheduled a series of four auctions in August and September
2000 with an internationally prominent aviation auction firm for the
liquidation of its surplus aircraft/engine spare parts, ground equipment
and other inventory primarily related to the B747F, L-1011F and DC-8F
fleet types.

o Kitty Hawk is actively pursuing transactions to sell other surplus assets
including: (i) twelve Stage II compliant DC-8F aircraft, (ii) two
additional surplus DC-9-15F, and (iii) certain fee-simple real estate
located near the airport in Ypsilanti, Michigan.

F. SIGNIFICANT ORDERS ENTERED DURING THE CASE

During these bankruptcy cases, a number of significant Orders were issued
by the Court. The most significant Orders are discussed below:

o May 2, 2000 - ORDER GRANTING JOINT ADMINISTRATION. This Order consolidated
the ten cases for administrative purposes but did not substantively
consolidate the debtors into one case with only one bankruptcy estate.

o May 3 and June 16, 2000 - CASH COLLATERAL ORDERS. These Orders allow the
debtors to use the cash collateral of the Bank Group while reorganizing
their affairs. The Orders provide, among other things, that asset sales
proceeds from the Bank Group's pre-petition collateral are to be paid to
the Bank Group. The Orders also preserve the adequate protection rights
and remedies of the Noteholders.

o May 4, 2000, May 5, 2000 and August 11, 2000 - ORDER AUTHORIZING DEBTORS
TO PAY PRE-PETITION SALARIES AND EMPLOYEE BENEFITS. The first two Orders
allow the debtors to pay the pre-petition employee claims for all
employees that were employed post-petition. The last Order authorized
Kitty Hawk International to pay the pre-petition wage and benefit claims
for its employees -- provided that the amount paid to any employee did not
exceed the $4,300 priority claim limit under the Bankruptcy Code.

o June 16, 2000 - AGREED ORDER ON DEBTORS' MOTION TO ABANDON CERTAIN
AIRCRAFT AND ENGINES OF KITTY HAWK INTERNATIONAL. This Order dealt with
the "wide body" aircraft

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securing the Senior Notes. The Order effectively transferred the
responsibility and liability for those aircraft to the Noteholders.

o June 23, 2000 - ORDER APPROVING MOTION TO SELL SUPPLEMENTAL TYPE
CERTIFICATES. This Order allowed the sale of two Supplemental Type
Certificates and associated inventory for $3 million.

o July 7, 2000 - ORDER GRANTING MOTION TO EMPLOY AUCTIONEER AND SELL SURPLUS
ASSETS. This Order allowed the Debtors to assemble a substantial amount of
surplus property to be auctioned by Starman Brothers. The assets became
unnecessary surplus when the Debtors downsized their operations.

o August 4, 2000 - ORDER GRANTING MOTION TO APPROVE SALE OF AIR CARRIER
CERTIFICATES AND MISCELLANEOUS ASSETS - This Order allowed Conrad Kalitta
to purchase the FAA and DOT certificates of Kitty Hawk International for
$200,000.

o August 11, 2000 - ORDER GRANTING MOTION TO MODIFY AND ASSIGN COLLECTIVE
BARGAINING AGREEMENT. This Order provided for a modified Collective
Bargaining Agreement to be assigned to Mr. Kalitta to govern the
prospective labor relations between the startup airline he contemplates
and the International Brotherhood of Teamsters. Financially, neither the
Order nor the modifications affect the Kitty Hawk International Estate or
claims against the Estate.

o August 3, 2000 - ORDER GRANTING MOTION TO ASSUME LEASE WITH FORT WAYNE
AIRPORT AUTHORITY. This Order allowed Kitty Hawk to assume the favorable
leases on the hub of its scheduled overnight freight business.

o August 3, 2000 - ORDER ON EMERGENCY MOTION TO REQUIRE THE CALLING OF AN
ANNUAL SHAREHOLDERS' MEETING AND ORAL MOTION TO MODIFY EXCLUSIVITY. This
Order set the annual meeting of the shareholders of Kitty Hawk for October
31, 2000, the date requested by the Debtors in response to the request by
M. Tom Christopher that the meeting be held earlier. The later meeting
date gives the Debtor time to obtain audited financial statements for 1999
and to solicit proxies in connection with the annual meeting. The Order
also terminated the Debtors' exclusive period for filing a plan as to Tom
Christopher so that he may file a plan of reorganization for Kitty Hawk at
any time.

o , 2000 - ORDER AUTHORIZING DEBTORS' PAYMENTS AND PERFORMANCE OF
OBLIGATIONS UNDER AIRCRAFT EQUIPMENT CONTRACTS PURSUANT TO 11 U.S.C.
SS.1110. The Order authorized certain payments previously made by the
Debtors to its aircraft lessors and creditors with purchase money security
interests in aircraft and further authorized the Debtors continued
performance of its obligations to these parties. If the Debtors had not
obtained this relief, they would be subject to having certain aircraft
repossessed.

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G. APPOINTMENT OF CREDITORS' COMMITTEE

The Official Committee of Unsecured Creditors was appointed by the United
States Trustee on May 11, 2000. The Creditors' Committee is composed of the
following creditors:

Mercury Air Group, Inc. Cherry-Air
5456 McConnell Avenue 4584 Claire Chennault
Los Angeles, CA 90066 Addison, TX 75001
[Creditor of International] [Creditor of Charters]

Heico Corporation Chevron Corporation
825 Brickell Bay Dr. 2005 Diamond Blvd., Room 2182B
Suite 1644 Concord, CA 94520-5739
Miami, FL 33131 [Creditor of International]
[Creditor of International]
Avfuel Corporation
Zantop International Airlines, Inc. P. O. Box 1387
840 Willow Run Airport Ann Arbor, MI 48106-1387
Ypsilanti, MI 48198-0840 [Creditor of Aircargo]
[Creditor of Charters]

BF Goodrich Aerospace Component & Repair
5250 NW 33rd Avenue
Ft. Lauderdale, FL 33309
[Creditor of Aircargo and International]

H. PROFESSIONALS' BEING PAID BY THE ESTATES AND FEES TO DATE

1. PROFESSIONALS EMPLOYED BY THE DEBTORS

The Debtors have employed the following professionals:

Haynes and Boone, LLP General Counsel
Dickinson Wright, PLLC Special Litigation Counsel
Silverberg, Goldman and Bokoff, LLP Special Regulatory Counsel
Ford & Harrison, LLP Special Labor Relations Counsel
Seabury Advisors, LLC Financial Advisors
Grant Thorton Accountants (audit)
Lain, Faulkner & Co. Accountants

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2. PROFESSIONALS EMPLOYED BY THE CREDITORS' COMMITTEE

Forshey & Prostok, L.L.P. General Counsel
Schafer and Weiner, PC Co-Counsel
Jay Alix and Associates Financial Advisors

3. FEES TO DATE

Through July 31, 2000, the Debtors incurred $__________ in fees and
expenses to the professionals identified above. Of that amount, $__________ has
been paid.

VII.

DESCRIPTION OF THE PLAN

A. INTRODUCTION

A summary of the principal provisions of the Plan and the treatment of
Allowed Claims and Interests is set out below. The summary is qualified in its
entirety by the Plan.

The Plan provides for the merger of the Debtors into a single Delaware
corporation ("Reorganized Kitty Hawk" or the "Reorganized Debtor") which will be
called Kitty Hawk Aircargo and for the continuation of the Debtors' core
business. The majority of the Debtors' existing secured debt, as well as
Administrative and Priority Claims, will be paid from cash on hand, asset sales
and the proceeds of a new financing agreement. As part of a settlement with the
holders of the Senior Notes, the claims against the Debtors will be consolidated
for distribution purposes. The Noteholders will receive 85% of the issued and
outstanding shares of stock in Reorganized Kitty Hawk. The other unsecured
creditors will be treated in one of the following three ways. First, if an
Allowed Unsecured Claim is $500 or less, or if the holder of the Claim elects to
reduce it to $500, the Claim will be paid in full in cash. Second, holders of
Allowed Unsecured Claims that are not Noteholder Claims, may receive their pro
rata share of 15% of the issued and outstanding stock of Reorganized Kitty Hawk.
KITTY HAWK'S PROJECTIONS AND VALUE ESTIMATES INDICATE THAT 15% OF REORGANIZED
KITTY HAWK SHOULD BE WORTH APPROXIMATELY $22 MILLION (OR 1/3 OF THE GENERAL
UNSECURED CLAIMS). Third, holders of Allowed Unsecured Claims that are not
noteholder claims may elect to receive a discounted amount of cash in lieu of
stock conditioned upon the Reorganized Debtor's ability to raise cash through a
rights offering. The Plan gives the old shareholders of Kitty Hawk the right to
buy up to 10% of the stock in Reorganized Kitty Hawk through a rights offering
in which they will pay the estimated value of the stock on the Effective Date
for the shares they purchase.

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B. DESIGNATION OF CLAIMS AND INTERESTS

The following is a designation of the classes of Claims and Interests
under this Plan. In accordance with section 1123(a)(1) of the Bankruptcy Code,
Administrative Claims and Tax Claims described in Article 3 of this Plan have
not been classified and are excluded from the following classes. A Claim or
Interest is classified in a particular class only to the extent that the Claim
or Interest qualifies within the description of that class, and is classified in
another class or classes to the extent that any remainder of the Claim or
Interest qualifies within the description of such other class or classes. A
Claim or Interest is classified in a particular class only to the extent that
the Claim or Interest is an Allowed Claim or Allowed Interest in that class and
has not been paid, released or otherwise satisfied before the Effective Date; a
Claim or Interest which is not an Allowed Claim or Interest is not in any Class.
Notwithstanding anything to the contrary contained in this Plan, no distribution
shall be made on account of any Claim or Interest which is not an Allowed Claim
or Allowed Interest. The Plan consolidates distributions to creditors of each of
the Debtors as part of a settlement. Classes are considered separately among the
Debtors for voting purposes and jointly among the Debtors for distribution
purposes. The treatment provided for each Class shall be the same for each of
the Debtors as if Claims against each Debtor had been separately classified.

CLASS STATUS

1. SECURED CLAIMS

Class 1: Bank Claims Impaired - entitled to vote

Class 2: Noteholders' Secured Claims Impaired - entitled to vote

Class 3: Secured Claims Other Than Bank Impaired - entitled to vote
Claims and Claims of the
Noteholders

2. UNSECURED CLAIMS

Class 4: Priority Claims Impaired - entitled to vote

Class 5: Convenience Claims Impaired - entitled to vote

Class 6: Unsecured Noteholder Claims Impaired - entitled to vote

Class 7: Other Unsecured Claims Impaired - entitled to vote

3. INTERESTS

Class 8: Old Common Stock Impaired - entitled to vote

Class 9: Securities Claims Impaired - deemed to have
rejected

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C. TREATMENT OF CLAIMS AND INTERESTS

1. ADMINISTRATIVE CLAIMS.

A. GENERAL. Subject to the bar date provisions herein, unless
otherwise agreed to by the parties, each holder of an Allowed Administrative
Claim shall receive Cash equal to the unpaid portion of such Allowed
Administrative Claim on the later of (a) the Effective Date or as soon as
practicable thereafter, (b) the Allowance Date, and (c) such other date as is
mutually agreed upon by the Debtors and the holder of such Claim; PROVIDED,
HOWEVER, that Administrative Claims that represent liabilities incurred by the
Debtors in the ordinary course of their business during the Reorganization Cases
shall be paid by Reorganized Kitty Hawk in the ordinary course of business and
in accordance with any terms and conditions of any agreements relating thereto.
Payments on Administrative Claims shall be made by the Reorganized Debtor.

B. PAYMENT OF STATUTORY FEES. All fees payable pursuant to 28
U.S.C.ss.1930 shall be paid in Cash equal to the amount of such Administrative
Claim when due.

C. BAR DATE FOR ADMINISTRATIVE CLAIMS.

(1) GENERAL PROVISIONS. Except as provided below in Sections
3.1(c)(iii), 3.1(c)(iv) and 3.1(c)(v), requests for payment of Administrative
Claims must be Filed no later than forty-five (45) days after the Effective
Date. Holders of Administrative Claims (including, without limitation,
professionals requesting compensation or reimbursement of expenses and the
holders of any Claims for federal, state or local taxes) that are required to
File a request for payment of such Claims and that do not File such requests by
the applicable bar date shall be forever barred from asserting such Claims
against the Debtors, any of their affiliates or any of their respective
property.

(2) PROFESSIONALS. All professionals or other entities
requesting compensation or reimbursement of expenses pursuant to sections 327,
328, 330, 331, 503(b) and 1103 of the Bankruptcy Code for services rendered
before the Effective Date (including, without limitation, any compensation
requested by any professional or any other entity for making a substantial
contribution in the Reorganization Case) shall File and serve on Reorganized
Kitty Hawk and the Creditors' Committee an application for final allowance of
compensation and reimbursement of expenses no later than forty-five (45) days
after the Effective Date. Objections to applications of professionals for
compensation or reimbursement of expenses must be Filed and served on Debtors
and the professionals to whose application the objections are addressed no later
than seventy (70) days after the Effective Date. Any professional fees and
reimbursements or expenses incurred by the Reorganized Debtor subsequent to the
Effective Date may be paid without application to the Bankruptcy Court.

(3) ORDINARY COURSE LIABILITIES. Holders of Administrative
Claims based on liabilities incurred in the ordinary course of the Debtors'
business (other than Claims of governmental units for taxes or Claims and/or
penalties related to such taxes) shall not be required to File any request for
payment of such Claims. Such liabilities shall be paid by the Reorganized Debtor
as soon as practicable after the Effective Date.

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(4) CONTRACTUAL EMPLOYEE CLAIMS. Holders of Claims under
employment contracts approved by the Court shall not be required to File any
request for payment of such Claims and such Claims shall be paid in full on the
Effective Date.

(5) TAX CLAIMS. All requests for payment of Administrative
Claims and other Claims by a governmental unit for taxes (and for interest
and/or penalties related to such taxes) for any tax year or period, all or any
portion of which occurs or falls within the period from and including the
Petition Date through and including the Effective Date ("Post-Petition Tax
Claims") and for which no bar date has otherwise been previously established,
must be Filed on or before the later of (i) 45 days following the Effective
Date; and (ii) 90 days following the filing with the applicable governmental
unit of the tax return for such taxes for such tax year or period. Any holder of
any Post-Petition Tax Claim that is required to File a request for payment of
such taxes and does not File such a Claim by the applicable bar date shall be
forever barred from asserting any such Post-Petition Tax Claim against any of
the Debtors, Kitty Hawk, or their respective property, whether any such
Post-Petition Tax Claim is deemed to arise prior to, on, or subsequent to the
Effective Date. To the extent that the holder of a Tax Claim holds a lien to
secure its Claim under applicable state law, the holder of such Claim shall
retain its lien until its Allowed Claim has been paid in full.

2. TREATMENT OF PRE-PETITION PRIORITY TAX CLAIMS. Each holder of an
Allowed Pre- Petition Tax Claim shall be paid by the Reorganized Debtor,
pursuant to the provisions of Section 1129(a)(4)(c) of the Bankruptcy Code, in
equal quarterly installments commencing on the first day of the first full month
following the Effective Date (or the Allowance Date, if later) with the final
payment of the remaining unpaid balance to be made on the sixth anniversary of
the assessment of the tax, together with interest thereon at % per annum from
and after the Effective Date until the date of final payment. The Reorganized
Debtor may prepay any Priority Tax Claim without penalty or premium, or may pay
any Allowed Priority Tax Claim on such terms as the holder of the Allowed Claim
and the Debtors may agree. To the extent that the holder of a Priority Tax Claim
holds a lien to secure its Claim under applicable state law, the lien shall
remain in full force and effect until the Priority Tax Claim is paid in full.
Failure by the Reorganized Debtor to timely make a payment on an Allowed Tax
Claim pursuant to the terms of this Plan shall be an event of default. If the
Reorganized Debtor fails to cure a default within twenty (20) days after service
of written notice of default from the holder of the Allowed Tax Claim, then the
holder of such Allowed Tax Claim may enforce the total amount of its Claim, plus
interest as provided in this Plan, against the Reorganized Debtor in accordance
with applicable state or federal laws.

D. CLASSIFICATION AND TREATMENT OF CLASSIFIED CLAIMS AND INTERESTS

1. CLASS 1 - BANK CLAIMS.

a. CLASSIFICATION: Class 1 consists of all Allowed Secured Bank
Claims.

b. TREATMENT: Class 1 is impaired and the holder of the Class 1
Claim will be entitled to vote on the Plan. The Allowed Secured Bank Claims
shall be satisfied in full on the Effective Date or shall be treated on such
terms as are acceptable to the Bank Group.

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2. CLASS 2 - NOTEHOLDERS' SECURED CLAIMS

a. CLASSIFICATION: Class 2 consists of all Allowed Secured Claims of
the Noteholders.

b. TREATMENT: Class 2 is impaired, and the holders of Allowed Claims
in such Class are entitled to vote on the Plan. On the Effective Date, the
Reorganized Debtor shall satisfy the Noteholders' Secured Claim that is secured
by the Noteholders' 727 Collateral through the payment to the Noteholders of
cash equal to the current value of the 727 Collateral, which the Debtors,
Indenture Trustee, and an Unofficial Committee of Noteholders have agreed(5) is
[$55] million and by the delivery to the Indenture Trustee of the Net Proceeds
of the Engines. To the extent that the Noteholders' Wide Body Collateral and the
Engines have not been liquidated and the net proceeds paid to the Indenture
Trustee prior to the Effective Date, at the option of the Noteholders, acting
through the Indenture Trustee, (i) KHI shall convey the Wide Body Collateral and
Engines to the Indenture Trustee, or (ii) Reorganized Kitty Hawk shall liquidate
the remaining Wide Body Collateral and Engines in cooperation with the Indenture
Trustee and its agents and deliver the Net Proceeds to the Indenture Trustee
pursuant to the Bankruptcy Court's Orders. The Bankruptcy Court shall retain
jurisdiction to enter Orders (i) approving the sale of Wide Body Collateral and
Engines and (ii) confirming to purchasers that such sale is free and clear of
liens, claims and any other interest in such property that arose before the
Confirmation Date.

3. CLASS 3 - SECURED CLAIMS OTHER THAN BANK CLAIMS AND CLAIMS OF THE
NOTEHOLDERS.

a. CLASSIFICATION: Class 3 consists of all Allowed Secured Claims
other than the Bank Claims and the Claims of the Noteholders. Each secured
creditor shall be treated as a separate sub-class of Class 3.

b. TREATMENT: Class 3 is impaired, and the holders of Allowed Claims
in such Class are entitled to vote on the Plan. At the Debtors' option, on the
Effective Date (a) the Plan may leave unaltered the legal, equitable, and
contractual rights of the holder of an Allowed Secured Claim, OR (b)
notwithstanding any contractual provision or applicable law that entitles the
holder of an Allowed Secured Claim to demand or receive accelerated payment from
the Debtors after the occurrence of a default, the Debtors may cure any such
default, other than a default of a kind specified in section 365(b)(2) of the
Bankruptcy Code, reinstate the maturity of such Claim as such maturity existed
before such default, compensate the holder of such Claim for any damages
incurred as a result of any reasonable reliance by such holder on such
contractual provision or such applicable law, and otherwise leave unaltered the
legal, equitable or contractual rights to which such Claim entitles the holder,
all pursuant to section 1124 of the Bankruptcy Code, OR (c) the Debtors may
either (i) pay an Allowed Secured Claim in full, in cash, OR (ii) the Debtors
may deliver to the holder of an Allowed Secured Claim the property securing such
Claim, OR (iii) at Kitty Hawk's election and direction, Reorganized Kitty Hawk
may deliver to the holder of an Allowed Secured Claim deferred

--------
(5) The Debtors, the Indenture Trustee and the Unofficial Committee of
Noteholders have not reached a final agreement on the value of the Noteholders'
727 Collateral.

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cash payments in accordance with the requirements of section 1129(b)(2)(A)(II)
of the Bankruptcy Code, in all of such events, the value of such holder's
interest in such property shall be determined (A) by agreement of the
Reorganized Debtor and the holder of such Allowed Secured Claim or (B) if they
do not agree, by the Bankruptcy Court, OR (d) the Debtors may assume and assign
the contract or agreement governing an Allowed Secured Claim pursuant to section
365(b) of the Bankruptcy Code, OR (e) the Debtors may pay an Allowed Secured
Claim in such manner as may be agreed to by the holder of such Claim.

4. CLASS 4 - PRIORITY CLAIMS.

a. CLASSIFICATION: Class 4 consists of all non-tax Priority Claims.

b. TREATMENT: Class 4 is impaired and, accordingly, the members of
Class 4 are entitled to vote on the Plan. Unless otherwise agreed to by the
parties, each holder of an Allowed Claim in Class 4 will be paid the Allowed
amount of such Claim in full in cash by the Reorganized Debtor on or before the
later of (a) the first practicable date after the Effective Date, (b) the
Allowance Date, and (c) such other date as is mutually agreed upon by the
Reorganized Debtor and the holder of such Claim.

5. CLASS 5 - CONVENIENCE CLAIMS

a. CLASSIFICATION: Class 5 consists of Allowed Convenience Claims.

b. TREATMENT: Class 5 is impaired and holders of Class 5 Claims are
entitled to vote on the Plan. Each holder of an Allowed Unsecured Claim(s) that
is $500 or less, or that is more than $500, but the holder of which elects on
the Ballot to have its Allowed Unsecured Claim(s) reduced to $500 and treated as
a single Allowed Class 5 Convenience Claim, shall receive, on the Effective Date
or as soon thereafter as practicable, payment from the Debtors in cash in an
amount equal to the lesser of $500 or the allowed amount of such Claim(s).
Creditors electing to reduce their Claims to $500 waive the remainder of other
Claims and shall not be entitled to any other distribution in this Plan or from
the Debtors.

6. CLASS 6 - UNSECURED NOTEHOLDER CLAIMS

a. CLASSIFICATION: Class 6 consists of all Allowed Unsecured Claims
of Noteholders.

b. TREATMENT: Class 6 is impaired and, accordingly, the members of
Class 6 are entitled to vote on the Plan. Holders of Allowed Unsecured Claims in
Class 6 shall receive a Pro Rata distribution of the Class 6 Stock Distribution.

7. CLASS 7 - OTHER UNSECURED CLAIMS

a. CLASSIFICATION: Class 7 consists of all Allowed Unsecured Claims
not included in Classes 5 or 6.

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b. TREATMENT: Class 7 is impaired and, accordingly, the members of
Class 7 are entitled to vote on the Plan. Holders of Allowed Unsecured Claims in
Class 7 shall receive a Pro Rata distribution of the Class 7 Stock Distribution.
Holders of Class 7 Claims may elect by so indicating on their ballot to have
their New Common Stock redeemed by Reorganized Kitty Hawk from the Rights
Offering Proceeds at a price equal to 50% of the price per share established by
the Court. To the extent that a Class 7 Claimant elects to have its New Common
Stock redeemed and the Rights Offering Proceeds are insufficient to redeem all
of such Class 7 Claimant's shares of New Common Stock, the Class 7 Claimant's
shares will be redeemed Pro Rata based on the percentage that the total shares
of New Common Stock held by Class 7 Claimants electing redemption bears to the
shares purchased in the Rights Offering.

8. CLASS 8 - OLD COMMON STOCK

a. CLASSIFICATION: Class 8 consists of all Interests in Old Common
Stock.

b. TREATMENT: Holders of Interests in Class 8 will receive the right
to purchase no less than their Pro Rata share of 5 million shares of New Common
Stock pursuant to the Rights Offering at the price per share established by the
Court. The Old Common Stock will be canceled.

9. CLASS 9 - SECURITIES CLAIMS

a. CLASSIFICATION: Class 9 consists of all Allowed Securities
Claims.

b. TREATMENT: Holders of Class 9 Claims shall be treated with the
same priority as the Old Common Stock pursuant to Section 510(b) of the Code and
will receive no distribution under the Plan.

E. ACCEPTANCE OR REJECTION OF THE PLAN

1. VOTING CLASSES. The holders of Claims in Classes 1, 2, 3,4, 5, 6 and 7
and Interest in Class 8 are impaired and shall be entitled to vote to accept or
reject the Plan.

2. PRESUMED REJECTION OF PLAN. The holders of Claims in Class 9 are not
being solicited to accept or reject the Plan and will be deemed to have rejected
the Plan.

F. MANNER OF DISTRIBUTION OF PROPERTY UNDER THE PLAN

1. DISTRIBUTION PROCEDURES. Except as otherwise provided in the Plan, all
distributions of Cash and other property shall be made by the Reorganized Debtor
on the later of the Effective Date or the Allowance Date, or as soon thereafter
as practicable. Distributions required to be made on a particular date shall be
deemed to have been made on such date if actually made on such date or as soon
thereafter as practicable. No payments or other distributions of property shall
be made on account of any Claim or portion thereof unless and until such Claim
or portion thereof is Allowed.

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2. DISTRIBUTION OF NEW COMMON STOCK. The Reorganized Debtor shall
distribute all of the New Common Stock to be distributed under the Plan. The
initial distribution of New Common Stock on account of Allowed Claims shall be
on the Effective Date or as soon thereafter as practicable. The Reorganized
Debtor may employ or contract with other entities to assist in or perform the
distribution of New Common Stock. On each Quarterly Surplus Distribution Date,
the Reorganized Debtor shall distribute to holders of Allowed Class 6 and Class
7 Claims, in accordance with the terms of the Plan, all shares in the Class 6
Stock Reserve Surplus Account and the Class 7 Stock Reserve Surplus Account,
PROVIDED HOWEVER, that if, in the Reorganized Debtor's judgment, the aggregate
value of the shares remaining in the Class 6 Stock Reserve Surplus Account or
the Class 7 Stock Reserve Surplus Account is less than $xxx,xxx, the Reorganized
Debtor may elect to hold such shares and distribute them on the next Quarterly
Surplus Distribution Date. All distributions on account of Class 6 Claims shall
be made by the Reorganized Debtor to the Indenture Trustee. The Reorganized
Debtor shall pay all reasonable fees and expenses of the Indenture Trustee
and/or the Depository Trust Corporation or Cede & Co. in acting as distribution
agent as and when such fees and expenses become due without further order of the
Bankruptcy Court.

To the extent that a Class 6 Claim is a Disputed or undetermined Claim on
the Effective Date, the distribution of New Common Stock allocable to the
Disputed or undetermined portion of such Claim shall be deposited in the Class 6
Stock Reserve Account. To the extent that a Class 7 Claim is a Disputed or
undetermined Claim on the Effective Date, the distribution of New Common Stock
allocable to the Disputed or undetermined portion of such Claim shall be
deposited in the Class 7 Stock Reserve Account.

To the extent that a Class 6 or Class 7 Claim is Allowed after the
Effective Date, the holder thereof shall be entitled to receive the New Common
Stock reserved with respect to the Allowed amount of such Claim (including
Shares representing distributions of Debtor's shares from the Class 6 Stock
Reserve Surplus Account or the Class 7 Stock Reserve Surplus Account).

3. DISTRIBUTIONS BY INDENTURE TRUSTEE.

Subject to any liens it may assert under the Indenture for the recovery of
expenses, and subject to Section 6.4 below, the Indenture Trustee shall
distribute to the record Noteholders, as appearing on the books and records of
the Indenture Trustee on the Distribution Date, all cash and New Common Stock
received by the Indenture Trustee under the Plan. In the event a record
Noteholder is a depository or custodian for legal or beneficial owners of the
Notes (such party being a "Custodian") and is unwilling to receive distributions
on behalf of such owners of the Notes then the Indenture Trustee shall obtain
from such Custodian a list of the parties for whom, as of the Distribution Date,
it serves as custodian and/ depository and (i) the Indenture Trustee shall
directly distribute to such owners of Notes their Pro Rata share of Cash
received by the Indenture Trustee on Account of Class 2 Claims (subject to the
lien of the Indenture Trustee) and (ii) the Indenture Trustee shall furnish to
the Debtors such information as the Indenture Trustee has or may reasonably
obtain that will permit the Debtors to issue New Common Stock to the owners of
the Notes as appearing in the records of the Custodian, certificates for which
the Debtors will forward directly to the owners. As of the close of business on
the Distribution Date, the transfer ledgers with respect

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to the Senior Notes shall be closed and the Debtors, the Reorganized Debtor, and
the Indenture Trustee shall have no obligation to recognize any transfer of the
Senior Notes occurring thereafter.

4. SURRENDER AND CANCELLATION OF OLD SECURITIES.

As a condition to receiving the New Securities distributable under the
Plan, the record holders of Senior Notes shall surrender their Senior Notes, if
held in certificate form, to the Indenture Trustee. When a holder surrenders its
Senior Notes to the Trustee, the Indenture Trustee shall hold the instrument in
"book entry only" until such instruments are canceled. Any holder of Senior
Notes whose instrument has been lost, stolen, mutilated or destroyed shall, in
lieu of surrendering such instrument, deliver to the Indenture Trustee: (a)
evidence satisfactory to the Indenture Trustee of the loss, theft, mutilation or
destruction of such instrument, and (b) such security or indemnity that may be
reasonably required by the Indenture Trustee to hold the Indenture Trustee
harmless with respect to any such representation of the holder. Upon compliance
with the preceding sentence, such holder shall, for all purposes under the Plan,
be deemed to have surrendered such instrument. Any holder of a Senior Note which
has not surrendered or have been deemed to surrender its Senior Notes within two
years after the Effective Date, shall have its Claim as a holder of Senior Notes
disallowed, shall receive no distribution on account of its Claim as a holder of
Senior Notes, and shall be forever barred from asserting any Claim on account of
its Senior Notes. Any New Common Stock issued and held for distribution on
account of such disallowed claims of holders of Senior Notes shall be returned
to the Reorganized Debtor and shall be deposited in the Stock Reserve Surplus
Account.

As of the Effective Date, all Senior Notes shall represent only the right
to participate in the distributions provided in the Plan on account of such
Senior Notes.

5. DISPUTED CLAIMS. Notwithstanding any other provisions of the Plan, no
payments or distributions shall be made on account of any Disputed Claim until
such Claim becomes an Allowed Claim, and then only to the extent that it becomes
an Allowed Claim.

6. MANNER OF PAYMENT UNDER THE PLAN. Cash payments made pursuant to the
Plan shall be in U.S. dollars by checks drawn on a domestic bank selected by the
Reorganized Debtor, or by wire transfer from a domestic bank, at Reorganized
Debtor's option, except that payments made to foreign trade creditors holding
Allowed Claims may be paid, at the option of Reorganized Debtor in such funds
and by such means as are necessary or customary in a particular foreign
jurisdiction. All distributions of Cash on account of Class 2 Claims shall be
made to the Indenture Trustee. Upon receipt of such Cash, the Indenture Trustee
shall distribute the cash as provided in Section 6.3.

7. DELIVERY OF DISTRIBUTIONS AND UNDELIVERABLE OR UNCLAIMED
DISTRIBUTIONS.

A. DELIVERY OF DISTRIBUTIONS IN GENERAL. Except as provided below in
Section 6.9(b) for holders of undeliverable distributions, distributions to
holders of Allowed Claims shall be distributed by mail as follows: (a) except in
the case of the holder of a Senior Note, (1) at the addresses set forth on the
respective proofs of claim filed by such holders; (2) at the addresses set forth
in any written notices of address changes delivered to the Reorganized Debtor
after the date of any related proof of claim; or (3) at the address reflected on
the Schedule of Assets and Liabilities

DISCLOSURE STATEMENT UNDER 11 U.S.C. SS. 1125 IN SUPPORT OF THE
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Filed by the Debtors if no proof of claim or proof of interest is Filed and the
Reorganized Debtor have not received a written notice of a change of address;
and (b) in the case of the holder of the Senior Notes, as provided in Sections
6.3 and 6.4 above.

B. UNDELIVERABLE DISTRIBUTIONS.

(1) HOLDING AND INVESTMENT OF UNDELIVERABLE PROPERTY. If the
distribution to the holder of any Claim other than the holder of Senior Notes is
returned to the Reorganized Debtor as undeliverable, no further distribution
shall be made to such holder unless and until the Reorganized Debtor is notified
in writing of such holder's then current address. Subject to Section 7.8(b)(ii),
undeliverable distributions shall remain in the possession of the Reorganized
Debtor pursuant to this Section until such times as a distribution becomes
deliverable.

Unclaimed Cash (including interest, dividends and other
consideration, if any, distributed on or received for undeliverable New Common
Stock) shall be held in trust in a segregated bank account in the name of the
Reorganized Debtor, for the benefit of the potential claimants of such funds,
and shall be accounted for separately. Undeliverable New Common Stock shall be
held in trust for the benefit of the potential claimants of such securities by
the Reorganized Debtor in a number of shares sufficient to provide for the
unclaimed amounts of such securities, and shall be accounted for separately.

(2) DISTRIBUTION OF UNDELIVERABLE PROPERTY AFTER IT BECOMES
DELIVERABLE AND FAILURE TO CLAIM UNDELIVERABLE PROPERTY. Any holder of an
Allowed Claim other than a holder of a Senior Note who does not assert a claim
for an undeliverable distribution held by the Reorganized Debtor within one (1)
year after the Effective Date shall no longer have any claim to or interest in
such undeliverable distribution, and shall be forever barred from receiving any
distributions under this Plan. In such cases, any New Common Stock shall be
deposited in the Stock Reserve Surplus Account.

8. DE MINIMIS DISTRIBUTIONS. No Cash payment of less than twenty-five
dollars ($25.00) shall be made to any holder on account of an Allowed Claim
unless a request therefor is made in writing to the Reorganized Debtor.

9. FAILURE TO NEGOTIATE CHECKS. Checks issued in respect of distributions
under the Plan shall be null and void if not negotiated within 60 days after the
date of issuance. Any amounts returned to the Reorganized Debtor in respect of
such checks shall be held in reserve by the Reorganized Debtor. Requests for
reissuance of any such check may be made directly to the Reorganized Debtor by
the holder of the Allowed Claim with respect to which such check originally was
issued. Any claim in respect of such voided check is required to be made before
the second anniversary of the Effective Date. All Claims in respect of void
checks and the underlying distributions shall be discharged and forever barred
from assertion against the Reorganized Debtor and their property.

10. COMPLIANCE WITH TAX REQUIREMENTS. In connection with the Plan, to the
extent applicable, the Reorganized Debtor shall comply with all withholding and
reporting requirements

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imposed on it by any governmental unit, and all distributions pursuant to the
Plan shall be subject to such withholding and reporting requirements.

11. SETOFFS. Unless otherwise provided in a Final Order or in this Plan,
the Debtors may, but shall not be required to, set off against any Claim and the
payments to be made pursuant to the Plan in respect of such Claim, any claims of
any nature whatsoever the Debtors may have against the holder thereof or its
predecessor, but neither the failure to do so nor the allowance of any Claim
hereunder shall constitute a waiver or release by the Debtors of any such Claims
the Debtors may have against such holder or its predecessor.

12. FRACTIONAL INTERESTS. The calculation of the percentage distribution
of New Common Stock to be made to holders of certain Allowed Claims as provided
elsewhere in this Plan may mathematically entitle the holder of such an Allowed
Claim to a fractional interest in such New Common Stock. The number of shares of
New Common Stock to be received by a holder of an Allowed Claim shall be rounded
to the next lower whole number of shares. The total number of shares of New
Common Stock to be distributed to a class of Claims shall be adjusted as
necessary to account for the rounding provided for in this Section. No
consideration shall be provided in lieu of the fractional shares that are
rounded down and not issued.

For purposes of applying this Section, the holders of Allowed Claims under
or evidenced by Senior Notes shall, in the case of Senior Notes held in street
name, mean the beneficial holders thereof as of the Distribution Date.

G. TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES

The Plan constitutes and incorporates a motion by the Debtors to reject,
as of the Confirmation Date, all pre-petition executory contracts and unexpired
leases to which the Debtors are a party, except for any executory contract or
unexpired lease that (i) has been assumed or rejected pursuant to a Final Order,
(ii) is the subject of a pending motion for authority to assume the contract or
lease Filed by the Debtors prior to the Confirmation Date, or (iii) is
identified in the Plan Supplement as an executory contract or lease that Debtors
intend to assume. Assumption by any of the Debtors shall constitute assumption
by the Reorganized Debtor as the successor to each of the Debtors. The filing of
the Plan Supplement shall constitute a motion by Debtors to assume, effective on
the Effective Date, the executory contracts and leases identified therein. With
respect to leases and executory contracts not previously assumed, the Plan
Supplement shall set forth a cure amount in accordance with section 365(b)(1) of
the Bankruptcy Code for each unexpired lease and executory contract to be
assumed. Unless the non-debtor parties timely object to such amount, the
confirmation of the Plan shall constitute consent to the approval of the
assumption of such executory contracts and unexpired leases and a determination
that such cure amount is sufficient under section 365(b)(1) of the Bankruptcy
Code. To the extent that there is a dispute regarding the Reorganized Debtor's
ability to meet the requirements of section 365 of the Code for assumption, the
Reorganized Debtor shall make the cure payments required by section 365(b)(c)
following the entry of a Final Order resolving the dispute and approving
assumption.

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The Plan also establishes a bar date for filing claims for rejection under
the Plan of an executory contract or unexpired lease.

H. MEANS FOR EXECUTION AND IMPLEMENTATION OF THE PLAN

1. EXIT FINANCING. On the Effective Date, the Reorganized Debtor shall
enter into a loan agreement providing available funds in a sufficient amount,
when combined with the Debtors' available resources, to fund the Reorganized
Debtor's obligations under the Plan and to meet its ongoing business needs (the
"Exit Financing"). Simultaneously with the closing of the Exit Financing
transaction, the Reorganized Debtor will satisfy the Allowed Secured Claims of
the Bank Group from Cash on hand and a portion of the proceeds of the Exit
Financing, and the Bank Group shall, at the option of the Reorganized Debtor,
either release its liens on the property of the Reorganized Debtor or assign the
liens as directed by the Reorganized Debtor. The exit lender shall be granted a
lien on assets of the Reorganized Debtor.

2. RIGHTS OFFERING. The Debtors shall seek to obtain Securities and
Exchange Commission approval of the Rights Offering as soon as possible after
the completion of the audited 1999 financial statements for Kitty Hawk. The
Reorganized Debtor will then distribute to each record holder of Old Common
Stock on the Record Date one subscription right for each 3.427 shares of Old
Common Stock they own ("Rights"). The Reorganized Debtor will round down to the
nearest whole number, the number of Rights to be distributed to each holder of
Old Common Stock.

A shareholder may request that the subscription agent for the Rights
Offering divide a Rights certificate into transferable parts, for instance, if a
shareholder is the record holder for a number of beneficial holders of the New
Common Stock. However, the subscription agent will not divide a Rights
certificate so that a shareholder would receive any fractional Rights.

A shareholder may exercise a subscription privilege at any time before the
Subscription Deadline. The Reorganized Debtor may, in its sole discretion,
extend the time for exercising the Rights. If a shareholder does not exercise
Rights before the Subscription Deadline, the unexercised Rights will be null and
void. The Reorganized Debtor will not be obligated to honor an exercise of
Rights if the subscription agent receives the documents relating to the exercise
after the Rights Offering expires, regardless of when a shareholder transmitted
the documents, except when a shareholder has timely transmitted the documents
under the guaranteed delivery procedures. The Reorganized Debtor may extend the
expiration date by giving oral or written notice to the subscription agent on or
before the scheduled expiration date. If the Reorganized Debtor elects to extend
the expiration of the Rights Offering, it will issue a press release announcing
the extension no later than 9:00 a.m., New York City time, on the next business
day after the most recently announced expiration date.

The Rights entitle a shareholder to the basic subscription privilege and
the over-subscription privilege.

BASIC SUBSCRIPTION PRIVILEGE. With the basic subscription privilege, a
shareholder may purchase one share of the New Common Stock per Right, upon
delivery of the required documents

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and payment of the subscription price (i.e. the amount per share established by
the Bankruptcy Court). A shareholder is not required to exercise all Rights
unless the shareholder wishes to purchase shares under the over-subscription
privilege. The Reorganized Debtor will deliver certificates representing the
shares purchased with the basic subscription privilege as soon as practicable
after the Rights Offering has expired. Over-Subscription Privilege. In addition
to the basic subscription privilege, a shareholder may subscribe for additional
shares of the New Common Stock upon delivery of the required documents and
payment of the subscription price, before the expiration of the Rights Offering.
A shareholder may only exercise the over-subscription privilege if the
shareholder exercised the basic subscnption privilege in full and other holders
of Rights do not exercise their basic subscription privileges beyond the 5
million shares.

PRO RATA ALLOCATION. If there are not enough shares to satisfy all
subscriptions made under the over-subscription privilege, the Reorganized Debtor
will allocate the remaining shares pro rata, after eliminating all fractional
shares, among those over-subscribing Rights holders. For purposes of the Rights
Offering, "pro rata" means in proportion to the number of shares of the New
Common Stock which the Rights holders have purchased by exercising their basic
subscription privileges. If there is a pro rata distribution of the remaining
shares and a shareholder receives a pro rata allocation of a greater number of
shares than subscribed for under the over-subscription privilege, then the
Reorganized Debtor will allocate to the shareholder only the number of shares
for which the shareholder subscribed. The Reorganized Debtor will allocate the
remaining shares among all other Rights holders exercising their
over-subscription privileges.

The Reorganized Debtor will identify the subscription agent for the Rights
Offering in the Plan Supplement.

3. MERGER OF CORPORATE ENTITIES. [In one way or another, the plan will
provide that the Debtors are merged and that there is only one surviving entity
which will be a Delaware Corporation named Kitty Hawk Aircargo, Inc. The Debtors
are investigating the best way to achieve this result.]

4. BOARD OF DIRECTORS OF THE REORGANIZED DEBTOR. On the Effective Date,
the existing directors of Kitty Hawk, Inc. shall be deemed removed from office
pursuant to the operation of the Confirmation Order. On the Effective Date, the
Reorganized Debtor will amend its bylaws to provide that the board of directors
of the Reorganized Debtor shall be comprised of seven (7) members, five (5) of
which shall be selected by the Noteholders and two (2) of which shall be
selected by the Debtor. All such selections shall be by written designation
filed as a Plan Document by the selecting Person. Any director not so selected
on a timely basis shall be designated by the Debtor on the Confirmation Date,
subject to approval of the Court. Such amended bylaws shall provide that all
such directors shall serve for a one-year term and shall not be subject to
removal other than for cause during the first year following the Effective Date.
Such amended bylaws shall provide that thereafter directors shall be elected at
annual meetings of the shareholders of the Reorganized Debtor in accordance with
the bylaws of the Reorganized Debtor and applicable law.

5. POST-CONFIRMATION MANAGEMENT. Kitty Hawk's current officers, who,
except as noted, are anticipated to continue in the same jobs post-confirmation:

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o Tilmon J. Reeves - Chairman of the Board and Chief Executive
Officer. Mr. Reeves has extensive experience in the airline and
airfreight industries with a number of companies, including Emery
and American Airlines.

o James R. Craig - Vice President and General Counsel. Mr. Craig was
Kitty Hawk's outside counsel for many years and has been its Vice
President and General Counsel since 1998.

o Jack A. ("Drew") Keith - Chief Financial Officer. Mr. Keith,
formerly Kitty Hawk's lender while Wells Fargo employed him, joined
Kitty Hawk in September, 1999 and became the Chief Financial Officer
in April 2000.

o Toby Skaar - Vice President of Scheduled Freight for Kitty Hawk
Cargo. Mr. Skaar manages Kitty Hawk's scheduled overnight freight
system.

o Clark Stevens - President of Kitty Hawk Aircargo. Mr. Stevens is
responsible for all of the ongoing aircraft operations (which
excludes the operations of Kitty Hawk Charters and Kitty Hawk
International).

o Susan Hawley - Vice President-Postal. Ms. Hawley has primary
responsibility for managing Kitty Hawk's relationship with the U.S.
Postal Service.

o Donny Scott - Vice President-Ground Operations. Mr. Scott manages
all ground handling operations for the U.S. Postal Service and will
be assuming responsibility for ground handling operations at Kitty
Hawk's Fort Wayne, Indiana hub operation.

o Davis Green - Vice President-Sales for Kitty Hawk Aircargo. Mr.
Green is responsible for all of Kitty Hawk's sales efforts
(excluding the U.S. Postal Service and Kitty Hawk Charters).

o John Turnipseed - Vice President-Human Resources (Mr. Turnipseed
announced his resignation shortly before this Disclosure Statement
was filed).

o Jessica Wilson - Chief Accounting Officer. Ms. Wilson is the longest
serving employee in Kitty Hawk's accounting department and is
responsible for maintaining the accuracy of Kitty Hawk's accounting
records.

6. CANCELLATION OF OLD SECURITIES. On the Effective Date, all Old
Securities shall be terminated and canceled, and the indenture or statements of
resolution governing such Old Securities shall be rendered void. Notwithstanding
the foregoing, such termination will not impair the rights and duties under such
indenture as between Indenture Trustee and the beneficiaries of the trust
created thereby including, but not limited to, the right of the Indenture
Trustee to receive payment of its fees and expenses, to the extent not paid by
Kitty Hawk, from amounts distributable to holders of Senior Notes.

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7. AUTHORIZATION AND ISSUANCE OF NEW COMMON STOCK. The Confirmation Order
shall provide for the authorization of 65 million shares of stock in the
Reorganized Debtor, of which 55 million shall be the New Common Stock (the
issued and outstanding shares of the Reorganized Debtor). The remaining 10
million authorized shares shall be reserved and shall not be distributed without
action by the Board of Directors selected in the manner described in Section 8.4
of the Plan.

8. REGISTRATION EXEMPTION FOR DEBTOR'S NEW COMMON STOCK. The Confirmation
Order shall provide that the distribution of the New Common Stock to holders of
Allowed Claims pursuant to the Plan and the Amended Certificate of Incorporation
shall be exempt from any and all federal, state and local laws requiring the
registration of such security, to the extent provided by section 1145 of the
Bankruptcy Code.

9. CHARTER AND BY-LAWS. The certificate of incorporation of the
Reorganized Debtor shall read substantially as set forth in the Amended
Certificate of Incorporation. The by-laws of the Reorganized Debtor shall read
substantially as set forth in the Amended By-Laws.

10. CORPORATE ACTION. Upon entry of the Confirmation Order, the following
shall be and be deemed authorized and approved in all respects: (i) the filing
by the Reorganized Debtor of the Amended Certificate of Incorporation, (ii) the
Amended By-Laws, (iii) the mergers contemplated by Section 8.3 hereof, and (iv)
the issuance of the New Common Stock. On the Effective Date, or as soon
thereafter as is practicable, the Reorganized Kitty Hawk shall file with the
Secretary of State of the State of Delaware, in accordance with applicable state
law, the Amended Certificate of Incorporation which shall conform to the
provisions of the Plan and prohibit the issuance of non- voting equity
securities. On the Effective Date, the matters provided under the Plan involving
the capital and corporate structures and governance of the Reorganized Kitty
Hawk, including the mergers effectuated pursuant to Section 6.3 of the Plan,
shall be deemed to have occurred and shall be in effect from and after the
Effective Date pursuant to applicable state laws without any requirement of
further action by the stockholders or directors of the Debtors or the
Reorganized Kitty Hawk. On the Effective Date, the Reorganized Debtor shall be
authorized and directed to take all necessary and appropriate actions to
effectuate the transactions contemplated by the Plan and the Disclosure
Statement in the name of and on behalf of the Reorganized Kitty Hawk.

11. RELEASE OF FRAUDULENT CONVEYANCE CLAIMS. On the Effective Date, in
consideration of the compromise with the holders of the Senior Notes
incorporated into this Plan and more fully described in Section IV, D, 2, b of
the Disclosure Statement, which settlement results in a greater distribution to
holders of Allowed Unsecured Claims that are not Noteholder Claims, Reorganized
Kitty Hawk, on its own behalf and as representative of the Debtors' Estates,
releases the Indenture Trustee and the Noteholders, their predecessors and
successors in interest, from all claims, obligations, suits, judgments, damages,
rights, causes of action and liabilities whatsoever, whether known or unknown,
foreseen or unforeseen, in law or in equity, based in whole or in part on an
allegation that any of the Debtors' obligations on the Senior Notes, including
any guaranty liabilities, are avoidable or unenforceable.

12. OTHER RELEASES BY DEBTORS. (a) On the Effective Date, the Reorganized
Debtor, on its own behalf and as representative of the Debtors' Estates, in
consideration of services rendered in

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the Reorganization Case and other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, releases unconditionally, and
is hereby deemed to release unconditionally, each of the Debtors' present and
former officers and directors, and the entities that elected such directors to
the extent they are or may be liable for the actions or inactions of such
directors, from any and all claims, obligations, suits, judgments, damages,
rights, causes of action and liabilities whatsoever (including, without
limitation, those arising under the Code), whether known or unknown, foreseen or
unforeseen, existing or hereafter arising, in law, equity or otherwise, based in
whole or in part on any act, omission, transaction, event or other occurrence
taking place before, on or after the Petition Date up to the Effective Date, in
any way relating to the Debtors (before, on or after the Petition Date), the
Reorganization Case, or the Plan; PROVIDED, HOWEVER, that the foregoing release
shall not apply to any action or omission that constitutes actual fraud or
criminal behavior and shall not apply to any claims or causes of action against
Conrad Kalitta, the Kalitta Companies or any entity owned or controlled by
either.

13. INDEMNIFICATION OBLIGATIONS. The obligations of the Debtors to
indemnify their present directors and officers pursuant to charters, by-laws,
and/or applicable state law shall be deemed to be, and shall be treated as
though they are, executory contracts assumed under the Plan, and such
obligations shall survive confirmation of the Plan and remain unaffected
thereby, irrespective of whether indemnification is owed in connection with an
occurrence that occurred prior to or after the Petition Date.

14. PRESERVATION OF RIGHTS OF ACTION. Except as otherwise provided in the
Plan, or in any contract, instrument, release, or other agreement entered into
in connection with the Plan, in accordance with section 1123(b) of the
Bankruptcy Code, Reorganized Kitty Hawk shall retain and may enforce any claims,
rights and causes of action that the Debtors or the Estates may hold against any
entity, including, without limitation, any claims, rights or causes of action
arising under sections 544 through 551 or other sections of the Bankruptcy Code
or any similar provisions of state law, or any other statute or legal theory.
The Reorganized Debtor shall retain and may enforce the rights of each of the
Debtors to object to Claims on any basis, including 11 U.S.C. ss. 502(d). The
Reorganized Debtor may pursue those rights of action, as appropriate, in
accordance with what is in the best interests of the Reorganized Debtor.

15. OBJECTIONS TO CLAIMS. Except as otherwise provided for with respect to
applications of professionals for compensation and reimbursement of expenses
under Section 3.1(c)(ii) hereof, or as otherwise ordered by the Bankruptcy Court
after notice and a hearing, objections to Claims, including Administrative
Claims, shall be Filed and served upon the holder of such Claim or
Administrative Claim not later than the later of (a) one hundred twenty (120)
days after the Effective Date, and (b) one hundred twenty (120) days after a
proof of claim or request for payment of such Administrative Claim is Filed,
unless this period is extended by the Court. Such extension may occur ex parte.
After the Effective Date, the Reorganized Debtor shall have the exclusive right
to object to Claims.

[16. RETIREE BENEFITS. On or after the Effective Date, pursuant to section
1129(a)(13) of the Bankruptcy Code, Kitty Hawk will continue to pay all retiree
benefits, as that term is defined in section 1114 of the Bankruptcy Code, at the
level established pursuant to subsection (e)(1)(B) or (g)

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of section 1114, at any time prior to confirmation of the Plan, for the duration
of the period the Debtors have obligated themselves to provide such benefits.]

17. EXEMPTION FROM STAMP AND SIMILAR TAXES. The issuance and transfer of
Debtors' New Common Stock as provided in this Plan shall not be taxed under any
law imposing a stamp tax or similar tax in accordance with 11 U.S.C.ss. 1146(c).

I. CONDITIONS TO EFFECTIVENESS OF THE PLAN

1. CONDITIONS TO EFFECTIVENESS. Except as expressly waived by the Debtors,
the following conditions must occur and be satisfied on or before the Effective
Date:

(a) the Confirmation Order shall have been signed by the Court and
duly entered on the docket for the Reorganization Cases by the clerk of the
Court in form and substance acceptable to the Debtors;

(b) the Confirmation Order shall have become an Effective
Confirmation Order and not have been stayed, modified, reversed or amended; and

(c) the Debtors have secured exit financing in a sufficient amount,
when combined with the Debtors' available resources, to fund the Reorganized
Debtor's obligations under the Plan and to meet its ongoing business needs.

2. WAIVER OF CONDITIONS. The Debtors and any co-Plan proponent may waive
any condition set forth in this Article 9 at any time, without notice, without
leave of or order of the Court, and without any formal action other than
proceeding to consummate the Plan.

3. NO REQUIREMENT OF FINAL ORDER. So long as no stay is in effect, the
Debtors' Effective Date of the Plan will occur notwithstanding the pendency of
an appeal of the Confirmation Order or any Order related thereto. In that event,
the Debtors or Reorganized Debtor may seek dismissal of any such appeal as moot
following the Effective Date of the Plan.

J. EFFECTS OF PLAN CONFIRMATION

1. BINDING EFFECT. The Plan shall be binding upon all present and former
holders of Claims and Equity Interests, and their respective successors and
assigns, including the Reorganized Debtors.

2. MORATORIUM, INJUNCTION AND LIMITATION OF RECOURSE FOR PAYMENT. Except
as otherwise provided in the Plan or by subsequent order of the Bankruptcy
Court, the Confirmation Order shall provide, among other things, that from and
after the Confirmation Date, all Persons or entities who have held, hold, or may
hold Claims against or Equity Interests in the Debtors are permanently enjoined
from taking any of the following actions against the Estates, the Reorganized
Debtors, the Creditors' Committee, the Indenture Trustee, and the Unofficial
Noteholders' Committee or any of their property on account of any such Claims or
Equity Interests: (i)

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commencing or continuing, in any manner or in any place, any action or other
proceeding; (ii) enforcing, attaching, collecting or recovering in any manner
any judgment, award, decree or order; (iii) creating, perfecting or enforcing
any lien or encumbrance; (iv) asserting a setoff, right of subrogation or
recoupment of any kind against any debt, liability or obligation due to the
Debtor other than through a proof of claim or adversary proceeding; and (v)
commencing or continuing, in any manner or in any place, any action that does
not comply with or is inconsistent with the provisions of the Plan; PROVIDED,
HOWEVER, that nothing contained herein shall preclude such persons from
exercising their rights pursuant to and consistent with the terms of this Plan.

3. EXCULPATION AND LIMITATION OF LIABILITY.

None of the Indenture Trustee and any professional Persons retained by it;
the Unofficial Noteholders' Committee, its members and any professional Persons
retained by it; the Debtors and the professional Persons employed by the
Debtors; any of their affiliates nor any of their officers, directors, partners,
associates, employees, members of agents (collectively, the "Exculpated
Persons"), shall have or incur any liability to any person for any act taken or
omission made in good faith in connection with or related to the Bankruptcy
Cases or actions taken therein, including negotiating, formulating ,
implementing, confirming or consummating the Plan, the Disclosure Statement, or
any contract, instrument, or other agreement or document created in connection
with the Plan. The Exculpated Persons shall have no liability to any Creditors
or Equity Security Holders for actions taken under the Plan, in connection
therewith or with respect thereto in good faith, including, without limitation,
failure to obtain Confirmation of the Plan or to satisfy any condition or
condition, or refusal to waive any condition or conditions, precedent to
Confirmation or to the occurrence of the Effective Date. Further, the Exculpated
Persons will not have or incur any liability to any holder of a Claim, holder of
an Interest, or party-in-interest herein or any other Person for any act or
omission in connection with or arising out of their administration of the Plan
or the property to be distributed under the Plan, except for gross negligence or
willful misconduct as finally determined by the Bankruptcy Court, and in all
respect such person will be entitled to rely upon the advice of counsel with
respect to their duties and responsibilities under the Plan.

4. REVESTING. On the Effective Date, the Reorganized Debtor will be vested
with all the property of the respective estates of the Debtors free and clear of
all Claims and other interests of creditors and equity holders, except as
provided herein; provided, however, that the Debtors shall continue as debtors
in possession under the Bankruptcy Code until the Effective Date, and,
thereafter, the Reorganized Debtor may conduct its business free of any
restrictions imposed by the Bankruptcy Code or the Court.

5. OTHER DOCUMENTS AND ACTIONS. The Debtors, the Debtors-In-Possession,
and Reorganized Kitty Hawk may execute such documents and take such other action
as is necessary to effectuate the transactions provided for in the Plan.

6. POST-CONSUMMATION EFFECT OF EVIDENCES OF CLAIMS OR INTERESTS. Senior
Notes, Old Common Stock certificates, and other evidences of Claims against or
Interests in the Debtors shall, effective upon the Effective Date, represent
only the right to participate in the distributions contemplated by the Plan.

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7. TERM OF INJUNCTIONS OR STAYS. Unless otherwise provided, all
injunctions or stays provided for in the Reorganization Cases pursuant to
sections 105 or 362 of the Bankruptcy Code or otherwise and in effect on the
Confirmation Date shall remain in full force and effect until the Effective
Date.

K. CONFIRMABILITY OF PLAN AND CRAMDOWN.

The Debtors request Confirmation under section 1129(b) of the Bankruptcy
Code if any impaired class does not accept the Plan pursuant to section 1126 of
the Bankruptcy Code. In that event, the Debtor reserves the right to modify the
Plan to the extent, if any, that Confirmation of the Plan under section 1129(b)
of the Bankruptcy Code requires modification.

L. RETENTION OF JURISDICTION.

The Plan provides for the Bankruptcy Court to retain the broadest
jurisdiction over the reorganization case as is legally permissible so that the
Bankruptcy Court can hear all matters related to the consummation of the Plan
and the claims resolution process. The Plan specifically retains jurisdiction
for the Bankruptcy Court to enter orders (a) approving the sale of the
Noteholders' Wide Body Collateral and (b) confirming that such sale is free and
clear of all liens, claims and interests in property that arose before the
Confirmation Date.

VIII.

FEASIBILITY OF THE PLAN

A. FEASIBILITY

Kitty Hawk carefully reviewed its options for future operations. In doing
so, it charted a course that should provide it with stable operations in the
upcoming years. Its strategy for future operations is grounded in fundamental
business strategies - sound capitalization (through avoiding excessive debt),
concentration in an area with demonstrated growth potential, streamlined
operations (operating a single type of aircraft) and conservative financial
forecasting. These "fundamentals" should keep Kitty Hawk from a "round trip"
back into bankruptcy court.

The projections for Reorganized Kitty Hawk's future operations, as well as
the assumptions supporting these projections, are set forth in Exhibit "A."

1. BUSINESS STRATEGY

Kitty Hawk's business strategy is based upon the premise of the following
macroeconomic trends:

o Increasing Demand for Airfreight

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The primary demand drivers of air cargo growth are: (i)
globalization of trade and "just-in-time" inventory management, (ii)
manufacturer outsourcing of shipping and logistics functions, (iii)
consumer demand for foreign goods, (iv) diversity of geographical
regions served and product transported, (v) increased trade spurred
by floating exchange rates, and (vi) continued expansion of free
trade. According to Boeing's 1998/1999 World Air Cargo Forecast,
global airfreight, as measured by freight ton-miles, has grown at an
eight percent CAGR since 1980. The air cargo market within the U.S.
is forecast to average 4.9 percent in the period 1998 through 2007
and 5.0 percent for the period 1998 through 2017.

o Increased Requirement for Time-definite Delivery

The projected growth in airfreight demand is partially attributable
to overall changes in business and new air cargo-eligible
commodities, such as those resulting from on- line and
customer-direct retail sales. Reliability and time-definite delivery
have joined price and speed, traditional factors considered in
shipping by air, to become significant factors in bolstering demand.
Moreover, airfreight has evolved from an "airport-to- airport"
service to a "door-to-door" service, requiring the effective
integration of ground and air logistics as part of an overall
production process. The requirement for time-definite delivery,
which effectively has fueled the growth of the small-package and
overnight segment of the airfreight industry, is now impacting the
heavyweight sector.

o Increasing Demand for Dedicated Air Freighter Capacity

Although over half of all airfreight is presently transported on
scheduled passenger aircraft, freighter aircraft continue to
increase their share of total world cargo capacity relative to cargo
transportation in passenger aircraft. Bolstering this trend is the
projected slower passenger traffic growth relative to growth in
airfreight, which translates into slower growth in the scheduled
passenger aircraft fleet and consequently in lower-hold cargo
capacity. Increasingly important has been the trend toward the
ubiquitous use of smaller aircraft by the scheduled passenger
airlines, including regional jets, which reduces cargo capacity. As
passenger load factors and passenger related baggage rises, space
available for freight is reduced.

Kitty Hawk's business strategy includes the following primary lines of
business:

o Scheduled Airfreight Overnight System

A growing number of U.S. shippers require expedited time-definite
heavyweight shipments. Kitty Hawk believes that the heavyweight
segment of the U.S. expedited cargo market is currently underserved
and that the marketplace will increase its demand for a provider
focused solely on the heavyweight, time-definite freight market.
Asset-based/integrated carriers, such as Airborne, FedEx, UPS, USPS
(referred to collectively as the "Integrated Carrier(s)") have been
able to garner a

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larger share of the heavyweight airfreight market because they
presently offer the only time-definite service available to
shippers.

Kitty Hawk differentiates its scheduled overnight freight operations
in the marketplace with time-definite systems that enable freight
forwarders to provide superior performance with respect to the
features of service that are most critical to shippers of
heavyweight freight: highly reliable and scheduled on-time delivery,
superior customer service, track and trace service and reasonable
prices. Kitty Hawk expects to expand its position as the critical
component to freight forwarders, enabling them to increase their
share of the total U.S. domestic expedited cargo market against
further encroachment by the Integrated Carriers.

o USPS

Kitty Hawk has historically performed a variety of services for the
USPS, ranging from regularly scheduled delivery throughout the year
to special contracts to meet increased demand during the holiday
season during the fourth quarter of the calendar year. Kitty Hawk's
USPS contracts generally allow it to pass-through fuel costs,
landing charges and other variable costs. Accordingly, Kitty Hawk is
not generally at risk of loss in the event that these variable costs
increase during the term of these fixed-price arrangements.

o ACMI Services

Freighter aircraft continue to increase their share of total world
cargo capacity relative to cargo transportation in passenger
aircraft. As a result of this trend Kitty Hawk believes that there
is an increasing demand for dedicated airlift in support of
shippers. As of August 1, 2000, Kitty Hawk has seven Boeing 727-200F
aircraft dedicated to BAX Global pursuant to ACMI contracts.
Although Kitty Hawk does not necessarily intend to increase the
number of aircraft devoted to this business line, it expects to
obtain higher rate for the ACMI Service provided by upgrading all of
the aircraft in its ACMI business to higher gross weight B727-200F
powered by JT8D-15 engines.

2. FACTORS ENHANCING KITTY HAWK'S FUTURE BUSINESS PROSPECTS

A. DIVERSIFIED REVENUE BASE

Kitty Hawk plans to maintain revenue diversification through
participation in three complementary core markets segments of the airfreight
industry: (i) scheduled overnight airfreight, (ii) USPS and (iii) ACMI Services.
Kitty Hawk believes that its diversification strategy allows it to mitigate risk
by placing a portion of its fleet under contract at fixed rates (i.e. USPS and
ACMI Services).

B. LARGE MARKET IN AN UNDER-SERVED, GROWING INDUSTRY SEGMENT

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Kitty Hawk believes that the heavyweight freight segment of the U.S.
expedited cargo market is currently being underserved because much of the
existing freight service is dependent upon operational systems designed for
other types of traffic (i.e. small packages). Kitty Hawk expects to enhance its
position as critical component to the freight forwarder market, enabling
intermediaries such as freight forwarders to protect and expand their share of
the total U.S. domestic expedited cargo market against further encroachment by
the Integrated Carriers.

C. EFFICIENT, UTILITARIAN AIRCRAFT FLEET

Kitty Hawk expects to conduct its operations with a fleet of
company-operated B727- 200F aircraft. The B727-200F is considered to be one of
the most versatile and cost-effective freighter aircraft in its category. By
focusing its operation on a single aircraft type Kitty Hawk expects to improve
overall efficiencies, through reduced maintenance costs, reduced flight crew and
maintenance personnel training and reduced spare part inventories. In operating
a common aircraft type, Kitty Hawk believes it will also be able to streamline
hub operations for its scheduled airfreight services, which is expected to
improve overall customer service.

D. LOW COST OPERATOR OF B727-200F

Kitty Hawk believes that it is one of the lowest cost operators of
the B727-200F in cargo operations. The table set forth below summarizes cockpit
crew and maintenance costs on a per block hour basis for select U.S. operators
of the B727-200F for the calendar year ending December 31, 1999.

Costs Per Block Hour of Operation

<TABLE>
<CAPTION>
FEDERAL
DHL EXPRESS EXPRESS ONE UPS KITTY HAWK
------------------ --------------------- --------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C>
Cockpit Crew $ 863 $ 1,569 $ 897 $ 1,439 $ 473
------------------ --------------------- --------------------- --------------------- --------------------- ---------------------
Maintenance 1,466 1,432 1,312 3,669 1,179
------------------ --------------------- --------------------- --------------------- --------------------- ---------------------
Daily Block 5.1 2.7 8.1 1.7 3.9
Hour
Utilization
------------------ --------------------- --------------------- --------------------- --------------------- ---------------------
Number of 6 70 3 8 38
B727-200F
Aircraft in
Fleet
------------------ --------------------- --------------------- --------------------- --------------------- ---------------------
</TABLE>

SOURCE: DEPARTMENT OF TRANSPORTATION FORM 41

E. SIGNIFICANT OPPORTUNITY TO EXPAND FORT WAYNE HUB

Based on its current level of operations, Kitty Hawk's typical
throughput utilizes approximately 50 percent of the facility's capacity. By
2005, Kitty Hawk expects to increase utilization to 65 percent of capacity. Fort
Wayne International Airport provides Kitty Hawk with access to a 12,000 foot
lighted runway equipped for full instrument approach which allows for flights to
be operated anywhere on the globe using all current and prospective freighter
aircraft in service.

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F. SUBSTANTIAL LEVERAGE TO ATTRACT STRATEGIC PARTNER(S)

Kitty Hawk believes its scheduled overnight airfreight operations
are ideally suited to complement the requirements of strategic alliance partners
such as an international airfreight carrier, freight forwarders and surface
transport cargo operators. Kitty Hawk's new facility in Fort Wayne is capable of
handing transoceanic freighter services from across the Atlantic and Pacific
Rim.

Kitty Hawk believes that there is a strategic fit with surface-based
freight carriers. Fort Wayne is geographically positioned such that more than 65
percent of the total U.S. and Canadian population are within 650 miles. Access
to global and coastal markets is provided in record time. Fort Wayne is
currently served by two major rail freight services operated by Norfolk Southern
Rail Road and Conrail. Additionally, 43 trucking firms operate terminal in Fort
Wayne, and serve all states as well as Canada and Mexico.

B. ALTERNATIVES TO CONFIRMATION OF THE PLAN

There are three possible consequences if the Plan is rejected or if the
Bankruptcy Court refuses to confirm the Plan: (a) the Bankruptcy Court could
dismiss the Debtors' Chapter 11 bankruptcy cases, (b) the Debtors' Chapter 11
bankruptcy cases could be converted to liquidation cases under Chapter 7 of the
Bankruptcy Code or (c) the Bankruptcy Court could consider an alternative plan
of reorganization proposed by some other party.

1. DISMISSAL

If the Debtors' bankruptcy cases were to be dismissed, the Debtors would
no longer have the protection of the Bankruptcy Court and the applicable
provisions of the Bankruptcy Code. The Bank Group would immediately exercise its
rights as a secured creditor to foreclose and liquidate the Debtors' most
valuable assets. The Noteholders would similarly exercise their rights with
respect to the Noteholders' 727 Collateral. Dismissal would force a race among
other creditors to take over and dispose of any remaining assets. In the event
of dismissal, even the most diligent unsecured creditors would likely fail to
realize any significant recovery on their claims.

2. CHAPTER 7 LIQUIDATION

If the Plan is not confirmed, it is possible that the Debtors' Chapter 11
cases will be converted to cases under Chapter 7 of the Bankruptcy Code, in
which a trustee would be elected or appointed to liquidate the assets of the
Debtors for distribution to creditors in accordance with the priorities
established by the Bankruptcy Code. Whether a bankruptcy case is one under
Chapter 7 or Chapter 11, secured creditors, Administrative Claims and Priority
Claims are entitled to be paid in cash and in full before unsecured creditors
receive any funds.

If the Debtors' Chapter 11 cases were converted to Chapter 7, the present
Priority Claims may have a priority lower than priority claims generated by the
Chapter 7 cases, such as the Chapter 7 trustee's fees or the fees of attorneys,
accountants and other professionals engaged by the trustee.

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The Debtors believe that liquidation under Chapter 7 would result in far
smaller distributions being made to Creditors than those provided for in the
Plan. Conversion to Chapter 7 would give rise to (a) additional administrative
expenses involved in the appointment of a trustee and attorneys and other
professionals to assist such trustee; (b) additional expenses and Claims, some
of which would be entitled to priority, which would be generated during the
liquidation and from the rejection of leases and other executory contracts in
connection with a cessation of the Debtors' operations; and (c) a failure to
realize the going concern value of the Debtors' assets. In a Chapter 7
liquidation, it is likely that general unsecured creditors would receive a
significantly smaller distribution on their claims. See Liquidation Analysis
attached as Exhibit "B."

3. CONFIRMATION OF AN ALTERNATIVE PLAN. If the Plan is not confirmed, it
is possible that the Debtors or a third party would file and pursue confirmation
of an alternative plan. The Debtors believe the Plan provides the best prospect
for reorganizing the Debtor and maximizing creditor recoveries that can be
achieved quickly. The Debtors believe that any material delay in the Debtors'
exit from bankruptcy will harm its business and lessen creditor recoveries. By
exiting bankruptcy quickly, the Debtors will eliminate the expense of being in
bankruptcy (currently approximately $1 million per month). A quick confirmation
will also assist the Debtors in maintaining the confidence of their key
customers.

IX.

RISK FACTORS

The following discussion addresses the risk factors that may affect the
Reorganized Debtor's ability to meet its projections as well as the value of the
New Common Stock.

A. KITTY HAWK RELATED RISKS

1. DEPENDENCE ON SIGNIFICANT CUSTOMERS

Kitty Hawk's three largest customers are the U.S. Postal Service, BAX
Global and Eagle Airfreight. Of Kitty Hawk's total revenues in 1999, the USPS
accounted for $175.9 million, or 24 percent; BAX Global accounted for $63.7
million, or 8.7 percent; and Eagle Airfreight accounted for $128.4 million, or
17.6 percent. Of its total revenues in 1998, the USPS accounted for $120
million, or 16.8 percent; BAX Global accounted for $71.5 million, or 10%; and
Eagle Airfreight accounted for $54.2 million, or 7.7 percent.

As of August 1, 2000, Kitty Hawk had 13 B727-200 aircraft under contract
to the USPS. The USPS awards contracts periodically pursuant to a public bidding
process which incorporates: (i) quality of service, (ii) financial stability of
shipper, and (iii) price. The USPS contracts include both multi-year and
seasonal contracts. While the multi-year contracts typically have terms of six
years with renewal options, bids for contracts to provide holiday season
charters during the fourth quarter of each calendar year are generally submitted
in the summer of each year and are awarded in August of the same year. Kitty
Hawk's CNET contract was first granted in 1996. It had a renewal option

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limited only by the Procurement Manual's 5-year limit. Each year the contract
has been renewed and negotiated under a new contract number. The Procurement
Manual's 5-year limit was removed in 1997. Thus, the CNET contract for 1999
(CNB-9901) permits unlimited renewal. The 2000 renewal has not yet been awarded,
but Kitty Hawk is working with the USPS in the apparently mutual expectation of
the award. Kitty Hawk's inability to demonstrate appropriate financial capacity
and stability or its inability to remain competitive with respect to quality of
service and price could have a material adverse effect on its ability to retain
such contracts. Kitty Hawk's inability to retain such contracts in the future
would have a material adverse effect on its business. Kitty Hawk's contracts
with the USPS are subject to termination at the convenience of the USPS, but in
such a case, the USPS would be required to pay Kitty Hawk for services provided
to the date of termination and reimburse Kitty Hawk for settlement expenses with
suppliers and subcontractors for certain capital expenditures made under the
cancelled contract.

BAX Global leases seven aircraft from Kitty Hawk pursuant to an ACMI
contract. BAX Global may terminate the contract if, among other reasons, Kitty
Hawk does not meet specified on- time performance standards [or if majority
ownership or control of Kitty Hawk is acquired by a competitor of BAX Global.]
The loss of this customer, or a reduction in pounds shipped by BAX Global, could
have a material adverse effect on Kitty Hawk's business.

2. EMPLOYEE RELATIONS

Kitty Hawk's employees have been subject to union organization efforts
from time to time, and Kitty Hawk believes they are likely to be subject to
future unionization efforts as its operations expand. Several months ago,
Aircargo's flight crew members (727-100, 727-200 and DC-9), in an election under
the Railway Labor Act, voted overwhelmingly by write-in to be represented by the
Air Line Pilots Association ("ALPA"), in preference to the International
Brotherhood of Teamsters and an unaffiliated employee group calling themselves
the Kitty Hawk Pilots Association ("KHPA"), which were on the ballot. ALPA
declined to accept representation. KHPA then petitioned for another election,
which is now being conducted, in which only KHPA is on the ballot. Ballots are
expected to be counted in September, 2000. Although Kitty Hawk believes it has
excellent employee relations, the unionization of its workforce could result in
higher employee compensation and working condition demands that could increase
Kitty Hawk's operating costs or constrain its operating flexibility.

B. AIRCRAFT RELATED RISKS

1. FUTURE OPERATIONS BASED ON CONTINUED ACCEPTANCE OF SCHEDULED AIRFREIGHT

Kitty Hawk's business plan is based substantially on the continued
acceptance of a scheduled overnight airfreight network in support of the freight
forwarders. Kitty Hawk believes there are over 3,500 freight forwarders in
business today, which could comprise a substantial portion of Kitty Hawk's
customer base. Recently, there has been an increase in the number of mergers and
consolidations among freight forwarders. Certain of the larger freight
forwarders have periodically contracted for dedicated air freighter capacity in
lieu of using Kitty Hawk's services. The continued consolidation of this sector
could have a material adverse impact on Kitty Hawk's business.

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2. DEPENDENCE ON AIRCRAFT AVAILABILITY

Kitty Hawk's revenues are dependent on having aircraft available for
revenue service. The CNET contract depends very heavily on contracted
third-party aircraft. The biggest risk-factors for CNET are probably the
inability to obtain contract lift commitments without guaranteed pre-payments by
letters of credit ('LCs") or deposit before Kitty Hawk obtains the enforceable
commitment of the USPS, the possibility that Kitty Hawk will be unable to find
the cash resources to supply those LCs or make those deposits, and the risk that
having supplied the LCs or made the deposits, Kitty Hawk does not obtain or lose
the CNET contract. It is also increasingly true of the Fort Wayne hub operation
that Kitty Hawk relies on third-party lift, as it expands the use of wet-leased
A300s. Any time Kitty Hawk uses third-party lift, it incurs the risk that the
supplier defaults for any reason, leaving Kitty Hawk without replaceable lift -
this is a major exposure in CNET, where Kitty Hawk depends heavily on a few
carriers to supply the bulk of the lift. In the past, Kitty Hawk has experienced
unanticipated Federal Aviation Administration ("FAA") Airworthiness Directives
("Directives") or excessive unscheduled maintenance due to equipment failures,
or accidental damage, that has made its own or third-party contracted aircraft
unavailable for revenue service. In the event one or more of Kitty Hawk's
aircraft or its third-party contracted aircraft are out of service for an
extended period of time, whether due to Directives, unscheduled maintenance,
accidents or otherwise, Kitty Hawk may be forced to lease or purchase
replacement aircraft and may be unable to fulfill its obligations under customer
contracts. Kitty Hawk cannot assure that, if necessary, it could locate suitable
replacement aircraft on acceptable terms. Loss of revenue from any such business
interruption, damages for non-performance under customer contracts, or costs to
replace aircraft could have a material adverse effect on Kitty Hawk's business.

Kitty Hawk's business plan includes acquiring additional heavyweight
B727-200F aircraft for its scheduled overnight freight operations and its ACMI
Services. Kitty Hawk's business plan for its scheduled overnight freight
operations also includes acquiring, pursuant to an ACMI contract, additional
A300F aircraft. Inability to procure B727-200F and/or A300F aircraft on
reasonable terms, or if at all, could have a material adverse effect of Kitty
Hawk's business.

3. CAPITAL INTENSIVE NATURE OF AIRCRAFT OWNERSHIP

Kitty Hawk's airfreight carrier business is highly capital intensive. In
order to expand its airfreight carrier business, Kitty Hawk intends to acquire
used jet aircraft, primarily B727-200F aircraft. Used aircraft typically require
certain modifications, including reconfiguring the aircraft from passenger to
cargo use and depending upon its prior operator and use, installing equipment to
make the aircraft more compatible with the Kitty Hawk fleet or to comply with
the noise regulations. The market for used jet aircraft is volatile and can be
adversely affected by limited supply, increased demand, and other market
factors. Kitty Hawk cannot assure that it will be able to purchase and, if
necessary, modify additional B727-200F aircraft at favorable prices or that it
will have or be able to obtain sufficient resources with which to make such
acquisitions.

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4. AGING AIRCRAFT REGULATIONS; POTENTIAL COMPLIANCE COSTS

All of Kitty Hawk's Boeing 727-200F aircraft and its third-party
contracted aircraft used in the scheduled-freight operation are subject to FAA
Airworthiness Directives ("Directives") issued at any time. These Directives can
cause Kitty Hawk or the operator to conduct extensive examinations and
structural inspections of its aircraft and to make modifications to its aircraft
to address or prevent problems of corrosion and structural fatigue among other
things. Kitty Hawk's or the operator's cost to comply with such Directives
issued by the FAA cannot currently be estimated, but could be substantial and,
if material, could have a material adverse effect on Kitty Hawk's business.

As of August 1, 2000, Kitty Hawk's fleet under its Part 121 certificate
consists primarily of B727-200F aircraft. The FAA has issued certain Directives
that subject B727-200 operators to extensive aircraft examinations and require
B727-200 aircraft to undergo structural inspections and modifications to address
problems of corrosion and structural fatigue and freighter conversion related
issues. A Directive requiring significant modifications to this aircraft type
could require Kitty Hawk to invest significant additional funds in its aircraft
or potentially ground its fleet pending compliance.

Kitty Hawk cannot predict when and whether new Directives covering its
aircraft will be promulgated, and there can be no assurance that compliance with
these Directives will not adversely affect Kitty Hawk's business, financial
condition or results of operations.

C. INDUSTRY RELATED RISKS

1. CYCLICALITY AND SEASONALITY OF BUSINESS

Kitty Hawk provides services to numerous industries and customers that
experience significant fluctuations in demand based on economic conditions and
other factors beyond its control. Demand for its services could be materially
adversely affected by downturns in its customers' businesses. Kitty Hawk
believes a significant percentage of its revenues derived from its scheduled
airfreight operations will continue to be generated by the U.S. automotive
industry, which has historically been a cyclical industry. A contraction in the
U.S. automotive industry, a prolonged work stoppage or other significant labor
dispute involving that industry, or a reduction in the use of air transportation
could have a material adverse effect on Kitty Hawk's business.

Additionally, the air cargo industry itself is seasonal in nature with a
majority of the industry's flying activities being conducted in the second half
of the year (principally the fourth quarter) as more air cargo is transported in
anticipation of and during the December holiday season. A significant portion of
Kitty Hawk's profitability of Kitty Hawk is dependent on the ability of Kitty
Hawk to conduct a significant portion of its flying activities during this
critical period. Certain of Kitty Hawk's customers engage in seasonal
businesses, especially the USPS, and customers in the U.S. automotive industry.
As a result, Kitty Hawk's airfreight carrier business has historically
experienced its highest quarterly revenues and profitability during the last
three months of the year due to the peak holiday season activity of the USPS in
the fourth quarter of the calendar year and during the period from June 1 to
November 30 when production schedules of the U.S. automotive industry typically
increase.

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Consequently, Kitty Hawk historically experiences its lowest quarterly revenue
and profitability during the first three months of the year.

2. VOLATILITY OF AIR FREIGHT SERVICES MARKET

The demand for airfreight services is highly dependent on the strength of
both the domestic and global economy. Although the airfreight services industry
has experienced strong growth over the last several years, general economic
downturns, particularly any downturn affecting North America, could have a
material adverse effect on Kitty Hawk's business.

3. GOVERNMENT REGULATION

A. GENERAL

Under Title 49 of the United States Code (formerly the Federal
Aviation Act of 1958, as amended), the Department of Transportation ("DOT") and
the FAA exercise regulatory authority over Kitty Hawk. Kitty Hawk has obtained
the necessary authority to conduct flight operations, including a Certificate of
Public Convenience and Necessity from the DOT and an Air Carrier Operating
Certificate from the FAA, however, the continuation of such authority is subject
to continued compliance by Kitty Hawk with applicable statutes, rules and
regulations pertaining to the airline industry, including any new rules and
regulations that may be adopted in the future. All air carriers are subject to
the strict scrutiny of FAA officials and to the imposition of regulatory demands
that can negatively affect their operations.

B. INTERNATIONAL REGULATION

Although Kitty Hawk does not presently conduct any material
international operations, it may do so in the future. As such Kitty Hawk's
international operations would be governed by air services agreements between
the U.S. and foreign countries in which Kitty Hawk may operate. Under certain of
these air services agreements, traffic rights in those countries are available
to only a limited number of, and in some cases only one or two, U.S. air
carriers and are subject to approval by the applicable foreign regulators,
limiting growth opportunities in such countries.

C. STOCK OWNERSHIP BY NON-U.S. CITIZENS

Under current federal aviation law, Kitty Hawk could cease to be
eligible to operate as an airfreight carrier if more than 25 percent of its
voting stock were owned or controlled by non- U.S. citizens. Moreover, in order
to hold an airfreight carrier certificate, the president and two-thirds of the
directors and officers must be U.S. citizens. Kitty Hawk expects that its Plan
of Reorganization will not result in a stock ownership profile that will result
in more than 25% being held by non-U.S. citizens. There are provisions in the
certificate of incorporation of Kitty Hawk, Inc. that limit the voting power of
non-U.S. stockholders to protect against this risk. Similar provisions will be
in the certificate of incorporation of the Reorganized Kitty Hawk.

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<PAGE>
D. NOISE ABATEMENT REGULATIONS

Airline operators must comply with FAA noise control regulations
primarily promulgated under the Airport Noise and Capacity Act of 1990 (the
"Noise Regulations"). Under the Noise Regulations, in general, as of January 1,
2000, each jet aircraft operated in the U.S. must comply with Stage 3 of the
Noise Regulations. All of the aircraft currently operated by Kitty Hawk are in
compliance with Stage 3 of the Noise Regulations. Any jet aircraft that Kitty
Hawk may add to its fleet must meet Stage 3 of the Noise Regulations before it
can be operate the aircraft in revenue service. Certain airport operators have
adopted local regulations that, among other things, impose various time curfews
and other noise limiting requirements and other airport operators may adopt
similar restrictions in the future.

E. SAFETY, TRAINING AND MAINTENANCE REGULATIONS

Virtually every aspect of Kitty Hawk's air carrier operations is
subject to extensive FAA regulation, including the areas of safety, training,
and maintenance. To ensure compliance with FAA rules and regulations, the FAA
routinely inspects air carrier operations and aircraft and proposes civil
monetary penalties in the event of non-compliance. Periodically, the FAA focuses
on particular aspects of air carrier operations occasioned as a result of a
major incident. These types of inspections and regulations often impose
additional burdens on air carriers and increase their operating costs. Kitty
Hawk cannot predict when it will be subject to such inspections or regulations,
or the impact of such inspections or regulations. Other regulations promulgated
by state and federal Occupational Safety and Health Administrations, dealing
with the health and safety of its employees, impact Kitty Hawk's operations.
This extensive regulatory framework, coupled with federal, state and local
environmental laws, imposes significant compliance burdens and risks that
substantially affect Kitty Hawk's operational costs.

F. HAZARDOUS MATERIALS REGULATIONS

The FAA exercises regulatory jurisdiction over transporting
hazardous materials. Kitty Hawk regularly transports articles that are subject
to these regulations. Shippers of hazardous materials share responsibility with
the air carrier for compliance with these regulations and are primarily
responsible for proper packaging and labeling. If Kitty Hawk fails to discover
any undisclosed hazardous materials or mislabel or otherwise ship hazardous
materials, it may suffer possible aircraft damage or liability, as well as,
substantial monetary penalties. The FAA has recently increased its monitoring of
shipments of hazardous materials.

CERTAIN FEDERAL INCOME TAX CONSEQUENCES

[TO BE SUPPLIED]

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XI.

CONCLUSION

This Disclosure Statement has attempted to provide information regarding
the Debtors' estates and the potential benefits that might accrue to holders of
Claims against and Interests in the Debtors under the Plan as proposed. The Plan
is the result of extensive efforts by the Debtors, their advisors, and
management to provide the creditors with a meaningful dividend. The Debtors
believe that the Plan is feasible and will provide each holder of a Claim
against the Debtors with an opportunity to receive greater benefits than those
that would be received by termination of the Debtors' business and the
liquidation of their assets, or by any alternative plan or sale of the business
to a third party. The Debtors, therefore, hereby urge you to vote in favor of
the Plan.

WHETHER OR NOT YOU EXPECT TO ATTEND THE CONFIRMATION HEARING, WHICH IS
SCHEDULED FOR ___________, AT ______ __.M. DALLAS TEXAS TIME, YOU MUST SIGN,
DATE, AND MAIL YOUR BALLOT AS SOON AS POSSIBLE FOR THE PURPOSE OF HAVING YOUR
VOTE COUNT AT SUCH HEARING. ALL VOTES MUST BE RETURNED TO
_________________________________ AS INDICATED ON THE BALLOT ON OR BEFORE 5:00
P.M. DALLAS TEXAS TIME ON ______________________. ANY BALLOT WHICH IS ILLEGIBLE
OR WHICH FAILS TO DESIGNATE AN ACCEPTANCE OR REJECTION OF THE PLAN WILL BE
COUNTED AS A VOTE IN FAVOR OF THE PLAN.

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Dated: _____________________, 2000.

KITTY HAWK, INC. OK TURBINES, INC.
Debtor and Debtor-In-Possession Debtor and Debtor-In-Possession

___________________________________ ___________________________________
By: Tilmon J. Reeves By: Tilmon J. Reeves
Its: Chief Executive Officer Its: Chief Executive Officer

KITTY HAWK AIRCARGO, INC. LONGHORN SOLUTIONS, INC.
Debtor and Debtor-In-Possession Debtor and Debtor-In-Possession

___________________________________ ___________________________________
By: Tilmon J. Reeves By: Tilmon J. Reeves
Its: Chief Executive Officer Its: Chief Executive Officer

KITTY HAWK CHARTERS, INC. AIRCRAFT LEASING, INC.
Debtor and Debtor-In-Possession Debtor and Debtor-In-Possession

___________________________________ ___________________________________
By: Tilmon J. Reeves By: Tilmon J. Reeves
Its: Chief Executive Officer Its: Chief Executive Officer

KITTY HAWK INTERNATIONAL, INC. AMERICAN INTERNATIONAL TRAVEL, INC.
Debtor and Debtor-In-Possession Debtor and Debtor-In-Possession

___________________________________ ___________________________________
By: Tilmon J. Reeves By: Tilmon J. Reeves
Its: Chief Executive Officer Its: Chief Executive Officer

KITTY HAWK CARGO, INC. FLIGHT ONE LOGISTICS, INC.
Debtor and Debtor-In-Possession Debtor and Debtor-In-Possession

___________________________________ ___________________________________
By: Tilmon J. Reeves By: Tilmon J. Reeves
Its: Chief Executive Officer Its: Chief Executive Officer

DISCLOSURE STATEMENT UNDER 11 U.S.C. SS. 1125 IN SUPPORT OF THE
DEBTORS' JOINT PLAN OF REORGANIZATION DATED AUGUST 21, 2000
<PAGE>
Robert D. Albergotti John D. Penn
State Bar No. 00969800 State Bar No. 15752300
Haynes and Boone, LLP Haynes and Boone, LLP
901 Main Street, Suite 3100 201 Main Street, Suite 2200
Dallas, Texas 75202 Fort Worth, Texas 76102
Tel. No. (214) 651-5000 Direct Tel. No. (817) 347-6610
Fax No. (214) 651-5940 Direct Fax No. (817) 348-2300

Sarah B. Foster
State Bar No. 07297500
Haynes and Boone, LLP
600 Congress Ave., Suite 1600
Austin, Texas 78701
Tel. No. (512) 867-8400
Fax No. (512) 867-8470

/s/ JOHN D. PENN
-----------------------------------
Robert D. Albergotti (No. 00969800)
John D. Penn (No. 15752300)
Sarah B. Foster (No. 07297500)

COUNSEL TO THE DEBTORS AND THE DEBTORS-IN-POSSESSION

DISCLOSURE STATEMENT UNDER 11 U.S.C. SS. 1125 IN SUPPORT OF THE
DEBTORS' JOINT PLAN OF REORGANIZATION DATED AUGUST 21, 2000
<PAGE>
EXHIBIT "A"
PROJECTIONS OF REORGANIZED DEBTOR'S OPERATIONS

MANAGEMENT DISCUSSION OF THE PRO FORMA FINANCIAL STATEMENTS

The Company's management has prepared the following financial projections. While
management believes the underlying assumptions to be reasonably accurate, a
large percentage of these assumptions are based solely upon management's
industry experience and judgment. Therefore, the Company can give no assurance
that such assumptions will prove to be correct. Persons interested in a
transaction with the Company should conduct their own due diligence as to the
accuracy and completeness of these assumptions and financial projections before
making such investment.

The forecasts detailed herein are provided for informational purposes only, and
are based on estimates and assumptions made at the date of this Memorandum. The
Company has no responsibility to update these forecasts for subsequent
influences or events that may modify or change certain forecast results. The
Company will provide more revenue and expense detail to investors interested in
pursuing a transaction with the Company.

The Company currently operates a fleet of B727-200F aircraft some of which are
nearing the end of their economic useful life, primarily as a result of the
increased maintenance costs associated with operating older aircraft. As a
result, the Company is initiating an aggressive fleet renewal program that it
believes will reduce the overall maintenance costs of its B727-200F fleet and
increase its operational reliability. The following table summarizes the
Company's aggressive fleet renewal program:

B727 COMPOSTION (END OF YEAR)
--------------------------------------------------------------------------------
VINTAGE 2000 2001 2002 2003 2004 2005
-------------------------------------- ---- ---- ---- ---- ---- ----
1969 and Earlier ..................... 17 14 9 6 2 --
1973 to 1979 ......................... 18 18 18 18 18 18
1980 and Later ....................... 3 8 13 16 20 22
---- ---- ---- ---- ---- ----
Total B727 Fleet ................... 38 40 40 40 40 40

In order to execute this fleet renewal program the Company will require
additional financing. The Company believes that the disposition of the older
vintage aircraft units will approximate the equity necessary for the replacement
units. The Company has assumed that additional units both replacement units and
growth units acquired through year-end 2002 will be financed pursuant to debt
structures and those acquisitions after 2003 will be financed pursuant to
operating lease structures. The following table summarizes the capital
requirements to fund the Company's proposed fleet renewal program:

FLEET RENEWAL PROGRAM
--------------------------------------------------------------------------------
2001 2002 2003 2004 2005
------- ------- ------- ------- -------
Replaced Units ............... 3 5 3 4 2
Proceeds from Disposition .... $10,125 $14,675 $ 6,917 $ 7,583 $ 2,833
Proceeds for Acquisition (1) . 5,760 9,150 -- -- --
Proceeds for Leased A/C ...... -- -- 609 772 364
------- ------- ------- ------- -------
Net Cash Proceeds/(Needs) .... $ 4,365 $ 5,525 $ 6,308 $ 6,811 $ 2,469
======= ======= ======= ======= =======

(1) Net of debt financing proceeds.
<PAGE>
SUMMARY OF MAJOR ASSUMPTIONS

GENERAL

All values are expressed in nominal dollars (subject to an assumed 2.5 percent
per annum inflation assumption). These pro forma results assume that the Company
is a taxpayer, however, the Company has not yet determined its net tax paying
position upon emergence from bankruptcy. Currently, the Company has an estimated
NOL that exceeds $100.0 million. The ability of the Company to retain any
portion of this NOL may impact these pro forma results and thus the overall
valuation of the Company. Generally, the assumptions used to derive these pro
forma operating results are based on historical experience of the Company. The
Company believes that these projections can be improved upon emergence from
bankruptcy, primarily as a result of a more strategically focused business plan.

OPERATING REVENUES

Over the projection period, management believes that that it will be able to
steadily improve total revenues as a result of an overall growth in the air
cargo industry. On a consolidated basis revenues are projected to increase from
$394.9 million in 2001 to $499.9 million in 2005, representing a CAGR of 4.8%.
This revenue growth is detailed as follows:

o The scheduled business is assumed to increase from $212.1 million in
2001 to $289.2 million in 2005, representing a CAGR of 6.4%. This
growth rate is a combination of increased freight on the scheduled
system (assumed at 4.0% per annum) as well as a yield increase
(assumed at 2.5% per annum).

o The USPS business line is assumed to increase from $151.1 million in
2001 to $172.8 million in 2005, representing a CAGR of 2.7%. This
growth rate is substantially a result of two additional units added
to this business line beginning in September 2001. No other revenue
growth is assumed in this business line other than inflation
increases resulting from the terminal handling portion f this
business line. The Company believes that this business line can
further be expanded with additional resources.

o The ACMI business line is assumed to increase form $31.7 million in
2001 to $37.9 million in 2005, representing a CAGR of 3.6%. This
growth is substantially a result of an assumed 5% price increase
beginning in 2002, upon expiration of the existing contract with BAX
Global. Growth is assumed to be at the rate of inflation thereafter.
Additional revenue growth is generated from the assumption that as
the Company replaces its fleet of lightweight B727 aircraft with
heavyweight B727 aircraft the customer will derive increased
utilization and higher rates. This assumption is based on the
historical experience of the Company. These pro forma results have
been adjusted for seasonality based on the Company's historical
experience.

The ability of the Company to grow it revenue base will be impacted by a number
of factors. The key factors are highlighted below:

MARKET SHARE

Management believes that in order to realize its projected revenue growth in the
scheduled overnight air freight business it will have to obtain market share
from its competitors.

YIELD MANAGEMENT

In order to increase yields above those assumed in these projections, the
Company believes that it may be advisable to install a sophisticated yield
management system to assist in driving yields upward. Additionally,
<PAGE>
the Company believes that as it demonstrates an improved reliability, the demand
for its priority delivery product will increase, thereby increasing the overall
yield.

OPERATING EXPENSES

During the projection period, management expects operating expenses on a
consolidated basis (including depreciation and amortization), to grow from
$355.7 million in 2001 to $429.8 million in 2005, representing a CAGR of 3.9%.
This growth is at a slower rate that total revenues projected to grow at a CAGR
of approximately 4.9% through 2005. Therefore, total operating expenses as a
percentage of total revenues are projected to decrease from 90.1% in 2001 to
86.0% in 2005. The major components of the total expenses include salaries and
wages, fuel costs, aircraft maintenance, aircraft rentals and expenses relating
to operating a hub and spoke operation. The following chart summarizes these
major cost components and their percentage

OPERATING EXPENSE AS A % OF TOTAL REVENUE
----------------------------------------------
2001 2002 2003 2004 2005
------ ------ ------ ------ ------
Aircraft Rentals ............... 4.1% 3.7% 4.0% 4.6% 5.0%
Flight Crews ................... 10.1% 9.6% 9.5% 9.3% 9.1%
Aircraft Maintenance ........... 15.3% 15.1% 14.5% 14.1% 13.9%
Ground Handling and Trucking ... 13.1% 13.4% 13.5% 13.6% 13.8%
Fuel ........................... 9.4% 9.5% 9.0% 8.5% 8.2%
A300 ACMI Expenses ............. 9.3% 11.0% 11.8% 11.9% 11.6%
------ ------ ------ ------ ------
Sub-total Operating Expenses . 61.3% 62.3% 62.3% 62.0% 61.6%

AIRCRAFT RENT EXPENSE

The Company has assumed that any fleet decisions with respect to the B727-200F
fleet after 2002 will be financed on an operating lease basis. This assumption
is based on the belief that the Company does not want to speculate on the
long-term viability of the B727-200F freighter. While there currently is no
replacement for the B727-200F, alternatives, including the B737 and B757
aircraft types, are emerging as potential candidates albeit several years from
being economically viable, primarily due to high currently high capital costs.

FLIGHT CREWS

The Company has historically had a high turnover in its flight crews as demand
from the major passenger air carriers continues to outpace supply. As a result
the Company typically has a high number of training sessions for new
crewmembers. Additionally, the Company has historically devoted significant
resources to a travel budget for its crew members in a large amount of its
annual expenses in travel expenses incurred a large amount The Company has
initiated a revised crew scheduling policy that it believes will substantially
reduce its historically high travel costs associated with moving crews in
support of its operation. Additionally, the projections assume 3 crews (9 crew
members) per aircraft to meet the operating and training requirements of the
Company.

AIRCRAFT MAINTENANCE

These projections assume the Company's historical maintenance approximates
future performance. Currently, the Company's fleet of aging B727-200F aircraft
requires an extensive amount of aging aircraft inspections and maintenance
requirements. However, the Company believes that by embarking on a fleet renewal
program that it will be able to reduce its overall maintenance costs. These
projections do not attempt to quantify such benefits.
<PAGE>
GROUND HANDLING AND TRUCKING

This operating expense is directly related to the amount of freight that the
Company can deliver through its scheduled freight system and to a lesser extent
the USPS terminal handling portion of a USPS contract. These projections assume
the Company's historical experience is indicative of its future performance.

FUEL

The Company has assumed that the price of fuel (including into-plane costs)
is constant at $0.97 cents per gallon and that the fuel burn associated with
both the B727-200F and A300F remain as historically experienced. The addition of
units is substantially completed by 2002 and the overall aircraft utilization
stabilizes throughout the projection period. As a result, total fuel expense
remains relatively constant throughout the projection period.

A300F ACMI Aircraft

The Company has assumed that it will continue to operate its existing fleet of
A300F aircraft, which are operated under wet-lease ACMI contracts with a third
party. Additionally, the Company assumes that it will add A300F aircraft under
similar contracts with other third parties. The Company believes that obtaining
these aircraft under similar arrangements allows it the flexibility to access
these domestic wide-body freighters without having to take ownership and
maintenance risks associated with this relatively new freighter variant.

AIRCRAFT ACQUISITION ASSUMPTIONS

As stated earlier, the Company is embarking on an aggressive fleet renewal
program. Fleet acquisitions through year-end 2002 are assumed to be financed
pursuant to a debt structure based on a 70% advance rate fully-amortizing over
seven years. Aircraft acquisitions after 2002 are assumed to be financed
pursuant to an operating lease structure at a 1.75% rental factor. Acquisition
prices for B727-200F aircraft are assumed at $6.4 million in 2001 falling to
$5.2 million in 2005.

BALANCE SHEET ASSUMPTIONS

As a result of the bankruptcy filing the Company will have be required to adopt
"fresh-start" accounting which will require the reorganized Company to mark its
assets and liabilities to market value based upon its post- emergence equity
valuation. The Company has assumed that as a result of this accounting principal
an intangible asset entitled Assets in Excess of Reorganized Value will be
created and amortized over forty years.

The opening balance sheet assumed as of December 31, 2000 is the Company's
current best estimate as to its financial position as of this date. Of
significant interest is the assumption as to the financing of the C-Net
contract. The Company has assumed that it will use $20.0 million of its cash
balance to secure a significant portion of the expenses associated with
executing this contract. The balance (assumed at $46.0 million) is assumed to be
funded pursuant to normal credit terms from its vendors.

EXIT FINANCING

The Company intends to acquire two forms of exit financing (i) a $60.0 million
terms loan secured by 24 B727- 200F aircraft and (ii) a $50.0 million revolving
credit facility secured by accounts receivable and inventory. The term loan is
assumed to be amortized over five years and requires additional principal
reduction as a result of the B727-200F collateral retirements pursuant to the
Company's fleet renewal program. As a result, the average life of the term loan
is 39 months. The revolving credit facility is secured by the accounts
receivable and inventory of the Company. The Company has assumed that it will be
able to achieve an advance rate of (i) 80% of its total accounts receivable
balance and that 95% of its total accounts receivable balance will be considered
eligible and (ii) 45% of its total rotable inventory balance and that 90% of its
total rotable inventory balance will be considered eligible.
<PAGE>
CAPITALIZED EXPENDITURES

Capitalized expenditures are assumed to consist of heavy maintenance ("D"-Check)
requirements, assumed at two units per year. Additional capital expenditures are
assumed to be equal to the depreciated amount of the rotable inventory, or
approximately $144 thousand per month.
<PAGE>
KH 5 YEAR BUSINESS PLAN
PRO FORMA OPERATING STATEMENT
CONSOLIDATED BUSINESS LINES
(000'S)

<TABLE>
<CAPTION>
PROJECTED
---------------------------------------------------------------------------
2001 % 2002 % 2003 %
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Scheduled Services .......................... $ 212,124 53.7% $ 240,229 54.7% $ 255,786 55.8%
USPS ........................................ 151,073 8.3% 166,196 37.9% 168,353 36.7%
ACMI ........................................ 31,620 8.0% 32,488 7.4% 34,032 7.4%
Total Operating Revenue ................. 394,822 100.0% 438,913 100.0% 458,175 100.0%

Operating Expenses:
B727 Operating Expenses
Aircraft Rentals ........................ 16,116 4.1% 16,105 3.7% 18,365 4.0%
Flight Crew (Salaries, Wages, & Benefits) 39,724 10.1% 42,252 9.6% 43,322 9.5%
Maintenance ............................. 60,392 15.3% 66,130 15.1% 66,330 14.5%
Insurance ............................... 1,569 0.4% 1,669 0.4% 1,711 0.4%
Transportation Related Expenses
Ground Handling and Trucking ............ 51,533 13.1% 58,829 13.4% 62,030 13.5%
Peak Season Expenses .................... 46,000 11.7% 47,164 10.7% 48,358 10.6%
Other Aircraft Related Expenses
Fuel .................................... 37,271 9.4% 41,532 9.5% 41,350 9.0%
A300 ACMI Expenses ...................... 36,561 9.3% 48,098 11.0% 54,001 11.8%
Aircraft & Traffic Handling ............. 2,177 0.6% 2,446 0.6% 2,491 0.5%
Landing/Parking/De-Icing Charges ........ 13,272 3.4% 14,632 3.3% 14,978 3.3%
Other Operational Related Expenses
Scheduled Related Expenses .............. 6,125 1.6% 6,186 1.4% 6,249 1.4%
Postal Related Expenses ................. 1,255 0.3% 1,286 0.3% 1,319 0.3%
General and Administrative Expenses
Scheduled Related Expenses .............. 3,792 1.0% 3,888 0.9% 3,986 0.9%
Postal Related Expenses ................. 409 0.1% 402 0.1% 430 0.1%
Depreciation and Amortization ........... 16,487 4.2% 17,541 4.0% 16,897 3.7%
General and Administrative Expenses ..... 23,000 5.8% 23,269 5.3% 23,546 5.1%

Total Operating Expenses ............ 355,681 90.1% 391,449 89.2% 405,363 88.5%

EBIT ........................................ $ 39,140 9.9% $ 47,464 10.8% $ 52,812 11.5%

Interest Income/(Expense):
Interest Income (Prior Month End. Cash Bal.) 467 0.1% 919 0.2% 1,896 0.4%
Interest Expense ............................ (6,694) -1.7% (4,450) -1.0% (3,079) -0.7%
Total Interest Income/(Expense): ........ (6,226) -1.6% (3,531) -0.8% (1,183) -0.3%

Projected

Earnings Before Taxes ............................ 32,914 8.3% 43,933 10.0% 51,629 11.3%

Income Tax Expense ...................... 13,166 3.3% 17,573 4.0% 20,651 4.5%

Net Income ....................................... $ 19,748 5.0% $ 26,360 6.0% $ 30,977 6.8%

EBITDA ...................................... $ 55,627 14.1% $ 65,005 14.8% $ 69,709 15.2%

EBITDAR ..................................... $ 71,743 18.2% $ 81,110 18.5% $ 88,074 19.2%
</TABLE>
<TABLE>
<CAPTION>
PROJECTED
---------------------------------------------------
2004 % 2005 %
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Scheduled Services .......................... $ 272,066 56.8% $ 289,246 57.8%
USPS ........................................ 170,573 35.6% 172,843 34.6%
ACMI ........................................ 36,691 7.7% 37,916 7.6%
Total Operating Revenue ................. 479,330 100.0% 500,007 100.0%

Operating Expenses:
B727 Operating Expenses
Aircraft Rentals ........................ 22,231 4.6% 24,855 5.0%
Flight Crew (Salaries, Wages, & Benefits) 44,418 9.3% 45,543 9.1%
Maintenance ............................. 67,634 14.1% 69,405 13.9%
Insurance ............................... 1,754 0.4% 1,799 0.4%
Transportation Related Expenses
Ground Handling and Trucking ............ 65,370 13.6% 68,884 13.8%
Peak Season Expenses .................... 49,583 10.3% 50,838 10.2%
Other Aircraft Related Expenses
Fuel .................................... 40,964 8.5% 40,859 8.2%
A300 ACMI Expenses ...................... 56,802 11.9% 58,159 11.6%
Aircraft & Traffic Handling ............. 2,550 0.5% 2,615 0.5%
Landing/Parking/De-Icing Charges ........ 15,347 3.2% 15,718 3.1%
Other Operational Related Expenses
Scheduled Related Expenses .............. 6,313 1.3% 6,379 1.3%
Postal Related Expenses ................. 1,352 0.3% 1,386 0.3%
General and Administrative Expenses
Scheduled Related Expenses .............. 4,087 0.9% 4,191 0.8%
Postal Related Expenses ................. 441 0.1% 452 0.1%
Depreciation and Amortization ........... 15,429 3.2% 14,585 2.9%
General and Administrative Expenses ..... 23,829 5.0% 24,119 4.8%

Total Operating Expenses ............ 418,105 87.2% 429,788 86.0%

EBIT ........................................ $ 61,225 12.8% $ 70,220 14.0%

Interest Income/(Expense):
Interest Income (Prior Month End. Cash Bal.) 3,187 0.7% 5,173 1.0%
Interest Expense ............................ (1,036) -0.2% (1) 0.0%
Total Interest Income/(Expense): ........ 2,150 0.4% 5,171 1.0%

Projected

Earnings Before Taxes ............................ 63,375 13.2% 75,391 15.1%

Income Tax Expense ...................... 25,350 5.3% 30,156 6.0%

Net Income ....................................... $ 38,025 7.9% $ 45,235 9.0%

EBITDA ...................................... $ 76,654 16.0% $ 84,805 17.0%

EBITDAR ..................................... $ 98,884 20.6% $ 109,660 21.9%
</TABLE>
<PAGE>
KH 5 YEAR BUSINESS PLAN
PRO FORMA OPERATING STATEMENT
SCHEDULED BUSINESS LINE
(000'S)

<TABLE>
<CAPTION>
PROJECTED
------------------------------------------------------------------
2001 % 2002 % 2003 %
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Scheduled Freight ........................................ $209,184 98.6% $237,215 98.7% $252,695 98.8%
Other Scheduled Revenue .................................. 2,940 1.4% 3,014 1.3% 3,091 1.2%
Total Revenue ...................................... 212,124 100.0% 240,229 100.0% 255,786 100.0%

Aircraft Rentals ......................................... 5,148 2.4% 4,959 2.1% 5,918 2.3%
Flight crews (Salaries and Travel Related) ............... 16,706 7.9% 17,129 7.1% 17,563 6.9%
Maintenance - Line/Labor ................................. 7,337 3.5% 7,434 3.1% 6,996 2.7%
Insurance - Aircraft/Inventory ........................... 660 0.3% 676 0.3% 694 0.3%
Heavy Maintenance - Reserves ............................. 9,952 4.7% 10,084 4.2% 9,490 3.7%
Total B727 Operating Expenses ................ 39,803 18.8% 40,282 16.8% 40,661 15.9%

Scheduled Related Expenses:
Transportation Related
Ground Handling - Outsourced ....................... 16,908 8.0% 19,173 8.0% 20,425 8.0%
Ground Handling - Internal ......................... 10,836 5.1% 12,288 5.1% 13,090 5.1%
Trucking ........................................... 6,424 3.0% 7,284 3.0% 7,760 3.0%
Contract Labor ..................................... 3,604 1.7% 4,087 1.7% 4,353 1.7%
Total Transportation Related Expenses ........ 37,771 17.8% 42,833 17.8% 45,628 17.8%

Other Aircraft Related Expenses
Fuel ............................................... 37,271 17.6% 41,532 17.3% 41,350 16.2%
A300 ACMI .......................................... 36,561 17.2% 48,098 20.0% 54,001 21.1%
Landing Fees (B727 and A300) ....................... 5,354 2.5% 5,965 2.5% 6,082 2.4%
Parking Fees (B727 and A300) ....................... 621 0.3% 671 0.3% 669 0.3%
De-Icing ........................................... 6,100 2.9% 6,323 2.6% 6,511 2.5%
Total Other Aircraft Related Expenses ........ 85,906 40.5% 102,589 42.7% 108,612 42.5%

Other Operational Related Expenses
Rent ............................................... 3,708 1.7% 3,708 1.5% 3,708 1.4%
Utilities .......................................... 990 0.5% 1,015 0.4% 1,041 0.4%
Other Operations Expenses .......................... 1,426 0.7% 1,463 0.6% 1,500 0.6%
Scheduled G&A Expenses ............................. 3,792 1.8% 3,888 1.6% 3,986 1.6%
Total Other Operational Related Expenses 9,917 4.7% 10,074 4.2% 10,235 4.0%

Total Scheduled Related Expenses ................... 133,594 63.0% 155,495 64.7% 164,475 64.3%

Gross Profit ................................. 38,727 18.3% 44,452 18.5% 50,650 19.8%

Allocated Overhead
Depreciation & Amortization .............................. 6,321 3.0% 6,360 2.6% 5,968 2.3%
Aircraft and Traffic Handling Expenses ................... 853 0.4% 953 0.4% 960 0.4%
Allocated Ownership of B727 "Hot" Spares ................. 1,359 0.6% 1,359 0.6% 1,337 0.5%
Allocated Ownership of B727 Mx Spares .................... 1,019 0.5% 1,019 0.4% 1,003 0.4%
General and Administrative Expenses ...................... 12,357 5.8% 12,357 5.1% 12,357 4.8%

Total Cost of Allocations .................... 21,909 10.3% 22,048 9.2% 21,625 8.5%

EBIT ..................................................... $ 16,817 7.9% $ 22,404 9.3% $ 29,025 11.3%

EBITDA ................................................... $ 23,138 10.9% $ 28,763 12.0% $ 34,993 13.7%

EBITDAR .................................................. $ 30,664 14.5% $ 36,100 15.0% $ 43,250 16.9%
</TABLE>
<TABLE>
<CAPTION>
PROJECTED
------------------------------------------
2004 % 2005 %
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Scheduled Freight ........................................ $268,897 98.8% $285,997 98.9%
Other Scheduled Revenue .................................. 3,169 1.2% 3249 1.1%
Total Revenue ...................................... 272,066 100.0% 289,246 100.0%

Aircraft Rentals ......................................... 7,559 2.8% 8,631 3.0%
Flight crews (Salaries and Travel Related) ............... 18,007 6.6% 18,463 6.4%
Maintenance - Line/Labor ................................. 6,873 2.5% 7,029 2.4%
Insurance - Aircraft/Inventory ........................... 711 0.3% 729 0.3%
Heavy Maintenance - Reserves ............................. 9,323 3.4% 9,534 3.3%
Total B727 Operating Expenses ................ 42,473 15.6% 44,386 15.3%

Scheduled Related Expenses:
Transportation Related
Ground Handling - Outsourced ....................... 21,734 8.0% 23,116 8.0%
Ground Handling - Internal ......................... 13,930 5.1% 14,815 5.1%
Trucking ........................................... 8,257 3.0% 8,783 3.0%
Contract Labor ..................................... 4,632 1.7% 4,927 1.7%
Total Transportation Related Expenses ........ 48,553 17.8% 51,641 17.9%

Other Aircraft Related Expenses

Fuel ............................................... 40,964 15.1% 40,859 14.1%
A300 ACMI .......................................... 56,802 20.9% 58,159 20.1%
Landing Fees (B727 and A300) ....................... 6,215 2.3% 6,356 2.2%
Parking Fees (B727 and A300) ....................... 675 0.2% 691 0.2%
De-Icing ........................................... 6,697 2.5% 6,867 2.4%
Total Other Aircraft Related Expenses ........ 111,355 40.9% 112,932 39.0%

Other Operational Related Expenses

Rent ............................................... 3,708 1.4% 3,708 1.3%
Utilities .......................................... 1,067 0.4% 1,094 0.4%
Other Operations Expenses .......................... 1,538 0.6% 1,576 0.5%
Scheduled G&A Expenses ............................. 4,087 1.5% 4,191 1.4%
Total Other Operational Related Expenses 10,400 3.8% 10,570 3.7%

Total Scheduled Related Expenses ................... 170,308 62.6% 175,143 60.6%

Gross Profit ................................. 59,285 21.8% 69,717 24.1%

Allocated Overhead

Depreciation & Amortization .............................. 5,241 1.9% 4,768 1.6%
Aircraft and Traffic Handling Expenses ................... 970 0.4% 992 0.3%
Allocated Ownership of B727 "Hot" Spares ................. 1,286 0.5% 1,265 0.4%
Allocated Ownership of B727 Mx Spares .................... 965 0.4% 949 0.3%
General and Administrative Expenses ...................... 12,357 4.5% 12,357 4.3%

Total Cost of Allocations .................... 20,820 7.7% 20,331 7.0%

EBIT ..................................................... $ 38,465 14.1% $ 49,386 17.1%

EBITDA ................................................... $ 43,706 16.1% $ 54,154 18.7%

EBITDAR .................................................. $ 53,517 19.7% $ 64,999 22.5%
</TABLE>
<PAGE>
KH 5 YEAR BUSINESS PLAN
PRO FORMA OPERATING STATEMENT
USPS BUSINESS LINE

(000'S)

<TABLE>
<CAPTION>
PROJECTED
-----------------------------------------------------------------
2001 % 2002 % 2003 %
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
USPS Line Haul ........................... $ 70,123 46.4% $ 80,818 48.6% $ 80,818 48.0%
USPS Ground Handling ..................... 25,954 17.2% 28,985 17.4% 29,719 17.7%
Peak Season Revenue ...................... 55,000 36.4% 56,392 33.9% 57,820 34.3%
Total Revenue ..................... 151,077 100.0% 166,196 100.0% 168,357 100.0%

B727 Operating Expenses:
Aircraft Rentals ......................... 4,682 3.1% 4,959 3.0% 5,918 3.5%
Flight crews (Salaries and Travel Related) 15,221 10.1% 17,129 10.3% 17,563 10.4%
Maintenance - Line/Labor ................. 12,747 8.4% 14,945 9.0% 15,323 9.1%
Insurance - Aircraft/Inventory ........... 601 0.4% 676 0.4% 694 0.4%
Heavy Maintenance - Reserves ............. 17,291 11.4% 20,272 12.2% 20,786 12.3%
Total B727 Operating Expenses ..... 50,542 33.5% 57,982 34.9% 60,283 35.8%

Postal Related Expenses:
Peak Season Expenses ..................... 46,000 30.4% 47,164 28.4% 48,358 28.7%
Terminal Handling ........................ 13,761 9.1% 15,997 9.6% 16,402 9.7%
Landing Fees ............................. 1,197 0.8% 1,674 1.0% 1,716 1.0%
Other Operations Expenses ................ 1,255 0.8% 1,286 0.8% 1,319 0.8%
General and Administrative ............... 409 0.3% 420 0.3% 430 0.3%
Total Postal Related Expenses ..... 62,622 41.2% 66,541 39.8% 68,226 40.3%

Depreciation & Amortization .............. 5,908 3.9% 6,458 3.9% 6,066 3.6%
Aircraft and Traffic Handling Expenses ... 923 0.6% 1,082 0.7% 1,109 0.7%

Total Cost of Revenues ............ 119,995 79.2% 132,063 79.2% 135,684 80.3%

Gross Profit ...................... 31,082 20.8% 34,133 20.8% 32,673 19.7%

Allocation of Overhead

B727 Maintenance Spare ................... 1,019 0.7% 1,019 0.6% 1,003 0.6%
General and Administrative Expenses ...... 8,801 5.8% 9,024 5.4% 9,252 5.5%

EBIT ..................................... $ 21,262 14.3% $ 24,090 14.7% $ 22,418 13.6%

EBITDA ................................... $ 27,170 19.1% $ 30,548 20.1% $ 28,485 22.2%

EBITDAR .................................. $ 32,871 22.9% $ 36,526 23.7% $ 35,405 26.3%
</TABLE>
<TABLE>
<CAPTION>
PROJECTED
------------------------------------------
2004 % 2005 %
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
USPS Line Haul ........................... $ 80,818 47.4% $ 80,818 46.8%
USPS Ground Handling ..................... 30,471 17.9% 31,243 18.1%
Peak Season Revenue ...................... 59,284 34.8% 60,784 35.2%
Total Revenue ..................... 170,573 100.0% 172,845 100.0%

B727 Operating Expenses:
Aircraft Rentals ......................... 7,559 4.4% 8,631 5.0%
Flight crews (Salaries and Travel Related) 18,007 10.6% 18,463 10.7%
Maintenance - Line/Labor ................. 15,711 9.2% 16,109 9.3%
Insurance - Aircraft/Inventory ........... 711 0.4% 729 0.4%
Heavy Maintenance - Reserves ............. 21,312 12.5% 21,851 12.6%
Total B727 Operating Expenses ..... 63,300 37.1% 65,783 38.1%

Postal Related Expenses:
Peak Season Expenses ..................... 49,583 29.1% 50,838 29.4%
Terminal Handling ........................ 16,817 9.9% 17,243 10.0%
Landing Fees ............................. 1,760 1.0% 1,804 1.0%
Other Operations Expenses ................ 1,352 0.8% 1,386 0.8%
General and Administrative ............... 441 0.3% 452 0.3%
Total Postal Related Expenses ..... 69,953 40.8% 71,724 41.2%

Depreciation & Amortization .............. 5,340 3.1% 4,867 2.8%
Aircraft and Traffic Handling Expenses ... 1,137 0.7% 1,166 0.7%

Total Cost of Revenues ............ 139,730 81.7% 143,540 82.8%

Gross Profit ...................... 30,843 18.3% 29,305 17.2%

Allocation of Overhead

B727 Maintenance Spare ................... 965 0.6% 949 0.5%
General and Administrative Expenses ...... 9,486 5.6% 9,726 5.6%

EBIT ..................................... $ 20,391 12.2% $ 18,630 11.0%

EBITDA ................................... $ 25,732 24.9% $ 23,497 27.0%

EBITDAR .................................. $ 34,256 29.9% $ 33,077 32.6%
</TABLE>
<PAGE>
KH 5 YEAR BUSINESS PLAN
PRO FORMA OPERATING STATEMENT
ACMI BUSINESS LINE
(000'S)

<TABLE>
<CAPTION>
PROJECTED
------------------------------------------------------------------
2001 % 2002 % 2003 %
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
ACMI ..................................... $ 31,620 100.0% $ 32,488 100.0% $ 34,032 100.0%
Total Revenue ...................... 31,620 100.0% 32,488 100.0% 34,032 100.0%

B727 OPERATING EXPENSES:

Aircraft Rentals ......................... 2,413 7.6% 2,314 7.1% 2,719 8.0%
Flight crews (Salaries and Travel Related) 7,796 24.7% 7,994 24.6% 8,196 24.1%
Maintenance - Line/Labor ................. 5,544 17.5% 5,685 17.5% 5,828 17.1%
Insurance - Aircraft/Inventory ........... 308 1.0% 316 1.0% 324 1.0%
Heavy Maintenance - Reserves ............. 7,521 23.8% 7,711 23.7% 7,906 23.2%

Total B727 Operating Expenses ...... 23,582 74.6% 24,019 73.9% 24,974 73.4%

Gross Profit ................. 8,038 25.4% 8,469 26.1% 9,058 26.6%

Allocation of Overhead

Depreciation & Amortization .............. 2,697 8.5% 2,719 8.4% 2,553 7.5%
Aircraft and Traffic Handling Expenses ... 401 1.3% 411 1.3% 422 1.2%
B727 Maintenance Spares .................. 476 1.5% 476 1.5% 468 1.4%
General and Administrative Expenses ...... 1,842 5.8% 1,889 5.8% 1,936 5.7%

Total Cost of Allocations .... 5,416 17.1% 5,495 16.9% 5,379 15.8%

EBIT ..................................... $ 2,622 8.3% $ 2,974 9.2% $ 3,679 10.8%

EBITDA ................................... $ 5,319 16.8% $ 5,694 17.5% $ 6,232 18.3%

EBITDAR .................................. $ 8,208 18.3% $ 8,483 19.0% $ 9,419 19.7%
</TABLE>
<TABLE>
<CAPTION>
PROJECTED
------------------------------------------
2004 % 2005 %
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
ACMI ..................................... $ 36,691 100.0% $ 37,916 100.0%
Total Revenue ...................... 36,691 100.0% 37,916 100.0%

B727 OPERATING EXPENSES:

Aircraft Rentals ......................... 3,446 9.4% 3,988 10.5%
Flight crews (Salaries and Travel Related) 8,403 22.9% 8,616 22.7%
Maintenance - Line/Labor ................. 6,117 16.7% 6,315 16.7%
Insurance - Aircraft/Inventory ........... 332 0.9% 340 0.9%
Heavy Maintenance - Reserves ............. 8,298 22.6% 8,567 22.6%

Total B727 Operating Expenses ...... 26,597 72.5% 27,827 73.4%

Gross Profit ................. 10,094 27.5% 10,089 26.6%

Allocation of Overhead

Depreciation & Amortization .............. 2,230 6.1% 1,993 5.3%
Aircraft and Traffic Handling Expenses ... 443 1.2% 457 1.2%
B727 Maintenance Spares ................. 450 1.2% 443 1.2%
General and Administrative Expenses ...... 1,985 5.4% 2,036 5.4%

Total Cost of Allocations .... 5,108 13.9% 4,929 13.0%

EBIT ..................................... $ 4,986 13.6% $ 5,160 13.6%

EBITDA ................................... $ 7,216 19.7% $ 7,154 18.9%

EBITDAR .................................. $ 11,112 20.9% $ 11,584 20.0%
</TABLE>
<PAGE>
KH 5 YEAR BUSINESS PLAN
PRO FORMA BALANCE SHEET (000'S)

<TABLE>
<CAPTION>
PROJECTED
---------------------------------------------------------------
YE 2000 YE 2001 YE 2002 YE 2003 YE 2004 YE 2005
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:

CURRENT ASSETS:
Cash & Cash Equivalents .................................. $ 16,033 $ 9,847 $ 15,702 $ 39,955 $ 70,258 $118,146
Accounts Receivable, Net ................................. 100,954 111,535 115,799 120,267 124,884 129,660
Inventory & Aircraft Supplies ............................ 1,160 1,160 1,160 1,160 1,160 1,160
Prepaid Expenses & Other Current Assets .................. 4,600 4,700 4,742 4,785 4,830 4,830
Total Current Assets .............................. 122,747 127,242 137,403 166,167 201,132 253,796

PROPERTY & EQUIPMENT:
Aircraft & Engines ....................................... 99,905 89,780 75,405 68,488 60,905 58,072
Additional Aircraft ...................................... -- 25,600 56,100 56,100 56,100 56,100
Rotable Inventory (B727) ................................. 12,099 13,827 15,556 17,284 19,013 20,741
Capitalization of Heavy Mx. Events ....................... -- 3,230 6,460 9,690 12,920 16,150
Machinery & Equipment .................................... 7,518 7,518 7,518 7,518 7,518 7,518
Buildings & Leasehold Improvements ....................... 2,929 2,929 2,929 2,929 2,929 2,929
Total Property & Equipment ........................ 122,451 142,884 163,968 162,010 159,385 161,510
Less Accumulated Depreciation ............................ -- 15,119 31,168 46,573 60,509 73,602
Net Property & Equipment .......................... 122,451 127,765 132,800 115,437 98,875 87,908

OTHER ASSETS
Assets in excess of reorg. value, net .................... 59,695 59,695 59,695 59,695 59,695 59,695
Amortization of Excess Reorg. Value ............... -- 1,492 2,985 4,477 5,970 7,462
Net Assets in Excess of Reorg. Value ...... 59,695 58,203 56,710 55,218 53,726 52,233

Other Assets (F&F) ....................................... 1,817 1,817 1,817 1,817 1,817 1,817
Aircraft Lease Deposits .................................. 2,600 2,600 2,600 3,412 4,182 4,546
Total Other Assets ................................ 64,112 62,620 61,127 60,447 59,725 58,596

TOTAL ASSETS ............................................. $309,310 $317,627 $331,330 $342,051 $359,732 $400,300

LIABILITIES & STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Revolving Credit Facility ................................ 50,000 10,173 -- -- -- --
Accounts Payable ......................................... 41,000 65,216 67,381 69,249 70,938 72,723
Accrued Taxes ............................................ -- -- -- -- -- --
CMLTD-Initial Funding (A/C) .............................. 9,843 10,734 11,800 7,479 -- --
CMLTD-First Source (A/C) ................................. 1,613 1,930 2,109 2,304 201 --
CMLTD-Additional A/C ..................................... -- 3,200 6,250 6,250 6,250 6,250
TOTAL CURRENT LIABILITIES ......................... 102,455 91,253 87,540 85,282 77,390 78,973

LONG-TERM LIABILITIES:
Long-Term Debt (Initial Financing A/C) ................... 50,157 34,838 15,445 6,000 -- --
Long-Term Debt-First Source (A/C) ........................ 6,697 4,614 2,506 201 -- --
Long-Term Debt Additional A/C ............................ -- 17,173 29,732 23,482 17,232 10,982
TOTAL LONG-TERM LIABILITIES ....................... 56,855 56,626 47,682 29,683 17,232 10,982

STOCKHOLDERS' EQUITY:
Common Stock ............................................. 1,000 1,000 1,000 1,000 1,000 1,000
Additional Capital ....................................... 149,000 149,000 149,000 149,000 149,000 149,000
Retained Earnings ........................................ -- 19,748 46,108 77,085 115,110 160,345
TOTAL STOCKHOLDERS' EQUITY......................... 150,000 169,748 196,108 227,085 265,110 310,345

TOTAL LIABILITIES & STOCKHOLDERS' EQUITY.................. $309,310 $317,627 $331,330 $342,051 $359,732 $400,300
</TABLE>
<PAGE>
KH 5 YEAR BUSINESS PLAN
PRO FORMA CASH FLOW STATEMENT
(000'S)

<TABLE>
<CAPTION>
PROJECTED
-------------------------------------------------------------
YE 2001 YE 2002 YE 2003 YE 2004 YE 2005
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Beginning Cash Balance ............................................ $ 16,033 $ 9,847 $ 15,702 $ 39,955 $ 70,258

Cash Flow from Operating Activities:
Net Income/(Loss) Available to Common ............................. 19,748 26,360 30,977 38,025 45,235
Adjustments to Reconcile NI to Net Cash:
Depreciation & Amortization Addback ....................... 15,119 16,049 15,405 13,936 13,093
Amortization Assets in Excess Reorg Value ................. 1,492 1,492 1,492 1,492 1,492
Other, Net
Total Operating Activities ......................... 36,360 43,901 47,875 53,454 59,820

Changes in Operating Assets & Liabilities:
(Incr)/Decr in Trade Accounts Receivable, Net ............. (10,581) (4,263) (4,468) (4,617) (4,776)
(Incr)/Decr in Inventory and Aircraft Supplies ............ -- -- -- -- --
(Incr)/Decr in Prepaid Expenses & Other ................... (100) (42) (43) (44) --
(Incr)/Decr in Other Assets (F&F) ......................... -- -- -- -- --
(Incr)/Decr in Aircraft Lease Deposits .................... -- -- (812) (770) (364)
Incr/(Decr) in Accounts Payable ........................... 24,216 2,166 1,867 1,690 1,785
Incr/(Decr) in Accrued Taxes .............................. -- -- -- -- --
Total Changes in Operating Assets & Liabilities .... 13,534 (2,140) (3,456) (3,742) (3,355)

Net Cash Provided/(Used) by Operating Activities .......... 49,894 41,761 44,419 49,712 56,465

Cash Flow from Investing Activities:
Sale of Initial Aircraft and Engines ............... 10,125 14,375 6,917 7,583 2,833
Acquisition of Additional B727 Aircraft ............ (25,600) (30,500) -- -- --
Rotable Inventory .................................. (1,728) (1,728) (1,728) (1,728) (1,728)
Capitalization of Heavy Maintenance ................ (3,230) (3,230) (3,230) (3,230) (3,230)
Machinery & Equipment .............................. -- -- -- -- --
Buildings & Leasehold Improvements ................. -- -- -- -- --

Net Cash Provided/(Used) by Investing Activities .......... (20,433) (21,083) 1,958 2,625 (2,125)

Cash Flow from Financing Activities:
Borrowings on Revolving Credit Facility, Net ....... (39,827) (10,173) -- -- --
Issuance/(Retire) Additional B727 Debt ............. 20,373 15,608 (6,250) (6,250) (6,250)
Retire Initial Aircraft and Engines ................ (14,428) (18,328) (13,765) (13,479) --
Retire First Source Debt ........................... (1,766) (1,930) (2,109) (2,304) (201)

Net Cash Provided/(Used) by Financing Activities .......... (35,647) (14,823) (22,124) (22,034) (6,451)

Net Increase (Decrease) in Cash ................................... (6,186) 5,855 24,253 30,303 47,888

Ending Cash Balance ............................................... $ 9,847 $ 15,702 $ 39,955 $ 70,258 $ 118,146
</TABLE>
<PAGE>
EXHIBIT "B"

LIQUIDATION ANALYSIS

KITTY HAWK, INC., ET AL
LIQUIDATION ANALYSIS
(IN THOUSANDS)

<TABLE>
<CAPTION>
NET VALUE
ESTIMATED OF ASSETS
LIQUIDATION PERCENTAGE LESS: ASSETS AVAILABLE FOR
BOOK VALUE VALUE OF LIQUIDATION SUBJECT TO LIENS, UNSECURED
OF ASSETS OF ASSETS (1) TO BOOK VALUE AS ADJUSTED (2) CREDITORS
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Kitty Hawk, Inc. ....... $ 587,429 $ 14,145 2.41% $ 9,230 $ 4,915
Kitty Hawk Cargo ....... 146,063 37,597 25.74% 25,273 12,324
Kitty Hawk Aircargo .... 311,152 95,514 30.70% 59,162 36,352
Kitty Hawk International 525,832 154,959 29.47% 142,107 12,852
Kitty Hawk Charters .... 67,747 29,821 44.02% 9,689 20,132
Longhorn Solutions ..... 3,468 108 3.11% 47 61
Aircraft Leasing ....... 48,240 43,333 89.83% 43,333 0
American International . 65 0 0.00% 0 0
Travel
Flight One Logistics ... 39 0 0.00% 0 0

OK Turbines ............ 5,508 1,848 33.55% 1,257 591
--------------- --------------- --------------- --------------- ---------------
$ 1,695,543 $ 377,325 22.25% $ 290,098 $ 87,227
=============== =============== =============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
LESS: REALLOCATION NET AMOUNT
ESTIMATED BASED ON AVAILABLE FOR ESTIMATED
ADMINISTRATIVE INTERCOMPANY GENERAL GENERAL ESTIMATED
AND PRIORITY RECEIVABLES/ UNSECURED UNSECURED RECOVERY
CLAIMS PAYABLES (3) CREDITORS CLAIMS (4) PERCENTAGE
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Kitty Hawk, Inc. ....... $ 2,826 $ 9,277 $ 11,366 198,857 5.72%
Kitty Hawk Cargo ....... 3,293 555 9,586 201,993 4.75%
Kitty Hawk Aircargo .... 4,812 (5,890) 25,650 224,269 11.44%
Kitty Hawk International 5,241 (4,805) 2,806 219,648 1.28%
Kitty Hawk Charters .... 3,168 854 17,818 207,013 8.61%
Longhorn Solutions ..... 73 9 (3) 196,473 0.00%
Aircraft Leasing ....... 0 0 0 197,705 0.00%
American International . 17 0 (17) 196,407 0.00%
Travel
Flight One Logistics ... 0 1 1 196,405 0.00%
OK Turbines ............ 28 (1) 562 196,430 0.29%
--------------- --------------- ---------------
$ 19,458 0 $ 67,769
=============== =============== ===============
</TABLE>

FOOTNOTES:

(1) The liquidation value(s) represent the expected value to be received upon
the sale of the relevant asset pursuant to an orderly sale taking into account
the age of the asset and the speed that the asset could be sold. All airframe
and engine values are presumed to be "half-time" with regard to condition since
no valuation based upon condition was performed upon each airframe and engine.

(2) Certain assets are subject to the liens of various secured creditors. Based
on the estimated liquidation value of such assets, all of the secured creditors,
except for the Wells Fargo Bank Group, would have deficiency claims which have
been included with "Estimated General Unsecured Claims ." For purposes of this
analysis, the claim of the Wells Fargo Bank Group has been allocated to each
applicable Debtor on a pro rata basis using the estimated liquidation values of
assets subject to its liens held by such Debtor.

(3) The Debtors have not maintained their intercompany balances on an
entity-by-entity basis, but rather on a pooled basis. For purposes of this
analysis, each Debtor has either a receivable or a payable from/to the
intercompany pool. Based on estimated liquidation recoveries by the Debtors
which have payables to the intercompany pool, an allocation of such expected
recoveries has been reallocated to those Debtors with receivables from the
intercompany pool.

(4) Each Debtor was a guarantor of the Senior Secured Notes Payable. For
purposes of this analysis, the deficiency for the Senior Secured Notes is
estimated at $196,405,000. Therefore, each Debtor has this amount included in
its "Estimated General Unsecured Claims."