Opinion

Pan Am Corp. v. Delta Air Lines, Inc.

175 B.R. 438
1994 U.S. Dist. LEXIS 18985
1994 WL 731325

Court: District Court, S.D. New York
Filed: Dec 23, 1994
Status: Published
Author: Patterson
On the bench: Patterson
Cited by: 50 cases
Authority: More cited than 90.5%

concluding that a significant revenue shortfall, including a $23 million shortfall in a single month, constituted material adverse change

How later courts described this case

concluding that a significant revenue shortfall, including a $23 million shortfall in a single month, constituted material adverse change
referring to section 1129(a)(9)(A) as the "administrative solvency” requirement, which is "the ability of the [debtor's] estate to satisfy administrative claims at the confirmation hearing”
referring to § 1129(a)(9)(A) as the “administrative solvency” requirement, which is “the ability of the ... estate to satisfy administrative claims at the confirmation hearing.”
“Delta cannot sustain any of its counterclaims against the Creditors Committee unless it demonstrates causation in fact by proving, by a preponderance of the evidence, that (1) the Committee committed a wrong, (2) Delta suffered an injury, and (3) the injury was the ‘certain result of the wrong.’”

Written by the judges who cited it.

The opinion

OPINION AND ORDER: FINDINGS OF FACT AND CONCLUSIONS OF LAW

ROBERT P. PATTERSON, Jr., District Judge.

This case was tried before the Court from May 4, 1994 to June 10, 1994. The findings

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of fact and conclusions of law of this Court are as follows.

CHRONOLOGY OF THE PAN AM-DELTA TRANSACTION

Pan Am Corporation and its subsidiaries (hereinafter “Pan Am”) filed for bankruptcy protection on January 8, 1991. (Undisputed Facts ¶ 2). At the time of the bankruptcy filing, Pan Am Corporation had four main operating divisions: the Atlantic Division, the Latin American Division (the “LAD”), the Domestic Division and the Pan Am Shuttle. Tr. at 24 (Plaskett).

Exploration of a Potential Transaction

March 1991, Delta Air Lines, Inc. (“Delta”) expressed interest in examining an acquisition of Pan Am assets or another strategic transaction with Pan Am. Tr. at 25-26 (Plaskett). Pan Am Corporation’s then Chief Executive Officer, Thomas Plaskett, informed Delta’s Chief Executive Officer, Ronald Allen, that Pan Am Corporation was not interested in selling off individual assets piecemeal, but rather sought a “total solution” to its problems as part of its efforts to satisfy fiduciary responsibilities to its creditors, Tr. at 26 (Plaskett).

After a meeting on April 17, 1991 Delta commenced an information-gathering effort. Tr. at 29-32 (Plaskett). On June 28, 1991, Delta informed Plaskett that it was interested in acquiring two of Pan Am Corporation’s operating divisions, the North Atlantic route authorities (the “Atlantic Assets”) and the Pan Am Shuttle (the “Shuttle Assets”). Tr. at 37-38 (Plaskett). On July 11, 1991, Delta reached an agreement in principle with Pan Am Corporation and certain affiliates (collectively, “Pan Am”) for

the

purchase by Delta of assets which related to Pan Am’s Shuttle and Atlantic operations. Joint Ex. 1.

On July 25, counsel for the Official Committee of Unsecured Creditors (the “Committee”) sent a letter to Delta, Trans World Airlines, Inc. (“TWA”) and United Air Lines, Inc. (“United”), stating that “a sale of assets that is not combined with a plan of reorganization would be entirely unsatisfactory.” PL Ex. 206 at MT72174.

On the morning of July 27,1991, Delta and Pan Am signed an Asset Purchase Agreement and, pending the closing of that agreement, a Credit Agreement providing Pan Am with $60 million of debtor in possession financing (as amended, “the Senior DIP”). Tr. at 47 (Plaskett); Joint Ex. 2; Pl.Ex. 4086. Both agreements were subject to Bankruptcy Court approval. At the suggestion of Pan Am’s CEO acting on the insistence of the Committee, Delta provided Pan Am with a letter expressing Delta’s interest, once the Bankruptcy Court approved the asset sale, in exploring the development of a plan of reorganization of Pan Am into a smaller Miami-based airline serving Latin and South America. Tr. at 48-50 (Plaskett); Joint Ex. 3.

On July 30, the Committee issued a press release clarifying the Committee’s opposition to the proposed asset purchase by Delta and expressing its intention to solicit bids from TWA, Delta and United Airlines for Pan Am’s assets that would include proposals for a plan of reorganization. Tr. at 53 (Plask-ett); Pl.Ex. 210. On August 7, counsel for the Committee issued a letter inviting bids to fund a plan of reorganization. Pl.Ex. 215.

.From July 29 through August 9, Pan Am and Delta executives reviewed a business plan for a Miami-based airline prepared by Pan Am and an outside consultant. Tr. at

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893-94, 899-900, 908 (Punwani); Pl.Ex. 3025. Delta confirmed to Pan Am that the results of Delta’s own assessment of the business plan were very close to the results of Pan Am’s study. Tr. at 905 (Punwani).

During the weekend of August 9-11, the Creditors Committee solicited offers from Delta and other parties, including Trans World Airways, as alternatives to the proposed Asset Purchase Agreement. United Airlines, Delta and TWA presented Pan Am and the Creditors Committee with alternative proposals for transactions with Pan Am. Tr. at 152-57 (Lockhart).

Pan Am and the Creditors Committee discussed the obstacles that would face any transaction between Pan Am and TWA. Mr. Plaskett expressed concerns about TWA’s weak financial condition, possible labor integration problems and doubts about TWA’s management. Tr. at 119, 121 (Plaskett); Def.Ex. GG. In addition, TWA was a major competitor of Pan Am in the U.S.-European market, and a transaction between TWA and Pan Am would have raised antitrust and other regulatory concerns with the Department of Transportation and the Department of Justice. For these reasons, among others, Pan Am’s executives, including Mr. Plaskett, believed that TWA’s proposal was not credible and that consummation of such a transaction was unlikely. Tr. at 119, 121 (Plaskett); Def.Ex. GG. The Creditors Committee had similar doubts about the financial means of TWA to complete their proposal. Tr. at 209 (Lockhart).

The August 11, 1991 Letter Agreement

On the evening of August 11, 1991, Mr. Allen, Delta’s Chief Financial Officer Thomas Roeck and other Delta representatives presented to the Creditors Committee a Delta proposal for transactions with Pan Am, which was set forth in (1) a proposal letter to Pan Am, attention Mr. Plaskett, and to the Creditors Committee, attention counsel Leon C. Marcus (the “August 11 Letter”), Joint Ex. 5; (2) a Revised term sheet for the Asset Purchase Agreement, Joint Ex. 4; and (3) a proposed “operating plan” describing elements of a proposed marketing relationship between Delta and a proposed reorganized Pan Am (the “August 9 Operating Plan”), Joint Ex. 11.

The August 11 Letter proposed that Delta enhance the terms of the Asset Purchase Agreement and sponsor a plan of reorganization of Pan Am. It provided for two steps. First, the Asset Purchase Agreement was to be amended: (1) to include purchase of certain additional spare parts and increase the cash paid by Delta for Pan Am’s Shuttle and Atlantic assets from $310 million to $416 million; (2) to provide that Delta would assume up to $100 million of Pan Am ticket liabilities in certain circumstances; (3) to eliminate the indemnifications by Pan Am that had been contained in the Asset Purchase Agreement; and (4) to increase the number of Pan Am employees to 6600 that Delta would hire in connection with the Asset Purchase Agreement. Delta also proposed an amendment to the Credit Agreement to increase from $60 million to $80 million the Senior DIP financing that Delta would provide until the asset purchase closing on Nov. 1, 1991, when it would be repaid. Joint Ex. 5.

In the second transaction outlined in the August 11 Letter, Delta proposed, “conditioned on a Plan or Reorganization satisfactory to Delta being confirmed by the Bankruptcy Court,” to make an investment of $305 million in a reorganized Pan Am (“Pan Am II”), which primarily would serve Latin America and the Caribbean from Pan Am’s Miami hub. Joint Ex. at 5. The investment would be comprised of $50 million in cash for 45% of Common Equity, $155 million for 10% Senior Notes and $100 million in a Working Capital Facility; and Delta would assume responsibility for all existing contingent and non-contingent U.S. Air Force claims against Pan Am arising under the Civil Reserve Air Fleet (“CRAF”) program.

Id.

at 4-5. Pan Am II was to assume approximately $39 million of Pan Am’s current liabilities, certain liens on assets retained by Pan Am II, and $50 million in ticket liabilities on the routes to be operated by it (all other liabilities of Pan Am were to be discharged in bankruptcy).

Id.

at 5. Pan Am II would employ 6900 of Pan Am’s existing employees and its corporate governance was described.

Id.

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In addition, Delta also proposed to fund up to $100 million of any Pan Am operating losses in excess of the first $140 million of such losses (the “Stop Loss Proposal”) incurred by Pan Am between the date of Bankruptcy Court approval of the

Asset

Purchase Agreement and December 1,1991, the target date for the reorganization.

Id.

at 2. Any operating losses in excess of Delta’s commitment were to be borne by Pan Am.

Id.

Delta also proposed to implement code sharing, frequent flyer and marketing arrangements to reduce or minimize Pan Am’s operating losses as soon as possible after Bankruptcy Court approval of the enhanced Asset Purchase Agreement, as amended.

Id.

The August 11 Letter provided that any Delta commitment to invest in Pan Am II was subject to (1) completion of the asset sale contemplated by the enhanced Asset Purchase Agreement; (2) completion of definitive documentation and completion of legal, financial and environmental due diligence by September 15, 1991 with the results of such due diligence being satisfactory to Delta; and (3) confirmation of a Pan Am plan of reorganization that was satisfactory to Delta prior to December 1, 1991. Joint Ex. 5 at 6.

After a series of meetings conducted by the Creditors Committee on August 11, the Creditors Committee and Pan Am chose Delta’s proposal and signed the August 11, 1991 letter signifying acceptance thereof. Tr. at 173 (Lockhart); Tr. at 365 (Gagnon); Joint Ex. 5.

C. Approval

of the Asset Purchase Agreement and Senior DIP Financing

The next day, on August 12, 1991, Delta and Pan Am completed and entered into definitive agreements relating only to Part A of the August 11 Letter — the sale of the Shuttle and Atlantic assets to Delta and the provision of up to $80 million in DIP financing to Pan Am. Joint Ex. 7; Def.Ex. AL.

Later that day, the Bankruptcy Court held a hearing to consider the Asset Purchase Agreement, as amended, and the Credit Agreement, as amended (Senior DIP Financing). At the hearing the Bankruptcy Court was apprised of the terms of the August 11 agreement. Thereafter all objections to the Asset sale were withdrawn or overruled and the Bankruptcy Court signed orders authorizing Pan Am to enter into the transactions contemplated by the Asset Purchase Agreement and the Senior DIP financing. Joint Ex. 6; Def.Ex. AT. (Proposed agreements of a debtor in possession not in the ordinary course of business require court authorization after notice and a hearing by the Bankruptcy Court. 11 U.S.C. § 363 .)

In connection with the proposed DIP financing, Joan Fabio, Pan Am’s Assistant Treasurer, testified on August 12 that Pan Am had attempted and had been unable to obtain funding from any source other than Delta. Pl.Ex. 10 at 114-23. In addition, Mr. Roeck testified that Delta would not lend to Pan Am on anything other than the fully secured and super-priority basis contemplated by the Senior DIP Financing. Pl.Ex. 10 at 127-33.

In reaching its determination, the Bankruptcy Court made a finding of fact that completion of the transaction contemplated by the Asset Purchase Agreement was a condition to Delta’s commitment to fund a plan of reorganization, “subject to certain conditions,” (Joint Ex. 6 at 10-11). Amendment No. 1 to the Asset Purchase Agreement, executed on August 12, acknowledged that Delta had agreed with the Letter Agreement of August 11, 1991. Joint Ex. 7 at DT3373. On or about September 1, 1991, Pan Am transferred its Shuttle assets to Delta as contemplated under the amended Asset Purchase Agreement and, consistent with that agreement, Delta paid Pan Am $113 million at that time. Undisputed Facts ¶ 9. On September 24,1991 Pan Am and the Creditors Committee filed a Disclosure Statement with respect to the Joint Consolidated Plan of Reorganization which included a proposed business plan for Pan Am II. Pl.Ex. 3145.

The October 22, 1991 Letter Agreement

By October, Pan Am’s operating losses caused a need for substantial additional operating funds and led to negotiations among the parties for additional DIP financing by

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Delta to Pan Am. Tr. at 176-77 (Lockhart). On October 3, 1991, Mr. Marcus sent a letter to Delta bankruptcy counsel Lawrence Handelsman demanding that Delta immediately provide additional financing to Pan Am and threatening to force a liquidation of Pan Am if Delta did not provide such additional financing. Def.Ex. AU. In the letter, Mr. Marcus also threatened Delta with litigation if Pan Am was liquidated.

Id.

On October 8,1991, Mr. Marcus told Delta that the Creditors Committee had prepared two responses to a motion brought on October 3, 1991 by the U.S. Air Force, to whom Pan Am had granted secured interests in the air transportation receivables of 12 Boeing 747 aircraft, to deny Pan Am continued use of cash collateral from those receivables on the grounds that the Air Force non-contingent liabilities exceeded the Debtor’s most recent statement of receivables. Joint Ex. 12 at D378180-81 and D378192-93. If granted, the foreclosure motion would have resulted in Pan Am’s immediate shutdown. Mr. Marcus told Delta that if Delta would not provide additional financing, the Creditors Committee would file a response supporting the foreclosure motion, and if Delta agreed to provide financing, the Creditors Committee would file a response in opposition to the foreclosure motion. Tr. at 2957-58 (Harkey);

see

Def.Ex. IC at 2 (“two responses prepared — one light, one heavy”). On October 11, 1991 Delta agreed to provide Pan Am with $20 million in additional DIP financing to be repaid at the closing on November 1, 1991 of the Asset Purchase Agreement.

See

Def.Ex. AM; Joint Ex. 9.

The Creditors Committee next raised questions about Delta’s Stop Loss Proposal in the August 11 Letter concerning the nature of the expenditures that would be considered operating expenses and the time at which Delta was required to supply funding under that proposal. Tr. at 483-84 (Gagnon).

Delta’s position was that its obligation under the Stop Loss Proposal to provide up to $100 million of any operating losses of Pan Am in excess of $140 million since the date of the approval of the asset Purchase Agreement (August 11, 1991) could not be determined until December 1,1991, the end of the period in which operating losses were to be measured. Tr. at 2970, 3155 (Harkey). The Creditors Committee position was that Delta was obligated to provide funds under the Stop Loss Proposal immediately. Tr. at 2970, 3155 (Harkey).

On October 17, 1991, Creditors Committee counsel Leon Marcus outlined a compromise on the dispute over the Stop Loss Proposal which Delta accepted. Under Mr. Marcus’s proposal, Delta would provide up to $140 million in new DIP financing prior to the reorganization. In the event that no plan of reorganization was confirmed, Delta would be repaid the entire amount “as DIP financing.” Tr. at 2971-72 (Harkey). If a plan was confirmed and became effective, however, the first $50 million of DIP financing would be forgiven, the next $50 million would be refinanced through the issuance of additional senior notes to Delta, and the balance, if any, of the DIP financing would be repaid to Delta. Tr. at 2971-72 (Harkey). As part of the stop loss compromise, the maximum principal amount of the senior note financing by Delta was increased from $155 million to $205 million.

Compare

Joint Ex. 5 at D070536-37

with

Joint Ex. 9 at DP016893. At Delta’s request it was agreed that the interest rate for the senior notes be increased from 10% to 15%. Pl.Ex. 3008 at PW156772.

Mr. Marcus’s proposal was the subject of negotiations in which Pan Am and the Credi

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tors Committee participated that led up to an October 22 Letter Agreement. Between October 17 and October 21, Pan Am’s outside counsel Robert Davis reviewed and commented upon drafts of the proposal and had lengthy telephone conversations about the proposal with Delta’s outside counsel Joseph Rinaldi and with representatives of the Creditors Committee. Tr. at 320-24 (Davis); Tr. at 3566-67 (Rinaldi); Def.Ex. DDL at 219-21; Pl.Ex. 405 (Davis comments on draft).

On October 19, 1991, financial representatives of Pan Am, Delta and the Creditors Committee met and discussed the impact on the proposed business plan for Pan Am II of the proposed repayment terms of the Working Capital Facility Agreement that provided for a $100 million line of credit and the new $205 million five year Senior Note Purchase Agreement contained in the term sheets attached to the new DIP financing proposal. Tr. at 3184-87 (Sanregret).

At the meeting on October 19, Mr. Pun-wani informed the group that the terms proposed to be included in the Working Capital Facility Agreement and the Senior Note Purchase Agreement would result in less than $30 million liquidity at the end of each year in the proposed five year business plan. On three occasions during the meeting, Mr. San-regret was asked by Pan Am whether Delta would agree to modify the proposed repayment terms under those proposed agreements. Mr. Sanregret left the meeting on each of those three occasions and obtained the consent of Mr. Roeck to reduce the repayment terms as proposed by Mr. Punwani in order to increase the liquidity of Pan Am II. Tr. at 3184-87 (Sanregret); Tr. at 926-28 (Punwani); Tr. at 765-69 (Andresen); Tr. at 3670 (Roeck).

As the result of the discussions at that meeting, Delta agreed to extend the period for repayments under the proposed Working Capital Facility from 24 months to 27 months and to defer the beginning of repayment until the third quarter of 1992; to change the repayment terms of the senior notes from two years interest only and three years principal and interest to three years interest only and two years principal and interest; and finally to extend the amortization of the proposed senior notes from five to five-and-one-half years. Tr. at 3184-89 (Sanregret); Tr. at 765-69 (Andresen); Tr. at 503 (Gagnon).

With those changes to the repayment terms, Pan Am determined that Pan Am II’s closing cash balance at the end of each year of the business plan would be at least $30 million. Tr. at 926-28 (Punwani); Tr. at 3184-87 (Sanregret). The approximately $30 million liquidity ultimately included in the First Amended Disclosure Statement with respect to the Revised Joint Consolidated Plan of Reorganization (the “Disclosure Statement”), dated October 24, 1991, next to the line for “CASH AND CASH EQUIVALENTS AT END OF PERIOD,” Joint Ex. 12 at D378247, included only the cash on hand at Pan Am II, and was to be in addition to any undrawn amounts to be available to Pan Am II under the $100 million line of credit Working Capital Facility to be provided by Delta. Tr. at 1483 (Punwani).

On October 22, 1991, Delta, Pan Am and the Creditors Committee entered into a letter agreement (the “October 22 Letter Agreement”) under which,

inter alia,

the parties settled their dispute over the stop loss agreement. Delta agreed, subject to certain terms and conditions, to provide Pan Am with up to $140 million in new DIP financing, and to modify its proposed financing of Pan Am II to take into account the $50 million increase to $205 million in Senior Note Financing, as well as the increased interest rate and extended repayment terms of the Senior Notes and Term Loan Agreement. Joint Ex. 9.

The October 22 Letter Agreement was not an unconditional agreement by Delta to make an investment in Pan Am II. As the letter itself states, its purpose was to “address the problems raised by Pan Am’s current cash situation and to improve the chances of confirming a Plan of Reorganization_” Joint

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Ex. 9 at DP016891. It also recognized the possibility that confirmation of a Pan Am plan of reorganization would not occur, in which case Delta would be entitled to immediate repayment on December 5, 1991 of any amounts advanced to Pan Am.

Id.

at DP016894.

Appendix B to the October 22 Agreement set forth the following conditions, among others, to Delta’s investment: (1) Conclusion of agreements between Pan Am and the Pension Benefit Guaranty Corporation (“PBGC”), the Department of Labor (“DOL”) and the Internal Revenue Service (“IRS”), on terms and conditions satisfactory to Delta; (2) Renegotiation of collective bargaining agreements in form and substance satisfactory to Delta, and such agreements shall be in full force and effect; (3) Modification of Pan Am’s CRAF agreements with the Air Force in form and substance satisfactory to Delta; (4) Confirmation of a Plan of Reorganization satisfactory to Delta on or before December 5, 1991; (5) The liabilities of Pan Am II as of the Effective Date consisting only of certain defined obligations; and (6) No material adverse changes in Pan Am’s performance subsequent to August 12, 1991. Appendix B to Joint Ex. 9 at DP016942-46.

In the October 22 Letter Agreement, Delta agreed to provide Pan Am up to $140 million in additional DIP financing (referred to in the Revised Joint Plan and hereafter as Junior DIP Financing) in two steps, on certain terms and conditions that were to be set forth in definitive contracts. Joint Ex. 9 at DP016892-93. Delta agreed to provide Pan Am up to $50 million in immediate DIP financing (the “First Tranche”) under a Loan Agreement dated as of October 21, 1991 between Pan Am and Delta.

See

Joint Ex. 8. Delta also agreed to provide Pan Am, on or after November 1, 1991, with up to an additional $90 million in DIP financing on a schedule of dates and in scheduled amounts (the “Second Tranche”). Borrowings under the Second Tranche were to be governed by the Loan Agreement, as amended by Amendment No. 1 to the Loan Agreement dated as of October 25, 1991.

See

Joint Ex. 10.

On October 22, 1991, Creditors Committee counsel Marc Richards signed the October 22 Letter Agreement on behalf of the Creditors Committee. Joint Ex. 9 at DP016898. Prior to entering into the October 22 Letter Agreement, the Creditors Committee voted in favor of taking that action. Tr. at 1397-98 (H. Miller).

At a Bankruptcy Court hearing on October 22, 1991, Mr. Richards informed the court that the October 22 Letter Agreement reflected compromises of “good faith differences as to the interpretation of certain provisions” of the August 11 Letter, and that “nobody stuck a gun to our head, but the committee considered it, deliberated it, and we are prepared to go along-” Pl.Ex. 501 at 36, 42.

On Pan Am’s application the Bankruptcy Court then authorized Pan Am to incur $50 million of Junior DIP financing agreed to in the October 22 Letter Agreement to enable Pan Am to operate until November 6, 1991.

See

Pl.Ex. 501. On October 25, 1991 and November 12, 1991, on Pan Am’s application, the Court approved the additional Junior DIP financing of up to $90 million and the

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Creditors Committee countersigned the orders. Def.Ex. BB and BC; Pl.Ex. 508.

The Joint Plan and Disclosure Statement

On October 24, 1991, Pan Am and the Creditors Committee filed the First Amended Disclosure Statement with Respect to the Revised Joint Consolidated Plan of Reorganization for Pan Am Corporation and its Affiliated Debtors (the “Disclosure Statement” and “Joint Plan”).

See

Joint Ex. 12. This Disclosure Statement, as its predecessor in September, was drafted by Pan Am’s outside counsel, Cleary, Gottlieb Steen & Hamilton. Rule 43 Tr. at 584 (Weisz).

Pan Am’s Chief Executive Officer Russell Ray, on behalf of Pan Am, and Mr. Marcus, on behalf of the Creditors Committee, each signed both the Joint Plan and the Disclosure Statement. Joint Ex. 12 at D378283, D378329. Unlike Pan Am and the Creditors Committee, Delta was not a proponent of the Joint Plan and did not sign either the Joint Plan or the Disclosure Statement.

See id.

The Disclosure Statement reflects the contemporaneous understanding by Pan Am and the Creditors Committee of the August 11, 1991 letter, and the October 22 Letter Agreement for the Junior DIP financing by Delta and Delta’s obligation to make an investment in Pan Am II. As signatories to the Disclosure Statement and the Joint Plan, and having presented the Disclosure Statement to the Bankruptcy Court, its creditors and Delta as a fair description of the proposed transactions, Pan Am and the Creditors Committee are bound by the statements therein.

On November 4, 1991, Michael Gagnon, a financial advisor to the Creditors Committee, travelled to Atlanta to meet with Delta’s Chief Financial Officer Thomas Roeck to discuss the terms that the Creditors Committee had agreed to in the October 22 Letter Agreement. Tr. at 422-36 (Gagnon). During the meeting, Mr. Gagnon asked Delta to change the terms agreed to in the October 22 Letter Agreement. Mr. Roeck expressed surprise'that the Creditors Committee was raising changes two weeks after the October 22 Letter Agreement had been entered into, and told Mr. Gagnon that Delta believed the present terms were reasonable. Tr. at 434-35 (Gagnon); Tr. at 3673 (Roeck).

During the meeting, Mr. Gagnon warned Mr. Roeck that Mr. Marcus was preparing a strongly worded letter to Delta that would be sent unless Delta agreed to additional concessions that the Creditors Committee was seeking. Tr. at 3673 (Roeck). Mr. Gagnon also warned that he was concerned that the letter might find its way into the press. Tr. at 3673 (Roeck).

Mr. Roeck told Mr. Gagnon that, based on his experience in the airline industry, the impact of a negative press report such as Mr. Gagnon was suggesting could cause a loss of confidence in Pan Am among consumers and travel agencies, and that a loss of public confidence in an airline created a situation that is equivalent to a run on a bank. Tr. at 3674 (Roeck).

Creditors Committee counsel Leon Marcus sent a letter dated November 4, 1991 to Delta and Delta’s counsel in which Mr. Marcus stated his view, and “the views of the Creditors Committee,” Def.Ex. BG at 1, that “Delta [had] squeezed the deal so dry [that] it appears [Pan Am’s Joint Plan] cannot or will not be confirmed.”

Id.

at 2 . Leon Marcus related an “industry rumor was that Pan Am II would not survive six weeks,”

Id.

at 3 , and he urged that the parties should pay close attention to statements by Pan Am’s unions “that they are ready to shut down Pan Am....”

Id.

In the letter, Leon Marcus asked Delta to consider modifications of the interest rate in the Senior Notes and other terms of the proposed Delta investment in Pan Am II.

Id.

at 8-9 . Mr. Marcus mentioned the possibility of litigation against Delta several times, and wrote that “if the Plan is not confirmed for almost any reason, there is no doubt in my mind that the Committee will vote to sue Delta and to petition the Bankruptcy Court for appropriate relief.”

Id.

Counsel for the Creditors Committee sent the letter to the members of the Committee on November 5, 1991.

The testimony of Delta’s expert document examiner makes clear that the

Miami Herald

published statements from the Marcus letter on November 6, 1991, which were also

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reported by the

Wall Street Journal,

due to intentional transmission of the letter to the

Miami Herald

by Creditors Committee member George Miranda of the International Brotherhood of Teamsters. Tr. at 3835-45, 3868-83 (Tytell); Def.Ex. DIC; Def.Ex. DIF.

The article in the

Miami Herald

noted Mr. Marcus’s prediction that Pan Am’s reorganization was in peril and that Pan Am may be in default under its proposed agreements with Delta even before a scheduled confirmation hearing. Def.Ex. BH. On November 7, 1991, the

Wall Street Journal

published an article discussing the contents of the November 4 Marcus Letter. Def.Ex. BI. The second headline of the

Wall Street Journal

article referred to the threatened prospects of Pan Am II: “Group says Carrier’s Tactics Are a Threat to Pan Am’s Success After Revamp.” The lead paragraph of the article related Mr. Marcus’s charge that the future of Pan Am II was in jeopardy: “[Delta’s conduct is] jeopardizing the future success of the reorganized carrier, Pan Am’s creditors charged.” Def.Ex. BI. The article quoted Mr. Marcus’s statement that “Delta has squeezed the deal so dry it appears the plan cannot or will not be confirmed.”

Id.

Drawdowns of Junior DIP Financing

In separate borrowings in late October and early November 1991, Delta loaned Pan Am the full $50 million available under the First Tranche and on November 1, November 8, November 15, November 22 and November 29, Delta advanced a total of $65 million to Pan Am under the Second Tranche. Undisputed Facts at ¶ 14; Tr. at 700-10 (Fabio); Rule 43 Tr. at 680-81 (Fabio). Prior to each of those advances, Pan Am provided Delta with a certification as required under the amended Loan Agreement. Tr. at 699-710 (Fabio);

see also

Tr. at 3688-89 (Roeck); Def.Ex. XXY; Def.Ex. DHE at 5. Mr. Roeck added that such cuts would adversely affect Pan Am IPs ability to create a seamless product, presumably facilities roughly comparable to those of Delta. Tr. at 3688-89 (Roeck); Tr. at 2988-91 (Harkey); Def.Ex. DHE at 5.

Another partial offset that Mr. Andresen suggested was a proposal that DynAir purchase for about $25 million Pan Am’s parts inventory at JFK airport instead of supply

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ing its own parts. Tr. at 3985 (Handelsman). Mr. Andresen assumed that such an arrangement with Dynair could result in a cash flow improvement of $25 million through 1992, Pl.Ex. 809 at DT475.

Earlier in the week Mr. Andresen had assumed only $19.5 million in benefits from that proposed arrangement.

See

Pl.Ex. 805. Pan Am’s General Counsel Roger Cooke reported at the meeting that there was no agreement with DynAir, and that there were still a number of open issues concerning a possible DynAir transaction. Tr. at 1764-65 (Andresen); Tr. at 3990 (Han-delsman); Def.Ex. XXY at 3.

(c)

Liquidity

The discussion at the November 30 meeting also considered Pan Am II’s liquidity in 1992. Mr. Andresen noted that liquidity would be tight and that after taking into account all of his proposed cash improvements, his current projection for June 1992 was that Pan Am II would then have total liquidity of $36 million (even after borrowing the full $100 million available under the Working Capital Facility Agreement). Tr. at 3986 (Handelsman); Def.Ex. XXY at 2;

see

Pl.Ex. 809 at DT477. Mr. Andresen stated that if Mr. Coggin’s revenue projections were correct, Pan Am II’s liquidity would be wiped out. Def.Ex. XXY at 2.

Mr. Allen asked Mr. Andresen what level of liquidity cushion would make him comfortable given the unanticipated deterioration to the Business Plan, and Andresen replied $75 million. Tr. at 1766 (Andresen); Tr. at 4295 (Allen); Tr. at 3571 (Rinaldi); Tr. at 3280-81 (Sanregret); Def.Ex. DHE at 7; Def.Ex. XXY at 3;

see also

Def.Ex. PK at 3. Mr. Allen then asked Mr. Roeck his opinion regarding the appropriate liquidity level for Pan Am II. Mr. Roeck stated that in light of the uncertainties in the revenue forecast, a liquidity cushion of more than $100 million would be needed. Tr. at 3691-92 (Roeck); Tr. 3280 (Sanregret); Tr. at 4295 (Allen). When Mr. Roeck stated that more than $100 million in liquidity was necessary, Joel Beck-man of Goldman Sachs & Co., Delta’s investment banking advisor, agreed. Tr. at 3691-92 (Roeck); Tr. at 3280 (Sanregret); Def.Ex. XXY at 3.

(d)

Status of Labor Negotiations

Mr. Ray reported at the November 30 meeting that the Marcus letter of November 4, 1991 had delayed the labor negotiation process by three weeks, and that Pan Am had not yet reached agreement with any of its five unions. Tr. at 3572 (Rinaldi); Def. Ex. XXY at 2; Tr. at 4295-96 (Allen); Tr. at 3988-89 (Handelsman); Tr. at 3571-72 (Ri-naldi); Tr. at 3690-91 (Roeck).

Walter Brill, a Delta attorney who had been receiving reports on the status of Pan Am’s labor negotiations, stated that even if agreements were reached that day, there was a question whether ratification could be obtained by the confirmation hearing. Tr. at 3690-91 (Roeck); Tr. at 2994 (Harkey).

Mr. Ray reported that he thought ratification of the five new labor agreements might be obtained by the confirmation hearing, and that the Independent Union of Flight Attendants posed the toughest problem with respect to ratification. Tr. at 3989 (Handels-.man); Def.Ex. XXY at 3.

Mr. Ray also reported on the difficulties that Pan Am was having in negotiations with its pilots’ union, ALPA, including: (1) the union’s insistence on receiving a bonus arrangement as part of their new agreement, and (2) the union’s unwillingness to permit termination of the Pilots “A” Plan, a defined benefit pension plan that was required to be terminated before Delta’s funding of Pan Am II. Tr. at 3989 (Handelsman); Tr. at 3571 (Rinaldi). Mr. Ray stated that Pan Am and ALPA were discussing an arrangement under which Pan Am II would make up benefits that might be lost as the result of termination of the Pilots “A” Plan, but that such an arrangement might be considered an illegal follow-on plan by the PBGC. Tr. at 3989 (Handelsman);

see

Def.Ex. DHY at 1 (Davis notes); Def.Ex. XXY at 4.

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(e)

Pan Am’s Funding Requirements

The final topic discussed at the meeting was Pan Am’s funding requirements until the Effective Date of the Joint Plan. Mr. Andre-sen stated that he had assumed that a closing would occur immediately upon confirmation. Tr. at 3573 (Rinaldi); Tr. at 3991 (Handelsman); Def.Ex. XXY at 5; Def.Ex. DHE at 11. Pan Am’s outside counsel Robert Davis stated that he had been assuming that by the hearing date that there would be settlements with all creditors who were in a position to obtain a stay of a confirmation order without posting a bond, and he stated that his belief was that the risk to Delta of an early closing would be minimized if such settlements were obtained, and that if Delta would not close early Pan Am would have to make other arrangements to fund during that gap period. Tr. at 3573-74 (Rinaldi); Tr. at 3991-92 (Handelsman); Def.Ex. XXY at 5; Def.Ex. DHE at 11.

Mr. Davis acknowledged that Delta had never committed to invest in Pan Am II immediately after confirmation, but that he hoped Delta would feel comfortable moving ahead with an effective date earlier than the end of the statutory ten-day appeal period. Tr. at 2998-99 (Harkey); Tr. at 3575 (Rinal-di); Tr. at 3281 (Sanregret); Def.Ex. DHE at 11. There was no evidence that Delta stated that it would not fund if such agreements were reached.

At the end of the meeting, both Pan Am and Delta agreed that there were certain issues that needed to be further considered. Tr. at 1644-45 (Andresen).

Despite what it had heard, Delta articulated no decisions on November 30 regarding its investment in Pan Am II or Pan Am’s request for more DIP funding to the Effective Date. Tr. at 3123 (Harkey).

(2)

Meetings on December 1, 1991

In three meetings during the morning and afternoon of Sunday, December 1, 1991, Delta received further information which raised more questions about Pan Am’s ability to successfully reorganize.

On the afternoon of Sunday, December 1, 1991, Messrs. Sanregret and Coggin of Delta met with Mr. Gagnon again to discuss his current solvency analysis. Tr. at 3283 (San-regret). During the meeting, Messrs. Sanre-gret and Coggin updated Mr. Gagnon on Pan Am II’s revenue and expense problems that Pan Am’s management had discussed the previous day (November 30) with Delta management. Tr. at 3283-84 (Sanregret); Tr. at 4181-82 (Coggin).

The parties also discussed Delta’s disagreements with Mr. Gagnon’s solvency analysis. Tr. at 453 (Gagnon). Mr. Sanregret explained his position that Pan Am was administratively insolvent by a large number.

Id.

Mr. Sanregret raised with Mr. Gagnon Mr. Andresen’s two prior requests for an agreement from the creditors to defer collection of receivables in order to improve the cash flows of Pan Am II. Mr. Gagnon stated that he did not recall' discussing the issue with Mr. Andresen, but that he would raise it at a meeting of the Creditors Committee that night. Tr. at 3284 (Sanregret). At trial Mr. Gagnon could not recall the deferment of collection of the receivables coming before the Creditors Committee that night, however. Tr. at 4919 (Gagnon).

(a)

Morning Meeting on Open Issues Under the Proposed Funding Agreements

Beginning in the morning of December 1, a meeting was held among representatives of Delta, Pan Am and the Creditors Committee to discuss the numerous open issues under the drafts of the Working Capital Facility Agreement and Senior Note Purchase Agreement. Tr. at 654-55 (Fabio); Tr. at 1645-46 (Andresen); Rule 43 Tr. at 214-15 (H. Miller).

Delta was represented at the meeting by, among others, its Vice President-Treasurer, Frank Chew, and by outside counsel Karin Day. Pan Am was represented by Rolf Andresen and Joan Fabio and by outside counsel Paul Shim. Investment banker Henry Miller attended on behalf of the Creditors Committee. The meeting lasted most of the day. Tr. at 3502-03 (Day).

Among the items discussed at the meeting were various issues relating to funding; a Pan Am request for assurance that Delta

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would keep its own bank credit facility in place because the interest rate was to be determined in reference to that rate; a request by Pan Am that it not be required to make representations and warranties about foreign environmental liabilities; and Delta’s request of Pan Am’s counsel for an opinion letter at closing that the Working Capital Facility Agreement and Senior Note Purchase Agreement were valid and binding agreements of Pan Am II and that Delta’s security interest was valid and perfected. Tr. at 3507-10 (Day);

see also

Tr. at 655 (Fabio).

Mr. Shim of Pan Am’s outside counsel Cleary Gottlieb stated that Cleary Gottlieb would not agree to provide the requested opinion of counsel. Tr. at 3502, 3510 (Day).

The parties also discussed the schedules that Pan Am was required to provide in connection with the proposed loan agreements. Those schedules were to list Pan Am II’s outstanding liabilities and litigation, and to describe various Pan Am II assets. Tr. at 3511-12 (Day);

see

Pl.Ex. 704. Pan Am’s representatives reported that Pan Am was having difficulty assembling the information, and stated that the schedules would be delivered later. The schedules were never provided. Tr. at 3511-12 (Day).

A major issue discussed at the December 1 morning meeting involved the new ratios to be included in the financial covenants for the proposed Working Capital Facility Agreement and the proposed Senior Note Purchase Agreement. Tr. at 3509 (Day); Rule 43 Tr. at 214-15 (H. Miller);

see also

Tr. at 655 (Fabio). Earlier in November Delta had proposed ratios for the financial covenants.

See

Tr. at 3509-10 (Day); Tr. at 1647 (Andresen); Rule 43 Tr. at 207 (H. Miller). The October term sheets for the Working Capital Facility Agreement and Senior Note Purchase Agreement provided that the ratios in the financial covenants would be “based upon the projections set forth in the current Business Plan_” Joint Ex. 9 at DP016926. At the December 1 morning meeting, the Pan Am representatives requested that Delta relax the proposed ratios in response to Pan Am’s deteriorating projections. Tr. at 1646-47 (Andresen); Tr. at 658-62 (Fabio); Tr. at 3509 (Day).

Mr. Chew from Delta responded that he believed, based on the projections in the Business Plan, that the cushions were appropriate and did not require Pan Am II to meet its projections with exactitude. Mr. Andre-sen responded that the Business Plan projections were no longer correct and that the proposed cushions wouldn’t work as a result. The parties agreed to consult with their respective executives and discuss the issue further, and the matter was left unresolved. Tr. at 1648 (Andresen);

see also

Tr. at 658-662, 664 (Fabio); Tr. at 3512-13 (Day).

After the December 1 meeting, Delta and its representatives remained available to continue negotiating the open terms under the proposed agreements. Rule 43 Tr. at 248-50 (H. Miller); Tr. at 3517-18 (Day). Ms. Day continued to work on the necessary documents until the Bankruptcy Court hearing on December 3, 1991, however none of the participants communicated with her. Tr. at 3517-18 (Day).

(b)

Afternoon Meeting with PBGC

On the afternoon of Sunday December 1, 1991, representatives of Delta and the PBGC met to discuss the status of negotiations of the PBGC’s claims against Pan Am. Tr. at 3600-01 (Rinaldi); Tr. at 3993 (Handelsman). Delta was represented at the meeting by Thomas Roeck, its Chief Financial Officer, and Joseph Rinaldi and Lawrence Handelsman, outside counsel. Tr. at 3993 (Handelsman). The PBGC was represented by Diane Burkley, who was Deputy Executive Director and Chief Negotiator, Tr. at 4601 (Burkley), Jeffrey Cohen, Deputy General Counsel, Tr. at 2182-83 (Cohen), John Menke, a PBGC attorney, Tr. at 4665 (Menke), and outside financial and legal advisors to the PBGC

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from Smith Barney and Milbank Tweed, Tr. at 4666 (Menke).

Ms. Burkley stated that the PBGC had not reached agreement with the Creditors Committee on its administrative and priority claims and that she did not think a settlement was likely. Tr. at 3601 (Rinaldi); Tr. at 3995 (Handelsman); Tr. at 3698 (Roeck). She reported that the PBGC was taking the position stated that it would not accept less than $60 million in cash in settlement of its administrative and priority claims, while Pan Am and the Creditors Committee were not prepared to pay more than $36 million in cash. Tr. at 4668 (Menke).

Ms. Burkley asked Delta to contribute an additional $25 million to the “pot” to help satisfy administrative claims. Tr. at 4669-70 (Menke); Tr. at 2183-84 (Cohen); Tr. at 4609 (Burkley); Tr. at 3603 (Rinaldi). Ms. Burkley asserted that the administrative creditors should also receive the proceeds of certain projected asset sales that had been allocated under the Disclosure Statement for the benefit of Pan Am II, and asked for Delta’s agreement to that effect. Joint Ex. 12 at D378204; Tr. at 3994 (Handelsman). Ms. Burkley also stated that it was the PBGC’s position that the transition costs to be borne by the bankruptcy estate should be capped at $20 million, and that these costs were now estimated at approximately $44 to $50 million. Tr. at 3994 (Handelsman). She stated that Pan Am II should assume an additional $24 million in transition expenses not anticipated in the Joint Plan and Disclosure Statements based on her estimate of transition costs. Joint Exh. 12 at D378231-52 (Business Plan); Tr. at 3994 (Handels-man); Tr. at 4703 (Menke). Ms. Burkley stated that the PBGC would oppose confirmation and would object to the Joint Plan unless Delta provided more cash for the creditors. Tr. at 4608-09 (Burkley); Tr. at 2183-84 (Cohen); Tr. at 4708 (Menke). Ms. Burkley stated that Pan Am and the Creditors Committee were incorrectly assuming that the PBGC would not oppose confirmation, and that the PBGC was concerned about accepting a low settlement that would create a precedent in other bankruptcies where the PBGC also had sizeable claims. Tr. at 3602 (Rinaldi).

Mr. Roeck responded that Delta could not agree to provide more cash for the administrative creditors. Tr. at 4671 (Menke). He also stated that given its deteriorating outlook, Pan Am II could not bear any additional costs and needed the proceeds from the sales of excess assets which under the “Business Plan” would provide working capital for Pan Am II. Tr. at 4708-09 (Menke); Tr. at 3994^95 (Handelsman).

(c)

Delta Executives’ Meeting to Consider Pan Am’s Request for Additional DIP Financing

Following the meetings on the afternoon of December 1, 1991, Messrs. Allen, Roeck, Harkey and Coggin met to consider Pan Am’s pending request for additional DIP financing to the effective date. Tr. at 4300-01 (Allen); Tr. at 3000-01 (Harkey).

The consensus of the group was that, based on the information Delta had received at the meeting on November 30 and at the various meetings on December 1, 1991, it would not be a prudent business decision for Delta to provide additional DIP financing to Pan Am. Tr. at 4300 (Allen). Mr. Allen decided that Delta could not agree to Pan Am’s request for additional DIP financing. Tr. at 4300 (Allen).

At the same meeting, Delta determined that it would not make any other decisions regarding any investment in Pan Am II until additional information became available. Tr. at 4301 (Allen); Tr. at 3014-16 (Harkey); Tr. at 3805-07 (Roeck).

(d)

The Denial of Additional DIP Financing

On the evening of Sunday December 1, 1991, Messrs. Allen and Roeck of Delta met with Messrs. Ray and Andresen of Pan Am. Tr. at 4298-4302 (Allen); Tr. at 1648-49 (An-dresen); Tr. at 1951-52 (Ray).

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At that meeting, Mr. Allen stated that Delta could not agree to Pan Am’s pending request for additional DIP financing based on the information Delta had learned that weekend. Mr. Allen also stated that Delta had provided all the DIP funds for which Pan Am had qualified under the amended Loan Agreement. Tr. at 4302 (Allen). This statement was not disputed.

During the meeting, Mr. Ray stated that neither he nor Mr. Andresen could testify to the viability of the Business Plan. Tr. at 4302-03 (Allen); Tr. at 1991, 2107, 2110-13 (Ray).

At the meeting, Messrs. Allen and Roeck expressed Delta’s concerns about the Joint Plan of Reorganization, including the viability of the Business Plan, administrative solvency, the status of negotiations with the PBGC, and the status of Pan Am’s negotiations with its five unions. Tr. at 1650 (An-dresen); Tr. at 1952 (Ray). There is no evidence that anyone took issue with these concerns. Mr. Andresen acknowledged that there had been substantial adverse developments to the Business Plan and that he could not testify as to the viability of the Business Plan. Tr. at 4303 (Allen); Tr. at 3699 (Roeck). Mr. Andresen believed that Delta’s concerns were expressed in good faith, “[biased on the information they had gathered and what they communicated to us.... ” Tr. at 1770 (Andresen).

Delta did not state during the meeting that it would not provide funding for Pan Am II. Tr. at 1954 (Ray); Tr. at 4305 (Allen).

Mr. Andresen testified that at the meeting Messrs. Allen and Roeck

said that they were not ready to make any decisions on that day.... However, they did point out that they had made one decision, which was that Delta would not advance any of the amounts unused under the DIP facility.

Tr. at 1649 (Andresen).

There is no evidence that any representative of Delta ever stated that Delta would not fund Pan Am II as contemplated in the Joint Plan and Disclosure Statement. Tr. at 1951-52, 1954 (Ray); Tr. at 1649 (Andresen); Tr. at 4873-74 (Marcus); Rule 43 Tr. at 581 (Weisz);

see

Def.Ex. BZ at 20 (remarks of Mr. Weisz in bankruptcy court on December 3,1991). Nor is there evidence that Mr. Ray told Pan Am executives or counsel that he had concluded Delta would not fund Pan Am II as statéd in the Amended Consolidated Complaint. Nevertheless, on December 2, 1991 representatives of the Creditors Committee spread the word that Delta had decided not to fund Pan Am II. Tr. 4717 (Menke); Pl.Ex. 4239.

Delta did not repudiate any obligation to provide additional DIP funding to Pan Am, nor did Delta ever decide not to provide funds to Pan Am II. Tr. at 3805-07 (Roeck); Tr. at 3140^41 (Harkey);

cf.

Pl.Ex. 4239.

(3)

Events of December 2, 1991

Mr. Ray and Mr. Andresen met with Mr. Allen and others from Delta on the morning of December 2, and again on December 3, to discuss the remaining hurdles with respect to a plan of reorganization. Tr. at 1955, 1962 (Ray). During those meetings, Mr. Allen did not state that Delta would wait ten days before providing funds to Pan Am, but instead stated that Delta would not provide funds during the period before the Joint Plan became effective. Tr. at 2115 (Ray).

Also on the morning of December 2, 1991, counsel scheduled a Bankruptcy Court chambers conference for later in the day to advise the Bankruptcy Court of events that had occurred during the Thanksgiving weekend. Tr. at 4002 (Handelsman); Rule 43 Tr. at 565-66 (Weisz).

During a telephone conversation on the morning of December 2, 1991, Creditors Committee counsel Leon Marcus asked Delta’s counsel Lawrence Handelsman for an

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unconditional commitment that Delta would fund the Joint Plan on the Effective Date. Tr. at 4005-07 (Handelsman); Tr. at 4791-93 (Marcus). During the telephone call, Mr. Handelsman responded that he did not have the authority to make such a commitment. Mr. Handelsman told Mr. Marcus his understanding of Delta’s position, which was that Delta would not provide Pan Am with additional DIP financing but that Delta had not made a final decision regarding funding of Pan Am II and would wait and see what developed. Mr. Handelsman then stated his understanding that Delta would decide whether or not to fund based on circumstances that existed on the Effective Date of the Joint Plan. Tr. at 4005-07 (Handelsman); Tr. at 4877 (Marcus). Mr. Marcus also told Mr. Handelsman that counsel for Pan Am wanted to withdraw the Joint Plan but that Pan Am could not do so without the consent of the Creditors Committee, and that Mr. Marcus wanted to go forward with a confirmation hearing in order to set up a lawsuit against Delta. Tr. at 4004 (Handels-man).

During that telephone call with Mr. Han-delsman, Mr. Marcus also stated that “what he really wanted was not a lawsuit [but to go forward with confirmation, and] fix whatever is wrong later, we will worry about it later.” Tr. at 4005 (Handelsman). Mr. Handelsman replied that it was Delta who bore the risk of such an approach since Delta would be making a substantial investment in connection with the Joint Plan. Tr. at 4005 (Handels-man).

In another telephone call on the morning of December 2,1991, Pan Am counsel George Weisz told Delta counsel Lawrence Handels-man that, if Pan Am obtained $75 million in additional concessions for 1992 from Pan Am’s unions and trade creditors, Mr. Andre-sen and Pan Ain’s accountant, Robert Finlay-son, would be prepared to testify that the business plan was viable for 1992 without making a reexamination of projections for 1993. Tr. at 4000-01 (Handelsman); Rule 43 Tr. at 559 (Weisz).

On the morning of December 2, 1991, Creditors Committee counsel Leon Marcus informed PBGC representatives Diane Burk-ley, Jeffrey Cohen, Carol Flowe, John Menke and Mark Cantor that George Weisz had advised Mr. Marcus that Delta was not going to fund Pan Am II. Mr. Marcus stated that the Creditors Committee and Pan Am planned to continue to work toward satisfying the conditions to the Joint Plan and to the proposed agreements relating to the Delta investment in Pan Am II so that there was no charge by Delta of Pan Am’s anticipatory repudiation in a subsequent lawsuit which would be brought against Delta, and that Pan Am’s counsel Mr. Weisz planned to represent to the Bankruptcy Court that “Delta has taken so much out [in interest rates and fees] [that] no one will testify as to feasibility.” Pl.Ex. 4239 at 2; Pl.Ex. 4240 at 2;

see also

Tr. at 4715-17, 4721-24, 4736 (Menke).

At the chambers conference in the Bankruptcy Court on the afternoon of December 2, 1991, Mr. Marcus again asked Mr. Han-delsman for an unconditional commitment from Delta to fund the Joint Plan on the Effective Date. Mr. Handelsman stated that Delta could not make such a commitment in advance, but that Delta would wait to see what the circumstances were on the Effective Date before providing funds. Tr. at 4011-12 (Handelsman); Tr. at 3605-06, 4252 (Rinal-di).

The chambers conference before Bankruptcy Court Judge Cornelius Blackshear was held in the afternoon of December 2, 1991. Attendees included Pan Am’s counsel George Weisz, Mr. Marcus, and Delta’s counsel Joseph Rinaldi and Mr. Handelsman, among others. Tr. at 4008 (Handelsman). At the chambers conference, Mr. Weisz informed the Bankruptcy Court that, unless Pan Am was able to obtain an additional $75 million in concessions for 1992 from its unions and trade creditors, Pan Am might be forced to shut down, and that in that event Pan Am did not see any alternative but to withdraw the Joint Plan. Tr. at 4009-10 (Handelsman). Mr. Marcus responded that

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he did not want to withdraw the Joint Plan, that he thought he could show that the conditions to the Joint Plan had been satisfied, and that he wanted to proceed with confirmation. Tr. at 4010 (Handelsman).

Mr. Weisz initially testified (at the Rule 43 hearing) that because Judge Blackshear told him during the chambers conference on December 2, 1991:

No, it’s silly, we don’t need to have a full-blown confirmation hearing. Show up, you’ll make your statement on the record so that the people in the audience will understand just whát has happened, and we’ll just do that. You don’t have to come with your witnesses and that kind of thing.

Rule 43 Tr. at 570-71. At his deposition Mr. Weisz did not recollect Judge Blackshear saying that he did not have to come in with his witnesses or that Judge Blackshear said “let’s have the hearing tomorrow anyhow.” Rule 43 Tr. at 572-76 (Weisz). During trial, Mr. Weisz testified that his testimony recorded at the Rule 43 hearing was “not entirely accurate” because the Bankruptcy Court had not instructed him to forego the confirmation hearing. Tr. at 2829 (Weisz).

Creditors Committee counsel Leon Marcus testified at trial that “Judge Blackshear told George Weisz at that point that it would not be necessary to waste the Court’s time and go forward with confirmation [on December 3.]” Tr. at 4789 (Marcus). Mr. Marcus also testified that Mr. Weisz mentioned at the chambers conference that “Delta was not going to fund on the day following the confirmation hearing” and that “Pan Am had no funds to get [to] the end of that ten day period [when Delta would consider funding.]” Tr. at 4788 (Marcus). Mr. Marcus testified that it was in that context that Judge Black-shear stated that if Pan Am “couldn’t go on, [then] the witnesses should not be prepared” for a confirmation hearing. Tr. at 4875 (Marcus).

Neither Mr. Handelsman nor Mr. Rinaldi, who also attended the chambers conference, recall Judge Blackshear instructing Pan Am not to proceed with confirmation. Tr. at 3605-08 (Rinaldi); Tr. at 4008-12 (Handels-man).

(4)

Events of December S, 1991

On December 2 and 3, 1991 Pan Am management turned their attention to the possibility of Pan Am II not coming into existence, and determined that an orderly shutdown would be a complex undertaking. Accordingly, their time was devoted to those activities. Union negotiations meanwhile were continued by Mr. Kimmins and a board meeting was held.

According to Pan Am’s Chief Executive Officer Russell Ray, it was he who made the decision on the morning of December 3, 1991 not to proceed with a confirmation hearing on the advice of counsel. Tr. at 2114-16 (Ray). Mr. Ray remembered no details of the advice he received but did indicate that he was taking steps from December 1 onwards to prevent the potential ill effects of an uncontrolled shutdown. Tr. at 1963, 2115-16 (Ray).

Mr. Weisz later testified that he advised Mr. Ray on December 3, 1991 to adjourn the confirmation hearing to avoid the possibility of an uncontrolled shutdown that might arise if Pan Am obtained confirmation of the Joint Plan. Tr. at 2813-15 (Weisz). Mr. Weisz testified that there was a risk of an uncontrolled shutdown if Pan Am’s cash balances ran below $5-6 million. Tr. at 2800 (Weisz).

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On the morning of December 3, 1991, Mr. Marcus asked Mr. Handelsman if Delta would agree to permit Delta’s security interest in Pan Am’s assets to be “primed” by a TWA lien in order to provide Pan Am with $15 million in secured interim financing

(ie.,

to allow TWA a priority over Delta’s security interest). Tr. at 4791 (Marcus); Tr. at 4013-14 (Handelsman). Following the conversation with Mr. Marcus, Mr. Handelsman consulted with Messrs. Allen, Harkey and Roeck of Delta, who determined that Delta would agree to be primed. Tr. at 3004-05 (Har-key); Tr. at 4308 (Allen). . In a subsequent telephone call at 12:30 p.m., Mr. Handelsman told Mr. Marcus that Delta would agree to be primed, as requested. Tr. at 4792 (Marcus); Tr. at 4015 (Handelsman). Mr. Marcus reported Delta’s agreement to be primed to the Bankruptcy Court at the hearing that was held that afternoon. Def.Ex. BZ at 23.- On the morning of December 2, 1991, Jonathan O’Herron of Lazard Freres & Co., Pan Am’s investment banking advisors, told Mr. Marcus that Lazard Freres would not agree to provide any primed interim funding to Pan Am. Tr. at 4883 (Marcus).

In a telephone conversation with Mr. Marcus on December 2,1991, Hank Handelsman, a representative of the Pritzker family interests, stated that the Pritzkers would not provide primed interim financing to Pan Am. Tr. at 4884-85 (Marcus).

The PBGC was approached about providing primed interim financing to Pan Am out of the $54 million in funds held in a Pan Am escrow account for the PBGC. Tr. at 2869 (Weisz); Tr. at 2194 (Cohen). The PBGC did not agree to provide primed interim financing to Pan Am from the available funds. Tr. at 2198 (Cohen).

(5)

Events at the Bankruptcy Court hearing

During the Bankruptcy Court hearing held on December 3, 1991, the Bankruptcy Court gave Pan Am permission to use funds in the escrow account if needed, but the PBGC resisted the Bankruptcy Court’s efforts to make use of such funds even to provide Pan Am with one day’s operating funds. Def.Ex. BZ at 74-79.

At the confirmation hearing scheduled by the Bankruptcy Court on December 3, 1991, Pan Am and the Creditors Committee failed to present testimony that the Joint Plan was feasible on the terms and conditions set forth in the Joint Disclosure Statement. Thus, a condition to any obligation by Delta to invest in Pan Am-II was never met by Plaintiffs.

On December 3, 1991, Pan Am’s Chief Executive Officer Russell Ray decided not to proceed with a confirmation hearing relating to the Joint Plan. Tr. at 2115 (Ray). In a memorandum dated December 4, 1991 to all Pan Am employees, Mr. Ray explained his decision as follows: “With the cash problem, the dismal economic climate, and the projections of reduced revenues as well as that of Delta’s, our future is too risky to find the sources to fund the new company. Optimism and prayer could not overcome the reality of these poor industry market conditions and recession in our country.” Def.Ex. OZ.

II.

NO EVIDENCE DELTA REPUDIATED ITS OBLIGATIONS TO INVEST IN PAN AM II

Plaintiffs’ argument that by refusing to make a decision to invest in Pan Am II prior to the effective date Delta repudiated its obligations under the August 11, 1991 Letter Agreement and the October 22, 1991 Letter Agreement is not supported by evidence.

Delta had no Obligation under the Agreements to Fund prior to the Effective Date (a Defined Term under the Joint Plan)

The October 22 Letter Agreement refers to the Effective Date, defined as “the date the Plan of Reorganization becomes effective,” which the Disclosure Statement states “is expected to occur no earlier than approximately 10 days after the date the Bankruptcy

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Court confirms the Plan” unless all the parties agreed otherwise. Joint Ex. 9 at DP016901; Joint Ex. 12 at D378174. Throughout the relevant period, Pan Am’s Senior Management and its legal advisors knew that funding of Delta’s investment in Pan Am II might not occur until up to ten days after entry of a confirmation order.

See

Tr. at 2005-06 (Ray); Tr. at 1696-99 (Andresen); Def.Ex. EA (Ray); Def.Ex. DY at D313130 (Cooke); Def.Ex. BZ at 56 (Weisz). The Disclosure Statement and Joint Plan also provided that the loans furnished under the Delta Junior DIP would mature on December 3, 1991. Joint Exhibit 12 at D378189.

There is no evidence that Delta repudiated its obligation to invest in Pan Am II and its actions are inconsistent with repudiation. Delta caused $400 million in funds to be made available in the week of November 25 in anticipation of the transaction.

Minutes prior to the Bankruptcy Court hearing on December 3,1991, Delta’s general counsel Robert Harkey signed a CRAF settlement agreement that would have resolved the claims of the United States Air Force against Pan Am arising out of the CRAF program. Under the settlement agreement, Delta would have assumed certain of Pan Am obligations to the United States Ah’ Force. Tr. at 2966 (Harkey); Def.Ex. PN. When the hearing did not proceed on December 3, 1991, Pan Am refused to sign that settlement agreement. Tr. at 2538-39; 2575-78 (Ren-dich).

Karin Day of Delta’s outside counsel continued to revise and draft the documents relating to the proposed Working Capital Facility Agreement and the proposed Senior Note Purchase Agreement up until the Bankruptcy Court hearing on December 3, 1991. Tr. at 3517-18 (Day). Delta also continued to work on the technical aspects of code sharing between Delta and Pan Am II until after December 3, 1991. Tr. at 3435 (Sohl).

(1)

The September Discussions and the Joint Plan of Reorganization

The timing of Delta’s investment in Pan Am II was first discussed among Delta, Pan Am and the Creditors Committee at a meeting on September 6, 1991. Tr. at 3562-63 (Rinaldi); 3975-80 (Handelsman); 4781-83 (Marcus). Attendees at the meeting included Lawrence Handelsman, Joe Rinaldi, Robert Davis, Nancy Schwartzkopf, Leon Marcus, Ray Mantle, Henry Miller, Michael Gagnon and Marc Richards. Tr. at 3975-76 (Han-delsman); Tr. at 1410-14 (H. Miller); Rule 43 Tr. at 544-47 (Gagnon).

Prior to the September 6th meeting, counsel to the Creditors Committee had circulated a draft of a plan of reorganization for Pan Am which provided,

inter alia,

for an “Effective Date” that was ninety days after the date on which an order confirming the plan became a “Final Order.” Tr. at 3977 (Han-delsman);

see

Def.Ex. GU at D375404.

At the September 6th meeting, Mr. Han-delsman, counsel to Delta, stated that the ninety day period was too long. Tr. at 3978-79 (Handelsman); Tr. at 3562-63 (Rinaldi). Mr. Handelsman suggested that the period be shortened to have the Effective Date occur ten days after entry of a confirmation order because this would be more appropriate. Tr. at 3979 (Handelsman); Tr. at 3563 (Rinaldi); Tr. 4783 (Marcus). In response, Leon Marcus, counsel to the Creditors Committee, agreed that the Effective Date should be on December 10 or December 11, ten days after the confirmation hearing then expected to occur on or about December 1. Tr. at 3979 (Handelsman); 3564 (Rinaldi);

see also

Tr. at 1415-17 (H. Miller); Def.Ex. EC at PR26113 (notes of Henry Miller); Def.Ex. ED at PW156392 (notes of Michael Gagnon);

cf.

Tr. at 4783 (Marcus).

The first Joint Plan of Reorganization filed by Pan Am and the Creditors Committee with the Bankruptcy Court on September 24, 1991 reflected the definition of Effective Date that had been discussed at the meeting on September 6, 1991.

See

Pl.Ex. 3145 at DT0060963-66. The first Joint Plan defined the “Effective Date” to be the first business day following the “Confirmation Date.”

Id.

at DT0060965. The “Confirmation Date,” however, was defined not as the date of the confirmation order, but as the date on which an order confirming the Joint Plan became a “Final Order.”

Id.

at DT060963. “Final Order” was defined as

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an order or judgment of the Bankruptcy Court (or, as appropriate, the United States District Court for the Southern District of New York or any court having the right to determine any appeal thereof), including any revision, modification, or amendment: (a) as to which the time to appeal or seek reargument, rehearing, reconsideration or certiorari has expired without any such action having been taken, waived or rendered moot; (b) as to which no timely-filed appeal, reargument, rehearing, reconsideration or certiorari is pending, or if it is pending, as to which no stay is in effect; or (c) that has been affirmed on any timely-filed appeal or reargument, rehearing reconsideration or certiorari and as to which the time to take any further appeal, reargument, rehearing, reconsideration or certiorari has expired, been waived or rendered moot.

Id.

at DT0060966.

Bankruptcy Rule 8002(a) provides that a notice of appeal from a judgment, .order or decree of the Bankruptcy Court may be filed within ten days of the entry of such judgment, order, or decree. • Fed.R.Bankr.P. 8002(a).

The Revised Joint Plan, attached to the First Amended Disclosure Statement that was filed with the Bankruptcy Court on October 24, 1991, contains definitions of “Effective Date,” “Confirmation Date” and “Final Order” that are substantially the same as those definitions in the September 24th Joint Plan.

See

Joint Ex. 12 at D378295-97. In the Revised Joint Plan, “Final Order” was defined as:

or with such action having been

waived or rendered moot; (b) as to which no timely-filed appeal, reargument, rehearing, reconsideration or certiorari is pending, or if it is pending, as to which no stay is in effect; or (c) that has been affirmed on any timely-filed appeal or reargument, rehearing reconsideration or certiorari and as to which the time to take any further appeal, reargument, rehearing, reconsideration or certiorari has expired, been waived or rendered moot.

Joint Ex. 12 at D378297 (emphasis added to show change from version of September 24).

The Joint Plan filed on September 24,1991 and the Revised Joint Plan filed on October 24, 1991 each provided that the Delta Subscription Agreement, the Term Loan Agreement and the Revolving Credit Agreement would become effective on the Effective Date of such plan. Pl.Ex: 3145 at DT0060981; Joint Ex. 12 at D378308.

The understanding of the parties with respect to the date on which funding of Pan Am II would occur did not change as the result of the October 22 Letter Agreement. No provision of that document provides for a closing date of December 4, 1991 as contended by the Creditors Committee and Pan Am.

See

Joint Ex. 9.

(2)

The October 22 Letter Agreement and the October 2k Disclosure Statement

In a telephone conversation one or two days before the parties entered into the October 22 Letter Agreement, Pan Am’s outside counsel Robert Davis discussed with Delta’s outside counsel, Joseph Rinaldi, the timing of Delta’s proposed investment in Pan Am II. Tr. at 3566-67 (Rinaldi). Mr. Davis recalls having at least one telephone conversation with Mr. Rinaldi during that time period in which he and Mr. Rinaldi exchanged views on the appropriateness of various provisions of the draft letter agreement. Tr. at 323-24 (Davis).

During the telephone conversation, Mr. Davis stated that he was concerned with the gap between the end of the DIP financing to be provided in connection with the October 22 Letter Agreement which was December 3, 1991 and the date upon which Delta would fund Pan Am II. Tr. at 3567 (Rinaldi). Mr. Rinaldi responded that the September filing had contemplated that Delta would not invest in Pan Am II until the plan of reorganization

*470

had become effective, which could be after a period of up to ten days after the confirmation order was entered.

Id.

Mr. Davis replied that he did not want to reopen issues that had been resolved and that he would let Mr. Rinaldi know if there was a problem with the possible gap period.

Mr. Davis then dropped the issue. Tr. at 3568 (Rinaldi).

The October 24 Disclosure Statement, which was drafted by Pan Am’s counsel under Mr. Davis’s direction and supervision, signed by Pan Am and the Creditors Committee, filed with the Bankruptcy Court, and circulated to all creditors after a Bankruptcy Court hearing as to its adequacy, clearly recognizes that Delta’s investment in Pan Am II would not occur until after a confirmation order became a final order that was no longer subject to appeal, which would be up to ten days after entry of such order and ■after all conditions were satisfied. The Disclosure Statement provides that:

... EVEN THOUGH SINCE OCTOBER 11, 1991 DELTA HAS MADE AND, SUBJECT TO CERTAIN CONDITIONS, PROPOSES TO MAKE CERTAIN ADDITIONAL LOANS AVAILABLE TO THE DEBTORS PURSUANT TO THE DELTA JUNIOR DIP, NO ASSURANCE CAN BE GIVEN THAT ADDITIONAL FUNDING OF THE DEBTORS WILL NOT BE NECESSARY FOR THE DEBTORS TO CONTINUE OPERATIONS UNTIL THE EFFECTIVE DATE OF THE PLAN, ON WHICH DATE, SUBJECT TO CERTAIN CONDITIONS, DELTA WILL FUND THE WORKING CAPITAL FACILITY, THE TERM LOAN, THE STOCK SUBSCRIPTION AND THE STOP LOSS AMOUNT (IF ANY), NET OF THE AMOUNTS REQUIRED TO REPAY THE DELTA JUNIOR DIP.

{SEE

SECTION IV(B)(10 BELOW). THERE CAN BE NO ASSURANCE THAT THE DEBTORS WILL BE ABLE TO OBTAIN ANY SUCH ADDITIONAL FUNDING THAT MAY BE NEEDED....

Joint Ex. 12 at D378170.

The Disclosure Statement states that the Working Capital Facility Agreement would become effective on the Effective Date of the Joint Plan. Joint Ex. 12 at D378203;

see also

Fed. R.Civ.P. 62. While that provision might have operated to foreclose the entry of any stays of a confirmation order by the Bankruptcy Court, including the automatic ten-day stay that otherwise would arise under Bankruptcy Rule 7062, the order (if entered in that form) would not have abrogated any creditor’s right to appeal or to seek a stay from the District Court. Tr. at 4118-21 (Handels-man). Thus, the draft confirmation order, even if it had been agreed to by all parties and signed by the Bankruptcy Court in exactly that form would not have precluded any appeal or reduced the risk relating to any such appeal. Accordingly, the draft language cited by Plaintiffs is not relevant to the issue of the Effective Date of the Joint Plan.

Two documents prepared by Delta’s public relations department on the afternoon and evening of December 3,1991, after the Bankruptcy Court hearing on that date had begun, are consistent with Mr. Handelsman’s testimony. A Delta press release, released at 8 p.m. on December 3, 1991,

see

Def.Ex. DNB, states that “Delta Air Lines today said it would not loan Pan Am additional money prior to the Effective Date of Pan Am’s proposed Plan of Reorganization on December 14.” Pl.Ex. 917. The press release did not exclude the possibility that the Effective Date could be earlier than December 14 in the proper circumstances, although at the time that the document was released, that was unlikely because Pan Am had not proceeded with confirmation at the December 3 hearing. A Delta public relations department “Q & A” that was prepared on the afternoon of December 3, 1991 similarly states that “Delta informed Pan Am that it could not agree to Pan Am’s request to provide additional funding to Pan Am prior to the Effective Date of Pan Am’s proposed Plan of Reorganization,” and later states that “The proposed plan would become effective on December 14.” Pl.Ex. 4009. Like the press release issued later that evening, the “Q

A” accurately reflects the circumstances that existed as of the afternoon of December 3, 1991, at which time developments were such that there was no indication

*474

that the Effective Date would be any sooner than the full ten days after confirmation. The release does not indicate that Delta was unwilling to agree to an Effective Date earlier than December 14 in the proper circumstances.

There is no evidence that anyone from Pan Am saw either the December 3 press release or the “Q & A” before Pan Am decided not to proceed with a confirmation hearing on December 3, 1991 and decided not to proceed due to its contents.

Delta was not Obligated to Provide Interim Financing for Pan Am prior to the Effective Date

The claim by the Creditors Committee and Pan Am that Delta had an obligation to provide interim financing to Pan Am to fund to the Effective Date is not supported by the evidence.

(1)

The Drawdown Schedule and Pan Am’s Cash Balance

The drawdown schedule for the Second Tranche of Junior DIP financing was developed by representatives of Pan Am, the Creditors Committee and Delta during a meeting on October 20, 1991 at the Pan Am building. Tr. at 3193 (Sanregret). The drawdown schedule was based on cash forecasts prepared by Joan Fabio, Pan Am’s Assistant Treasurer, including the attachments to Exhibit 532. Rule 43 Tr. at 712 (Gagnon); Pl.Ex. 532;

see

Rule 43 Tr. at 628-29 (Fabio); Def.Ex. IU.

The drawdown schedule for the Second Tranche was designed so that Pan Am would continue to have a cash balance of $10 million before each scheduled borrowing. Rule 43 Tr. at 709 (Gagnon).

The Second Tranche drawdown schedule under the amended Loan Agreement provided for a cash balance of $10 million on November 29, 1991 plus borrowing of $10 million on November 29,1991.

See

Joint Ex. 10 at D369816; Def.Ex. IU at PW0050195; PI. Ex. 532 at PW156567.

On Friday, November 29, 1991, Pan Am drew down $10 million as its last payment under the DIP financing. Joint Ex. 9 at DP17051; Joint Ex. 10 at D369816; Pl.Ex. 708. On that date its cash balance was $10 million, thus providing a total of $20 million.

On November 27, 1991 Pan Am asked Delta for an additional $20 million. Pl.Ex. 708. In the evening of December 1,1991, after meeting with Pan Am on Saturday, November 30, 1991 to review Pan Am’s financial situation, Delta’s CFO Mr. Allen determined not to lend Pan Am the $20 million in DIP financing requested.

At that time Mr. Allen had been advised at a joint meeting of Pan Am and Delta personnel that: (1) Pan Am was projecting losses for November and December 1991 of $19.5 million and $9 million respectively; (2) Pan Am’s revenue forecasts for the first half of 1992 were $33 million below the Business Plan while Delta’s forecasts were $52 million below the Business Plan for the first half of 1992; (3) Pan Am projected increased losses for Pan Am II in 1991-92 totalling approximately $41.6 million over the October projection; (4) No union agreements had been reached as of December 1, 1991; (5) Mr. Andresen stated that Pan Am II required a liquidity line of $75 million whereas Delta’s CFO Mr. Roeck was of the opinion that $100 million was required; (6) The administrative solvency of the creditor’s estate was at least $10-11 million insolvent (Mr. Gagnon’s estimate); (7) The Creditors Committee was seeking to use up to $100 million of assets assigned to Pan Am II to meet its administrative solvency requirements; (8) Pan Am’s counsel would not agree to provide requested opinions of counsel that the securities to be issued to Delta would be valid and binding,

*475

and Pan Am’s counsel also had not provided a certificate of assets which would secure the credit Delta was providing; (9) Pan Am wanted to extend the terms of the Senior Notes and working capital agreement from those in the October agreement; (10) The PBGC, a major creditor, would oppose confirmation unless Delta and/or Pan Am II provided more cash for the creditors; and (11) Mr. Marcus had threatened to tie up any DIP funds of Delta if the confirmation did not go through.

Delta had no legal obligation under the DIP agreement to loan Pan Am more money. Furthermore, since the prospects for confirmation looked bleak and Mr. Marcus had threatened to tie up Delta’s DIP funds if the reorganization did not go through, it would have been poor business judgment to advance the $20 million in funds which were subject to being tied up by Mr. Marcus. Plaintiffs have taken the position however that Delta’s refusal to provide the $20 million in interim funding constituted a repudiation by Delta of its obligation to invest in Pan Am, basing their position on Pan Am’s not having sufficient funds otherwise to operate until December 13, 1991, and that accordingly Pan Am was excused from proceeding with the confirmation hearing and order.

Plaintiffs’ argument assumes that the Business Plan was viable. Mr. Andresen and Mr. Ray had admitted on Saturday, November 30, that the Business Plan was not viable and that additional funding of about $75 million was required. Under the circumstances facing Delta this funding would have had to come from Delta. Secondly, even assuming that the Business Plan was viable, Plaintiffs’ argument also presumes that other funding could not have been obtained from any source; there was no restriction on other funding. In fact, Delta agreed to be primed. TWA, the Pritzkers, Lazard Freres and the PBGC all refused to provide funds.

If, as Plaintiffs claim, the Plan was viable and there was administrative solvency, then it strains credulity that an advance would not have become available on the primed basis which Delta allowed.

Furthermore, Pan Am’s lack of funds is questionable. December 13, 1991 was a Friday. Mr. Weisz stated that on Monday, December 2, 1991 the decision had been made on to postpone the decision to go ahead with confirmation until Saturday, December 7. On December 3, 1991 Pan Am had about $9 million. Def.Ex. NZ. The shutdown expenses Pan Am sought to protect were not just the cost of bringing planes and crews back to the United States and insuring that Pan Am did not run out of funds on December 3, 1991, but also to have funds available for storage costs, for marshalling the assets, protecting the assets (“making certain that you would have something to sell,”) Rule 43 Tr. at 653 (Fabio), and the only reasonable conclusion 'is that Pan Am failed to go ahead with the confirmation not because it would be unable to operate until December 12, 1991, but because it knew it could not prove viability of the Business Plan and its administrative solvency on December 3,1991, and wanted-to use its remaining funds for the purposes Ms. Fabio stated. Rule 43 Tr. at 653 (Fabio).

Thus Delta’s refusal of additional funds did not cause the Business Plan to be aborted.

Delta’s Actions were not those of an Insider

There is no evidence that Delta was in “control” of Mr. Ray or Pan Am at any time or that Delta or its three executives at Pan Am headquarters made any decisions that should have been made by Pan Am’s management or board of directors. Indeed, there is no evidence that Delta had any type of relationship with Pan Am other than the ordinary relationship of an acquiring organization engaged in major corporate transactions with Pan Am.

Shortly after the August 12 Bankruptcy Court hearing, Mr. Allen of Delta suggested to Mr. Plaskett of Pan Am that Delta send three employees to New York to act as coor

*476

dinators between Pan Am and Delta in connection with the proposed transactions. Tr. at 88 (Plaskett); Tr. at 1040-41, 1076 (McHugh). At Pan Am’s suggestion, an office on the 46th floor of the Pan Am building was made available for use by three Delta employees — Harold Achtziger, Vice-President Operations, James Sanregret, Director Financial Planning and Control and Thomas Kerns, Vice President International Marketing. Tr. at 1041-42, 1076 (McHugh); Tr. at 89 (Plaskett).

Those three Delta employees worked on issues relating to Delta’s acquisition of Pan Am’s Shuttle and Atlantic assets, and provided input into Pan Am’s planning for Pan Am II. Tr. at 4045-46 (Pappas); Tr. at 3662 (Roeck). Those Delta employees were invited and did attend meetings of Pan Am’s “transition team,” Tr. at 4045-46 (Pappas). The “transition team” was composed of various members of Pan Am’s management. It was similarly responsible for coordinating the transfer of assets to Delta pursuant to the Asset Purchase Agreement and for planning for the operations of Pan Am II. Tr. at 4041416 (Pappas); Tr.'at 1935 (Ray); Tr. at 937-38 (Punwani); Def.Ex. AEL.

The “transition team” did not have any role in the daily operations of Pan Am, which were directed by Pan Am’s Chief Operating Officer Peter McHugh until October 31,1991, Tr. at 1063-64 (McHugh), and by Pan Am’s new Chief Executive Officer Russell Ray thereafter. Tr. at 1935-39 (Ray). The three Delta executive assigned as liaisons did receive and review the operational, financial and marketing reports of Pan Am received by the transition team on a regular basis and made reports to senior management of Delta on a daily basis. Delta took no role in running the operations of Pan Am. Tr. at 1077-79 (McHugh).

During the Pan Am bankruptcy case, the Creditors Committee was critical of Pan Am’s incumbent management, and in particular the three executives in Pan Am’s “Office of the Chairman”: Thomas Plaskett, the Chief Executive Officer; Peter McHugh, the Chief Operating Officer; and Richard Francis, the Chief Financial Officer. Tr. at 4816-17 (Marcus); Tr. at 1401-02 (H. Miller); Def. Ex. HM; Def.Ex. CS. Initially Delta had expressed its confidence in Pan Am’s management and its desire to keep management in place. Def.Ex. CS. On August 19, 1991, in a meeting with Mr. Allen of Delta in New York, Mr. Plaskett informed Mr. Allen that he was not interested in running Pan Am II. Tr. at 75-76 (Plaskett).

At a meeting during the next week, Creditors Committee counsel Leon Marcus told Mr. Allen of Delta that Pan Am’s senior management should be replaced as soon as possible. Tr. at 4274475 (Allen). Based on the requests of Plaskett and the Creditors Committee, Mr. Allen began searching for a possible replacement for Mr. Plaskett and a possible CEO for Pan Am II shortly thereafter. Tr. at 4275-78 (Allen).

At an industry gathering during the first week in September, Delta’s President Hawkins approached Russell Ray, a vice president of McDonnell Douglass, former senior executive at Eastern Airlines with marketing experience in Latin America and the former President of Frontier Airlines, about his possible interest in becoming Chief Executive Officer of Pan Am II. Mr. Ray said he was interested in such a possibility. Tr. at 4277-82 (Allen); Tr. at 1927-28 (Ray).

Discussions between Mr. Ray, Mr. Ray’s counsel and Delta continued during the next week. Tr. at 1929 (Ray); Tr. at 84 (Plasktt). Mr. Ray informed his employer, McDonnell Douglass, of his interest in the position at Pan Am. Tr. at 1930 (Ray).

On September 17 or September 18, less than a month after Mr. Plaskett had first raised the need for a new Chief Executive Officer with Delta, Mr. Plaskett learned that Mr. Ray was Delta’s nominee for his replacement. Tr. at 85-86 (Plaskett).

Mr. Ray was subsequently approved by the Creditors Committee and by Pan Am’s board of directors as interim Chief Executive

*477

Officer of Pan Am and to be the new Chief Executive Officer of Pan Am II. He began work on October 1, 1991. Tr. at 1932 (Ray).

Thus at the behest of both the Creditors Committee and Pan Am’s incumbent management, Delta in a reasonably quick fashion sought out and proposed a mutually acceptable nominee with airline experience in Latin America to serve as Chief Executive Officer of Pan Am II.

After he began work at Pan Am, and until Pan Am ceased operations, Mr. Ray had some contact with Delta executives in Atlanta. Those contacts generally involved progress reports by Mr. Ray on items that needed to be accomplished for the reorganization. Tr. at 1939 (Ray).

Delta’s actions were normal actions of a corporation about to invest over $300 million in a corporate transaction and did not constitute actions consistent with an insider relationship.

Delta Acted in Good Faith

Delta’s actions and positions in the days leading up to the scheduled confirmation hearing on December 3, 1991 do not show bad faith, but rather Delta made a continuing, substantial effort toward a successful reorganization of Pan Am. During that period, which culminated in a series of meetings on November 30 and December 1, 1991, Delta learned of serious problems with the Business Plan for Pan Am II.

That the problems with the Business Plan were both serious and surprising is confirmed by Creditors Committee counsel Leon Marcus who testified that he was “shocked” on December 1, 1991 when he first learned of the size of the deterioration to the Business Plan in a discussion with Mr. Andresen. Tr. at 4826, 4830, 4833 (Marcus).

In view of the circumstances confronting it, Delta made two decisions: first, it declined to agree to provide additional interim DIP financing to Pan Am that it had no contractual obligation to provide; and second, it decided to wait to evaluate the circumstances in order to determine whether the prerequisites for funding under the Joint Plan, including confirmation, could be met. As Pan Am’s Chief Executive Officer Russell Ray testified: “It was their money. It was their shareholders to whom they had to answer. In that regard, I’d have to say in the context as a businessman I believed they operated in good faith_” Tr. at 2045-46 (Ray).

(1)

Delta Provided Substantial Marketing Support to Pan Am

Shortly after Bankruptcy Court approval of the Asset Purchase Agreement on August 12,1991, and throughout the period until Pan Am ceased operations, Delta provided substantial advertising and sales promotion support to Pan Am. This support featured advertising of Pan Am’s current routes as well as the future route system of Pan Am II. Tr. at 3364-89 (Walz); Def.Exs. SQ, ST, SU, DDI, DDH, DDE, DDF, DDG, DDJ, RB, DDD.

Between August 12 and December 4, 1991, Delta developed and paid for three advertising campaigns featuring Pan Am and its proposed relationship with Delta, at a cost to Delta of over $6.4 million. Tr. at 3364-3389 (Walz); Def.Ex. SQ.

The first campaign, the “Pan Am International Promotion,” was intended to stimulate traffic on Pan Am’s Atlantic routes during September and October thereby providing increased revenue to the estate prior to Delta’s takeover. Def.Ex. ST; Def.Ex. DDH; Def.Ex. DDI (ad copy). The promotion offered a free Delta companion ticket to passengers travelling on Pan Am’s flights to Europe. Def.Ex. DDH. The “Pan Am International Promotion” appeared in 16 different newspapers and on 33 different radio stations in and around New York City, Boston, the District of Columbia and Philadelphia between August 27, 1991 and October 1, 1991. Tr. at 3376 (Walz); Def.Ex. SQ. Delta spent approximately $1.8 million on media costs alone (not including production costs)

*478

for the “Pan Am International Promotion.” Tr. at 3377-78 (Walz); Def.Ex. SQ.

The second campaign, entitled “Delta’s World,” featured the Pan Am and Delta logos as well as route maps that included the routes flown by Delta and to be flown by Pan Am II. Def.Ex. DDE; Def.Ex. DDF; Def. Ex. DDG. The “Delta’s World” campaign ran in over 50 newspapers and magazines, including

The Wall Street Journal, USA Today,

Newsweek, The Economist, The New Yorker, Time and various trade publications, from October 16 through early December 1991. Tr. at 3380, 3382 (Walz); Def.Ex. SQ. The “Delta’s World” campaign cost Delta approximately $4.6 million in media costs alone (not including production costs). Tr. at 3383 (Walz); Def.Ex. SQ.

The third campaign was aimed at members of Pan Am’s frequent flyer program, World-Pass, which was to merge with Delta’s frequent flyer program on November 1, 1991. On October 28, 1991, Delta ran an advertisement informing WorldPass members that their accumulated mileage would be honored on Delta. The advertisements ran in the

Wall Street Journal

and

U.S.A. Today

at a cost to Delta of approximately $140,000. Tr. at 3387, 3389 (Walz); Def.Ex. SQ.

Delta merged Pan Am’s WorldPass into the Delta Frequent Flyer program. Tr. at 129 (Plaskett). As Mr. Plaskett testified, the merger of frequent flyer programs helped generate ticket purchases that Pan Am otherwise would not have received. Tr. at 131 (Plaskett).

The evidence shows that Delta arranged for marketing and advertising support for Pan Am promptly after August 12, 1991 and continued to provide such support until Pan Am ceased operations. The Plaintiffs have offered no evidence showing that the advertising and marketing support provided by Delta was inadequate or unreasonable.

(2)

Delta Worked in Good Faith to Implement Code Sharing with Pan Am

In its August 11 proposal, Delta proposed a single-designated code sharing relationship with Pan Am II similar to the type of code sharing that Delta had with its “Delta Connection” carriers. Joint Ex. 11 at D297322;

see

Def.Ex. DHF; Tr. at 3452 (Sohl) (single-designated code sharing described). Delta’s code sharing proposal allowed Pan Am to adopt and display the “DL” code on its flights.

Id.

at D297305.

Pan Am was opposed to the single-designated code sharing relationship that Delta had proposed, instead preferring a dual-designated code sharing relationship similar to the relationship that Pan Am had with United Airlines. Tr. at 3406-7, 3412, 3424 (Sohl);

see

Def.Ex. DHF; Tr. at 4038 (Pappas Dep.); Tr. at 3412, 3424 (Sohl).

At a meeting between Pan Am and Delta employees on August 19, 1991, Delta’s System Manager of Marketing Technologies, Mark Sohl, explained that Delta had the technical capability to implement single-designated code sharing almost immediately but that Delta’s computer system would not be able to accommodate dual-designated code sharing without changes which would take considerably longer to make. Tr. at 3404-07 (Sohl). Mr. Sohl stated that until Delta’s computer system was reprogrammed the dual-designated code sharing would be a “nightmare” from Delta’s perspective because, unlike single-designated code sharing, it would require a large amount of manual handling of passenger records. Tr. at 3406 (Sohl).

During a telephone conversation on September 17,1991, Pan Am’s Vice President for Airline Planning, John Lewis, agreed with Mr. Sohl that the manual handling that would be required in a dual-designated code sharing relationship on the scale proposed for Pan Am II could be prohibitive. Tr. at 3419 (Sohl).

Delta and Pan Am discussed code sharing at a meeting on October 9,1991 between Mr. Sohl of Delta and Messrs. Plaskett, Ray and Lewis of Pan Am, among others. Tr. at

*479

3425-26 (Sohl). Mr. Lewis again agreed that manual handling would be a problem in a dual-designated code sharing arrangement, but the representatives could not agree on a code sharing method at the meeting. Tr. at 3426 (Sohl).

On or about October 17,1991, Mr. Leonard of Pan Am agreed to a three-phased approach to code sharing that had been proposed by Mr. Sohl. Tr. at 3428 (Sohl);

see

Def.Ex. TF. Under that approach, Pan Am and Delta would phase-in from single-designated code sharing to dual-designated code sharing as programming changes were made over time. Def.Ex. TF.

The parties initially contemplated that the first phase of the code sharing plan would begin on December 15, 1991. In early November, however, the parties agreed to postpone the commencement of code sharing until February 1, 1992 in order to avoid a conflict with flight operations and to have the least negative impact on operations. Tr. at 3428-29 (Sohl).

Delta continued to work on the implementation of the first phase of the code sharing plan until December 6, 1991. Tr. at 3435 (Sohl).

The record demonstrates that any delay in implementing code sharing with Pan Am II is attributable to Pan Am’s insistence on dual-designated code sharing which Pan Am had learned Delta could not implement quickly.

(3)Delta Hired Extra Pan Am Employees and Deferred Hiring Key Employees at Pan Am’s Request

On August 11, 1992 Delta agreed to increase the number of Pan Am employees it had committed to hire in connection with the Asset Purchase Agreement by over 1,000 Pan Am employees to 6600. This helped to reduce Pan Am’s and the estate’s employee-related expenses and helped Pan Am efforts to reduce the personnel for Pan Am II. PL Ex. 917; Pl.Ex. 4009.

At Russell Ray’s request, Delta agreed to defer the employment date of certain key Pan Am employees whom Delta had agreed to hire in order to permit those employees to continue them functions at Pan Am during the transition to Pan Am II. Tr. at 2025-26 (Ray); Def.Ex. DS at D306903-04. In a letter to Delta on November 8,1991, Mr. Ray wrote that he believed the “lending of employee” assistance which has been transpiring between our two companies has been going extremely well. Despite some adverse media reports harmful to both of us, at least our employees seem to be working very well together.

Def.Ex. PX at D305899.

(4)Delta Assisted in Pan Am’s Lease Negotiations with Airbus

In November 1991, Mr. Ray asked Mr. Allen if Delta would intervene in negotiations between Airbus Industrie (“Airbus”) and Pan Am to reduce the aircraft lease rates to amounts which were feasible for Pan Am II to assume, and Mr. Allen agreed. Tr. at 4285-87 (Allen); Def.Ex. XE; Def.Ex. DS.

At Mr. Ray’s request, Mr. Allen visited Airbus headquarters in Toulouse, France and met with Jean Pierson, that firm’s Chief Executive Officer. Def.Ex. XE. Mr. Allen asked Mr. Pierson to reduce the lease rates and relax other conditions that Airbus was insisting be agreed to by Pan Am. Tr. at 4285-86 (Allen). Mr. Allen described Delta’s interest in the success of Pan Am II, and told Mr. Pierson that anything Airbus could do to help that success would be appreciated by Delta, a large new customer of Airbus as the result of the acquisition of a number of Airbus aircraft from Pan Am in connection with the Asset Purchase Agreement. Tr. at 4287-88 (Allen).

Although Pan Am ultimately agreed to lease rates with Airbus that were higher than anticipated in the Business Plan, Tr. at 1673-74 (Andresen), Mr. Ray acknowledged that Delta’s intervention with Airbus was helpful to Pan Am in reaching agreement for some reductions from Airbus. Tr. at 2022-24 (Ray).

Delta State of Mind: Reasonable not to Fund

Pan Am’s last evaluation of the Business Plan was the “Financial Review” prepared by Mr. Andresen prior to the Novem

*480

ber 30, 1991 meeting with Delta representatives.

By November 25, 1991 Mr. Andresen had determined that Pan Am II would be unable to repay the Senior Notes in 1994-96, demonstrating that Pan Am II was not viable even under Pan Am’s own definition of viability. Tr. at 1449-50 (Punwani) (defining viability as the ability to fund operations and pay off debts); Tr. at 798 (Andresen); Pl.Ex. 805 at D320492.

In the November 30 “Financial Review,” Mr. Andresen assumed that Pan Am II would suffer net revenue shortfalls of over $27 million through June 1992. Pl.Ex. 809 at DT474. Those revenue projections were very optimistic and were much more favorable to Pan Am than Mr. Lewis’s “straight line” outlook of November 18, 1991, in which Mr. Lewis had forecast revenue shortfalls of over $26 million for the first quarter, Pl.Ex. 803 at DT457, in addition to the $9 million revenue shortfall that Mr. Lewis had forecast for December 1991, Pl.Ex. 802 at DT459.

When asked whether reasonable airline people could have disagreed on November 30, 1991 as to whether Pan Am II was a viable entity, Mr. Andresen testified that “It’s in the realm of what people ... could disagree about” and that reasonable people could differ with the assumptions that he used in assembling his “Financial Review.” Tr. at 1784-85 (Andresen).

(1)Belief that Rolf Andresen Could Not Testify in Support of the Joint Plan

At the meeting on December 1, 1991, Mr. Roeck and Mr. Allen also understood that Mr. Andresen had acknowledged that there had been substantial adverse developments to the Business Plan and told Delta that he would not be able to testify in support of the Joint Plan. Tr. at 4303 (Allen); Tr. at 3699-3700 (Roeck).

On the evening of December 1, 1991, following the meeting with Messrs. Ray and Andresen, Mr. Allen reported to Delta’s counsel Lawrence Handelsman, Robert Har-key and others that Mr. Andresen had stated that he would not be able to testify that the Joint Plan was viable and that Mr. Andresen said he had already told that to George Weisz. Tr. at 3998 (Handelsman). Delta representatives reported Mr. Andresen’s statement to representatives of the PBGC the following day. Tr. at 4691-92 (Menke).

Delta’s counsel also reported Mr. Andre-sen’s statement to the Bankruptcy Court during the hearing on December 3, 1991. Def.Ex. BZ at 38. When pressed by the Bankruptcy Court, Pan Am’s counsel Mr. Weisz did not deny that Mr. Andresen had said the Business Plan was not viable.

Id.

at 39-40 .

(2)

Belief that Russell Ray Could not Testify in Support of the Joint Plan

At a meeting on Sunday evening December 1, 1991, Messrs. Allen and Roeck understood that Mr. Ray would not be able to testify that the Business Plan for Pan Am II was viable. Tr. at 3699 (Roeck); Tr. at 4303 (Allen). Mr. Ray admittedly had concerns during the weekend of November 30 and December 1, 1991 that Pan Am II would come into existence but would only last a few months. Tr. at 2110 (Ray).

Mr. Ray testified at trial that he told Delta he could- not testify in support of the Joint Plan unless Pan Am “had a source of cash from Delta or someone else.” Tr. at 1990-91 (Ray).

During his deposition, which Mr. Ray confirmed as accurate at trial, Mr. Ray testified that he “could not testify in court that it was a viable plan because I knew the liquidity problem. If you take liquidity out or cash reserve required to operate out with the support of a bank or a series of bankers, I’d say yes. Everything else, I would testify, was viable. That one element is in the way.” Tr. at 2107 (Ray).

(3)

Belief that Pan Am’s Revenue Projections were Overly Optimistic

Delta’s Vice President Coggin had determined that Pan Am projections were overly

*481

optimistic (see page 458,

supra).

Daniel Kasper, Delta’s expert witness, confirmed that Pan Am’s projections as of November 30, 1991 for Pan Am II’s liquidity as of November 30,1991 were unrealistic given the deterioration in Pan Am’s business condition in late 1991. Tr. 4387-88 (Kasper).

Mr. Kasper testified that Pan Am II’s projected revenues as set forth by Pan Am as of November 30, 1991 were too high. Tr. 4388 (Kasper). Mr. Kasper created his estimate of Pan Am II’s revenues for the period December 1991 through June 1992 based on information available to the parties as of November 30, 1991. Based on his revenue estimate, Mr. Kasper concluded that as of November 30, 1991, Pan Am was overstating Pan Am II’s projected revenues for that seven-month period by $60.5 million. Tr. 4389-90 (Kasper); Def.Ex. DGI at Chart K-16.

Mr. Kasper testified that in his opinion, his estimate of Pan Am II’s revenues for the period December 1991 to June 1992 was more realistic than the revenue projections for that period contained in the Business Plan in the Disclosure Statement or in the “Financial Review” of November 30, 1991. Tr. 4413-14 (Kasper); Def.Ex. DGI at Chart K-18.

Applying Mr. Kasper’s revenue estimate to Pan Am II’s projected liquidity as set forth in the November 30 “Financial Review,” Pan Am II would have exhausted its liquidity by June 1992. Tr. 4415-17 (Kasper); Def.Ex. DGI at Charts K-19, K-20.

Under the same analysis, if the benefits of Pan Am IPs use of the Pan Am estate receivables were removed from Mr. Andresen’s “cash improvements,” Pan Am II would have virtually exhausted its liquidity in December 1991 and would have completely exhausted its liquidity in January 1992. Tr. 4421-25 (Kasper); Def.Ex. DGI at Charts K-22, K-23.

Mr. Kasper concluded that the business prospects of Pan Am II viewed as of the end of November 1991 were dismal. Mr. Kasper based his conclusion on the rapid deterioration in Pan Am s revenues and advance bookings, Pan Am’s inability to forecast its own revenues, the acknowledged increases in expenses, and the fact that it was very likely that Pan Am II would exhaust its liquidity during the first half of 1992. Tr. 4435-36, 4442-43 (Kasper). This analysis by Mr. Kas-per is more credible than the Business Analysis offered by Plaintiffs’ expert witness, Jon Ash, and is adopted by the Court.

(4)

The Creditors’ Solvency Analysis was not Credible

On December 3, 1991, Pan Am did not have sufficient assets to satisfy administrative claims in whole or as compromised. As a result of such administrative insolvency, the Joint Plan could not be confirmed.

Pan Am and the Creditors Committee relied on Michael Gagnon, an accountant retained by the Creditors Committee, to testify about administrative solvency. Tr. 464 (Gag-non). Mr. Gagnon’s testimony was to be based on an analysis prepared at his direction, the last version of which was prepared sometime on December 3, 1991.

See

Pl.Ex. 937; Tr. at 458-59 (Gagnon). All but two of the figures set forth in Mr. Gagnon’s final solvency analysis were “estimates.” Tr. at 560 (Gagnon).

Various estimates by Mr. Gagnon had been predicting that Pan Am would be administratively insolvent.

Tr. at 3191-92 (Sanregret) (estimate of $10-11 million insolvency as of October 19-20); Tr. at 3254W56 (Sanregret) (estimate of $13 million insolvency as of November 26); Def.Ex. NF (same).

Mr. Gagnon’s final analysis, Pl.Ex. 937, as of the afternoon of December 3,1991 showed an insolvency of $1 million based on improvements in a number of categories. Despite Pan Am’s poor November operational results, during the morning of December 3, Mr. Gagnon improved his November 26, 1991 estimate for accounts receivable from $140 million to $145 million.

Compare

Def.Ex. OU

with

Pl.Ex. 937. Mr. Gagnon could not explain the reason for the improvement in his estimate, and testified that he did not receive any new information between the prepara

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tion of those two analyses. Tr. at 522 (Gag-non). On November 25, Mr. Gagnon’s estimate for accounts receivable had been $135 million. Def.Ex. NF. In view of the November reductions in revenues his increased estimate for receivables is not credible.

During the morning of December 3, Mr. Gagnon also reduced his estimate for liabilities for “other accounts payable” by $17 million, from $205 million to $188 million.

Compare

Def.Ex. OU

with

Pl.Ex. 937. Mr. Gag-non could not explain the reason for that change, and testified that he did not receive any new information during that period. Tr. at 555-59 (Gagnon). On November 25, Mr. Gagnon’s estimate for “other accounts payable” had been $215 million. Def.Ex. NF. Mr. Gagnon could not explain why his estimate for Creditor Trust and transition costs to be borne by the Estate decreased from $50 million on November 25 to $45 million on December 3. Tr. at 555-56 (Gagnon);

compare

Def.Ex. NF

with

Pl.Ex. 937. These unexplained changes in Mr. Gagnon’s analysis on December 3 total $22 million.

Significantly also Mr. Gagnon’s liquidity analysis used more favorable estimates than Pan Am. On November 23 Pan Am’s estimates for lease return claims were over $3 million higher than the $40 million estimate included by Mr. Gagnon in Exhibit 937 (after deducting $6.4 million in such expenses that he later eliminated as more properly expenses of Pan Am II).

See

Pl.Ex. 3017. Pan Am’s estimates for Creditor Trust and transition costs to be borne by the estate were over $55 million, over $10 million higher than Mr. Gagnon’s estimate in Exhibit 937. PI. Ex. 3017.

As of December 3, 1991, over 2,000 employees would have had to be severed by Pan Am II after the confirmation hearing to comply with the Disclosure Statement. Pl.Ex. 3016; Tr. at 1451-53 (Punwani); Joint Ex. 12 at D378240. These severance claims were to be borne by the Creditors. Mr. Gagnon’s estimate for severance claims was $22 million. Pl.Ex. 937. Pan Am had filed a motion pursuant to section 1113 of the Bankruptcy Code to limit pre-confirmation severance claims asserted by Pan Am’s unions to $22 million. Pl.Ex. 958 at 21. The motion however did not seek to limit the post confirmation severance claims of the 1,800 unionized employees who were to be furloughed after confirmation.

See

Pl.Ex. 3016. Those severance costs which under the Disclosure Statement were to be obligations of the estate, were not taken into account in Mr. Gagnon’s analysis.

Mr. Gagnon used assumptions in his analysis that under the Financial Disclosure statement required Delta’s approval. On November 27, 1991, James Sanregret of Delta sent Mr. Gagnon a memorandum outlining Delta’s disagreements with certain assumptions in Mr. Gagnon’s November 25, 1991 summary analysis. Def.Ex. QA; Tr. at 3250 (Sanre-gret). In view of the deterioration in Pan Am IPs projected liquidity and its need for working capital, there was no reason to assume Delta would approve of those assets being used by the Estate.

Mr. Gagnon also assumed that administrative creditors would be entitled to $42 million in Pan Am’s deposits and $15 million in prepayments. Pl.Ex. 937. The administrative creditors were not entitled to the use of those assets unless Pan Am, Delta and the Creditors Committee agreed.

See

Joint Ex. 12, section VIII(B)(4)(h) at D378204. Delta took the position that those assets should be retained for the benefit of Pan Am II as provided in the Disclosure Statement, which delineated deposits and prepayments as assets to be held by Pan Am II and not available to satisfy administrative claims. Def. Ex. QA at PW205493-94; Tr. at 3234-41 (Sanregret).

Mr. Gagnon’s analysis did not make any provision for the $5 million in deposits for Pan Am II. Tr. at 542 (Gagnon). The opening balance on the balance sheets set forth in the Disclosure Statement stated that Pan Am II would have $5 million in deposits. Joint Ex. 12 at D378248. Those funds were essential to Pan Am II’s viability. During the last week of November 1991, Mr. Andresen told Mr. Sanregret that Pan Am II would need at

*483

least $10-15 million in deposits. Tr. at 3278-79 (Sanregret); Def.Ex. QA at PW205493-94.

During the last week in November, Mr. Gagnon estimated the amount of such “other accounts payable” to be $215 million. Def. Ex. NF. On the morning of December 3, 1991, Mr. Gagnon reduced the estimate of “other accounts payable” to $205 million, and again to $188 million. Def.Ex. OU; Pl.Ex. 937.

In sum, the record establishes that on December 3, 1991, the Creditors Committee proposed solvency analysis for the December 3, 1991 was hearing was not credible. Based on the evidence presented, the only conclusion is that the Pan Am estate was far from administratively solvent and that Mr. Gag-non’s analysis was designed to obtain approval of his solvency analysis by stripping Pan Am II of its assets. By itself, administrative insolvency would have prevented confirmation of the Joint Plan.

See

11 U.S.C. § 1129 (a)(9)(A). Alternatively, if that solvency analysis were approved, the court could not have approved the Business Plan or any business plan as viable.

III.

PAN AM DID NOT SATISFY THE CONDITIONS PRECEDENT TO DELTA’S FUNDING OBLIGATION

Beginning in August Delta made clear to Pan Am and the Creditors Committee that the conditions precedent to any Delta funding obligation were important elements of the proposed transaction, and repeatedly reminded Pan Am that the conditions precedent had to be fully satisfied before Delta would provide funding to Pan Am II. Def.Ex. DS; Def.Ex. LZ.

By its terms, the Joint Plan could not become effective unless certain conditions had been satisfied or waived.

See

Joint Ex. 12 at D378318-20. Satisfaction or waiver of each of the conditions to effectiveness of the Joint Plan was a condition to any Delta obligation to provide funds to Pan Am II. Joint Ex. 12 at D378319. In addition, the proposed Working Capital Facility Agreement, Senior Note Purchase Agreement and Stock Subscription Agreement were to include the following conditions that had to be satisfied or waived before any Delta funding obligation under those proposed agreements could arise.

See

Joint Ex. 9 at DP016942-950.

Confirmation of a Plan of Reorganization Satisfactory to Delta

Confirmation of a plan of reorganization satisfactory to Delta by December 5, 1991 was a condition precedent to any Delta funding obligation. Joint Ex. 12 at D378319.

Pan Am did not attempt to confirm the Joint Plan on December 3, 1991 or thereafter. The testimony as to why Pan Am did not proceed with a confirmation hearing on December 3, 1991 is self-contradictory.

At the Bankruptcy Court hearing on December 3,1991, Creditors Committee counsel Leon Marcus told the Bankruptcy Court that “[tjaking out the Delta fees and the Delta repayment schedule and the code sharing numbers, Mike [Gagnon] from Price Water-house and his crew have done a terrific job of preparing a business plan that we think we can get testimony on.” Def.Ex. BZ at 52. Obviously this “business plan” was not the Business Plan in the Disclosure Statement

*484

which provided for such fees, repayment schedule and code-sharing. Joint Ex. 12 at D378201-31.

Prior to the chambers conference, Creditors Committee counsel Leon Marcus testified that he wanted to go forward and confirm a plan. Tr. at 4875 (Marcus). It is evident that he had in mind some plan which was not the Business Plan set forth in the Disclosure Statement. Thus there is no evidence that any party was prepared to seek confirmation of the Business Plan.

Pan Am was not in a position to obtain confirmation of the Joint Plan on December 3, 1991. No Pan Am plan of reorganization was confirmed on or before December 5, 1991. Undisputed Facts ¶ 19. As of December 3,1991, the Joint Plan was not satisfactory to Delta, and Pan Am and the Creditors Committee did not apprise Delta of any developments which would increase the viability of the plan. Tr. at 4304 (Allen).

New Collective Bargaining Agreements “In Full Force and Effect”

It was a condition precedent to any Delta funding obligation that Pan Am reach new collective bargaining agreements with each of its five unions and such agreements were required to be “in full force and effect.” The new labor agreements, including the duration thereof, were required to be “in form and substance satisfactory to” Delta. Joint Ex. 12 at D378318.

Delta told Pan Am that it wanted new collective bargaining agreements to be “in full force and effect” in order to insure against a strike or union challenge during the five years of the Business Plan that could jeopardize Delta’s investment. Tr. at 1314 (Kimmins); Def.Ex. LZ. Delta advised Pan Am that in order to be “in full force and effect,” the new collective bargaining agreements had to be ratified in accordance with the constitution and/or by-laws of each of the respective unions. Def.Ex. LZ. Pan Am and the Creditors Committee acknowledged this requirement in the Disclosure Statement which states at page 70 that “[t]he Plan assumes that existing labor contracts with Pan Am’s five labor unions will have been renegotiated and ratified prior to confirmation of the Plan of Reorganization.” Joint Ex. 12 at D378235.

Pan Am’s Chief Executive Officer Russell Ray and chief labor negotiator William P. Kimmins knew that ratification of the new collective bargaining agreements was required. Def.Ex. CD; Pl.Ex. 958 at 6. During 1991 there were five principal unions which represented Pan Am’s employees — the Independent Union of Flight Attendants (the “IUFA”), the Flight Engineers International Association (the “FELA”), the Transport Workers Union (the “TWU”), the Air Line Pilots Association (the “ALPA”), and the International Brotherhood of Teamsters (the “IBT”). Tr. at 1270 (Kimmins). At the outset of negotiations between Pan Am and its unions, Mr. Kimmins told the leaders of the five unions that any new collective bargaining agreement had to be ratified by December 3, 1991. Tr. 1301, 1324-25 (Kimmins).

(1)

Independent Union of Flight Attendants

In 1991, Mr. Brian Moreau was President of the IUFA. Tr. at 2413 (Moreau). During or before October 1991, Mr. Moreau told Mr. Kimmins that the IUFA had a lengthy ratification process. Tr. at 2413-14 (Moreau). During negotiations between Pan Am and the IUFA, Mr. Kimmins frequently told the IUFA leaders that they should attempt to reach an agreement with Pan Am as soon as possible in order to have a new, effective collective bargaining agreement in place by December 3, 1991. Tr. at 1312, 1317-18 (Kimmins). In response to questions by Mr. Kimmins about how IUFA leaders intended to have a new, effective agreement in place by December 3, 1991, Mr. Moreau told Mr. Kimmins not to worry how the IUFA would achieve this. Tr. at 1318, 1323 (Kimmins).

In 1991, the IUFA followed a procedure required by the IUFA Constitution and Bylaws for approval of new collective bargaining agreements which included approval by the Negotiating Committee and by the Executive Board, and a ratification vote by the IUFA membership. Tr. at 2432-33 (Mor-eau). Exhibit 3162 is a copy of the constitution and bylaws of the IUFA that was in effect in December 1991 (the “IUFA Constitution”). Tr. at 2433 (Moreau); Pl.Ex. 3162.

*485

Article X, Section 7 of the IUFA Constitution states at page 22 that “[a]ll proposed Collective Bargaining Agreements shall be subject to membership ratification.” Pl.Ex. 3162. Article X, Section 8 of the IUFA Constitution states at pages 22-23 that:

The complete text [of a proposed Collective Bai’gaining Agreement] shall be available at each Base, and a synopsis of the text shall be sent to the membership prior to ratification vote by the membership.

Ratification shall be conducted as follows:

a. Prior to a strike — by secret mail ballot referendum;

b. During a strike — by a secret ballot at all Base membership meetings.

Pl.Ex. 3162.

Article X, Section 10 of the IUFA Constitution states at page 23. that “[a] Proposed Agreement shall not be considered ratified unless a majority of the voting members in good standing votes in the affirmative.” PI. Ex. 3162.

Pan Am reached a tentative agreement with the Independent Union of Flight Attendants at approximately 12:00 noon on December 3, 1991 (the “IUFA Tentative Agreement”). Tr. at 2420 (Moreau); Tr. at 1289-90 (Kimmins); Def.Ex. VE at 16980. No signed copy of the IUFA Tentative Agreement exists. Tr. at 2420-21 (Moreau). The IUFA Executive Board voted to recommend to the IUFA membership that it ratify the IUFA Tentative Agreement. Tr. at 2434, 2448-49 (Moreau). No synopsis of the IUFA Tentative Agreement was ever prepared or made available to IUFA members. Tr. at 2452-53 (Moreau). The IUFA never informed its members that it was going to attempt a three-day membership ratification process commencing on December 3, 1991. Tr. at 2457 (Moreau).

There was no membership ratification vote with regard to the IUFA Tentative Agreement. Tr. 2440 (Mor-eau).

The IUFA never agreed to permit the imposition of the IUFA Tentative Agreement under Section 1113 of the Bankruptcy Code. Tr. at 2469 (Moreau). Delta was never shown, and never gave its approval of, the terms of the IUFA Tentative Agreement. Tr. at 1347, 1351-52 (Kimmins); Tr. at 3009 (Harkey).

In 1991, the IUFA had filed administrative claims for severance of approximately $40 million against Pan Am. Tr. at 2443 (Mor-eau). The Tentative Agreement which would have settled the IUFA’s severance claims against Pan Am never was put into a final writing and was not signed. Tr. at 2444-45 (Moreau).

A new collective bargaining agreement between Pan Am and IUFA was not “in full force and effect” in accordance with the IUFA constitution and by-laws on December 3, 1991, nor did any party seek to have the court invoke section 1113 of the Bankruptcy Code. Pan Am and the Creditors Committee therefore failed to satisfy this condition to any Delta funding obligation.

(2)

Flight Engineers Int’l Ass’n

Exhibit 3034 is a copy of the constitution and bylaws of the Pan Am chapter of the Flight Engineers International Association

*486

that was in effect in December 1991 (the “FEIA Constitution”). Pl.Ex. 3125 at 19 (Grainger Dep.); Pl.Ex. 3034.

Article IX, Section 1(A) of the FEIA Constitution states at page 23 that:

“The Employment Agreement between the Company and PAA Chapter, or other agreements that significantly and primarily affect hours of labor, wages or working conditions, shall not become operative or binding without the approval of two-thirds

(%)

majority weighted vote of the Board of Directors and subsequent approval of the majority of the respective general membership (Flight Engineers or Flight Engineer Instructors) that respond by Secret Ballot.”

Pl.Ex. 3034.

During 1991, Mr. Maurice Grainger was Secretary-Treasurer of the Pan Am chapter of the FEIA. During November and December 1991, Mr. Grainger was President of the Pan Am chapter of the FEIA. Pl.Ex. 3125 at 7-9 (Grainger Dep.). On October 31, 1991, Mr. Grainger sent a memorandum to all Pan Am flight engineers and instructors which stated that “[njegotiations, acceptance and ratification by December 3rd has [sic] been requested, so it will be a very busy November what with flying, holidays and Association work, and negotiations.” Pl.Ex. 3035. During early November 1991, Mr. Grainger told Mr. Kimmins that there was a “time problem” with the FEIA’s membership ratification procedures. Pl.Ex. 3125 at 38-39 (Grainger Dep.). During negotiations between Pan Am and the FEIA, FEIA leaders proposed to Mr. Kimmins that any new collective bargaining agreement be approved by the FEIA Board by December 3, 1991, and by a membership ratification vote after December 3. Mr. Kimmins said that this proposal was not acceptable and that Pan Am was not agreeable to FEIA conducting its membership ratification vote after December 3. Tr. at 1330-32 (Kimmins). Pan Am “constantly pushed aside” the FEIA in order to negotiate with the other, larger unions first. Pl.Ex. 3125 at 39, 44 (Grainger Dep.). In late November 1991, just prior to Thanksgiving, Mr. Grainger told Mr. Kimmins that the FEIA was not going to be able to conduct a membership ratification vote by December 3, 1991. Pl.Ex. 3125 at 44-A6 (Grainger Dep.).

Witnesses testified that Pan Am reached a tentative agreement with the FEIA at approximately 10:30 a.m. on the morning of December 2, 1991 (the “FEIA Tentative Agreement”). Tr. at 1289 (Kimmins); Pl.Ex. 3125 at 54-55 (Grainger Dep.); Pl.Ex. 904. The FEIA Tentative Agreement was incorporated into a term sheet with attachments. Tr. at 1289 (Kimmins); Pl.Ex. 904. Attached as Attachment F to the FEIA Tentative Agreement was a letter from Mr. Grainger to Mr. Kimmins that was signed by Mr. Grainger and countersigned under the words “I concur with the above” by Mr. Kimmins. Pl.Ex. 904. Attachment F to the FEIA Tentative Agreement stated that:

This will confirm our agreement that the tentative Collective Bargaining Agreement reached between Pan American World Airways and the Flight Engineers International Association on December 2, 1991 is contingent upon the ALP A, IBT and TWU

ratifying

new collective bargaining agreements with Pan American which conform to and meet the cost saving required by Pan American’s proposals to the respective organizations on October 18, 1991.

sjt ‡ ‡ * *

In the event those organizations [the ALPA, IBT and TWU]

fail to ratify the necessary agreements by December 3, 1991,

this tentative Collective Bargaining Agreement between FEIA and Pan American, whether or not it has been ratified, shall at FEIA’s option be deemed null and void.

Pl.Ex. 904 (emphasis added). Attachment F to the FEIA Tentative Agreement was a part of, and constituted a term of, the FEIA Tentative Agreement. Tr. at 1338 (Kim-mins).

*487

On December 3, 1991, Mr. Grainger hand delivered a letter to Mr. Kimmins. Tr. at 1293, 1295 (Kimmins); Pl.Ex. 3125 at 73 (Grainger Dep.); Pl.Ex. 902. Mr. Grainger’s December 3, 1991 letter to Mr. Kimmins. stated that:

The constraints of time and the unprecedented emergency situation in which the Company finds itself, makes it impossible to submit the agreement for a vote by secret ballot prior to December 3, 1991. However, membership approval of the agreement as negotiated by our negotiating committee under the circumstances is expected.

Upon the representation of management that unless there has been a ratified agreement on wages and working conditions with all the unions on the property, the Company will immediately close its doors, and in the interests of preserving the jobs of all our members, as well as the recall rights of all our furloughees, as Chapter President, I declare to you that the agreement has been duly ratified by this Chapter, subject only to the ratification of agreements with all other unions on the property.

Pl.Ex. 902.

Mr. Grainger was not relying on any provision of the FEIA Constitution when he stated in his December 3, 1991 letter that “the agreement has been duly ratified by this Chapter.” Pl.Ex. 3125 at 84-87 (Grainger Dep.). Delta was never shown, and never gave its approval of, the terms of FEIA Tentative Agreement. Tr. at 1334, 1338, 1347, 1351-52 (Kimmins); Tr. at 3009 (Har-key). The FEIA did not conduct a membership ratification vote with respect to the FEIA Tentative Agreement. Tr. at 1334, 1345 (Kimmins); Pl.Ex. 3125 at 56 (Grainger Dep.). The FEIA did intend to conduct a membership ratification vote with respect to the FEIA Tentative Agreement after December 3, 1991, but on December 3,

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