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-BJH-11
KITTY HAWK CHARTERS, INC., ss. CASE NO. 400-42143-BJH-11
KITTY HAWK INTERNATIONAL, INC., ss. CASE NO. 400-42144-BJH-11
KITTY HAWK CARGO, INC., ss. CASE NO. 400-42145-BJH-11
OK TURBINES, INC., ss. CASE NO. 400-42146-BJH-11
LONGHORN SOLUTIONS, INC., ss. CASE NO. 400-42147-BJH-11
AIRCRAFT LEASING, INC., ss. CASE NO. 400-42148-BJH-11
AMERICAN INTERNATIONAL ss. CASE NO. 400-42149-BJH-11
TRAVEL, INC., AND ss.
FLIGHT ONE LOGISTICS, INC. ss. CASE NO. 400-42069-BJH-11
ss.
Debtors. ss. Jointly Administered under
ss. Case No. 400-42141
--------------------------------------------------------------------------------
FINAL DISCLOSURE STATEMENT UNDER 11 U.S.C. SS. 1125
IN SUPPORT OF THE DEBTORS' JOINT
PLAN OF REORGANIZATION DATED OCTOBER 10, 2000
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THIS FINAL DISCLOSURE STATEMENT HAS BEEN PREPARED BY (COLLECTIVELY, THE
"DEBTORS," OR "KITTY HAWK") AND DESCRIBES THE TERMS AND PROVISIONS OF THE
DEBTORS' JOINT PLAN OF REORGANIZATION DATED OCTOBER 10, 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. A COPY OF THE PLAN IS INCLUDED HEREIN
BEHIND THE DISCLOSURE STATEMENT.
Dated: October 10, 2000
<TABLE>
<CAPTION>
<S> <C> <C>
Robert D. Albergotti John D. Penn Sarah B. Foster
State Bar No. 00969800 State Bar No. 15752300 State Bar No. 07297500
Haynes and Boone, LLP Haynes and Boone, LLP Haynes and Boone, LLP
901 Main Street, Suite 3100 201 Main Street, Suite 2200 600 Congress Ave., Suite 1600
Dallas, Texas 75202 Fort Worth, Texas 76102 Austin, Texas 78701
Tel. No. (214) 651-5000 Direct Tel. No. (817) 347-6610 Tel. No. (512) 867-8400
Fax No. (214) 651-5940 Direct Fax No. (817) 348-2300 Fax No. (512) 867-8470
</TABLE>
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...........................................4
II. EXPLANATION OF CHAPTER 11..............................................5
A. Overview of Chapter 11...........................................5
B. Plan of Reorganization...........................................6
III. VOTING PROCEDURES AND REQUIREMENTS FOR CONFIRMATION....................7
A. "Voting Claims" -- Parties Entitled to Vote......................7
B. Return of Ballots................................................8
1. Voting Record Date.........................................9
2. Special Procedures for Ballots of Holders of Senior Notes..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..................................................12
IV. BACKGROUND OF THE DEBTORS.............................................13
A. Nature of the Debtors' Business.................................13
B. Overview of the Debtors' Current Corporate Structure............14
C. Creditor Claims Against Multiple Debtors........................15
D. Existing and Potential Litigation...............................16
1. Claims Against the Debtors................................16
a. Securities Litigation Against the Debtors or
Their Officers and Directors........................16
b. Other Claims Against the Debtors....................17
2. Claims Held by the Debtors................................17
a. Preference Claims...................................17
b. Potential Avoidance Claims Against the Noteholders..17
3. Creditors' Committee's Position Statement on the
Debtors' Proposed Settlement with the Noteholders.........21
a. Litigation with International Brotherhood of
Teamsters...........................................23
b. Litigation with Conrad Kalitta......................24
c. Miscellaneous Litigation............................24
V. EVENTS LEADING TO BANKRUPTCY..........................................24
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A. Events Leading to Chapter 11 Bankruptcy Filing..................24
VI. PROGRESS DURING BANKRUPTCY AND SIGNIFICANT EVENTS.....................26
A. Fort Wayne Hub Improvements.....................................26
B. Financial Performance...........................................26
C. Revenue Performance Improvement.................................26
D. Administrative Consolidation....................................27
E. Management Changes..............................................27
F. Asset Sales.....................................................27
G. Key Contracts...................................................28
H. Significant Orders Entered During the Case......................29
I. Appointment of Creditors' Committee.............................31
J. Professionals' Being Paid by the Estates and Fees to Date.......32
1. Professionals employed by the Debtors.....................32
2. Professionals employed by the Creditors' Committee........32
3. Changes in Professionals Retained.........................32
4. Fees to Date..............................................33
VII. DESCRIPTION OF THE PLAN...............................................33
A. Introduction....................................................33
B. Consolidation...................................................33
C. Position of Northwest Airlines, Mercury Air and Creditors'
Committee Regarding Plan........................................33
D. Designation of Claims and Interests.............................34
1. Secured Claims............................................35
2. Unsecured Claims..........................................35
3. Interests.................................................35
E. Treatment of Claims and Interests...............................35
1. Administrative Claims.....................................35
a. General.............................................35
b. Payment of Statutory Fees...........................36
c. Bar Date for Administrative Claims..................36
(1) General Provisions............................36
(2) Professionals.................................36
(3) Ordinary Course Liabilities...................36
(4) Contractual Employee Claims...................36
(5) Tax Claims....................................36
2. Treatment of Pre-Petition Priority and Secured Tax Claims.36
F. Classification and Treatment of Classified Claims and Interests.37
1. Class 1 - Bank Claims.....................................37
2. Class 2 - Noteholders' Secured Claims.....................38
3. Class 3 - Secured Claims Other Than Bank Claims and
Claims of the Noteholders.................................38
4. Class 4 - Priority Claims.................................39
5. Class 5 - Convenience Claims..............................39
6. Class 6 - Unsecured Noteholder Claims.....................40
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7. Class 7 - Other Unsecured Claims..........................40
8. Class 8 - Old Common Stock................................43
9. Class 9 - Securities Claims...............................44
G. Acceptance or Rejection of the Plan.............................44
1. Voting Classes............................................44
2. Presumed Rejection of Plan................................44
H. Manner of Distribution of Property Under the Plan...............44
1. Distribution Procedures...................................44
2. Distribution of New Common Stock..........................44
3. Distributions by Indenture Trustee........................45
4. Surrender and Cancellation of Old Securities..............45
5. Disputed Claims...........................................45
6. Manner of Payment Under the Plan..........................45
7. Delivery of Distributions and Undeliverable or
Unclaimed Distributions...................................46
a. Delivery of Distributions in General................46
b. Undeliverable Distributions.........................46
(1) Holding and Investment of Undeliverable
Property......................................46
(2) Distribution of Undeliverable Property After
it Becomes Deliverable and Failure to Claim
Undeliverable Property........................46
8. De Minimis Distributions..................................46
9. Failure to Negotiate Checks...............................46
10. Compliance with Tax Requirements..........................46
11. Setoffs...................................................47
12. Fractional Interests......................................47
I. Treatment of Executory Contracts and Unexpired Leases...........47
J. Means for Execution and Implementation of the Plan..............47
1. Exit Financing............................................47
2. Private Placement.........................................48
3. Merger of Corporate Entities..............................48
4. Board of Directors of the Reorganized Debtor..............48
5. Post-Confirmation Management..............................48
6. Cancellation of Old Securities............................49
7. Authorization and Issuance of New Common Stock............49
8. Registration Exemption for Debtor's New Common
Stock Distributed to Creditors............................49
9. Charter and By-Laws.......................................50
10. Corporate Action..........................................50
11. Release of Fraudulent Conveyance Claims...................50
12. Other Releases by Debtors.................................50
13. Preservation of Rights of Action..........................51
14. Objections to Claims......................................51
15. Retiree Benefits..........................................51
16. Exemption from Stamp and Similar Taxes....................52
K. Conditions to Effectiveness of the Plan.........................52
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1. Conditions to Effectiveness...............................52
2. Waiver of Conditions......................................52
3. No Requirement of Final Order.............................52
L. Effects of Plan Confirmation....................................52
1. Binding Effect............................................52
2. Moratorium, Injunction and Limitation of Recourse For
Payment...................................................52
3. Exculpation and Limitation of Liability...................53
4. Revesting.................................................53
5. Other Documents and Actions...............................53
6. Post-Consummation Effect of Evidences of Claims or
Interests.................................................54
7. Term of Injunctions or Stays..............................54
M. Confirmability of Plan and Cramdown.............................54
N. Retention of Jurisdiction.......................................54
VIII. FEASIBILITY OF THE PLAN...............................................54
A. Feasibility.....................................................54
1. Business Strategy.........................................54
2. Factors Enhancing Kitty Hawk's Future Business Prospects..56
a. Diversified Revenue Base............................56
b. Large Market in an Under-served, Growing Industry
Segment.............................................56
c. Efficient, Utilitarian Aircraft Fleet...............56
d. Low Cost Operator of B727-200F......................57
e. Significant Opportunity to Expand Fort Wayne Hub....57
f. Substantial Leverage to Attract Strategic
Partner(s)..........................................57
B. Alternatives to Confirmation of the Plan........................57
1. Dismissal.................................................58
2. Chapter 7 Liquidation.....................................58
3. Confirmation of an Alternative Plan.......................59
4. Christopher Plan..........................................59
IX. VALUATION OF KITTY HAWK, INC. AND ITS SUBSIDIARIES
ON A STAND-ALONE BASIS................................................60
A. Cautionary Note.................................................60
1. Kitty Hawk, Inc...........................................61
2. Flight One Logistics, Inc.................................61
3. American International Travel, Inc........................61
4. Longhorn Solutions, Inc...................................61
5. Aircraft Leasing, Inc.....................................61
6. Kitty Hawk International, Inc.............................62
7. OK Turbines, Inc..........................................62
8. Kitty Hawk Charters, Inc..................................62
9. Explanatory Note as to Kitty Hawk Aircargo and Kitty
Hawk Cargo Valuations.....................................62
X. DESCRIPTION OF SECURITIES TO BE ISSUED UNDER THE PLAN.................64
A. New Common Stock................................................64
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B. Private Placement...............................................65
C. Issuance of the New Common Stock under the Plan.................66
D. Post-Confirmation Transfers of the New Common Stock.............66
E. Trading in the Over-the-Counter Market..........................67
F. Certain Transactions by Stockbrokers............................67
XI. VALUATION OF NEW COMMON STOCK.........................................67
XII. RISK FACTORS..........................................................69
A. Risks Relating to Confirmation..................................69
1. Risks Related to Exit Financing...........................69
2. Risks Related to Annual Meeting...........................69
3. Risks Related to Private Placement........................69
4. Risks Related to Pegasus Aviation Leases..................70
B. Kitty Hawk Related Risks........................................70
1. Dependence on Significant Customers ......................70
2. Employee Relations........................................71
C. Aircraft Related Risks..........................................71
1. Future Operations Based on Continued Acceptance of
Scheduled Airfreight......................................71
2. Dependence on Aircraft Availability.......................71
3. Capital Intensive Nature of Aircraft Ownership............72
4. Aging Aircraft Regulations; Potential Compliance Costs ...72
D. Industry Related Risks..........................................73
1. Cyclicality and Seasonality of Business...................73
2. Volatility of Air Freight Services Market.................73
3. Government Regulation.....................................73
a. General.............................................73
b. International Regulation............................73
c. Stock Ownership by Non-U.S. Citizens................74
d. Noise Abatement Regulations.........................74
e. Safety, Training and Maintenance Regulations........74
f. Hazardous Materials Regulations.....................74
XIII. CERTAIN FEDERAL INCOME TAX CONSEQUENCES...............................75
A. General.........................................................75
B. Tax Consequences to the Debtors.................................75
1. In General................................................75
2. Carryover of Tax Attributes...............................75
a. Net Operating Loss Carryovers.......................75
b. Section 382.........................................75
c. Special Bankruptcy Exception to Section 382.........76
3. Reduction of Debtors' Indebtedness........................77
C. Tax Consequences To Creditors...................................77
1. Claims Constituting Securities............................77
a. Definition of Security..............................77
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b. Receipt of Stock or Securities......................78
c. Determination of Character of Gain..................78
d. Tax Basis and Holding Period........................78
e. Market Discount with Respect to Senior Notes........78
2. Claims Not Constituting Securities........................79
a. Gain/Loss on Exchange...............................79
b. Tax Basis and Holding Period........................79
3. Creditors Receiving Solely Cash...........................79
4. Consideration Allocable to Interest or Original Issue
Discount..................................................79
5. Backup Withholding........................................80
XIV. CONCLUSION............................................................80
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INDEX TO APPENDIX
EXHIBIT A: Projections of Reorganized Debtor's Operations
EXHIBIT B: Liquidation Analysis
vii
<PAGE>
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-BJH-11
KITTY HAWK CHARTERS, INC., ss. CASE NO. 400-42143-BJH-11
KITTY HAWK INTERNATIONAL, INC., ss. CASE NO. 400-42144-BJH-11
KITTY HAWK CARGO, INC., ss. CASE NO. 400-42145-BJH-11
OK TURBINES, INC., ss. CASE NO. 400-42146-BJH-11
LONGHORN SOLUTIONS, INC., ss. CASE NO. 400-42147-BJH-11
AIRCRAFT LEASING, INC., ss. CASE NO. 400-42148-BJH-11
AMERICAN INTERNATIONAL ss. CASE NO. 400-42149-BJH-11
TRAVEL, INC., AND ss.
FLIGHT ONE LOGISTICS, INC. ss. CASE NO. 400-42069-BJH-11
ss.
DEBTORS. ss. JOINTLY ADMINISTERED UNDER
ss. CASE NO. 400-42141
--------------------------------------------------------------------------------
FINAL DISCLOSURE STATEMENT UNDER
11 U.S.C. SS. 1125 IN SUPPORT OF THE DEBTORS'
JOINT PLAN OF REORGANIZATION DATED OCTOBER 10, 2000
SUMMARY OF THE PLAN
The Plan provides for the post-confirmation 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 BETWEEN $20.9 MILLION AND $24
MILLION (OR BETWEEN APPROXIMATELY 29% AND 33% OF THE ESTIMATED GENERAL UNSECURED
CLAIMS). See Article X for discussion of valuation and Article XII for
discussion of risks. Third, holders of Allowed Unsecured Claims THAT ARE
FINAL DISCLOSURE STATEMENT UNDER 11 U.S.C. SS. 1125 IN SUPPORT OF THE
DEBTORS' JOINT PLAN OF REORGANIZATION DATED OCTOBER 10, 2000 1
<PAGE>
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 Private Placement.
I.
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, 20001 (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, 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.
----------------
1 With the exception of Flight One Logistics, which filed its voluntary
Chapter 11 petition on April 27, 2000.
FINAL DISCLOSURE STATEMENT UNDER 11 U.S.C. SS. 1125 IN SUPPORT OF THE
DEBTORS' JOINT PLAN OF REORGANIZATION DATED OCTOBER 10, 2000 2
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* * *
(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 OCTOBER
4, 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.
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.
FINAL DISCLOSURE STATEMENT UNDER 11 U.S.C. SS. 1125 IN SUPPORT OF THE
DEBTORS' JOINT PLAN OF REORGANIZATION DATED OCTOBER 10, 2000 3
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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 set December 5, 2000, at 10:00 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. Once commenced, the Confirmation
Hearing may be adjourned or continued by announcement in open court with no
further notice. Holders of Claims against or Interests in the Debtors may vote
on the Plan by completing and delivering the enclosed ballot to Lain Faulkner &
Co., 400 N. St. Paul Street, Suite 600, Dallas, Texas 75201, Telephone (214)
720-1929, Telecopy (214) 720-1450, Attention: Dennis Faulkner, on or before 5:00
p.m. Dallas, Texas time on November 14, 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.
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.
FINAL DISCLOSURE STATEMENT UNDER 11 U.S.C. SS. 1125 IN SUPPORT OF THE
DEBTORS' JOINT PLAN OF REORGANIZATION DATED OCTOBER 10, 2000 4
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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.
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
FINAL DISCLOSURE STATEMENT UNDER 11 U.S.C. SS. 1125 IN SUPPORT OF THE
DEBTORS' JOINT PLAN OF REORGANIZATION DATED OCTOBER 10, 2000 5
<PAGE>
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 were extended by the
Bankruptcy Court on September 28, 2000 and will now expire on October 21, 2000
and December 31, 2000 respectively, unless further 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.
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
FINAL DISCLOSURE STATEMENT UNDER 11 U.S.C. SS. 1125 IN SUPPORT OF THE
DEBTORS' JOINT PLAN OF REORGANIZATION DATED OCTOBER 10, 2000 6
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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.
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
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DEBTORS' JOINT PLAN OF REORGANIZATION DATED OCTOBER 10, 2000 7
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Plan (hereinafter, "Voting Claims"). Accordingly, in this Reorganization Case,
any holder of a Claim classified in Classes 1, 2, 3, 4, 5, 6, and 7 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 Classes 8 and 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 was 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. ADDITIONALLY, BY ENCLOSING A BALLOT FOR EACH
DEBTOR, THE DEBTORS ARE NOT REPRESENTING THAT YOU ARE ENTITLED TO VOTE ON A
SPECIFIC DEBTOR'S PLAN.
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 Dennis Faulkner, Lain Faulkner &
Co., 400 N. St. Paul Street, Suite 600, Dallas, Texas 75201, Telephone (214)
720-1929, Telecopy (214) 720-1450 (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 the Solicitation
Agent:
FINAL DISCLOSURE STATEMENT UNDER 11 U.S.C. SS. 1125 IN SUPPORT OF THE
DEBTORS' JOINT PLAN OF REORGANIZATION DATED OCTOBER 10, 2000 8
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Attn: Dennis Faulkner
Lain Faulkner & Co.
400 N. St. Paul Street, Suite 600
Dallas, TX 75201
1. VOTING RECORD DATE
Pursuant to Bankruptcy Rule 3017(d), September 19, 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 SENIOR NOTES
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
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.
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DEBTORS' JOINT PLAN OF REORGANIZATION DATED OCTOBER 10, 2000 9
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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 NOVEMBER 14, 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 AND INTERESTS 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.
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,
FINAL DISCLOSURE STATEMENT UNDER 11 U.S.C. SS. 1125 IN SUPPORT OF THE
DEBTORS' JOINT PLAN OF REORGANIZATION DATED OCTOBER 10, 2000 10
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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 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
FINAL DISCLOSURE STATEMENT UNDER 11 U.S.C. SS. 1125 IN SUPPORT OF THE
DEBTORS' JOINT PLAN OF REORGANIZATION DATED OCTOBER 10, 2000 11
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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 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. A Class of Interests that is
impaired under the Plan accepts the Plan if more than two-thirds (2/3) in amount
actually voting vote to accept the Plan. Even if all Classes of Claims and
Interests accept the Plan, the Bankruptcy Court may refuse to Confirm the Plan.
FINAL DISCLOSURE STATEMENT UNDER 11 U.S.C. SS. 1125 IN SUPPORT OF THE
DEBTORS' JOINT PLAN OF REORGANIZATION DATED OCTOBER 10, 2000 12
<PAGE>
4. CRAMDOWN
In the event that any impaired Class of Claims or Interests, including any
of Classes 7A through 7J, 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.
IV.
BACKGROUND OF THE DEBTORS
A. NATURE OF THE DEBTORS' BUSINESS
FINAL DISCLOSURE STATEMENT UNDER 11 U.S.C. SS. 1125 IN SUPPORT OF THE
DEBTORS' JOINT PLAN OF REORGANIZATION DATED OCTOBER 10, 2000 13
<PAGE>
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, Inc. is a public company. However, two shareholders control
approximately 54% of its stock. M. Tom Christopher owns approximately 34% of the
outstanding shares. Conrad A. Kalitta or entities controlled by him own
approximately 24% of the shares. On August 9, 2000, Conrad A. Kalitta granted
Tilmon J. Reeves an irrevocable proxy to vote Kalitta's 3,899,150 shares of
common stock of Kitty Hawk, Inc. only for the election of directors at a
stockholders meeting or a consent in lieu of a stockholders meeting. The proxy
expires at the earlier of (a) August 8, 2001, (b) if Mr. Reeves ceases to be
Kitty Hawk's Chief Executive Officer or (c) if M. Tom Christopher becomes the
chairman of Kitty Hawk's board of directors. Mr. Reeves paid $100 for the proxy.
Mr. Christopher believes that the sale of the proxy violated a stipulation he
reached with the Kitty Hawk that Mr. Kalitta's proxy would not be granted
without permission of the Bankruptcy Court. Kitty Hawk disputes that contention
and believes that it did not violate its agreement because, among other thing,
Kitty Hawk did not acquire the proxy and the proxy was granted after the
proposed transactions between Mr. Kalitta Kitty Hawk had been approved by the
Bankruptcy Court.
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2 According to the unaudited records, the USPS accounted for 24.0% of the
Debtors' revenue.
FINAL DISCLOSURE STATEMENT UNDER 11 U.S.C. SS. 1125 IN SUPPORT OF THE
DEBTORS' JOINT PLAN OF REORGANIZATION DATED OCTOBER 10, 2000 14
<PAGE>
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.
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. was 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 Its
Part 121 Certificate was sold in September, 2000.
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 ten
(10) 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 fourteen
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
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3 On April 30, 2000, immediately prior to the Petition Date, Kitty Hawk
suspended flight operations of Kitty Hawk International.
FINAL DISCLOSURE STATEMENT UNDER 11 U.S.C. SS. 1125 IN SUPPORT OF THE
DEBTORS' JOINT PLAN OF REORGANIZATION DATED OCTOBER 10, 2000 15
<PAGE>
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. Because the Noteholders have a claim against
each Debtor for the full amount of their deficiency claim, the Noteholders are
the largest unsecured creditors of each Debtor and, on an entity by entity
basis, their Claims dwarf all other Unsecured Claims. The Debtors' opinion
regarding the Noteholders' likely deficiency is based on recent appraisals of
the Noteholders' collateral. M. Tom Christopher has filed a motion to pursuant
to section 506 of the Bankruptcy Code to have the Bankruptcy Court determine the
value of the Noteholder's collateral for plan purposes. 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. Unless the
Noteholders' deficiency is materially lower than $180 million, the settlement
provides a greater return to unsecureds than they would receive absent the
settlement. The distribution of 15% of the New Common Stock results in an
estimated recovery to unsecured creditors other than the Noteholders of New
Common Stock with a value equal to 30% of their Claims. See Article X infra.
D. EXISTING AND POTENTIAL LITIGATION
1. CLAIMS AGAINST THE DEBTORS.
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
FINAL DISCLOSURE STATEMENT UNDER 11 U.S.C. SS. 1125 IN SUPPORT OF THE
DEBTORS' JOINT PLAN OF REORGANIZATION DATED OCTOBER 10, 2000 16
<PAGE>
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 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-PETITION4 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 the Plan).The Plan proposes and incorporates a settlement of various claims
owned by the Debtors regarding the amount and enforceability of the subsidiary
guarantees of the Senior Notes (see Section IV, C, "Creditor Claims Against
Multiple Debtors"). Under the proposed settlement, the Noteholders allow Other
Unsecured Creditors to receive 15% of the New Common Stock, which the Debtors
believe is a larger distribution than unsecured creditors would receive if the
Noteholders shared pro rata with other unsecured creditors of each Debtor (see
Liquidation Analysis, Exhibit "B"). The Noteholders receive 85% of the New
Common Stock. The Noteholders will also receive
--------
4 Payments after the May 1, 2000 Petition Date are not subject to
recovery as preferences.
FINAL DISCLOSURE STATEMENT UNDER 11 U.S.C. SS. 1125 IN SUPPORT OF THE
DEBTORS' JOINT PLAN OF REORGANIZATION DATED OCTOBER 10, 2000 17
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a release of the Debtors' fraudulent transfer claims as part of the settlement
(see "Release of Fraudulent Transfer Claims," p. 50).
The Noteholders receive a greater recovery on their unsecured claims in
these Cases than Other Unsecured Creditors receive because the Noteholders have
a claim against each of the Debtors in the full amount of their deficiency
claim.(see Section IV, C, "Creditor Claims Against Multiple Debtors"). As a
result of having a claim against each Estate, the Noteholders's recovery
accumulates and the Noteholders receive a recovery in New Common Stock with an
estimated value equal to 64% of their Claims.
THE PROPOSED SETTLEMENT WITH THE NOTEHOLDERS HAS NOT BEEN APPROVED BY THE
BANKRUPTCY COURT. The Bankruptcy Court will consider approval of the settlement
at the hearing on confirmation of the Plan. If the Court finds that the
settlement is not in the best interests of the Debtors' creditors, the
settlement will not be approved and the Plan (i) may not be confirmed, or (ii)
will have to be modified to be confirmed. Generally, the Bankruptcy Court must
find that the settlement is fair and equitable after considering the probability
of the Debtors' success if it litigates the claims, the complexity, expense, and
likely duration of any litigation of the claims, the possible difficulties in
collecting on the claims and all other factors relevant to assessing the "wisdom
of the proposed compromise." PROTECTIVE COMMITTEE FOR INDEPENDENT STOCKHOLDERS
OF TMT TRAILER FERRY, INC. V. ANDERSON (IN RE TMT TRAILER FERRY, INC.), 88 S.Ct.
1157, 1163 (1968).
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. THIS ANALYSIS IS PERFORMED 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 Indenture provides as follows:
Each Guarantor and, by its acceptance of a Note, each Holder confirms that
it is the intention of all such parties that the guarantee by each such
Guarantor pursuant to its Note Guarantee not constitute a fraudulent
transfer or conveyance for purposes of the Bankruptcy Law, the Uniform
Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any
similar federal or state law or the provisions of its local law relating
to fraudulent transfer or conveyance. To effectuate the foregoing
intention, the Holders and each such Guarantor hereby irrevocably agree
that the maximum liability of each Guarantor will be $1.00 less than the
lesser of (a) the amount which would render the Note Guarantee voidable
under either Section 548 or 544(b) of the Bankruptcy Code, (b) the amount
permitting avoidance of the Note Guarantee as a fraudulent transfer under
any applicable Fraudulent Transfer Act or similar law and (c) the amount
permitting the Note Guarantee to be set aside as a fraudulent
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DEBTORS' JOINT PLAN OF REORGANIZATION DATED OCTOBER 10, 2000 18
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conveyance under any applicable Fraudulent Conveyance Act or similar law.
In addition, if the execution and delivery and/or incurrence evidenced by
the Note Guarantee constitutes a "distribution" under the Michigan
Business Corporation Act (the "MBCA"), the maximum liability under the
Note Guarantee with respect to such Guarantor shall be limited to $1.00
less than the maximum liability which such Guarantor is permitted to incur
under Section 345 of the MCBA.
As is clear from this language, if the guarantees would be avoidable as
fraudulent transfers, the guarantees are limited to $1.00 less than the amount
that would render the guarantee avoidable under fraudulent transfer or
fraudulent conveyance theories. The Creditors' Committee has argued that the
guarantees may be limited even if the Debtors can not demonstrate that the
guarantees rendered the Debtors' insolvent as of November 17, 1997. The Debtors
believe that the Creditors' Committee's counsel misinterprets this provision of
the Indenture.
The guarantees also include provisions specifically recognizing the rights
of contribution among guarantors. Both contractually and under well-established
equitable principles, each Debtor had the right on November 17, 1997 and
thereafter to collect from each of the other Debtors if it was called upon to
pay on its guarantee of the Senior Notes. 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.
To assess the merits of the Debtors' potential claims to avoid the
subsidiary guarantees of the Senior Notes or to limit the amount of debt
guaranteed by each subsidiary, the Debtors reviewed the law on fraudulent
transfers and the law related to the allocation of liability among co-sureties
of a single debt and among co-obligors. The Debtors' counsel, Haynes and Boone,
L.L.P., has significant experience in the analyzing and prosecuting fraudulent
transfer claims. Sarah Foster is the author of "Let's Remake a Deal: Fraudulent
Transfer Laws as a Tool for Restructuring Leveraged Buyouts" and with other
members of the Firm, recently conducted a lengthy investigation of claims,
including fraudulent transfer claims, against the creditors of three related
debtors in the Chapter 11 case of McGinnis Partners' Focus Fund. Ms. Foster and
Mr. Penn worked together on behalf of a Chapter 7 Trustee to analyze and pursue
fraudulent transfer and other claims in the David Mann case. That estate's
claims were settled very favorably.
In this case, counsel investigated the factual background for the claims
by interviewing a number of Kitty Hawk employees who participated in the
transactions giving rise to the Senior Notes as well as employees with knowledge
of the Debtors' business operations following the Kalitta transactions. Counsel
reviewed documentary evidence regarding the transaction, including appraisals,
opinions and financial data as of the effective date of the transaction in
question, and Debtors' operations following the transactions. Based on their
review of the evidence and the issues and their assessment of the merits of the
claims, the Debtors proposed a settlement of those claims whereby general
unsecured creditors would recover more for their claims than those creditors
would
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DEBTORS' JOINT PLAN OF REORGANIZATION DATED OCTOBER 10, 2000 19
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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.
THE FOLLOWING DESCRIPTION OF THE BENEFITS OF THE SETTLEMENT REPRESENTS THE
DEBTORS' POSITION. THIS DISCUSSION DOES NOT REPRESENT THE VIEWS OF THE COURT OR
THE CREDITORS' COMMITTEE.
The Debtors believe that settling these disputes in the Plan is in
the best interest of the Debtors and their creditors for a number of reasons.
(1) The Debtors do not believe that they have a significant likelihood of
success on the merits of any avoidance claims. To avoid the guarantees, the
Debtors must prove that the guarantees rendered the Debtors insolvent or left
them with unreasonably small capital as of November 17, 1997. The Debtors face
considerable problems in proving that the Debtors were rendered insolvent or
left with unreasonably small capital as a result of the Senior Note transaction.
The Debtors used the majority of the Senior Note proceeds to retire debt of the
Kalitta companies that the Debtors acquired concurrently with the Note offering.
Arms length negotiations resulted in the Kalitta merger. At the time, Kitty Hawk
firmly believed that the merger provided value substantially greater than the
acquisition cost. Third party appraisals supported the value of the aircraft
pledged to Noteholders. Many acquired assets were left unencumbered and thus
available to satisfy other creditors' claims. Alex Brown, an investment banking
firm, opined that the transaction was fair to Kitty Hawk. Audited financial
statements for both Kitty Hawk and the Kalitta Companies for 1995 and 1996
indicate that the companies were solvent. The audited consolidated financial
statements for the merged companies as of December 31, 1997, reflect
shareholders' equity of $179 million based on assets of $834 million and
liabilities of $655 million (including the Senior Note obligations). At the time
of the merger, the Debtors raised $38 million in equity and entered into a new
secured revolving credit facility providing for borrowings of up to $100
million. Therefore, substantial, contemporaneous, third party assessments of the
Debtors' value at the time the Debtors incurred the Senior Note and guaranty
obligations will have to be discredited to demonstrate that the consolidated
Debtors were rendered insolvent or left with unreasonably small capital as a
result of the Senior Note obligation.
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.
(2) The Debtors believe 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
FINAL DISCLOSURE STATEMENT UNDER 11 U.S.C. SS. 1125 IN SUPPORT OF THE
DEBTORS' JOINT PLAN OF REORGANIZATION DATED OCTOBER 10, 2000 20
<PAGE>
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
materially increase the bankruptcy burdens on the Debtors. 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, increasing employee departures, 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.
For all these reasons, among others, the Debtors believe the settlement is
in the best interests of the Debtors, their estates and should be approved by
the creditors.
3. CREDITORS' COMMITTEE'S POSITION STATEMENT ON THE DEBTORS' PROPOSED
SETTLEMENT WITH THE NOTEHOLDERS.
The Committee's position is that the Debtors did not adequately
investigate the merits of the fraudulent transfer claims before negotiating the
settlement with (and release of) the Noteholders. The Committee does not believe
that the Debtors are receiving fair consideration for releasing the claims for
the reasons described below.5
The Committee believes that creditors existing in November 1997 and after
may avail themselves of potential fraudulent transfer actions that could avoid
certain Subsidiary guarantees issued in favor of the Senior Noteholders. The
Debtors question the potential fraudulent transfer claims because (a) the
audited financials show that the Debtors were solvent, in the aggregate, on a
balance sheet basis immediately after the transaction in question, (b) the value
of the aircraft (as appraised) and other assets received in the transaction
exceeded $450 million, (c) the transaction incurred $340 million in debt and
raised $40 million in equity capital, and (d) the Company received
--------
5 On September 6, 2000, the Committee's Motion for it to have authority to
prosecute fraudulent transfer litigation was denied.
FINAL DISCLOSURE STATEMENT UNDER 11 U.S.C. SS. 1125 IN SUPPORT OF THE
DEBTORS' JOINT PLAN OF REORGANIZATION DATED OCTOBER 10, 2000 21
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a fairness opinion regarding the transaction. The Committee disputes the
Debtors' balance sheet asset values as of November, 1997. Kitty Hawk incurred
capital expenditures in 1998 and 1999 which exceeded the projections by at least
$100 million. The book value of the Debtors' aircraft after the November 19,
1997 acquisition date was approximately $126 million greater than the net book
value reported by the entities pre-acquisition. The increase resulted from
purchase accounting adjustments requiring a write-up of fixed assets to account
for the purchase price (which was significantly less than appraised value). The
Committee believes that the write-ups and significant capital expenditures
required to maintain the aircraft calls into serious question the accuracy of
the appraisals.
Even if the balance sheet insolvency test is not met, other tests for
avoidance can be used (each of which would be an issue of fact for determination
by the Bankruptcy Court). First, the Committee believes that some of the
Subsidiaries were left with unreasonably small capital as a result of the
transaction with the Noteholders. Second, a debtor who is generally not able to
pay the its debts as they become due is presumed to be insolvent. Again, the
Committee believes that the Company and certain Subsidiaries were unable to pay
debts as they became due in late 1999.
If the Subsidiaries guaranteed an amount equal to the entire net worth of
Kitty Hawk and its subsidiaries when the November 1997 merger occurred, this
might leave the guarantors insolvent. The Committee is unaware of any case law
interpreting the limitation language either as proposed by the Debtors or the
Committee, and believes this would be a case of first impression.
The Committee believes that allocating the Bondholder deficiency in full
to each Subsidiary is inappropriate. The Subsidiary guarantees contain language
purporting to limit the guaranteed amount to a lesser amount if the guaranty
might be a fraudulent transfer. The reduced amount is just less than that which
would make the guarantees fraudulent transfers.
If the Senior Noteholders' deficiency claim is limited to each
Subsidiary's Net Worth as of December 31, 1997, the Committee believes that
unsecured trade creditors' claims would be 25% of the aggregate Unsecured Claims
and to the Senior Noteholders' Claims (assuming a $200,730,000 deficiency claim
as alleged by the Debtors) would be 75% of the aggregate Unsecured Claims. The
Committee believes that applying the entire $200,730,000 estimated deficiency
claim of the Senior Noteholders to each Subsidiary distorts the allocation of
the guaranties and the estimated "settlement" proposed by the Debtors' Plan
gives no value to the avoidance actions because it is less than the Committee
asserts would be available if the guaranties were allocated based on the
Subsidiaries' 1997 Net Worth. Under this analysis, on an entity by entity basis,
the Committee believes that the available proceeds would be allocated as
follows:
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DEBTORS' JOINT PLAN OF REORGANIZATION DATED OCTOBER 10, 2000 22
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Senior Noteholders' Deficiency Claim (Limited to each Subsidiary's Net Worth as
of 12/31/97) (6)
--------
(6) Source: Information derived principally from Debtor's liquidation
analysis and supporting schedules for the Disclosure Statement as well as
Debtors' 12/31/97 Consolidating Balance Sheets.
(1) Kitty Hawk Cargo was formed in March 1999 through a combination of AIC and
AIF (a division of AIA). For purposes of the above analysis, the Committee
assumed that the beginning equity of Kitty Hawk Cargo consisted of the
contributed capital reflected per the August 31, 1999 Consolidated balance sheet
of $8,318,554 and $6,849,273 for AIC and AIF respectively. Since Kitty Hawk
Cargo was formed from assets that were part of AIA in 1997, AIA's Net Worth as
of 12/31/97 has been reduced by the portion allocated to Kitty Hawk Cargo.
FINAL DISCLOSURE STATEMENT UNDER 11 U.S.C. SS. 1125 IN SUPPORT OF THE
DEBTORS' JOINT PLAN OF REORGANIZATION DATED OCTOBER 10, 2000 23
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<TABLE>
<CAPTION>
PERCENTAGE
ALLOCATION OF
AVAILABLE PROCEEDS
-----------------------------
NET
AMOUNT
AVAILABLE
FOR GENERAL BONDHOLDER UNSECURED BONDHOLDER UNSECURED
UNSECURED DEFICIENCY CREDITORS' DEFICIENCY CREDITORS'
CREDITORS CLAIM CLAIMS CLAIM CLAIMS
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
KH, Inc. .................................... $ 5,317 $ 200,730 $ 2,452 98.8% 1.2%
Kitty Hawk
Cargo ....................................... 8,247(1) 15,168 5,588 73.1% 26.9%
Kitty Hawk
Aircargo .................................... 27.878 53,966 26,561 67.0% 33.0%
KH International ............................ 3,418(1) 48,197 27,476 63.7% 36.3%
KH Charters ................................. 19,589 38,263 10,608 78.3% 21.7%
Longhorn
Solutions ................................... -- -- 68 -- --
Aircraft Leasing ............................ 8,749 5,451 1,300 80.7% 19.3%
AIT ......................................... 28 (230) 2 -- 100%
FOL ......................................... (37) 64 -- 100% 0.0%
OKT ......................................... 672 1,486 25 98.3% 1.7%
------------ ------------ ------------ ------------ ------------
TOTAL: ...................................... $ 73,859 $ 363,094 $ 74,080 74.7% 25.3%
</TABLE>
The Committee believes that the potential benefits of litigation far
outweigh the costs. Based on the liquidation analysis attached to the Disclosure
Statement, if the guarantees by all Subsidiaries other than Kitty Hawk
International are completely avoided and intercompany claims are eliminated, the
following could be available for the unsecured creditors (in the event of
liquidation):
Kitty Hawk Cargo 100%
Kitty Hawk Aircargo 100%
Kitty Hawk Charters 100%
Aircraft Leasing 100%
OK Turbines 100%
American Int'l Travel 100%
Kitty Hawk International 4.5%
The law firm of Haynes and Boone (Debtor's counsel), also represented
Kitty Hawk and the Subsidiaries in the November 1997 transaction and issued a
legal opinion (with all appropriate qualifications and assumptions) opining on,
among other things, that the performance of the Subsidiaries on the guarantees
"will not contravene....any provision of applicable law...." The Committee
believes it would be more appropriate for another law firm to determine if a
fraudulent transfer action exists and if the proposed settlement is appropriate.
A. 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
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DEBTORS' JOINT PLAN OF REORGANIZATION DATED OCTOBER 10, 2000 24
<PAGE>
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.
B. 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.
C. 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.
V.
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, several entities
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 of wide body Boeing747
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.
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DEBTORS' JOINT PLAN OF REORGANIZATION DATED OCTOBER 10, 2000 25
<PAGE>
o Kitty Hawk Cargo, Inc. ("Cargo") which operates Kitty Hawk's scheduled
overnight air freight hub 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, California, 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 relative to expectations. 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 and engines collateralizing this debt.
In April 2000, Kitty Hawk projected a cash requirement in excess of $30 million
to comply with these maintenance provisions specifically bringing the number of
serviceable wide-body engines to required levels. 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 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).
FINAL DISCLOSURE STATEMENT UNDER 11 U.S.C. SS. 1125 IN SUPPORT OF THE
DEBTORS' JOINT PLAN OF REORGANIZATION DATED OCTOBER 10, 2000 26
<PAGE>
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.
Seasonally, July is a difficult month for Kitty Hawk. Kitty Hawk reported
an operating loss before taxes in July of $2.2 million, which is representative
of the impact of the 4th of July holiday on its Scheduled Freight business
(three fewer revenue nights than normal) and the shut-down of the automotive
industry's manufacturing for two weeks in July. The July automotive plant
shutdown affects Kitty Hawk's Scheduled Freight business to some degree, and the
Kitty Hawk Charters 135 business dramatically. However, adjusting for the costs
of bankruptcy, the non-recurring shutdown costs still being incurred, andthe
businesses and fleet types that will be sold, the core operations were
break-even for the month. This indicates a clear signal that fixed costs are in
line, and aside from the holiday, the Scheduled Freight business did very well.
The three days of lost freight in the Scheduled Freight business would have
produced at least $1.1 million of pre-tax profit under any circumstances.
August is typically the beginning of the best season of the year for Kitty
Hawk, and August 2000 was no exception. After adjusting for the non-recurring
expenses and losses related to discontinued business, and adjusting out Kitty
Hawk Charters and Longhorn Solutions, Inc.'s operations due to the pending sale
of those subsidiaries, Kitty Hawk generated income before taxes of $856 thousand
in August of 2000. All indications are that Kitty Hawk is moving forward very
well and will be able to meet the financial performance projections attached as
Exhibit "A" to this Disclosure Statement.
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.
FINAL DISCLOSURE STATEMENT UNDER 11 U.S.C. SS. 1125 IN SUPPORT OF THE
DEBTORS' JOINT PLAN OF REORGANIZATION DATED OCTOBER 10, 2000 27
<PAGE>
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. MANAGEMENT CHANGES
In late August, 2000, Susan Hawley decided to leave Kitty Hawk to pursue
other interests. Ms. Hawley had played a key role in negotiating and working
with the United States Postal Service on Kitty Hawk's account. Upon her
departure, Donny Scott, the Vice President for Postal and Ground Operations,
assumed Ms. Hawley's responsibilities. He has prior experience with the USPS and
Kitty Hawk's Peak Season operations for the USPS. Mr. Scott transitioned
successfully into his new Postal responsibilities.
In August, 2000, John Turnipseed, Vice President-Human Resources,
announced his resignation. He was replaced by Jane Perelman, Kitty Hawk's
assistant general counsel, an attorney with extensive employment law background,
including Board Certification in Labor and Employment Law by the Texas Board of
Legal Specialization. Jane Perelman announced her resignation in September,
2000.
F. 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 October 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
FINAL DISCLOSURE STATEMENT UNDER 11 U.S.C. SS. 1125 IN SUPPORT OF THE
DEBTORS' JOINT PLAN OF REORGANIZATION DATED OCTOBER 10, 2000 28
<PAGE>
of the leasehold is Fed Ex with an agreed price is $4.45 million. The
transaction is subject to various approvals including the State of Hawaii.
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. This transaction closed in September 2000.
o Kitty Hawk has reached an agreement to sell one of its surplus DC-9-15F
aircraft for $2.95 million. The transaction was approved by the Bankruptcy
Court on September 27, 2000 and is expected to close in October.
o Kitty Hawk conducted 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.
G. KEY CONTRACTS
A significant portion of the Debtors' revenues for its continuing
businesses are derived from contracts with BAX Global and the United States
Postal Service. Prior to the bankruptcy, in 1998, Aircargo entered into an
Agreement to Furnish Fourteen (14) B727-200 Aircraft and Air Cargo Services with
BAX. Under the Original Contract, Aircargo agreed to provide and operate for the
benefit of BAX fourteen (14) B727-200 aircraft and to provide air cargo services
on the routes designated by BAX. The Original Contract is what is known as an
ACMI contract. Typically an ACMI contract is entered into between a certified
aircraft operator and a lessee, whereby the operator is obligated to provide a
properly insured and maintained aircraft together with qualified flight deck
crew to the lessee for a specified period of time. The operational and
maintenance responsibility for the aircraft remain with the operator. The
operator is compensated at a pre-determined rate, which typically covers the
operator's direct costs including, crew, maintenance, insurance and ownership
plus a mark-up for overhead and profit. Unless otherwise specified, the operator
is generally responsible for absorbing increased costs related to flight crews,
maintenance, and insurance over the term of the agreement. The lessee is
responsible for all other costs, such as fuel, landing and navigation fees, and
ground handling.
Following the bankruptcy, Aircargo and BAX agreed to amend the Original
Contract as of July 1, 2000 and to reduce the number of aircraft covered by the
Original Contract to seven (7) aircraft: three (3) advanced Boeing 727s and four
(4) non-advanced 727s. The amendments increase the base rate cost of the
aircraft to BAX by $40,000 per aircraft per month and change the bonus
structure. Although Aircargo and BAX have been performing under the terms of the
amended agreement since June, the parties only recently finalized the
documentation of the agreement. Aircargo has filed a motion to assume the BAX
contract, as amended, and anticipates approval of the agreement.
The Debtors have a number of contracts with the USPS. Post-petition, the
Debtors have rejected a small number of these contracts that it could not
service with its existing fleet. However, the Debtors' relationship with USPS
has remained strong.
FINAL DISCLOSURE STATEMENT UNDER 11 U.S.C. SS. 1125 IN SUPPORT OF THE
DEBTORS' JOINT PLAN OF REORGANIZATION DATED OCTOBER 10, 2000 29
<PAGE>
Aircargo received AMENDMENT TO TRANSPORTATION SERVICES CONTRACT,
amending contract No. CNB 99-01, on September 19th, 2000. This contract provides
for, among other things, the Debtors' continued prime contractor status for the
C Net peak season line haul/hub/terminal handling/sort operations out of
Blytheville, AR ("CNB", or "C Net - Blytheville"). The contract price is $29.3
million, not including pass through direct expenses (landing & parking, de-ice,
and fuel). While this contract is $10.1 million less than the 1999 CNB contract,
it is above average from a historical perspective, and the Debtors expect to
maintain similar profit margins to years past.
CNB HISTORICAL AMOUNT AIRCRAFT AIR-STOPS (CITIES)
-------------------------- ---------------- --------------- -----------------
1997 Actual $ 25,700,000 24 22
1998 Actual $ 28,900,000 29 26
1999 Actual $ 39,400,000 39 33
2000 Contracted $ 29,300,000 29 24
CNB is smaller than last year, but is not actually as much smaller as
shown due to three (3) wide-body line haul routes being bid separately (Oakland,
Los Angeles, Phoenix). This was due to USPS efforts to reduce the total cost of
CNB this year, and the Debtors' need to get the CNB contract finalized as early
as possible for stability reasons. It is unknown at this time whether or not
this will prove effective in reducing costs for the USPS.
The peak season opportunities with the USPS are not limited to CNB. There
are at least three other opportunities, namely CNW (a Western US peak season
operation), other single routes, and W Net peak season flying (the Debtors
control through the W Net contract flown year-round). These opportunities have
not yet been awarded or finalized, and the Debtors' opportunities are as
follows:
o CNW - is a six (6) aircraft operation this year, down from ten
(10) last year. The Debtors will be bidding to retain five (5) of
these routes that were flown by the Debtors last year.
o Single routes - there is at least one significant route upon
which the Debtors is bidding, Los Angeles to Honolulu, that is
currently pending. Other single routes may still come available,
as well as the three wide-body routes mentioned above (Oakland,
Los Angeles, and Phoenix) going to the Blytheville hub, which the
Debtors perceive may not yet be finalized.
o W Net - peak season flying through the Sacramento (Mather AFB)
hub where the Debtors operate W Net. This is additional flying
that is captive for the Debtors, which should amount to
approximately 4 extra days of flying.
In summary, the Debtors expect to have a very good peak season with the
USPS, and will increase its total revenue above just CNB as the remainder of the
contracts are finalized.
Many of the Debtors' important freight customers do not have an ongoing
contracts with the Debtors. Nevertheless, pounds of freight carried per night
through the Fort Wayne hub havetended to increase during the case.
H. 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:
FINAL DISCLOSURE STATEMENT UNDER 11 U.S.C. SS. 1125 IN SUPPORT OF THE
DEBTORS' JOINT PLAN OF REORGANIZATION DATED OCTOBER 10, 2000 30
<PAGE>
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, 2000 - ORDER AUTHORIZING RETENTION OF SEABURY ADVISORS, LLC AND
SEABURY SECURITIES, LLC. The Bankruptcy Court authorized the Debtors'
retention of Seabury Advisors, LLC and Seabury Securities, LLC as
financial advisors to the Debtors. Seabury's compensation agreement with
Kitty Hawk provides an incentive for successfully reorganizing Kitty Hawk
and for obtaining secured debt financing. For secured debt refinancing,
the success fee is 1.5% of the loan amount. For reorganizing Kitty Hawk,
the success fee is a sliding scale based on the reorganized enterprise
value plus the value of certain asset sales. For reorganized enterprises
valued between $100 million and $200 million, the success fee is $1.75
million plus 1.5% of the amount over $100 million. Seabury's $150,000 per
month retainer is a credit against certain of the success fees.
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 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.
FINAL DISCLOSURE STATEMENT UNDER 11 U.S.C. SS. 1125 IN SUPPORT OF THE
DEBTORS' JOINT PLAN OF REORGANIZATION DATED OCTOBER 10, 2000 31
<PAGE>
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. On September 28, the Bankruptcy Court ruled (with Mr.
Christopher's agreement) that the annual meeting would be set after the
Confirmation Hearing.
o August 28, 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.
o August 28, 2000 - ORDER GRANTING DEBTORS' MOTION TO APPROVE KEY EMPLOYEE
RETENTION PLAN. The Order authorized Kitty Hawk to a retention bonus equal
to six (6) month's salary in six monthly installments beginning on the
earlier of January 1, 2001or the effective date of a plan of
reorganization provided that they remained employed during that time and
executed a covenant not to compete with Kitty Hawk through December 2001.
The Key Employees listed in the motion were nine (9) executive officers of
Kitty Hawk. Two of the nine key employees left Kitty Hawk's employ after
the Order was signed, including Susan Hawley.
o September , 2000 - ORDER DENYING MOTION FOR AUTHORITY TO BRING CAUSES OF
ACTION ON BEHALF OF THE DEBTORS ARISING FROM FRAUDULENT TRANSFERS. On
September 6, 2000, after a contested hearing, the Bankruptcy Court denied
the Creditors' Committee's motion requesting authority to file and
prosecute a fraudulent transfer adversary proceeding to avoid (set aside)
one or more of Kitty Hawk's subsidiaries' guarantee of the debt to the
Senior Notes as fraudulent transfers under state law. The Bankruptcy Court
denied the Motion without prejudice to reasserting it.
I. 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:
<TABLE>
<CAPTION>
<S> <C>
Mercury Air Group, Inc. Zantop International Airlines, Inc.
5456 McConnell Avenue 840 Willow Run Airport
Los Angeles, CA 90066 Ypsilanti, MI 48198-0840
[Creditor of Charters]
Heico Corporation BF Goodrich Aerospace Component & Repair
825 Brickell Bay Dr., Suite 1644 5250 NW 33rd Avenue
Miami, FL 33131 Ft. Lauderdale, FL 33309
[Creditor of Aircargo and International] [Creditor of Aircargo and International]
</TABLE>
FINAL DISCLOSURE STATEMENT UNDER 11 U.S.C. SS. 1125 IN SUPPORT OF THE
DEBTORS' JOINT PLAN OF REORGANIZATION DATED OCTOBER 10, 2000 32
<PAGE>
Cherry-Air
4584 Claire Chennault
Addison, TX 75001
[Creditor of Charters]
Chevron Corporation
2005 Diamond Blvd., Room 2182B
Concord, CA 94520-5739
[Creditor of International]
Avfuel Corporation
P. O. Box 1387
Ann Arbor, MI 48106-1387
[Creditor of Aircargo]
The Debtors' books and records are the source of the Debtors' identification of
the entity against which each member of the Committee has a claim. The Committee
members may assert claims against other Debtors.
J. 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
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
FINAL DISCLOSURE STATEMENT UNDER 11 U.S.C. SS. 1125 IN SUPPORT OF THE
DEBTORS' JOINT PLAN OF REORGANIZATION DATED OCTOBER 10, 2000 33
<PAGE>
3. CHANGES IN PROFESSIONALS RETAINED
On September 15, 2000, Kitty Hawk was advised that the Creditors'
Committee voted to terminate the representation of Forshey & Prostok, LLP and
that it would seek to employ Verner, Liipfert, Bernhard, McPherson and Hand,
Chartered as its attorneys. An application to employ the Verner Liipfert firm is
currently pending.
4. FEES TO DATE
Through July 31, 2000, the Debtors incurred $2,843,455.39 in fees and
expenses to the professionals identified above. Of that amount, $1,926,112.16
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 post-confirmation 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 BETWEEN $20.9 MILLION AND $24
MILLION (OR BETWEEN APPROXIMATELY 29% AND 33% OF THE GENERAL UNSECURED CLAIMS).
See Article X for discussion of valuation and Article XII for discussion of
risks. 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 Private Placement.
B. CONSOLIDATION
The Plan does NOT substantively consolidate the Debtors. Although the Plan
consolidates claims against the various Debtors for distribution purposes, the
Plan does not consolidate them for voting or other purposes. A creditor's vote
on the Plan will be considered only with the votes of other creditors of the
same Debtor for purposes of determining whether a class of creditors has
accepted or rejected the Plan. If, for example, the holders of Other Unsecured
Claims against Cargo vote to reject the Plan, the Debtors will have to
demonstrate that the Plan is fair and equitable as to those creditors and meet
the other criteria for forcing a class of creditors to accept their treatment
under the Plan despite their rejection of the Plan. The votes of the creditors
of Cargo will not be combined with the votes of creditors of another Debtor for
purposes of determining whether the creditors of Cargo have accepted the Plan.
FINAL DISCLOSURE STATEMENT UNDER 11 U.S.C. SS. 1125 IN SUPPORT OF THE
DEBTORS' JOINT PLAN OF REORGANIZATION DATED OCTOBER 10, 2000 34
<PAGE>
C. POSITION OF NORTHWEST AIRLINES, MERCURY AIR AND CREDITORS' COMMITTEE
REGARDING PLAN
Northwest Airlines, Inc. ("Northwest") and Mercury Air Group, Inc.
("Mercury"), creditors of certain of the Debtors, have objected to the Plan,
intend to vote against it, and submit that the Plan should be rejected by the
holders of the Other Unsecured Claims.
At the hearing on approval of the Disclosure Statement, Northwest and
Mercury argued that the Plan cannot be confirmed as a matter of law, among other
reasons, because the Plan (i) provides for improper releases of third parties;
(ii) unfairly discriminates against the holders of Other Unsecured Claims; and
(iii) violates bankruptcy law and the absolute priority rule by providing
existing equity with an exclusive right to purchase stock in the Reorganized
Debtor, without having to pay fair market value for such interests. The Court
overruled Northwest's and Mercury's objections to the Plan at the hearing on
approval of the Disclosure Statement, but fully preserved all such objections
for the hearing on confirmation of the Plan. The Debtors modified the Plan to
eliminate the violation of the absolute priority rule. Northwest and Mercury
intend to vigorously assert their objections at the Confirmation Hearing.
Northwest and Mercury's two major objections to the Plan can be summarized
as follows. First, Northwest and Mercury believe that the Plan does not treat
holders of Other Unsecured Claims fairly in relation to the unsecured Claims of
the Noteholders. Under the Plan, the Noteholders receive nearly six times more
shares of the Reorganized Debtor than the holders of Other Unsecured Claims and
majority control of the Reorganized Debtor, when the Noteholders' unsecured
claims are projected to exceed the Allowed Other Unsecured Claims by only
approximately three times.The Debtors explain the reason for this discrepancy on
page 18 of this Disclosure Statement.
Second, Northwest and Mercury believe that the Plan is not in the best
interests of holders of Other Unsecured Claims in most of the Debtors because
such creditors could receive a significantly higher return in cash (rather than
stock) in a Chapter 7 liquidation than proposed under the Plan.
Based upon the foregoing, Northwest and Mercury believe that holders of
Other Unsecured Claims should vote against the Plan.
Northwest and Mercury believe that the Debtors have not adequately
disclosed the basis for the releases contained in the Plan, the claims which are
being released, or the benefits that the Debtors estates will receive in
exchange for these releases.
Northwest and Mercury also believe that Debtors fail to adequately
disclose the discharge, injunction, and exculpation of liability in sections
10.2 and 10.3 of the Plan, provided to certain insiders, the Creditors Committee
and its counsel, the Unofficial Noteholders' Committee and its counsel and the
Indenture Trustee and its counsel, not only as to the Debtors' claims against
these parties, but also as to claims which may be asserted by all third parties,
even if such third parties do not vote in favor of the Plan.
Under these provisions, to the extent that you do not vote against the
Plan and the Plan is ultimately confirmed by the Court, any claims that you may
have against certain insiders and the Creditors Committee and its professionals,
the Unofficial Noteholders' Committee and its counsel and the Indenture Trustee
and its professionals, the Indenture Trustee will be discharged and forever
released without your consent.
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D. 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 - deemed to have
rejected, not entitled to vote
Class 9: Securities Claims Impaired - deemed to have
rejected, not entitled to vote
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E. 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.
(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
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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
Post-Petition 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 AND SECURED TAX CLAIMS. Each holder
of an Allowed Pre-Petition Tax Claim or Security 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 8% per annum from and after the Effective Date until the date of final
payment. The Reorganized Debtor may prepay any Pre-Petition Priority Tax Claim
or Secured Tax Claim without penalty or premium, or may pay any Allowed
Pre-Petition Priority Tax Claim or Secured 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 Pre-Petition Priority Tax Claim or the liens of each holder of a Pre-Petition
Secured Tax Claim shall remain in full force and effect until the Pre-Petition
Secured Tax Claim is paid in full. Failure by the Reorganized Debtor to timely
make a payment on an Allowed Pre-Petition Priority Tax Claim or Secured Tax
Claim 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 Pre- Petition Secured Tax Claim, then the holder of
such Allowed Pre-Petition Priority Claim or Secured 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.
F. CLASSIFICATION AND TREATMENT OF CLASSIFIED CLAIMS AND INTERESTS
1. CLASS 1 - BANK CLAIMS.
a. CLASSIFICATION: Class 1 consists of all Allowed Secured Bank
Claims. Allowed Secured Bank Claims shall be subclassified so that the holders
of the Allowed Secured Bank Claims shall have a Claim against each Debtor whose
property secures the Allowed Secured Bank Claims.
b. TREATMENT: Class 1 is impaired and the members of Class 1are
entitled to vote on the Plan. The holders of the Allowed Secured Bank Claims may
vote their Claims in each Case of a Debtor whose property secures the Allowed
Secured Bank Claims. The Allowed Secured Bank Claims shall be satisfied as set
forth herein or in such other manner as is acceptable to the Debtors and the
holders of the Allowed Secured Bank Claims. All payments of the Bank Claims made
prior to the Effective Date shall be deemed to be paid indefeasibly. Any portion
of the Bank Claims unpaid as of the Effective Date shall be paid in full in cash
on the Effective Date. Notwithstanding anything else contained in the Plan or
the Confirmation Order, or any amendments thereto, and notwithstanding the
confirmation of the Plan, Wells Fargo, as Agent ("Agent") for the Bank Group and
as the holder of the Bank Claims, and the members of the Bank Group, shall be
entitled to all of the liens, protections, benefits, and priorities granted to
it or confirmed by the (1) Second Amended and Restated Credit Agreement (as may
have been amended, modified, supplemented, extended, renewed or restated from
time to time) dated November 19, 1997; (2)
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Revolving Credit Note from Kitty Hawk, Inc. and it subsidiaries payable to the
order of Wells Fargo Bank, N.A. in the original principal amount of $100
million; (3) Term Loan Note from Kitty Hawk and its subsidiaries to Wells Fargo,
in the original principal sum of $45.9 million; and (4) any security agreement,
deposit or other agreement evidencing a security interest, right of setoff or
obligation owing to a member of the Bank Group and the Final Order Authorizing
Use of Cash Collateral and Granting Adequate Protection and any subsequent
financing orders (the "Financing Documents"). All such liens, protections,
benefits, and priorities granted to Wells Fargo or the Bank Group in such
Financing Documents shall continue until the Bank Claims are indefeasibly paid
in full and satisfied, which Claims (i) are payable in their entirety, (ii)
include unpaid principal and accrued but unpaid interest and fees as specified
in the contract to the date of indefeasible payment of the Bank Claims, and
(iii) are secured by reason of the first, valid, prior, and perfected liens and
security interest granted under or in connection with, the Financing Documents.
Within five business days before the Effective Date, the Bank Group shall
provide the Debtors with a statement of all amounts constituting Bank Claims as
of the Effective Date (the "Pay-off Amount"). If the Debtors dispute the Pay-off
Amount, both the Debtors and the Bank Group agree that the Bankruptcy Court may
determine the Pay-off Amount on an expedited basis. Upon payment of the Pay-off
Amount, the Bank Group shall release all of its liens or assign such liens as
directed by the Debtors. Notwithstanding the foregoing, all rights of the Bank
Group pursuant to Section 13.2 of the Second Amended Credit Agreement shall
survive the indefeasible payment in full of the Bank Claims as unsecured
obligations of Kitty Hawk. The Bank Claims are finally allowed and are not
subject to subordination or reconsideration.
With respect to any claims related to the Financing Documents, or the
Agent's or Bank Group's actions related to the Debtors or the Financing
Documents, the Agent or Bank Group, and each of their representatives, shall
have no liability to the Debtors or any third party (including creditors of any
Debtors) and shall not be deemed to have been in control of the operations of
the Debtors or to be acting as a "responsible person" or "owner or operator"
with respect to the operation or management of the Debtors.
The Debtors have agreed to the release set forth above in exchange for the
Bank Group's agreement to release its liens, despite certain continuing
obligations of the Debtors to the Bank Group under the Financing Documents. The
Debtors believe that the Bank Claims are valid and enforceable and that the Bank
Group's liens are properly perfected, enforceable first priority liens.
2. CLASS 2 - NOTEHOLDERS' SECURED CLAIMS
a. CLASSIFICATION: Class 2 consists of all Allowed Secured Claims of
the Noteholders. The Allowed Class 2 Claims shall be subclassified so that the
holders of the Allowed Class 2 Claims shall have a Claim against each Debtor
whose property serves as the Noteholders' Wide Body Collateral or the
Noteholders' 727 Collateral.
b. TREATMENT: Class 2 is impaired, and the members of Class 2 are
entitled to vote on the Plan. The Noteholders may vote their Allowed Class 2
Claims in the case of each Debtor whose property serves as the Noteholders' Wide
Body Collateral or the Noteholders' 727 Collateral. On the Effective Date, the
Reorganized Debtor shall satisfy the Noteholders' Secured Claim that is secured
by the Noteholders' 727 Collateral (i) 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 is $55
million, (ii) by the delivery to the Indenture Trustee of the Net Proceeds of
the Engines, and (iii) by the payment of the Noteholders' Fees by no later than
the sixth month anniversary of the Effective Date. 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
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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 members of Class 3 are
entitled to vote on the Plan. Holders of Allowed Class 3 Claims may vote their
Claims in the Case of each Debtor whose property secures their Claims. 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 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. The treatment set forth below shall be
the same for each holder of an Allowed Priority Claim against each of the
Debtors and each holder of an Allowed Priority Claim may vote in the case of the
Debtor liable on such Claim. 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.
Allowed Convenience Claims shall be subclassified based on the Debtor liable on
such Claim.
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b. TREATMENT: Class 5 is impaired and, accordingly, the members of
Class 5 Claims are entitled to vote on the Plan. The holder of Allowed Class 5
Claims against more than one Debtor may vote their Allowed Class 5 Claims in the
case of each Debtor that is liable on such Claims. However, if more than one
Debtor is liable on the same Class 5 Claim, the holder of such claim shall be
paid no more than $500 on account of such Claim and such payment shall be in
full satisfaction of all Debtors' liability on such Claim. 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. Allowed Class 6 Claims shall be subclassified based on the
Debtor(s) liable on such Claim.
b. TREATMENT: Class 6 is impaired and, accordingly, the members of
Class 6 are entitled to vote on the Plan. The holders of Allowed Class 6 Claims
shall be entitled to vote their Claims in the Case of each Debtor that is liable
on such Claim. Nevertheless, holders of Allowed Unsecured Claims in Class 6
(including each subclass of Class 6) shall receive a Pro Rata distribution of
the Class 6 Stock Distribution based on the proportion that their Allowed Class
6 Claim (counted once only) bears to all Allowed Class 6 Claims (with each
Allowed Class 6 Claim counted only once) and such distribution shall be in full
satisfaction of all Debtors' liability on such Claim.
7. CLASS 7 - OTHER UNSECURED CLAIMS
7.1 CLASS 7A
(a) CLASSIFICATION: Class 7A consists of all Allowed Other Unsecured
Claims against Kitty Hawk, Inc.
(b) TREATMENT: Class 7A is impaired and, accordingly, the members of
Class 7A are entitled to vote on the Plan. Holders of Allowed Other Unsecured
Claims in Class 7A shall receive a Pro Rata distribution of the Class 7A Stock
Distribution. Holders of Class 7A Claims may elect by so indicating on their
Ballot to have their New Common Stock redeemed by Reorganized Kitty Hawk from
the Private Placement Proceeds at a price of $1.50 per share. To the extent that
a Class 7A Claimant elects to have its New Common Stock redeemed and the Private
Placement Proceeds are insufficient to redeem all of such Class 7A Claimant's
shares of New Common Stock, the number of the Class 7A Claimant's shares that
will be redeemed shall equal the product of (a) the Private Placement Proceeds
divided by 1.5 (i.e. the total number of shares that can be redeemed) TIMES (b)
the number of shares that the Class 7A Claimant wishes to redeem divided by the
total number of shares of New Common Stock that all Claimants in Class 7A
through 7J elect to redeem.
7.2 CLASS 7B
(a) CLASSIFICATION: Class 7B consists of all Allowed Other Unsecured
Claims against Cargo.
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(b) TREATMENT: Class 7B is impaired and, accordingly, the members of
Class 7B are entitled to vote on the Plan. Holders of Allowed Other Unsecured
Claims in Class 7B shall receive a Pro Rata distribution of the Class 7B Stock
Distribution. Holders of Class 7B Claims may elect by so indicating on their
Ballot to have their New Common Stock redeemed by Reorganized Kitty Hawk from
the Private Placement Proceeds at a price of $1.50 per share. To the extent that
a Class 7B Claimant elects to have its New Common Stock redeemed and the Private
Placement Proceeds are insufficient to redeem all of such Class 7B Claimant's
shares of New Common Stock, the number of the Class 7B Claimant's shares that
will be redeemed shall equal the product of (a) the Private Placement Proceeds
divided by 1.5 (i.e. the total number of shares that can be redeemed) TIMES (b)
the number of shares that the Class 7B Claimant wishes to redeem divided by the
total number of shares of New Common Stock that all Claimants in Class 7A
through 7J elect to redeem.
7.3 CLASS 7C
(a) CLASSIFICATION: Class 7C consists of all Allowed Other Unsecured
Claims against Aircargo.
(b) TREATMENT: Class 7C is impaired and, accordingly, the members of
Class 7C are entitled to vote on the Plan. Holders of Allowed Other Unsecured
Claims in Class 7C shall receive a Pro Rata distribution of the Class 7C Stock
Distribution. Holders of Class 7C Claims may elect by so indicating on their
Ballot to have their New Common Stock redeemed by Reorganized Kitty Hawk from
the Private Placement Proceeds at a price of $1.50 per share. To the extent that
a Class 7C Claimant elects to have its New Common Stock redeemed and the Private
Placement Proceeds are insufficient to redeem all of such Class 7C Claimant's
shares of New Common Stock, the number of the Class 7C Claimant's shares that
will be redeemed shall equal the product of (a) the Private Placement Proceeds
divided by 1.5 (i.e. the total number of shares that can be redeemed) TIMES (b)
the number of shares that the Class 7C Claimant wishes to redeem divided by the
total number of shares of New Common Stock that all Claimants in Class 7A
through 7J elect to redeem.
7.4 CLASS 7D
(a) CLASSIFICATION: Class 7D consists of all Allowed Other Unsecured
Claims against International.
(b) TREATMENT: Class 7D is impaired and, accordingly, the members of
Class 7D are entitled to vote on the Plan. Holders of Allowed Other Unsecured
Claims in Class 7D shall receive a Pro Rata distribution of the Class 7D Stock
Distribution. Holders of Class 7D Claims may elect by so indicating on their
Ballot to have their New Common Stock redeemed by Reorganized Kitty Hawk from
the Private Placement Proceeds at a price of $1.50 per share. To the extent that
a Class 7D Claimant elects to have its New Common Stock redeemed and the Private
Placement Proceeds are insufficient to redeem all of such Class 7D Claimant's
shares of New Common Stock, the number of the Class 7D Claimant's shares that
will be redeemed shall equal the product of (a) the Private Placement Proceeds
divided by 1.5 (i.e. the total number of shares that can be redeemed) TIMES (b)
the number of shares that the Class 7D Claimant wishes to redeem divided by the
total number of shares of New Common Stock that all Claimants in Class 7A
through 7J elect to redeem.
7.5 CLASS 7E
(a) CLASSIFICATION: Class 7E consists of all Allowed Other Unsecured
Claims against Charters.
(b) TREATMENT: Class 7E is impaired and, accordingly, the members of
Class 7E are entitled to vote on the Plan. Holders of Allowed Other Unsecured
Claims in Class 7E shall
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receive a Pro Rata distribution of the Class 7E Stock Distribution. Holders of
Class 7E Claims may elect by so indicating on their Ballot to have their New
Common Stock redeemed by Reorganized Kitty Hawk from the Private Placement
Proceeds at a price of $1.50 per share. To the extent that a Class 7E Claimant
elects to have its New Common Stock redeemed and the Private Placement Proceeds
are insufficient to redeem all of such Class 7E Claimant's shares of New Common
Stock, the number of the Class 7E Claimant's shares that will be redeemed shall
equal the product of (a) the Private Placement Proceeds divided by 1.5 (i.e. the
total number of shares that can be redeemed) TIMES (b) the number of shares that
the Class 7E Claimant wishes to redeem divided by the total number of shares of
New Common Stock that all Claimants in Class 7A through 7J elect to redeem.
7.6 CLASS 7F
(a) CLASSIFICATION: Class 7F consists of all Allowed Other Unsecured
Claims against Longhorn Solutions.
(b) TREATMENT: Class 7F is impaired and, accordingly, the members of
Class 7F are entitled to vote on the Plan. Holders of Allowed Other Unsecured
Claims in Class 7F shall receive a Pro Rata distribution of the Class 7F Stock
Distribution. Holders of Class 7F Claims may elect by so indicating on their
Ballot to have their New Common Stock redeemed by Reorganized Kitty Hawk from
the Private Placement Proceeds at a price of $1.50 per share. To the extent that
a Class 7F Claimant elects to have its New Common Stock redeemed and the Private
Placement Proceeds are insufficient to redeem all of such Class 7F Claimant's
shares of New Common Stock, the number of the Class 7F Claimant's shares that
will be redeemed shall equal the product of (a) the Private Placement Proceeds
divided by 1.5 (i.e. the total number of shares that can be redeemed) TIMES (b)
the number of shares that the Class 7F Claimant wishes to redeem divided by the
total number of shares of New Common Stock that all Claimants in Class 7A
through 7J elect to redeem.
7.7 CLASS 7G
(a) CLASSIFICATION: Class 7G consists of all Allowed Other Unsecured
Claims against Aircraft Leasing.
(b) TREATMENT: Class 7G is impaired and, accordingly, the members of
Class 7G are entitled to vote on the Plan. Holders of Allowed Other Unsecured
Claims in Class 7G shall receive a Pro Rata distribution of the Class 7G Stock
Distribution. Holders of Class 7G Claims may elect by so indicating on their
Ballot to have their New Common Stock redeemed by Reorganized Kitty Hawk from
the Private Placement Proceeds at a price of $1.50 per share. To the extent that
a Class 7G Claimant elects to have its New Common Stock redeemed and the Private
Placement Proceeds are insufficient to redeem all of such Class 7G Claimant's
shares of New Common Stock, the number of the Class 7G Claimant's shares that
will be redeemed shall equal the product of (a) the Private Placement Proceeds
divided by 1.5 (i.e. the total number of shares that can be redeemed) TIMES (b)
the number of shares that the Class 7G Claimant wishes to redeem divided by the
total number of shares of New Common Stock that all Claimants in Class 7A
through 7J elect to redeem.
7.8 CLASS 7H
(a) CLASSIFICATION: Class 7H consists of all Allowed Other Unsecured
Claims against American International Travel.
(b) TREATMENT: Class 7H is impaired and, accordingly, the members of
Class 7H are entitled to vote on the Plan. Holders of Allowed Other Unsecured
Claims in Class 7H shall receive a Pro Rata distribution of the Class 7H Stock
Distribution. Holders of Class 7H Claims may elect by so indicating on their
Ballot to have their New Common Stock redeemed by Reorganized
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Kitty Hawk from the Private Placement Proceeds at a price of $1.50 per share. To
the extent that a Class 7H Claimant elects to have its New Common Stock redeemed
and the Private Placement Proceeds are insufficient to redeem all of such Class
7H Claimant's shares of New Common Stock, the number of the Class 7H Claimant's
shares that will be redeemed shall equal the product of (a) the Private
Placement Proceeds divided by 1.5 (i.e. the total number of shares that can be
redeemed) TIMES (b) the number of shares that the Class 7H Claimant wishes to
redeem divided by the total number of shares of New Common Stock that all
Claimants in Class 7A through 7J elect to redeem.
7.9 CLASS 7I
(a) CLASSIFICATION: Class 7I consists of all Allowed Other Unsecured
Claims against Flight One Logistics.
(b) TREATMENT: Class 7I is impaired and, accordingly, the members of
Class 7I are entitled to vote on the Plan. Holders of Allowed Other Unsecured
Claims in Class 7I shall receive a Pro Rata distribution of the Class 7I Stock
Distribution. Holders of Class 7I Claims may elect by so indicating on their
Ballot to have their New Common Stock redeemed by Reorganized Kitty Hawk from
the Private Placement Proceeds at a price of $1.50 per share. To the extent that
a Class 7I Claimant elects to have its New Common Stock redeemed and the Private
Placement Proceeds are insufficient to redeem all of such Class 7I Claimant's
shares of New Common Stock, the number of the Class 7I Claimant's shares that
will be redeemed shall equal the product of (a) the Private Placement Proceeds
divided by 1.5 (i.e. the total number of shares that can be redeemed) TIMES (b)
the number of shares that the Class 7I Claimant wishes to redeem divided by the
total number of shares of New Common Stock that all Claimants in Class 7A
through 7J elect to redeem.
7.10 CLASS 7J
(a) CLASSIFICATION: Class 7J consists of all Allowed Other Unsecured
Claims against OK Turbines.
(b) TREATMENT: Class 7J is impaired and, accordingly, the members of
Class 7J are entitled to vote on the Plan. Holders of Allowed Other Unsecured
Claims in Class 7J shall receive a Pro Rata distribution of the Class 7J Stock
Distribution. Holders of Class 7J Claims may elect by so indicating on their
Ballot to have their New Common Stock redeemed by Reorganized Kitty Hawk from
the Private Placement Proceeds at a price of $1.50 per share. To the extent that
a Class 7J Claimant elects to have its New Common Stock redeemed and the Private
Placement Proceeds are insufficient to redeem all of such Class 7J Claimant's
shares of New Common Stock, the number of the Class 7J Claimant's shares that
will be redeemed shall equal the product of (a) the Private Placement Proceeds
divided by 1.5 (i.e. the total number of shares that can be redeemed) TIMES (b)
the number of shares that the Class 7J Claimant wishes to redeem divided by the
total number of shares of New Common Stock that all Claimants in Class 7A
through 7J elect to redeem.
VALUE OF DISTRIBUTIONS TO OTHER UNSECURED CREDITORS. The Debtors and their
Financial Advisors estimate that the enterprise value of the Reorganized Debtor
is $150 million (SEE DISCUSSION IN SECTION XI OF THIS DISCLOSURE STATEMENT).
Fifty (50) million shares are being distributed to Class 7 under the Plan. Each
holder of an Allowed Class 7 Claim will receive its Pro Rata share of 15% of the
New Common Stock. Fifteen percent of $150 million in value is $22 million in
value. Thus, if, for example, the total amount of Allowed Class 7 Claims is $71
million, each creditor in Class 7 will recover approximately 30% of its Claim in
New Common Stock. Holders of Allowed Class 7 Claims who elect to have the
Reorganized Debtor redeem their shares will have the shares redeemed at $1.50
per share, which is a 50% discount from the estimated value of each share of New
Common Stock.
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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 no
distribution under the Plan and are deemed to have rejected the The Old Common
Stock will be canceled on the Effective Date.
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.
G. ACCEPTANCE OR REJECTION OF THE PLAN
1. VOTING CLASSES. The holders of Claims in Classes 1, 2, 3, 4, 5, 6 and 7
are impaired and shall be entitled to vote to accept or reject the Plan.
2. PRESUMED REJECTION OF PLAN. The holders of Interests and Claims in
Classes 8 and 9 are not being solicited to accept or reject the Plan and will be
deemed to have rejected the Plan.
H. 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.
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 can be economically
distributed, 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
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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 of the Plan, 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 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.
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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 of the Plan.
7. DELIVERY OF DISTRIBUTIONS AND UNDELIVERABLE OR UNCLAIMED DISTRIBUTIONS.
A. DELIVERY OF DISTRIBUTIONS IN GENERAL. Except as provided in
Section 6.9(b) of the Plan 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 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 of
the Plan.
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 6.7(b)(ii)
of the Plan, 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.
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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 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 the 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.
I. 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
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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.
The Plan also establishes a bar date for filing claims for rejection under
the Plan of an executory contract or unexpired lease.
J. 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.
The Debtors are seeking approximately $110 million in exit debt financing,
comprised of a $60 million term loan and a $50 million revolver. To date, the
Debtors have received four proposals. The Debtors anticipate negotiating all
terms and conditions of the lending proposals to provide the Debtors with the
most advantageous credit facility. Upon selecting a lender, the Debtors will be
subjected to due diligence by the lender. In some cases, a lender requires a fee
before conducting due diligence.
Each proposal provides for a term loan secured by the Debtors' B727
aircraft and a revolver to be secured by receivables, rotable parts and
inventory. The Debtors contemplate negotiating a term of at least three (3)
years for the term loan. Based on the proposals, the Debtors believe that the
blended interest rate on the lending facilities will be in a range in excess of
9.5%. As would be expected, each proposal calls for commitment fees, closing
fees, annual fees, and unused revolver availability fees. The Debtors believe
that the interest rates and fees they are able to negotiate will be similar to
those incurred by other corporations emerging from bankruptcy.
2. PRIVATE PLACEMENT. The Debtors shall use commercially reasonable
efforts to sell up to five (5) million shares of New Common Stock through the
Private Placement. The price per share placed will be $3 or more. The sale(s)
will close on the Effective Date or as soon thereafter as possible.
3. MERGER OF CORPORATE ENTITIES. Prior to the Effective Date, Aircargo
will form a wholly-owned subsidiary in Delaware, named Kitty Hawk Aircargo, Inc.
On the Effective Date, American International Travel, Aircraft Leasing, Cargo,
Charters, Flight One Logistics, International, Longhorn Solutions and OK
Turbines will merge with and into Kitty Hawk, with Kitty Hawk being the
surviving corporation in each of the mergers. In addition, Kitty Hawk Aircargo,
Inc. (the Texas corporation) will merge with and into Kitty Hawk Aircargo, Inc.
(the Delaware corporation), with Kitty Hawk Aircargo, Inc. (the Delaware
corporation) being the surviving corporation in the merger. Immediately after
the foregoing mergers, Kitty Hawk will merge with and into Kitty Hawk Aircargo,
Inc. (the Delaware corporation), with Kitty Hawk Aircargo, Inc. (the Delaware
corporation) being the surviving corporation in the merger. As a result of the
mergers, Kitty Hawk Aircargo, Inc. (the Delaware corporation) will succeed to
all of the assets, liabilities and rights of the Debtors.
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
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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:
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 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 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 DISTRIBUTED TO
CREDITORS. 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 of the Plan, 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 8.3 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 than they
would receive if the Senior Note guarantees were enforced, 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 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' officers and directors identified below
(the "Released Officers and 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
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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; PROVIDED FURTHER,
HOWEVER, nothing in the Plan or the Confirmation Order shall constitute a
release of any obligations, whether based on contract, statute or other
applicable law, of present or former officers and directors of the Debtors in
respect of the Debtors' confidential or proprietary information or of their
agreements, obligations or undertakings not to engage in activities that are
competitive with the Debtors' businesses.
.
The Released Officers and Directors include the following people:
OFFICERS:
Tilmon J. Reeves Chief Executive Officer
Drew Keith Vice President and Acting Chief Financial
Officer
James R. Craig Vice President and General Counsel
Ted J. Coonfield Vice President
John Turnipseed Vice President - Human Resources
Michael Clark Vice President - Security
DIRECTORS:
M. Tom Christopher Lewis S. White
Tilmon J. Reeves Steve Wood
Ted Coonfield Bruce Martin
Philip J. Sauder Tom Kincaid
Thomas J. Smith
The Debtors are not aware of any causes of action that the Debtors could
assert against the Released Officers and Directors. Moreover, the Debtors are
not aware of any facts that suggest that the Debtors may have claims against the
Released Officers and Directors that should be investigated. The consideration
for the releases provided for herein is, INTER ALIA, the valuable services the
Released Officers and Directors provided to the Debtors and the cooperation they
continue to provide to the Debtors.
This is a release of claims held by the Debtors. It does not release third
party claims such as the recission claims asserted by certain class action
plaintiffs.
13. 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.
14. 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) of the Plan, 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
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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.
15. 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) 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.
16. 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).
K. 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 Article 9 of the Plan 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; provided however, that the Debtors may not
waive the condition set forth in 9.1(c) without the consent of the Bank Group.
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.
L. 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
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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) 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.
This provision enjoins the enumerated actions against the Debtors on
claims that have been discharged or treated pursuant to Section 1141 of the
Bankruptcy Code. The provision expands the discharge of Section 1141 to include
the Creditors' Committee, the Indenture Trustee and the Unofficial Noteholders'
Committee. The purpose of expanding the injunction is to prevent lawsuits
against the Committees and the Indenture Trustee on matters that are forever
resolved by the Plan. None of the Creditors' Committee, the Indenture Trustee or
the Unofficial Noteholders' Committee has provided any consideration for the
inclusion of this language. This provision will be removed or limited to the
Debtors if the Court finds that the Plan cannot be confirmed with this provision
included.
3. EXCULPATION AND LIMITATION OF LIABILITY.
None of the Indenture Trustee and any professional Persons retained by it;
the Official Committee of Unsecured Creditors or 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.
This provision essentially releases any claim that any party has against
the Debtors, the Unofficial Committee, the Indenture Trustee for the Senior
Notes, and the Unofficial Noteholders' Committee and professional Persons
retained by them for actions related to the Bankruptcy Cases, other than claims
arising out of gross negligence or willful misconduct. This provision is common
in reorganization plans and is designed to prevent harrassment suits by parties
who are dissatisfied with the treatment provided in a Plan. None of the
Creditors' Committee, the Indenture Trustee or the Unofficial Noteholders'
Committee has provided any consideration for the inclusion of this language.
This provision will be removed if the Court finds that the Plan cannot be
confirmed with this provision included.
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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.
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.
M. 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.
N. 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."
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1. BUSINESS STRATEGY
Kitty Hawk's business strategy is based upon the premise of the following
macroeconomic trends:
o Increasing Demand for Airfreight
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,7
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
-----------------------------
(7) Boeing (provider of the Boeing 1998/1999 World Air Cargo
Forecast) is one of several widely accepted sources who forecast
global airfreight trends. The Seabury Group consulted several
sources to determine the validity of certain of its assumptions used
in the Plan and determined that each source provided forecasts with
similar results.
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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 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 United States Postal Service "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
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
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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
FEDERAL
DHL EXPRESS EXPRESS ONE UPS KITTY HAWK
------------ ------------ ------------ ------------ ------------- ------------
Cockpit Crew $ 86 $ 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
------------ ------------ ------------ ------------ ------------- ------------
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.
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
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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.
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. The Liquidation Analysis
attached as Exhibit "B" reflects the likely distribution to unsecured creditors
in the event of an orderly liquidation of the Debtors in Chapter 11. In a
Chapter 7, additional administrative claims would likely reduce distributions.
Additionally, the Liquidation Analysis assumes that the Bank Claims will be paid
equitably out of the proceeds of each Debtors' estate that has assets pledged to
the Bank Group. In reality, the proceeds of the first assets that sell would be
used to pay the Bank Claims so that one Debtor may bear a disproportionate share
of repaying the Bank Claims and distributions to its unsecured creditors would
be materially reduced. The following chart compares distributions under the Plan
with the distributions in an orderly
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Chapter 11 liquidation with the Bank Claims allocated proportionately to asset
value among the Debtors.
RECOVERY IN ORDERLY
LIQUIDATION ON AN ESTIMATED
UNCONSOLIDATED BASIS RECOVERY UNDER PLAN
DEBTOR (EXPRESSED AS % OF CLAIM) (EXPRESSED AS % OF CLAIM)
------ ------------------------- -------------------------
Kitty Hawk 2.62% 30%
Kitty Hawk Cargo 4.00% 30%
Kitty Hawk Aircargo 12.27% 30%
Kitty Hawk International 1.50% 30%
Kitty Hawk Charters 9.27% 30%
Longhorn Solutions* 0.00% 30%
Aircraft Leasing 4.33% 30%
American International Travel* 0.00% 30%
Flight One Logistics* 0.00% 30%
OK Turbines 0.33% 30%
*These entities have few unsecured creditor claims.
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.
4. CHRISTOPHER PLAN
On August 31, 2000, M. Tom Christopher filed a plan of reorganization (the
"Christopher Plan") and a disclosure statement regarding the Christopher Plan.
The disclosure statement for the Christopher Plan describes the Christopher Plan
as follows:
The Christopher Plan(8) contemplates that an investor group will provide
approximately $25,000,000.00 in new capital to the company in exchange for
issuance of a majority interest in the Reorganized Debtor's New Common
Stock. The proceeds of this investment will be utilized by the Reorganized
Debtor for payments due on the Effective Date of the Christopher Plan, as
well as for working capital purposes. In addition to the capital infusion
from the investor group, the Reorganized Debtors will execute new credit
facilities which will replace the existing Wells Fargo facility. The
proceeds from this new financing will be utilized to pay in full the claim
of Wells Fargo Bank as agent. Funds from the capital infusion and from the
new financing in addition to cash on hand will be further utilized by the
Reorganized Debtor to make a cash payment of between $50 and $55 million
on the Effective Date to the 9.95% Senior Secured Noteholders in exchange
for release of
---------------------
(8) For consistency in this Disclosure Statement, the Christopher
Plan is referred to as the "Christopher Plan" in this document even though
it internally refers to itself as the "Plan."
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the liens held by the Senior Secured Noteholders on the Debtors' B727
Assets. In satisfaction of the balance of the Senior Secured Noteholders
Secured Claim, the Reorganized Debtor will issue a new Senior Secured Note
in the amount of $100,000,000.00. This Note will mature on December 31,
2004, and will feature a non-collateral payment of 9.95% of the
outstanding balance of the note, paid semi- annually. The new note will be
collateralized by the remaining Wide Body Assets which will be liquidated
in an orderly fashion throughout the life of the new note. It is
anticipated that this liquidation will be completed in approximately 18-24
months. The proceeds of the sales of all of the Wide Body Collateral will
be distributed to the Senior Secured Noteholders on a pro rata basis in
satisfaction of the New Wide Body Note. The unsecured claim of the Senior
Secured Noteholders will be satisfied by a cash payment of $15,000,000.00
made on the Effective Date and the issuance of a $50,000,000 note with a
maturity of December 31, 2004 payable in semi-annual installments. From
the capital sources identified above, General Unsecured Creditors will
receive a cash payment of $15,000,000.00 on the Effective Date of the
Christopher Plan, and a note for an additional $15,000,000.00 to be paid
in equal semi-annual installments over a two year period. Additionally,
unsecured creditors will be entitled to certain additional payments up to
the full amount of their Allowed Unsecured Claims if certain performance
criteria are achieved by the Reorganized Debtor post confirmation.9
Neither the Christopher Plan nor its related disclosure statement identify
the potential investor or source of exit financing.
The Debtors do not believe that the Christopher Plan can be confirmed over
the objection of the Noteholders. The Noteholders currently oppose the
Christopher Plan. In an Objection of Indenture Trustee and Unofficial Committee
of Noteholders to the Official Unsecured Creditors' Committee Motion to Adjourn
the Hearing on the Adequacy of the Debtor's Disclosure Statement, the
Noteholders stated that the Christopher Plan impermissibly discriminates against
the Noteholders and that the Trustee and the Noteholders' Committee "expect that
the Noteholders will vote en masse to reject the Christopher Plan."
IX.
VALUATION OF KITTY HAWK, INC. AND ITS SUBSIDIARIES
ON A STAND-ALONE BASIS
A. CAUTIONARY NOTE.
The Debtors have presented a substantial amount of their financial
information upon the assumption that there would be cooperation between the
Debtors, on the one hand, and the Wells Fargo Bank Group and the Senior
Noteholders, on the other in regard to their rights in collateral. Among other
things, in its Liquidation Analysis (Exhibit B), the Debtors have allocated the
assets available to pay the Wells Fargo Bank Group among all Wells Fargo
obligors on a proportionate basis. In an adversarial context, the Debtors
believeWells Fargo would seek to realize upon its most liquid collateral first,
resorting to tangible collateral for only the unpaid balance. If Wells Fargo
proceeded against its more liquid collateral first, it could substantially
impair the stand-alone going concern viability of both Kitty Hawk Cargo and
Kitty Hawk Aircargo unless alternative financing was immediately available. The
subsequent analysis assumes either cooperation from the Wells Fargo Bank Group
or entry of court orders, limiting as necessary for stand-alone viability, the
right
---------------------------------
(9) Christopher Plan's Disclosure Statement, Section VIII, A.,
page 17.
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of the Wells Fargo Bank Group in applying proceeds to its debt. Moreover, this
analysis assumes a relatively high recovery by the Senior Noteholders from their
wide body and 727 collateral; hence a Class 6 deficiency claim of $200,730,000.
In a stand-alone scenario, the net credit to the Senior Note obligation from
collateral dispositions could be substantially less than the credits on such
Notes in the event of a less controlled, less orderly collateral disposition.
For example, the Noteholders could conduct auctions of the aircraft and could
likely have substantially fewer proceeds. This in turn would increase the amount
of their claims in all Cases, particularly Kitty Hawk Cargo and Kitty Hawk
Aircargo. A larger Class 6 Noteholder claim would correspondingly reduce the
share of Class 7 creditors in any distribution at the entity level. Finally,
this analysis assumes that the reorganizable Debtors will emerge from bankruptcy
during either November or December of 2000.
1. KITTY HAWK, INC. owns 100% of the stock of each of the subsidiaries.
Based on the debt levels and asset values of each of these subsidiaries, Kitty
Hawk, Inc.'s investment in its subsidiaries is of little or no value. Since
Kitty Hawk, Inc. has no operations; it would not be a candidate for a
stand-alone reorganization. Kitty Hawk, Inc. had limited cash on the petition
date and has not generated any cash from operations and the cash is assumed to
be consumed by administrative expenses in its Chapter 11 proceeding. Kitty Hawk,
Inc. had petition date assets consisting of intercompany claims against several
of its subsidiaries, a leasehold interest in the Fort Wayne, Indiana airport
cargo facility, and a leasehold interest in an office building and aircraft
hangar/maintenance facility at DFW Airport, TX, pursuant to a ground lease with
the DFW Airport Authority. Under a stand-alone outcome, Kitty Hawk, Inc.'s
assets would be liquidated and the proceeds distributed to its Creditors. On a
liquidation basis, the Debtors estimate that the amount available for
distribution to unsecured creditors of Kitty Hawk, Inc. would be $5,196,000 for
a recovery of 2.62% of their claims. SEE LIQUIDATION ANALYSIS ATTACHED AS
EXHIBIT B TO DISCLOSURE STATEMENT.
2. FLIGHT ONE LOGISTICS, INC. is a non-operating company with no
operations, assets or liabilities.
3. AMERICAN INTERNATIONAL TRAVEL, INC. no longer has any operations,
assets, or personnel. As a stand-alone entity, American International Travel,
Inc. would have no value for distribution to prepetition creditors.
4. LONGHORN SOLUTIONS, INC. owns software utilized by airlines for
maintenance tracking, parts and material tracking and purchasing, and airline
records. The value of this software is limited, and the company has only one
customer utilizing its software other than Kitty Hawk Aircargo, Inc. Longhorn
has no working capital and, without the infusion of new capital, does not have
an ability to operate on a stand-alone basis. Under a stand-alone analysis,
Longhorn would liquidate its limited assets and distribute the proceeds to its
creditors. On a liquidation basis, Longhorn Solutions has no money available for
distribution to unsecured creditors. SEE LIQUIDATION ANALYSIS ATTACHED AS
EXHIBIT B TO DISCLOSURE STATEMENT.
5. AIRCRAFT LEASING, INC. owns aircraft that are operated by Kitty Hawk
Aircargo, Inc. Since Aircraft Leasing, Inc. is not an FAA certificated air
carrier, it cannot operate aircraft even on an ACMI basis. As such, Aircraft
Leasing has no option on a stand-alone basis other than to relinquish to the
holders of Senior Notes its ten (10) 727 aircraft (or alternatively to sell
them), to sell or lease its 4 DC-9 aircraft and to deliver the proceeds of such
sale or lease to its creditors. Aircraft Leasing has no material creditors other
than the Wells Fargo Bank Group and the Holders of the Senior Notes. On a
stand-alone basis, Aircraft Leasing would dispose of its aircraft and deliver
the proceeds to secured and unsecured creditors. In this case, it is anticipated
that all of the 727 proceeds and all but a de minimus amount of the proceeds of
the sale of the DC-9's would be distributed to the holders of Senior Notes. On a
liquidation basis, the Debtors estimate that the
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amount available to unsecured creditors of Aircraft Leasing would be $8,060,000
for a recovery of 4.33% of their claims. SEE LIQUIDATION ANALYSIS ATTACHED AS
EXHIBIT B TO DISCLOSURE STATEMENT.
6. KITTY HAWK INTERNATIONAL, INC., the former operator of the wide-body
aircraft, has sold its FAR Part 121 operating certificate. Unless it were to
able to acquire a new operating certificate and to regain operational control of
its wide body fleet, Kitty Hawk International has no prospect of reorganization
in any configuration comparable to its pre-petition operations. To return to
stand-alone operations would require a very substantial capital infusion. Thus,
on a stand-alone basis, there is no going concern value to Kitty Hawk
International. The only practical course for Kitty Hawk International is to
dispose of or abandon its wide body aircraft for the account of the holders of
Senior Notes and to use collection of its accounts receivables to reduce its
indebtedness to the Wells Fargo Bank Group. Kitty Hawk International's remaining
assets, which consist primarily of two parcels of real estate, one fee simple
and one leasehold, would be sold and proceeds distributed to its priority and
unsecured creditors. The results for creditors in such event are indicated in
the Debtors' Liquidation Analysis. On a liquidation basis, the Debtors estimate
that the amount available for distribution to unsecured creditors of Kitty Hawk
International would be $3,855,000 for a recovery of 1.50% of their claims. SEE
LIQUIDATION ANALYSIS ATTACHED AS EXHIBIT B TO DISCLOSURE STATEMENT.
7. OK TURBINES, INC. continues to operate and is viable as a stand-alone
entity. OK Turbines has been marketed for sale, and has been allocated a value
of $2.4 million by the prospective purchaser in its contract for purchase of OK
Turbines and Kitty Hawk Charters. The distribution of sales proceeds is
indicated in the Debtors' Liquidation Analysis. On a liquidation basis, the
Debtors estimate that the amount available for distribution to unsecured
creditors of OK Turbines would be $632,000 for a recovery of .33% of their
claims. SEE LIQUIDATION ANALYSIS ATTACHED AS EXHIBIT B TO DISCLOSURE STATEMENT.
8. KITTY HAWK CHARTERS, INC. continues to operate and is viable as a
stand-alone entity. This company has been marketed for sale, and has been
allocated a value of $19.9 million by the prospective purchaser in its contract
for purchase of Kitty Hawk Charters and OK Turbines. Therefore, the market place
has determined the stand-alone value of Charters. The distribution of sales
proceeds is indicated in the Debtors' Liquidation Analysis. On a liquidation
basis, the Debtors estimate that the amount available for distribution to
unsecured creditors of Kitty Hawk Charters would be $18,568,000 for a recovery
of 9.27% of their claims. SEE LIQUIDATION ANALYSIS ATTACHED AS EXHIBIT B TO
DISCLOSURE STATEMENT.
9. EXPLANATORY NOTE AS TO KITTY HAWK AIRCARGO AND KITTY HAWK CARGO
VALUATIONS.10 Kitty Hawk Aircargo, Inc. and Kitty Hawk Cargo, Inc. are the
entities whose ongoing operations form the cornerstone for Kitty Hawk's plan of
reorganization. Both entities could be viable on a stand-alone basis. However,
the following analysis maintains the benefits of a consolidated group, as it
simply allocates the respective operating income and expenses, and overhead
expenses, pursuant to Kitty Hawk's consolidated plan of reorganization. Thus it
does not take into account increased costs and expenses that would likely be
born by each of the two entities if they were truly separated. For example, both
entities benefit in terms of employee benefits costs, insurance rates, working
capital interest expense, facility rent, utilities, and equipment costs, etc.,
on a combined basis. Additionally, certain overhead costs, including senior
management,
--------
10 The combined values of Kitty Hawk Aircargo and Kitty Hawk Cargo are
less than the $140 million to $160 million estimated values of the Reorganized
Debtor because the Reorganized Debtor benefits from being able to use the value
of the Debtors other than Kitty Hawk Aircargo and Kitty Hawk Cargo to facilitate
its reorganization. As a result, the Reorganized Debtor takes on less debt to
pay plan obligations and to maintain sufficient operating capital. The combined
stand-alone value of Kitty Hawk Aircargo and Kitty Hawk Cargo is $111.8 million.
The combined liquidation value that would be available to unsecured creditors of
the other Debtors is approximately $37.5 million. When this amount is added to
the $111.8 million combined value of Kitty Hawk Aircargo and Kitty Hawk Cargo,
the total falls within the range of values for the Reorganized Debtor.
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sales/marketing/customer service, accounting management and audits, human
resources, legal support and contract administration, billing, credit and
collections, board of director costs and expenses, computer system and software
licensing costs, etc., are less when shared on an allocated basis rather than
purchased separately by each of the two entities. Therefore, if the two entities
were actually separated, the Debtors believe that their respective costs would
be higher, and thus their respective values would be less, but this has not been
quantified at this time.
Kitty Hawk Aircargo, Inc. is the FAR Part 121 operator of the Boeing 727
aircraft and DC 9 aircraft. Kitty Hawk Aircargo is an integral part of the
Debtor's plan of reorganization. It is assumed that Kitty Hawk Aircargo will own
and operate all the B727 aircraft, will not continue to operate DC 9's, and will
retain the BAX Global contract, all the USPS business, and continue to provide
15 aircraft to Kitty Hawk Cargo at market rates. In order to do so, Kitty Hawk
Aircargo would have to replace the ten (10) 727 aircraft that it currently
operates, but which are owned by Aircraft Leasing. This stand-alone analysis
assumes that replacement aircraft could be obtained at costs comparable to the
cost currently being incurred by Aircargo for the use of the ten (10) Aircraft
Leasing 727's. This stand-alone analysis suggests a year one EBITDA of $32.5
million could be generated providing an enterprise value (using a multiple of
EBITDA of 6.0) of $194.9 million, less proforma net debt of $130.4 million
necessary to support the business, which produces an equity value of $64.3
million.
Unsecured Creditors in Class 7C hold claims totaling approximately
$26,591,000 and holders of Claims in Class 6 (Noteholder deficiency claims) are
projected to have a deficiency claim in Class 6 of $200,730,000. If holders of
Claims in these classes were to share prorata in the equity value of a
stand-alone Aircargo, they would own, respectively, 12% and 88% of the equity of
Reorganized stand-alone Aircargo. In order for this stand-alone scenario to be
realized, the Wells Fargo Bank Group would need to agree or be compelled to
forebear from seeking to satisfy its $108 Million secured claim from the assets
of Aircargo. Moreover, this outcome depends upon Aircargo being able to
seamlessly replicate the functionality it enjoys from its being part of the
currently combined enterprise.
Kitty Hawk Cargo, Inc. is the operator of the Scheduled Freight business
out of the Fort Wayne, Indiana overnight freight hub.
It is assumed that Kitty Hawk Cargo will continue to operate the Scheduled
Freight business as it is currently structured, will continue to obtain most of
its aircraft from Kitty Hawk Aircargo at current rates, and would be able to
obtain adequate working capital financing. The stand-alone reorganization
analysis of Kitty Hawk Cargo suggests year one EBITDA of $23.1 million could be
generated providing an enterprise value (using a multiple of EBITDA of 3.2) of
$74 million. Subtracting proforma stand-alone net debt of $26.5 million
necessary to support the business produces a net worth of $47.5 million.
Unsecured creditors in Class 7B hold claims totaling approximately
$5,588,000. Claims in Class 6 (Noteholder deficiency claims) are estimated to
aggregate $200,730,000. If holders of Claims in these classes were to share
prorata in the equity value of a stand-alone Kitty Hawk Cargo, they would own,
respectively, 3% and 97% of the equity of Reorganized stand-alone Cargo. In
order for this stand-alone scenario to be realized, the Wells Fargo Bank Group
would need to agree or be compelled to forebear from seeking to satisfy its $108
Million secured claim from the assets of Cargo. Moreover, this outcome depends
upon Cargo being able to seamlessly replicate the functionality it enjoys from
its being part of the currently combined enterprise.
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X.
DESCRIPTION OF SECURITIES TO BE ISSUED UNDER THE PLAN
A. NEW COMMON STOCK
The Reorganized Debtor will have 65,000,000 shares of common stock, par
value $.01 per share, authorized pursuant to its Certificate of Incorporation
("New Common Stock"). On the Effective Date, or as soon thereafter as
practicable, Reorganized Debtor will issue approximately 55,000,000 shares of
New Common Stock pursuant to the Plan. Of these shares, 50,000,000 will be
distributed to Class 6 and Class 7. The remaining 5,000,000 shares will be
available for purchase through the Private Placement. The 10,000,000 shares of
New Common Stock not distributed on the Effective Date or as soon thereafter as
practicable, will be reserved for future issuance, as determined by the Board of
Reorganized Kitty Hawk. No fractional shares will be issued pursuant to the
Plan. The shares of New Common Stock will be fully paid and non-assessable. The
Certificate of Incorporation limits the aggregate voting power of non-U.S.
persons to 22 1/2% of the votes voting on or consenting to any matter.
Holders of shares of New Common Stock:
o are entitled to one vote per share in the election of directors and
on all other matters submitted to a vote of stockholders;
o do not have the right to cumulate their votes in the election of
directors;
o have no redemption, conversion or preemptive rights or other rights
to subscribe for securities of Reorganized Debtor;
o upon the liquidation, dissolution or winding up of Reorganized
Debtor, are entitled to share equally and ratably in all of the
assets remaining, if any, after satisfaction of all of Reorganized
Debtor's debts and liabilities and the preferential rights of any
series of preferred stock then outstanding; and
o have an equal and ratable right to receive dividends, when, as and
if declared by the board of directors out of funds legally available
therefor and only after payment of, or provision for, full dividends
on all outstanding shares of any series of preferred stock and after
any provision for any required sinking or purchase funds for series
of preferred stock.
The rights, preferences and privileges of holders of New Common Stock are
subject to the rights, preferences and privileges granted to the holders of any
series of preferred stock which the Reorganized Debtor may issue in the future.
The Certificate of Incorporation and bylaws of Reorganized Debtor include
provisions that could have anti-takeover effects. The provisions are intended to
enhance the likelihood of continuity and stability in the composition of and in
the policies formulated by, the board of directors. These provisions also are
intended to help ensure that the board of directors, if confronted by a surprise
proposal from a third party that has acquired a block of New Common Stock, will
have sufficient time to review the proposal, to develop appropriate alternatives
to the proposal and to act in what the board of directors believes to be the
best interests of the Reorganized Debtor and its stockholders.
The following is a summary of the provisions contained in the Certificate
of Incorporation and bylaws.
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NUMBER OF DIRECTORS; FILLING VACANCIES; REMOVAL. The Certificate of
Incorporation provides that the board of directors will fix the number of
members of the board of directors to consist of at least one member (plus such
number of directors as may be elected from time to time pursuant to the terms of
any series of preferred stock that may be issued and outstanding from time to
time). The bylaws provide that the board of directors, acting by majority vote
of the directors then in office, may fill any newly created directorship or
vacancies on the board of directors.
SPECIAL MEETINGS. The bylaws and Certificate of Incorporation provide that
special meetings of stockholders may be called by a majority of the board of
directors, the chairman of the board of directors, or by any holder or holders
of at least 25% of any class of the Reorganized Debtor's outstanding capital
stock then entitled to vote at the meeting.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR
NOMINEES. The bylaws establish an advance notice procedure with regard to
business proposed to be submitted by a stockholder at any annual or special
meeting of stockholders of the Reorganized Debtor, including the nomination of
candidates for election as directors. The procedure provides that a written
notice of proposed stockholder business at any annual meeting must be received
by the Secretary of the Reorganized Debtor not more than 90 days nor less than
60 days before the first anniversary of the prior year's annual meeting or, in
the event of a special meeting, not more than 10 days after the notice of the
special meeting.
Notice to Reorganized Debtor from a stockholder who proposes to nominate a
person at a meeting for election as a director must contain all information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, including
such person's written consent to being named in a proxy statement as a nominee
and to serving as a director if elected.
The chairman of a meeting of stockholders may determine that a person is
not nominated in accordance with the nominating procedure, in which case such
person's nomination will be disregarded. If the chairman of a meeting of
stockholders determines that other business has not been properly brought before
such meeting in accordance with the bylaw procedures, such business will not be
conducted at the meeting. Nothing in the nomination procedure or the business
will preclude discussion by any stockholder of any nomination or business
properly made or brought before the annual or any other meeting in accordance
with the foregoing procedures.
RESTRICTIONS ON FOREIGN DIRECTORS, OFFICERS AND VOTING. The Reorganized
Debtor's Certificate of Incorporation limits the aggregate voting power of
non-U.S. persons to 221/2% of the votes voting on or consenting to any matter.
Furthermore, the bylaws do not permit non-U.S. citizens to serve as directors or
officers of the Reorganized Debtor.
B. PRIVATE PLACEMENT
Through the Private Placement, the Reorganized Debtor hopes to sell up to
5,000,000 shares of New Common Stock . The New Common Stock sold through the
Private Placement will be exempt from registration under section 5 of the
Securities Act of 1933 by virtue of section 4(2) of the Securities Act of 1933.
The Debtors will not sell shares of New Common Stock to any Person who is an
owner of Old Common Stock. The Debtors have not yet identified a purchaser or
purchasers of the shares to be sold in the Private Placement and there is no
guaranty that the Debtors will be able to find purchasers. The Debtors will not
sell shares to a prospective purchaser unless the purchaser and the sale meet
the requirements for exemption from registration under section 5 of the
Securities Act of 1933 by virtue of section 4(2) of the Act.
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C. ISSUANCE OF THE NEW COMMON STOCK UNDER THE PLAN
Section 1145 of the Bankruptcy Code exempts the original issuance of
securities under a plan of reorganization from the registration requirements of
section 5 of the 1933 Act and state and local laws requiring registration or
licensing if three principal requirements are satisfied: (i) the securities must
be issued by the debtor, its successor, or an affiliate participating with the
debtor under a plan of reorganization; (ii) the recipients of the securities
must hold a claim against the debtor, an interest in the debtor or a claim for
an administrative expense against the debtor; and (iii) the securities must be
issued entirely in exchange for the recipient's claim against or interest in the
debtor, or "principally" in such exchange and "partly" for cash or property. The
issuance of the New Common Stock to creditors under the Plan satisfies these
requirements and will be, therefore, exempt from the registration requirements
of section 5 of the 1933 Act and applicable state laws.
D. POST-CONFIRMATION TRANSFERS OF THE NEW COMMON STOCK
Resales of and subsequent transactions in the New Common Stock issued
pursuant to the Plan after the original issuance are also exempted from the
registration requirements of section 5 of the 1933 Act and applicable state
laws, except for certain transactions by "underwriters," as that term is defined
in section 1145(b) of the Bankruptcy Code. Section 1145(b) of the Bankruptcy
Code defines four types of "underwriters":
(i) persons who purchase a claim against, an interest in, or a claim
for administrative expense against the debtor with a view to distributing
any security received in exchange for such a claim or interest
("accumulators");
(ii) persons who offer to sell securities offered under a plan for
the holders of such securities ("distributors");
(iii) persons who offer to buy such securities for the holders of
such securities, if the offer is (a) with a view to distributing them or
(b) made under a distribution agreement ("syndicators"); and
(iv) a person who is an "issuer" with respect to the securities, as
the term "issuer" is defined in section 2(11) of the 1933 Act.
Under section 2(11) of the 1933 Act, an "issuer" includes any person
directly or indirectly controlling or controlled by Reorganized Debtor, or any
person under direct or indirect common control with Reorganized Debtor (a
"control person").
Whether a person is an "issuer", and therefore an "underwriter", for
purposes of section 1145(b) of the Bankruptcy Code, depends on a number of
factors. These include: (i) the person's equity interest in the Reorganized
Debtor; (ii) the distribution and concentration of other equity interests in
Reorganized Debtor; (iii) whether the person is an officer or director of
Reorganized Debtor; (iv) whether the person, either alone or acting in concert
with others, has a contractual or other relationship giving that person power
over management policies and decisions of Reorganized Debtor; and (v) whether
the person actually has such power notwithstanding the absence of formal indicia
of control. An officer or director of Reorganized Debtor may be deemed a
controlling person, particularly if his position is coupled with ownership of a
significant percentage of voting stock. In addition, the legislative history of
section 1145 of the Bankruptcy Code suggests that a creditor with at least 10%
of the securities of a debtor could be deemed a controlling person.
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At the Confirmation Hearing, the Debtors will request that the Bankruptcy
Court make a specific finding and determination that the issuance and
distribution of the New Common Stock will be covered by the provisions of
section 1145 of the Bankruptcy Code.
To the extent that a holder of an Allowed Claim is deemed to be an
"underwriter," such holder may make public offers and sales of the New Common
Stock only in accordance with the registration requirements of the 1933 Act or
exemptions therefrom (see disclosure concerning Rule 144 below). In addition,
transfers of such securities may be restricted by, and will require compliance
with, state securities laws.
The staff of the Securities and Exchange Commission (the "Commission") has
taken the position that control persons may resell securities issued under a
plan or reorganization that was confirmed under the Bankruptcy Code by complying
with Rule 144 (except for the holding period of Rule 144(d)). Holders of Allowed
Claims who believe that they may be statutory "underwriters" under the
definition of that term contained in section 1145(b) of the Bankruptcy Code are
advised to consult with their own counsel as to the availability of any
exemptions under the 1933 Act.
GIVEN THE COMPLEX, SUBJECTIVE NATURE OF THE QUESTION OF WHETHER A PARTICULAR
HOLDER MAY BE AN UNDERWRITER, THE PLAN PROPONENTS MAKE NO REPRESENTATION
CONCERNING THE RIGHT OF ANY PERSON TO TRADE THE NEW COMMON STOCK. THE PLAN
PROPONENTS RECOMMEND THAT RECIPIENTS OF THE NEW COMMON STOCK CONSULT THEIR OWN
COUNSEL CONCERNING WHETHER THEY MAY FREELY TRADE SUCH SECURITIES OR WHETHER
THERE ARE ANY RESTRICTIONS ON THE RESALE OF THE NEW COMMON STOCK UNDER ANY
APPLICABLE "BLUE SKY" OR OTHER SECURITIES LAWS.
E. TRADING IN THE OVER-THE-COUNTER MARKET
The Reorganized Debtor will take reasonable efforts to have the New Common
Stock traded in the over-the-counter market and listed on the NASDAQ National
Market. Even if the New Common Stock is listed on the NASDAQ National Market,
there is no assurance that an active market will develop for the New Common
Stock.
F. CERTAIN TRANSACTIONS BY STOCKBROKERS
Under section 1145(a)(4) of the Bankruptcy Code, stockbrokers are required
to deliver a copy of this Disclosure Statement (and supplement hereto, if any)
at or before the time of delivery of securities issued under the Plan to their
customers for the first 40 days after the Effective Date. This requirement
specifically applies to trading and other after-market transactions in such
securities.
XI.
VALUATION OF NEW COMMON STOCK
As noted elsewhere in this Disclosure Statement, the Debtors have
estimated that the Kitty Hawk common stock to be issued to holders of claims in
Classes 6 and 7 will have an aggregate value of $150 million. The Company and
its financial advisor, Seabury Securities LLC estimated the value of the New
Common Stock using conventional, well-accepted methodologies for valuation of
equity securities.
Seabury used a variety of methods in assessing the valuation of the
Company, which were
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of necessity dependent on the financial forecasts included in the Business Plan
prepared by management.
After considering a number of ways to value the company, Seabury
concluded, based on the available information, that the best methods of valuing
the Company were the discounted cash flow (DCF) method and the comparable
company method. After reviewing the results of the different methodologies,
Seabury derived a valuation for the equity of the reorganized company in the
range of $150-175 million.
In a DCF analysis, the cash to be produced by a company over a period of
time and the company's value at the end of that period are forecasted. These
cash flows are then discounted back to the present using a discount rate which
reflects the risk associated with the company. The cash flows used are the
actual cash to be produced after taking into account capital expenditures,
changes in working capital and non-cash income statement items such as
depreciation. The terminal value can be estimated in several different ways, but
the most commonly used method is to use a multiple of the projected EBITDA.
In performing the DCF analysis, Seabury used inputs it considered
reasonable based on the Company's status, anticipated capital structure and the
valuations of comparable companies and applied them to the Company's
projections. Specifically, Seabury used five years of projections, a 15%
discount rate and an "exit multiple" of EBITDA of 3.5-4.0 times projected 2005
results. This exit multiple was largely based on the market valuations of
comparable companies today. This produced a valuation range of $167.2-$208.3
million. Since this valuation is highly sensitive to 2005 projections, Seabury
put less reliance on this methodology than the others, which are based on
nearer-term projections.
Comparable Company Analysis compares a company's financial statistics to
those of other similar companies and values the company by analogy to those
companies. It is especially useful for valuing a publicly traded company, since
the valuation is explicitly based on other public companies. Two of the most
common techniques of Comparable Company Analysis are Price/Earnings multiples
and Enterprise Value to EBITDA multiple. Price/earnings multiples value the
equity of a company based on reported earnings. This method of valuing public
companies is very widely used and easily applied and understood. On the other
hand, it can be distorted by the different capital structures or accounting
techniques used by those companies. For this reason, many financial
professionals prefer to analyze companies on the basis of Enterprise Value (i.e.
the sum of market value of equity plus debt plus preferred stock) to EBITDA,
since this largely eliminates those distortions.
Since the companies most comparable to the Company (Emery and BAX) are not
independently publicly traded, only a limited universe of comparables was
available. The public comparables selected were Airborne Freight, AirNet Systems
and CNF Transportation (the parent of Emery) and to a lesser extent, Atlas Air.
The multiples to 2001 projected earnings for the first three companies produced
a range of 7.2-9.0 times net income; Seabury applied this range to the Company's
projected 2001 net income and the resulting valuation range was $142.6-$178.2
million. For purposes of the EBITDA multiple analysis, Seabury looked at the
scheduled business and ACMI business separately, since the market value of
Atlas, the only public ACMI carrier, is significantly different from the other
companies. Specifically, it used a multiple of 3.0-3.2x 2001 EBITDA for the
scheduled operations and 4.5-5.0 times 2001 EBITDA for the ACMI business (which
includes Postal). When appropriately adjusted to reflect the seasonality of the
Company's business, this produced a value of $139.4-160.2 million.
There was not sufficient information about precedent M&A transactions for
comparable companies to produce any meaningful analysis. This was also less
important since the valuation
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applies to the new public entity, not an acquisition transaction. Seabury also
considered liquidation of the Company's assets as an alternative to valuing the
Company as a going concern, but this produced a much lower valuation.
Seabury has assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by it for the purposes of
this valuation. With respect to the financial projections, Seabury has assumed
that they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the future financial performance of the
Company. Seabury has not made any independent valuation or appraisal of the
assets or liabilities of the Company, nor has it been furnished with any such
appraisals. The valuation is necessarily based on economic, market and other
conditions as in effect on, and the information made available to it as of the
date of the valuation.
XII.
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. RISKS RELATING TO CONFIRMATION
1. RISKS RELATED TO EXIT FINANCING.
Kitty Hawk's Plan is conditioned upon the Debtors securing exit financing
in a sufficient amount, when combined with the Debtors' available cash
resources, to fund the Debtors' obligations under the Plan and to meet its
ongoing business needs. The Debtors received lending proposals from four
parties. All of the potential lenders are major institutions and there is no
question that they have the resources to make the contemplated loan. After
negotiating with the lenders, the Debtors decided that Deutsche Bank had made
the most attractive proposal. Deutsche Bank is currently in the process of
conducting due diligence. The Debtors can not be sure that the selected lender
will be willing to lend the Reorganized Debtor the amount that it needs for the
exit financing. There is also a risk that the ultimate lending terms are
unacceptable to the Debtors. The anticipated lending terms are discussed in
Section VII, J, 1.
2. RISKS RELATED TO ANNUAL MEETING
By Order dated August 3, 2000, the Bankruptcy Court ordered Kitty Hawk to
conduct an annual meeting of shareholders on October 31, 2000. Tom Christopher,
former Chairman and Chief Executive Officer of Kitty Hawk, demanded the annual
meeting. By agreement between Mr. Christopher and Kitty Hawk, the Bankruptcy
Court will modify its Order to provide that the annual meeting will not be set
before the Confirmation Hearing concludes.
3. RISKS RELATED TO PRIVATE PLACEMENT
The Plan provides that the Debtors will use commercially reasonable
efforts to sell up to five (5) million shares of New Common Stock through a
Private Placement. The price per share placed will be $3 per share or more. The
Debtors will use the proceeds of the Private Placement to redeem shares of New
Common Stock distributed to holders of Allowed Class 7 Claims who elect to
receive cash rather than New Common Stock. There is no guaranty that the Debtors
will be able to place the shares or that the Reorganized Debtor will have the
funds to redeem the shares. If the Debtors are not able to sell five (5) million
shares through the Private Placement and a large proportion of the
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holders of Allowed Class 7 Claims elect to have their New Common Stock redeemed,
the Debtors may not be able to redeem all the shares of New Common Stock offered
for redemption, and the holders of Allowed Class 7 Claims requesting redemption
may have fewer than all their shares of New Common Stock redeemed.
4. RISKS RELATED TO PEGASUS AVIATION LEASES
Prior to the chapter 11 filing, Aircargo entered into leases with Pegasus
Aviation, Inc. ("Pegasus") for nine Boeing 727-200 aircraft (the "Pegasus
Aircraft"). Because the Pegasus Aircraft had been used in passenger service by
other airlines, Pegasus paid the cost of converting each of the Aircraft to
cargo service pursuant to Kitty Hawk's specifications. Prior to the chapter 11
filing, the cargo conversions had been completed on seven of the nine Pegasus
Aircraft, and they had been placed in Kitty Hawk's service. During the chapter
11 case, Kitty Hawk notified Pegasus that it did not intend to and would not use
the last two Pegasus Aircraft which either had been completed or were nearing
completion of their cargo conversions. Thereafter, Pegasus terminated the leases
for the two Pegasus Aircraft.
The leases for all nine of the Pegasus Aircraft contain cross default
clauses. Consequently, Pegasus contends that the breach of the two leases also
resulted in defaults under the leases for the other seven Aircraft. Aircargo
disagrees. Although Pegasus contends that the cross default clauses are
enforceable and that Pegasus at any time could take back the seven remaining
Pegasus Aircraft, the Debtors and Pegasus have concluded an agreement, subject
to Court approval, under which Kitty Hawk will be assured of retaining the seven
remaining Pegasus Aircraft in return for assuming the leases immediately under
Bankruptcy Code ss. 365. The terms of the settlement will be set forth a motion
to the Court seeking approval of the assumption of the leases. However,
creditors should be apprized that if the settlement with Pegasus is not
approved, Pegasus contends that it has the right on short notice to take
possession of its seven remaining Pegasus Aircraft. Without the seven Pegasus
Aircraft, Aircargo will have to find substitute aircraft or the Reorganized
Debtor may not be able achieve its business plan as currently contemplated.
B. 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 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
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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.
C. 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.
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,
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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.
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.
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D. 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. 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
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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.
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.
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XIII.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
A. GENERAL
Under the Internal Revenue Code of 1986, as amended (the "TAX CODE"),
there are certain significant federal income tax consequences associated with
the Plan described in this Disclosure Statement. Certain of these consequences
are discussed below. Due to the unsettled nature of certain of the tax issues
presented by the Plan, the differences in the nature of Claims of the various
creditors, their taxpayer status, residence and methods of accounting (including
creditors within the same creditor class) and prior actions taken by creditors
with respect to their Claims, as well as the possibility that events or
legislation subsequent to the date hereof could change the federal tax
consequences of the transactions, the tax consequences described below are
subject to significant considerations applicable to each creditor. HOLDERS OF
CLAIMS AND INTERESTS ARE URGED TO CONSULT THEIR TAX ADVISORS RESPECTING THE
INDIVIDUAL TAX CONSEQUENCES OF THE TRANSACTIONS, CONTEMPLATED UNDER OR IN
CONNECTION WITH THE PLAN, INCLUDING STATE, LOCAL AND FOREIGN TAX CONSEQUENCES.
B. TAX CONSEQUENCES TO THE DEBTORS
1. IN GENERAL
Section 368 of the Tax Code defines certain tax reorganizations under the
Tax Code, including reorganizations under the Bankruptcy Code. Tax
reorganizations include an exchange of a corporation's outstanding debt
securities for the corporation's common stock The Debtor's exchange of New
Common Stock for the Senior Notes should constitute a tax reorganization under
the Tax Code although this issue is not free from doubt. As a result, Debtors
should recognize no gain or loss with respect to the transfer of New Common
Stock in exchange for the Senior Notes pursuant to the Plan except to the extent
Debtors are deemed to incur discharge of indebtedness income upon the exchange
(see "Reduction of Debtors' Indebtedness" below). The remainder of the
discussion under this "Certain Federal Income Tax Consequences" section assumes
that the exchange constitutes a tax reorganization under the Tax Code.
2. CARRYOVER OF TAX ATTRIBUTES
A. NET OPERATING LOSS CARRYOVERS. Under the Tax Code, the Debtors'
net operating loss carryovers (the "NOL CARRYOVERS") should carry over and
generally be available for use by Reorganized Debtor. However, the amount of
such losses will be reduced by an amount equal to the amount of indebtedness
from which Debtors are discharged pursuant to the Plan (see "Reduction of the
Debtors' Indebtedness" below). In addition, any remaining amount of NOL
Carryovers (following such reduction) may be subject to limitation and/or
further reduction pursuant to section 382 of the Tax Code. The amount of these
NOL Carryovers also could be reduced as a result of future IRS audits.
B. SECTION 382. Section 382 of the Tax Code describes the limitation
placed on NOL Carryovers and certain built-in losses following certain changes
in a corporation's ownership. Final and Temporary Treasury Regulations issued
under section 382 of the Tax Code resolve certain issues, but leave other
matters unresolved and subject to varying interpretations. One uncertainty
concerns the application of section 382 to a consolidated group of corporations,
particularly where certain members of the group are in bankruptcy while other
group members are not.
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In general, the limitations under section 382 are triggered by a
greater than 50% change in ownership of the value of stock in a loss corporation
within a three-year testing period. After such a change, the amount of a loss
corporation's taxable income that can be offset by pre- ownership change NOL
Carryovers cannot exceed an amount equal to the value of the loss corporation
immediately prior to the ownership change (excluding proscribed contributions to
capital) multiplied by a specified rate of interest (the federal long-term tax
exempt rate). Moreover, no NOL Carryovers will survive unless a continuity of
business enterprise requirement is met during the two-year period beginning on
the date of the change in ownership of the loss corporation. Under this business
requirement, the loss corporation is required to continue its historic business
or to use a significant portion of its assets in such business.
The limitations of section 382 of the Tax Code arise upon the
occurrence of an "ownership change." An ownership change occurs if, following an
owner shift involving a five percent shareholder or any equity structure shift
during a three-year testing period, there is more than a 50 percentage point
increase in the total value of the stock of the loss corporation held at the
close of the testing period by one or more five percent shareholders during the
testing period over the lowest percentage holdings by such shareholder(s) during
the testing period. An equity structure shift consists of tax reorganizations
under the Tax Code and, to the extent provided in Treasury Regulations, other
stock issuances, including public offerings and similar transactions. The term
"five percent shareholder" includes any person holding five percent (5%) or more
in value of the stock of the corporation at any time during the testing period.
In general, stock includes all equity interests that participate in the earnings
or growth of the corporation, that vote, or are convertible into such stock.
Special attribution rules are provided in section 382. Among them, stock owned
by a corporation or other entity is attributed to its shareholders.
C. SPECIAL BANKRUPTCY EXCEPTION TO SECTION 382. If an ownership
change occurs in a bankruptcy case, the bankrupt corporation may be able to
utilize a special bankruptcy exception provided under section 382(1)(5). Under
section 382(1)(5), the corporation's NOL Carryovers are reduced according to a
formula but any NOL Carryovers that remain following this reduction are not
otherwise limited as to their future use (the "SPECIAL BANKRUPTCY EXCEPTION").
To qualify for this Special Bankruptcy Exception, certain creditors
and shareholders of the corporation immediately before the exchange must
acquire, as a result of such exchange, at least 50% of the stock of the
reorganized corporation after the exchange. Only claims held by persons who were
creditors as of the date eighteen months prior to the filing of the bankruptcy
petition or whose claims arose in the ordinary course of the debtor
corporation's trade or business (and were at all times beneficially owned by
such persons) are taken into account ("QUALIFYING CREDITORS").
If the bankrupt corporation does not qualify for, or elects out of,
section 382(1)(5), then section 382(1)(6) would apply. Under section 382(1)(6),
the section 382 limitation is imposed on the corporation, but the amount of this
limitation is determined based on the corporation's post- bankruptcy
reorganization value. This has the effect of increasing the amount of the
section 382 limitation.
An ownership change will result from the exchange of New Common
Stock for Senior Notes under the Plan. Because Qualifying Creditors of the
Debtors should receive at least 50% of the stock of Reorganized Debtor, the
Special Bankruptcy Exception should apply to Reorganized Debtor, unless
Reorganized Debtor makes an election not to have these rules apply. At present,
the Debtors currently believe that they will elect out of the Special Bankruptcy
Exception.
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If the Special Bankruptcy Exception applies to Reorganized Debtor,
then the occurrence of a second ownership change within two years of the
bankruptcy exchange will completely eliminate its NOL Carryovers.
3. REDUCTION OF DEBTORS' INDEBTEDNESS
Under the Plan, the amount of the Debtors' aggregate outstanding
indebtedness will be reduced. In general, the Tax Code provides that a taxpayer
that realizes a "discharge of indebtedness" must include the amount of
discharged indebtedness in taxable gross income to the extent that the
indebtedness discharged exceeds any consideration given in exchange for such
discharge. The Tax Code further provides that if a taxpayer is in a Title 11
case and the discharge of indebtedness is pursuant to a plan approved by the
bankruptcy court, such discharge of indebtedness is not required to be included
in gross income. Accordingly, the Debtors will not be required to include in
their income any amounts resulting from any discharge of indebtedness. Discharge
of indebtedness will arise to the extent Claims are discharged by the Debtors'
payment of cash or distributions of other property with a fair market value less
than the face amount of the Claims.
Although discharge of indebtedness amounts are excluded from gross income,
such amounts must be applied to reduce certain of the Debtors' tax attributes.
In particular, assuming no election is made to reduce depreciable property
first, any net operating loss for the taxable year of the discharge, and any NOL
Carryovers to the taxable year are reduced. Thereafter, in most cases, the bases
of property held on the first day of the year following the year of the
discharge are reduced, provided the basis reduction may not exceed the excess of
the aggregate of the bases of the property immediately after the discharge over
the aggregate of the Debtors' liabilities after the discharge. The Debtors may
elect to reduce the adjusted basis of the depreciable property they hold as of
the beginning of the taxable year in which the discharge occurs before reducing
the NOL Carryovers and other tax attributes. Net operating losses and the bases
of property are reduced on a dollar-for-dollar basis regardless of whether an
election is made to reduce the basis of depreciable property first.
C. TAX CONSEQUENCES TO CREDITORS
The tax consequences of the implementation of the Plan to a creditor will
depend in part on whether the creditor's present debt constitutes a "security"
for federal income tax purposes, the type of consideration received by the
creditor in exchange for its Allowed Claim, whether the creditor reports income
on the accrual or cash basis, whether the creditor receives consideration in
more than one tax year of the creditor, whether the creditor is a resident of
the United States, and whether all the consideration received by the creditor is
deemed to be received by that creditor in an integrated transaction. The tax
consequences of the receipt of cash or property that is allocable to interest
are discussed below in the section entitled "Receipt of Interest."
1. CLAIMS CONSTITUTING SECURITIES
A. DEFINITION OF SECURITY. The determination as to whether a Claim
of any particular creditor constitutes a "security" for federal income tax
purposes is based on the facts and circumstances surrounding the origin and
nature of the claim and its maturity date. Generally, claims arising out of the
extension of trade credit have been held not to be securities. Instruments with
a five year term or less also rarely qualify as securities. On the other hand,
bonds or debentures with an original term in excess of ten years have generally
been held to be securities. The Debtors believe that the Senior Notes constitute
securities but that the claims of the trade creditors probably do not constitute
securities.
FINAL DISCLOSURE STATEMENT UNDER 11 U.S.C. SS. 1125 IN SUPPORT OF THE
DEBTORS' JOINT PLAN OF REORGANIZATION DATED OCTOBER 10, 2000 78
<PAGE>
B. RECEIPT OF STOCK OR SECURITIES. Section 354 of the Tax Code
provides for nonrecognition of gain or loss by holders of securities of a
corporation who exchange these claims only for new stock and securities pursuant
to certain reorganizations. The nonrecognition rule of section 354 is not
applicable if: (i) the principal amount of securities received exceeds the
principal amount of securities surrendered; (ii) securities are received, but
none are surrendered; or (iii) stock or securities are received for accrued
interest.
An unsecured creditor whose existing Claim constitutes securities
may recognize gain (but not loss), if in addition to New Common Stock, it
receives other property or money. The amount of such gain, if any, should equal
the lesser of (i) the excess, if any, of the fair market value of any New Common
Stock received over the basis of the creditor in its existing claim (other than
any claim in respect of accrued interest); or (ii) the fair market value of the
other property and money received.
C. DETERMINATION OF CHARACTER OF GAIN. In the case of a creditor
whose existing claim constitutes capital assets in his hands, the gain required
to be recognized should be classified as a capital gain, other than amounts
received on account of interest. It should be noted that Tax Code section 582(c)
provides that the sale or exchange of a bond, debenture, note or certificate, or
other evidence of indebtedness by a bank or certain other financial institutions
will not be considered the sale or exchange of a capital asset. Accordingly, any
gain recognized by such creditors as a result of the implementation of the Plan
will be ordinary income, notwithstanding the nature of their claims. Any capital
gain recognized by a creditor will be long-term capital gain with respect to
those Claims for which the creditor's holding period is more than one year, and
short-term capital gain with respect to such Claims for which the creditor's
holding period is one year or less.
D. TAX BASIS AND HOLDING PERIOD. The aggregate tax basis for any New
Common Stock received, other than amounts received on account of interest, will
be a substituted basis equal to the creditor's basis in the claim surrendered
(other than any claims in respect of accrued interest), increased by any gain
recognized on the exchange, and decreased by the fair market value of any other
property or money received. The tax basis of any other property will be equal to
such property's fair market value at the time of the exchange. If the creditor
subsequently recognizes any gain on the sale or exchange of New Common Stock
received, the gain recognized by such creditor on such sale or exchange will be
treated as ordinary income to the extent of any bad debt deduction attributable
to its claim, and thereafter, as capital gain provided that the New Common Stock
constitutes a capital asset in the creditor's hands. The creditor's holding
period for the New Common Stock will include the period during which such
creditor held the security exchanged. The holding period for any other property
will begin on the day following the day such property is deemed received.
E. MARKET DISCOUNT WITH RESPECT TO SENIOR NOTES. Generally, a debt
instrument will have "market discount" for federal income tax purposes if it is
acquired after its original issuance for less than the issue price of such
instrument plus the aggregate amount, if any, of original issue discount
included in the income of all holders of such instrument prior to such
acquisition. A holder of a Claim with market discount must treat any gain
recognized with respect to the principal amount of such Claim on the
satisfaction of such Claim pursuant to the Plan as ordinary income to the extent
of the Claim's accrued market discount.
A Noteholder holding a Senior Note with market discount must treat
any gain recognized with respect to the principal amount of such Senior Note on
the satisfaction of such Senior Note pursuant to the Plan as ordinary income to
the extent of the Senior Note's accrued market discount. A Noteholder on an
accrual basis will recognize ordinary income to the extent the consideration
received that is allocable to accrued interest exceeds the amount of interest
previously included in income, and will recognize a loss to the extent that the
amount of interest previously
FINAL DISCLOSURE STATEMENT UNDER 11 U.S.C. SS. 1125 IN SUPPORT OF THE
DEBTORS' JOINT PLAN OF REORGANIZATION DATED OCTOBER 10, 2000 79
<PAGE>
included in income exceeds the consideration that is allocated to such interest.
It is unclear whether such a loss is capital or ordinary. Any other loss
recognized by a Noteholder will generally be a capital loss.
2. CLAIMS NOT CONSTITUTING SECURITIES
A. GAIN/LOSS ON EXCHANGE. A creditor whose existing Claim does not
constitute a security will recognize gain or loss on the exchange of its
existing claims (other than claims for accrued interest) for New Common Stock
received equal to the difference between (i) the "amount realized" in respect of
such claims and (ii) the creditor's tax basis in such claims. The "amount
realized" will be equal to the fair market value of all New Common Stock
received, less any amounts allocable to interest, unstated interest, or original
issue discount.
B. TAX BASIS AND HOLDING PERIOD. The aggregate tax basis in all New
Common Stock received by a creditor will equal the amount realized on the
receipt of such securities (other than amounts allocable to any accrued
interest). Should the creditor subsequently recognize any gain on the sale or
exchange of the New Common Stock received pursuant to the Plan, the gain
recognized by such creditor on such sale or exchange will be treated as ordinary
income to the extent of any bad debt deduction attributable to its claim, or
ordinary loss claimed by it with respect to the exchange of its claim for New
Common Stock pursuant to the Plan (to the extent properly attributable to such
sale), and, thereafter, as capital gain, provided that the New Common Stock
constitutes a capital asset in the creditor's hands.
The holding period for the New Common Stock will begin on the day
following the date such securities are deemed to be received.
3. CREDITORS RECEIVING SOLELY CASH
A creditor who receives cash in full satisfaction of its Claim will be
required to recognize gain or loss on the exchange. The creditor will recognize
gain or loss equal to the difference between the amount realized in respect of
such Claim and the creditor's tax basis in the Claim.
4. CONSIDERATION ALLOCABLE TO INTEREST OR ORIGINAL ISSUE DISCOUNT
Consideration received by a creditor that is attributable to accrued but
unpaid interest will be treated as ordinary income, regardless of whether the
creditor's existing Claims are capital assets in his hands or whether the
exchange is pursuant to a tax reorganization.
Part of the consideration received under the Plan in exchange for a Claim
may be allocable to interest (including original issue discount) accrued while
such creditor held the instrument underlying the Claim. If the consideration
received with respect to a Claim is less than the amount of such Claim, there is
some doubt as to how the consideration should be allocated between principal and
such accrued interest. The Plan provides that consideration given in exchange
for Senior Notes will be allocated first to principal and then, to the extent
that such consideration exceeds the principal amount of such Claim, to accrued
but unpaid interest.
A holder of a Claim on an accrual basis will be required to recognize
ordinary income to the extent the consideration received that is allocable to
accrued interest exceeds the amount of interest previously included in income,
and will recognize a loss to the extent that the amount of interest previously
included in income exceeds the consideration that is allocated to such interest.
It is unclear whether such a loss is capital or ordinary.
FINAL DISCLOSURE STATEMENT UNDER 11 U.S.C. SS. 1125 IN SUPPORT OF THE
DEBTORS' JOINT PLAN OF REORGANIZATION DATED OCTOBER 10, 2000 80
<PAGE>
5. BACKUP WITHHOLDING
Under the Tax Code, interest, dividends and other "reportable payments"
may, under certain circumstances, be subject to "backup withholding" at a 31%
rate. Withholding generally applies if the holder: (a) fails to furnish his
social security number or other taxpayer identification number ("TIN"), (b)
furnishes an incorrect TIN, (c) fails properly to report interest or dividends,
or (d) under certain circumstances, fails to provide a certified statement,
signed under penalty of perjury, that the TIN provided is its correct number and
that it is not subject to backup withholding.
XIV.
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 TO COMMENCE ON DECEMBER 5, 2000, AT 10:00 A.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 THE
SOLICITATION AGENT: LAIN FAULKNER & CO., 400 N. ST. PAUL STREET, SUITE 600,
DALLAS, TEXAS 75201, TELEPHONE (214) 720-1929, TELECOPY (214) 720-1450,
ATTENTION: DENNIS FAULKNER, AS INDICATED ON THE BALLOT ON OR BEFORE 4:00 P.M.
DALLAS TEXAS TIME ON NOVEMBER 14, 2000. 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.
FINAL DISCLOSURE STATEMENT UNDER 11 U.S.C. SS. 1125 IN SUPPORT OF THE
DEBTORS' JOINT PLAN OF REORGANIZATION DATED OCTOBER 10, 2000 81
<PAGE>
Dated: October 10, 2000.
KITTY HAWK, INC. OK TURBINES, INC.
Debtor and Debtor-In-Possession Debtor and Debtor-In-Possession
/S/ TILMON J. REEVES /S/ TILMON J. REEVES
------------------------------------- -------------------------------------
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
/S/ TILMON J. REEVES /S/ TILMON J. REEVES
------------------------------------- -------------------------------------
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
/S/ TILMON J. REEVES /S/ TILMON J. REEVES
------------------------------------- -------------------------------------
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
/S/ TILMON J. REEVES /S/ TILMON J. REEVES
------------------------------------- -------------------------------------
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
/S/ TILMON J. REEVES /S/ TILMON J.REEVES
------------------------------------- -------------------------------------
By: Tilmon J. Reeves By: Tilmon J. Reeves
Its: Chief Executive Officer Its: Chief Executive Officer
FINAL DISCLOSURE STATEMENT UNDER 11 U.S.C. SS. 1125 IN SUPPORT OF THE
DEBTORS' JOINT PLAN OF REORGANIZATION DATED OCTOBER 10, 2000
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Robert D. Albergotti John D. Penn Sarah B. Foster
State Bar No. 00969800 State Bar No. 15752300 State Bar No. 07297500
Haynes and Boone, LLP Haynes and Boone, LLP Haynes and Boone, LLP
901 Main Street, Suite 3100 201 Main Street, Suite 2200 600 Congress Ave., Suite 1600
Dallas, Texas 75202 Fort Worth, Texas 76102 Austin, Texas 78701
Tel. No. (214) 651-5000 Direct Tel. No. (817) 347-6610 Tel. No. (512) 867-8400
Fax No. (214) 651-5940 Direct Fax No. (817) 348-2300 Fax No. (512) 867-8470
</TABLE>
/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
FINAL DISCLOSURE STATEMENT UNDER 11 U.S.C. SS. 1125 IN SUPPORT OF THE
DEBTORS' JOINT PLAN OF REORGANIZATION DATED OCTOBER 10, 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 Composition (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
---- ---- ---- ---- ---- ----
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:
<TABLE>
<CAPTION>
FLEET RENEWAL PROGRAM
------------------------------------------------------------------------------------------------------------------------------------
2001 2002 2003 2004 2005
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Replaced Units ................................ 3 5 3 4 2
Proceed from Dispostion ....................... $10,125 $14,675 $ 6,917 $ 7,583 $ 2,833
Proceeds from Acquisition(1) .................. 5,760 9,150 -- -- --
Proceeds from Leased/AC ....................... -- -- 609 772 364
------- ------- ------- ------- -------
Net Cash Proceeds/(Needs) ..................... $ 4,365 $ 5,525 $ 6,308 $ 6,811 $ 2,469
======= ======= ======= ======= =======
</TABLE>
EXHIBIT "A" - Page 1
<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:
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).
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.
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, 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
EXHIBIT "A" - Page 2
<PAGE>
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 $429.8 million in 2005, representing a CAGR of 3.9%.
This growth is at a slower rate that total revenues projected to grow at a CAGR
of approximately 4.9% through 2005. Therefore, total operating expenses as a
percentage of total revenues are projected to decrease from 90.1% in 2001 to
86.0% in 2005. The major components of the total expenses include salaries and
wages, fuel costs, aircraft maintenance, aircraft rentals and expenses relating
to operating a hub and spoke operation. The chart below summarizes these major
cost components and their percentage of total revenue.
<TABLE>
<CAPTION>
OPERATING EXPENSE AS A % OF TOTAL REVENUE
--------------------------------------------------------------------------------
2001 2002 2003 2004 2005
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Aircraft Rentals .............................. 4.1% 3.7% 4.0% 4.6% 5.0%
Flight Crews .................................. 10.1% 9.6% 9.5% 9.3$ 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%
</TABLE>
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.
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.
EXHIBIT "A" - Page 3
<PAGE>
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.
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.
EXHIBIT "A" - Page 4
<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 ....................... 151,077 38.3% 166,196 37.9% 168,357 36.7%
ACMI ....................... 31,620 8.0% 32,488 7.4% 34,032 7.4%
Total Operating
Revenue .................. 394,822 100.0% 438,913 1 00.0% 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% 420 0.1% 430 0.1%
<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% 172,845 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%
</TABLE>
EXHIBIT "A" - Page 5
<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>
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%
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>
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%
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>
EXHIBIT "A" - Page 6
<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 .......... 2940 1.4% 3,014 1.3% 3,091 1.2%
TOTAL
REVENUE ........................ 212,124 100.0% 240229 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%
<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% 289246 100.0%
Aircraft
Rentals .......................... 7,559 2.8% 8631 3.0%
Flight crews (Salaries and Travel
Related) ......................... 18,007 6.6% 18463 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%
</TABLE>
EXHIBIT "A" - Page 7
<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>
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%
<CAPTION>
PROJECTED
-----------------------------------------------------
2004 % 2005 %
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
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>
EXHIBIT "A" - Page 8
<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%
<CAPTION>
-----------------------------------------------------
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>
EXHIBIT "A" - Page 9
<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%
<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>
EXHIBIT "A" - Page 10
<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
</TABLE>
EXHIBIT "A" - Page 11
<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>
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>
EXHIBIT "A" - Page 12
<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>
EXHIBIT "A" - Page 13
<PAGE>
KITTY HAWK, INC., ET AL
LIQUIDATION ANALYSIS
AMENDED AS OF OCTOBER 5, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
NET VALUE LESS: REALLOCATION
OF ASSETS ESTIMATED BASED ON
LIQUIDATION LESS: ASSETS AVAILABLE FOR ADMINISTRATIVE INTERCOMPANY
VALUE SUBJECT TO LIENS, UNSECURED AND PRIORITY RECEIVABLES/
OF ASSETS (1) AS ADJUSTED (2) CREDITORS CLAIMS PAYABLES (3)
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Kitty Hawk, Inc. .... $ 17,680 $ 10,952 $ 6,728 $ 5,161 3,750
Kitty Hawk Cargo .... 35,127 22,324 12,803 5,515 959
Kitty Hawk Aircargo . 103,164 68,194 34,970 5,190 (1,902)
Kitty Hawk Int'l .... 133,171 118,421 14,750 7,212 (4,120)
Kitty Hawk Charters . 34,038 11,241 22,797 4,194 986
Longhorn Solutions .. 189 128 61 73 10
Aircraft Leasing .... 61,238 50,693 10,545 2,085 289
American Int'l Travel 138 93 45 17 0
Flight One .......... 0 0 0 38 1
Logistics ........... (37)
OK Turbines ......... 2,927 1,797 1,130 485 27
--------------- --------------- --------------- --------------- ---------------
$ 387,672 $ 283,843 $ 103,829 $ 29,970 (0)
<CAPTION>
NET AMOUNT
AVAILABLE FOR ESTIMATED
GENERAL GENERAL ESTIMATED
UNSECURED UNSECURED RECOVERY
CREDITORS CLAIMS (4) PERCENTAGE
--------------- --------------- ---------------
<S> <C> <C> <C>
Kitty Hawk, Inc. .... $ 5,317 203,182 2.62%
Kitty Hawk Cargo .... 8,247 206,318 4.00%
Kitty Hawk Aircargo . 27,878 227,291 12.27%
Kitty Hawk Int'l .... 3,418 228,206 1.50%
Kitty Hawk Charters . 19,589 211,383 9.27%
Longhorn Solutions .. (2) 200,798 0.00%
Aircraft Leasing .... 8,749 202,030 4.33%
American Int'l Travel 28 200,732 0.00%
Flight One .......... 200,730 0.00%
Logistics ...........
OK Turbines ......... 672 200,755 0.33%
--------------- --------------- ---------------
$ 73,859
</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.
Additional detail of assets is attached as a separate exhibit.
(2) Certain assets are subject to the liens of various secured creditors.
Deficiency claims 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 $200,730,000. Therefore, each Debtor has this amount included in
its "Estimated General Unsecured Claims."
EXHIBIT "B" - Page 1
<PAGE>
KITTY HAWK, INC. ET AL
ESTIMATED LIQUIDATION VALUE OF ASSETS AS OF 8/31/2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
KITTY KITTY KITTY KITTY KITTY
HAWK, HAWK HAWK HAWK HAWK LONGHORN
INC. CARGO AIRCARGO INT'L CHARTERS SOLUTIONS
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS
CASH & CASH EQUIVALENTS .......... $ 16,180 $ 6,756 $ 12,972 $ 0 $ 8,627 $ 186
ACCOUNTS RECEIVABLE, NET ......... 0 26,225 12,480 0 5,641 0
ASSETS HELD FOR RESALE ........... 0 0 0 1,000 0 0
EXPENDABLE SPARE PART & SUPPLIES . 0 0 414 7,400 1,600 0
POST-PETITION ADJUSTMENTS ........ 0 0 0 0 0 3
------------ ------------ ------------ ------------ ------------ ------------
SUB-TOTAL NET CURRENT ASSETS ..... $ 16,180 $ 32,981 $ 25,866 $ 8,400 $ 15,868 $ 189
------------ ------------ ------------ ------------ ------------ ------------
PROPERTY, PLANT & EQUIPMENT ...... 0 0 0 0 0 0
BUILDING & LEASEHOLD IMPROVEMENTS 1,500 0 0 6,400 450 0
JT8 -7/-9 SPARE ENGINES .......... 0 0 5,250 0 0 0
AIRCRAFT - KH CHARTERS/OK TURBINES 0 0 0 0 16,500 0
AIRCRAFT - UNENCUMBERED DC9-15F .. 0 0 0 0 0 0
DC 9-15F (N112PS) (INCL. & ENGINE) 0 0 0 0 0 0
L1011 AIRCRAFT ................... 0 0 0 28,924 0 0
B727 AIRCRAFT - WELLS FARGO BANK . 0 0 44,289 0 0 0
B727 AIRCRAFT - SR. SECURED ...... 0 0 14,951 0 0 0
B747 AIRCRAFT .................... 0 0 0 66,246 0 0
OTHER AIRCRAFT (GATX/HULLS) ...... 0 0 3 56 0 0
DC8-62F (N801MG) ................. 0 0 0 2,000 0 0
DC8-62F (N802MG) ................. 0 0 0 2,000 0 0
DC8-62F (N803CK) ................. 0 0 0 2,000 0 0
DC8-63F (N811CK) ................. 0 0 0 2,500 0 0
DC8-63F (N815CK) ................. 0 0 0 2,500 0 0
DC8-62F (N818CK) ................. 0 0 0 2,000 0 0
LEAR 25-030 (N500JS) ............. 0 0 0 0 500 0
EQUIPMENT ........................ 0 2,146 4,300 145 720 0
ROTABLE SPARE PARTS .............. 0 0 8,505 0 0 0
JT9D/RB211 SPARE AIRCRAFT ENGINES 0 0 000 5,000 0 0
JT9D SPARE AIRCRAFT ENGINES - AAR 0 0 0 1,000 0 0
JT9D/RB211 SPARE ENGINES - M/L'S . 0 0 0 4,000 0 0
------------ ------------ ------------ ------------ ------------ ------------
SUB-TOTAL PROP., PLANT & EQUIP ... $ 1,500 $ 2,146 $ 77,298 $ 124,771 $ 18,170 $ 0
------------ ------------ ------------ ------------ ------------ ------------
TOTAL ............................ $ 17,680 $ 35,127 $ 103,164 $ 133,171 $ 34,038 $ 189
============ ============ ============ ============ ============ ============
<CAPTION>
AMERICAN
AIRCRAFT OK INT'L FLIGHT ONE TOTAL
LEASING TURBINES TRAVEL LOGISTICS COMBINED
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS
CASH & CASH EQUIVALENTS .......... $ 4,781 $ 0 $ 138 $ 0 $ 49,640
ACCOUNTS RECEIVABLE, NET ......... 0 505 0 0 44,851
ASSETS HELD FOR RESALE ........... 0 0 0 0 1,000
EXPENDABLE SPARE PART & SUPPLIES . 0 2,150 0 0 11,564
POST-PETITION ADJUSTMENTS ........ 0 0 0 0 3
------------ ------------ ------------ ------------ ------------
SUB-TOTAL NET CURRENT ASSETS ..... $ 4,781 $ 2,655 $ 138 $ 0 $ 107,058
------------ ------------ ------------ ------------ ------------
PROPERTY, PLANT & EQUIPMENT ...... 0 0 0 0 0
BUILDING & LEASEHOLD IMPROVEMENTS 0 0 0 0 8,350
JT8 -7/-9 SPARE ENGINES .......... 0 0 0 0 5,250
AIRCRAFT - KH CHARTERS/OK TURBINES 0 85 0 0 16,585
AIRCRAFT - UNENCUMBERED DC9-15F .. 9,000 0 0 0 9,000
DC 9-15F (N112PS) (INCL. & ENGINE) 2,803 0 0 0 2,803
L1011 AIRCRAFT ................... 0 0 0 0 28,924
B727 AIRCRAFT - WELLS FARGO BANK . 0 0 0 0 44,289
B727 AIRCRAFT - SR. SECURED ...... 44,654 0 0 0 59,605
B747 AIRCRAFT .................... 0 0 0 0 66,246
OTHER AIRCRAFT (GATX/HULLS) ...... 0 0 0 0 59
DC8-62F (N801MG) ................. 0 0 0 0 2,000
DC8-62F (N802MG) ................. 0 0 0 0 2,000
DC8-62F (N803CK) ................. 0 0 0 0 2,000
DC8-63F (N811CK) ................. 0 0 0 0 2,500
DC8-63F (N815CK) ................. 0 0 0 0 2,500
DC8-62F (N818CK) ................. 0 0 0 0 2,000
LEAR 25-030 (N500JS) ............. 0 0 0 0 500
EQUIPMENT ........................ 0 187 0 0 7,498
ROTABLE SPARE PARTS .............. 0 0 0 0 8,505
JT9D/RB211 SPARE AIRCRAFT ENGINES 0 0 0 0 5,000
JT9D SPARE AIRCRAFT ENGINES - AAR 0 0 0 0 1,000
JT9D/RB211 SPARE ENGINES - M/L'S . 0 0 0 0 4,000
------------ ------------ ------------ ------------ ------------
SUB-TOTAL PROP., PLANT & EQUIP ... $ 56,457 $ 272 $ 0 $ 0 $ 280,614
------------ ------------ ------------ ------------ ------------
TOTAL ............................ $ 61,238 $ 2,927 $ 138 $ 0 $ 387,672
============ ============ ============ ============ ============
</TABLE>
EXHIBIT "B" - Page 2
