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

> District Court, S.D. New York · December 23, 1994 · 175 B.R. 438

URL: https://www.frixlaw.com/law-library/cases/1818218

## Case

- **Full name:** PAN AM CORPORATION, Et Al., Plaintiffs, v. DELTA AIR LINES, INC., Defendant and Counterclaim Plaintiff, v. PAN AM CORPORATION, Et Al. and the Official Committee of Unsecured Creditors of Pan Am Corporation and Affiliated Debtors, Counterclaim Defendants
- **Court:** District Court, S.D. New York
- **Decided:** December 23, 1994
- **Citations:** 175 B.R. 438; 1994 U.S. Dist. LEXIS 18985; 1994 WL 731325
- **Precedential status:** Published
- **Opinion:** Opinion by Patterson
- **Judges:** Patterson
- **Cited by:** 50 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/1818218

## How later opinions describe it (automated extraction)

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

## Opinion text

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.
I.
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).
1
A.
Exploration of a Potential Transaction
In
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.
2
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).
B.
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.
D.
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.
3
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).
4
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.
5
Mr. Marcus’s proposal was the subject of negotiations in which Pan Am and the Credi
*449
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.
6
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
*450
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.
7
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.
8
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
*451
Creditors Committee countersigned the orders. Def.Ex. BB and BC; Pl.Ex. 508.
E.
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
*452
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.
F.
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
Def.Ex. JR; Def.Ex. LQ; Def.Ex. MA; Def.Ex. ZY; Pl.Ex. 708. On two occasions in November, Pan Am was unable to provide a certification demonstrating a need for amounts otherwise available under the Second Tranche. Tr. at 1706,1709 (Andresen);
See
Def.Ex. BD; Def.Ex. MA.
On each occasion that Pan Am was unable to certify a need for amounts scheduled under the amended Loan Agreement, Mr. An-dresen requested in writing that Delta agree to permit such funds to be borrowed in the future. Def.Ex. BD; Def.Ex. MA. Delta did not agree to those requests. Tr. at 1708, 1710 (Andresen).
The Loan Agreement, as amended, provided that Delta had no obligation to provide any Second Tranche DIP financing other than in the amounts and on the dates set forth in Schedule 1.2A to that agreement. Joint Ex. 10 at D369806. Any amounts not borrowed on a scheduled date would not be available at a later date unless agreed to by Delta.
Id.
at D369810. Pan Am’s Chief Financial Officer Rolf Andresen understood that the unborrowed DIP funds under the amended Loan Agreement would not be available in the future unless Delta agreed. Tr. at 1703, 1708, 1710 (Andresen). However, on every occasion that Pan Am provided a certification as required under the amended Loan Agreement, Delta advanced the funds requested by Pan Am. Tr. at 1705 (Andre-sen).
On or about November 1, 1991, Pan Am transferred certain of its Atlantic assets to Delta pursuant to the Asset Purchase Agreement. At that time Delta paid Pan Am $303 million in cash, from which approximately $100 million was deducted to repay Delta for amounts that had been advanced in the Senior DIP financing by Delta to Pan Am pursuant to the Credit Agreement as amended and approved by the Bankruptcy Court on August 12 and October 11, 1991. Stip Facts. ¶ 19; Def.Ex. AZ; Def.Ex. AY.
G.
Revenue Projections for Pan Am Deteriorate
During November 1991, Pan Am’s Senior Vice President & Controller Ramesh Pun-wani received reports from the heads of each Pan Am operating department of changes in projected expenses for Pan Am II, Tr. 985 (Punwani), and was updated almost daily by Pan Am’s airline planning department concerning changes in Pan Am’s advance bookings and revenue outlooks, Tr. 985, 1491-92 (Punwani). Based upon those reports, Mr. Punwani regularly prepared updates to the
*453
Business Plan of Pan Am II during November 1991. Tr. at 985-86 (Punwani).
As of November 12, 1991, an update prepared by Mr. Punwani’s staff showed that Pan Am was forecasting no change in the projected revenues or the projected expenses for Pan Am II for 1992 from the revenues and expenses set forth in the Business Plan.
9
Tr. 1501-02 (Punwani); Def.Ex. DEQ.
Shortly thereafter, Pan Am’s outlook for revenues and expenses for Pan Am II when measured against the Business Plan changed significantly for the worse.
In a November 12 memorandum, Pan Am’s Vice President for Airline Planning, John Lewis, predicted to Mr. Andresen that Pah Am’s revenues for November 1991 would be 17.1%, or a total of $19.5 million, less than previously expected, and that Pan Am’s projected revenues for December 1991 would be $9 million below its revenue plan. Pl.Ex. 802;
see
Tr. at 2266-67 (Lewis). The Pan Am revenue plan for November 1991 against which Mr. Lewis was projecting the 17.1% shortfall had been created by Mr. Lewis and his staff in late September, just six weeks before. Tr. at 2240, 2247-48; Pl.Ex. 802 at DT459.
On November 14, 1991 Mr. Andresen learned of a shortfall of Pan Am II 1992 projected revenues and informed Delta’s James Sanregret of a $25-30 million deterioration in Pan Am’s revenue outlook for the first few months of the Business Plan. Mr. Sanregret was “stunned” by Mr. Andresen’s report, and immediately reported the information to Mr. Roeck. Tr. at 3202-05 (Sanre-gret); Tr. at 3675 (Roeck).
10
On November 18, 1991, Mr. Lewis prepared a revised revenue outlook for the first quarter of 1992 for Pan Am II that showed a significant shortfall compared to the forecast prepared in connection with the Business Plan. Pl.Ex. 803. Mr. Lewis’s November 18th outlook included two cases: a “straight line” case based on Pan Am’s advance bookings, and a “better” case which adjusted the revenue outlook for certain intangible factors such as improved consumer confidence and awareness,
see
Pl.Ex. 803.
In his “straight line” case, Mr. Lewis projected that Pan Am II would experience a revenue shortfall of $26.4 million for the first quarter of 1992, compared to the 1992 Revenue and Yield Plan that Mr. Lewis and his staff had created on October 21, 1991, less than a month before. Pl.Ex. 803 at DT457;
see
Pl.Ex. 314. Despite this outlook based which was based on advance bookings, Mr. Lewis’s straight line case did not assume any reduction in yield (i.e., revenue per passenger mile) from the levels assumed in the 1992 Revenue and Yield Plan. Pl.Ex. 803 at DT457.
In his “better” case, Mr. Lewis forecast that Pan Am II would have a revenue shortfall of $17.6 million for the first quarter of 1992 compared to the 1992 Revenue and Yield Plan after taking certain assumptions into account.
11
Pl.Ex. 803 at DT456.
Mr. Ray drafted an undated memo to Mr. Allen of Delta and Leon Marcus, counsel of for the Creditors Committee to report some of these figures, but the memo was never sent. DefiEx. BM. In the draft memorandum, Mr. Ray wrote:
I want to report to you on the traffic and revenue condition of Pan Am.
Based on performance for the first third of November, Pan Am expects to underachieve the Plan by 17% in traffic. This translates to a potential $20 million revenue miss.
Traffic for December appears to be below Plan, or a $9 million loss in revenue.
The outlook for the first quarter based on current bookings [would] indicate that we
*454
will miss the Plan by somewhere between $17 and $26 million.
It should be clear that the public is concerned about Pan Am’s condition and the uncertainty of coming out of bankruptcy.
Def.Ex. BM.
On November 19, 1991, Delta’s Chief Financial Officer Thomas Roeck met with Mr. Lewis and Mr. Andresen of Pan Am to discuss Pan Am’s updated revenue outlook. Tr. at 3675-79 (Roeck). In a letter to Mr. An-dresen on November 21, 1991, Mr. Roeck stated that Delta was “very concerned” with the projected revenue shortfalls for the first quarter of 1992, and asked for Pan Am’s views as to how the revenue shortfall might be remedied. Def.Ex. BO. Mr. Roeck discussed Mr. Lewis’s November 18 revised revenue outlook for Pan Am II with Robert W. Coggin, Delta’s Vice President, Marketing and Planning, and Mr. Coggin asked Mr. Roeck for a copy to evaluate those revised projections. Tr. at 4149-50 (Coggin); Pl.Ex. 4164.
On November 20, Mr. Coggin and Mr. Lewis discussed Mr. Lewis’s November 18 revised revenue outlook for Pan Am II. Mr. Coggin stated that he thought Mr. Lewis’s yield assumptions were too optimistic in light of the significant deterioration in traffic that Mr. Lewis was projecting. Tr. at 4154, 4215 (Coggin); Def.Ex. BL. Mr. Coggin’s opinion was based upon his experience that a decrease in traffic results in excess capacity which, in turn, creates increased price competition that forces ticket yields to decline. Tr. at 4215 (Coggin). Mr. Lewis responded that his optimistic case adjusted his yield outlook to a limited extent to take into account a proposed reduced price sale for travel in Florida and Caribbean markets, but that he did not believe any other yield adjustments were necessary. Def.Ex. BL. In a subsequent conversation on November 25, 1991, Mr. Lewis advised Mr. Coggin of Pan Am’s current outlook for the second quarter for Pan Am II. Tr. at 4158 (Coggin).
Mr. Coggin developed his own projections for Delta of the outlook for Pan Am II in the first half of 1992 based on Pan Am’s recent operating results as well as advance booking and other information that had been supplied by Pan Am. Tr. at 4168-69 (Coggin).
Mr. Lewis continued to revise his revenue forecast for Pan Am II for the first half of 1992, adjusting his view of revenues upward. In a forecast prepared on November 26, Mr. Lewis assumed that revenues for the first quarter of 1992 would be $2.6 million higher than his “better” outlook had been on November 18 (and over $11 million higher than his original “straight line” case).
Compare
Def.Ex. NY
with
Pl.Ex. 803.
Later that same day, Mr. Lewis revised his revenue forecast for the first quarter upward by an additional $2 million.
Compare
Pl.Ex. 807 at DT232245
with
Def.Ex. NY.
12
Mr. Lewis also developed a revenue forecast for Pan Am II for the second quarter of 1992 which was based on a very small number of advance bookings, and used an adjustment for various factors, particularly an assumed improvement in the economy. Pl.Ex. 807 at DT232245. In his second quarter outlook, Mr. Lewis assumed that Pan Am II would receive approximately $3 million per month in incremental revenues from implementation of its proposed code sharing arrangement with Delta. Pl.Ex. 807 at DT232245; Tr. at 2281-82 (Lewis).
13
Mr. Lewis’s final revenue outlook for Pan Am II for the first half of 1992
14
projected a revenue shortfall of over $27.8 million compared to the 1992 Revenue and Yield Plan before any estimated code sharing benefits, and over $16.4 million after adding estimated code sharing benefits. Pl.Ex. 807 at DT232245; Tr. at 2284 (Lewis).
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Mr. Coggin’s revenue outlook for Pan Am II for the first half of 1992 was less optimistic than Mr. Lewis’s. For the first quarter, Mr. Coggin forecast a $30.9 million revenue shortfall from the 1992 Revenue and Yield Plan, $3 million worse than Mr. Lewis’s “straight line” case for that period. Def.Ex. BT. For the second quarter of 1992, Mr. Coggin forecast a revenue shortfall of $22.4 million compared to the 1992 Revenue and Yield Plan.
Id.
Mr. Coggin’s traffic outlook for Pan Am II was slightly higher than Mr. Lewis’s, but Mr. Coggin’s projected yield for Pan Am II was lower, reflecting his estimate that planned fare reductions would be required to stimulate traffic and would result in a lower yield. Tr. at 4202-3, 4212 (Coggin).
The final print-out of the spreadsheet developed by Mr. Coggin on November 29th and 30th contained errors in alternative cases that he had developed for purposes of comparison, and included corrected figures written in on the document by hand. Tr. at 4212 (Coggin); Def.Ex. BT.
H.
Expense Projections for Pan Am Increase
Shortly after learning of the revenue shortfall, Delta also learned of increased expense projections for Pan Am II. Tr. at 3210 (Sanregret). During the last week in November 1991, Pan Am generated three successive updates to the Business Plan detailing unexpected increases in expenses for Pan Am II. Pl.Ex. 805; Pl.Ex. 816; .Pl.Ex. 809; Tr. at 1737-38 (Andresen).
On Sunday November 24 and Monday November 25, Mr. Andresen created a document entitled “Business Plan Sensitivities.” Pl.Ex. 805. That document showed total expense increases to the Business Plan of $30.7 million in 1992, including “transition costs reclassified to Pan Am II” of $23.5 million,
15
but not including certain other increased expenses.
Id.
at D320489. Together with revenue shortfalls, the November 25th update showed a $62.7 million deterioration in the Business Plan for 1992.
Id.;
Tr. at 785-87 (Andresen).
Mr. Andresen reviewed Pan Am’s November 25th update with Mr. Sanregret of Delta “because there was some urgency to review what the condition was.” Tr. at 798-99 (An-dresen); Tr. at 3210-11 (Sanregret). Mr. Andresen explained to Mr. Sanregret that certain transition costs had been shifted from the bankruptcy estate to Pan Am II. These included $13.1 million in information services costs; $6.4 million in additional expenses associated with return conditions of airplanes leased by Pan Am from General Electric Credit Corporation (GECC); and an additional $4 million in expenses associated with a delay in consummating a proposed transaction with DynAir Corporation to take over Pan Am’s maintenance facility at JFK airport. Tr. at 3211-13 (Sanregret). Mr. An-dresen stated that the additional information services costs were more properly an expense of Pan Am II and that Pan Am and the Creditors Committee had decided that the additional GECC lease expenses should be borne by Pan Am II. Tr. at 3211-12 (Sanregret).
Regarding the “Other Updates,” listed in the November 25th update, Mr. Andresen explained that Pan Am had updated its fuel forecasts and was anticipating $4.2 million in expenses above the Business Plan. Tr. at 3214 (Sanregret). Andresen also explained that there were increased costs resulting from an agreement recently reached between Pan Am and Airbus permitting the leases for Airbus aircraft to be extended. Those extra costs were $1.4 million more than had been assumed in the Business Plan for 1992, not including increased lease rates for later years. Tr. at 3215 (Sanregret); Tr. at 790-91. (Andresen). Mr. Andresen also explained that Pan Am II would have to pay $1.6 million in additional interest expenses due to the need to delay repayment of principal under the terms of the proposed Working Capital Facility. Tr. at 3216 (Sanregret).
Mr. Andresen suggested a proposal to pay for some of the expense increases: first, by
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deferring $16.9 million of Pan Am II’s projected capital expenditures of $36 million for 1992; second, by assuming a $19.5 million “material credit” that could result from a proposed arrangement under which Pan Am would in effect sell DynAir its inventory of certain spare parts.
16
Tr. at 795-96 (Andre-sen). Mr. Andresen believed that with these changes he could obtain a total of $35.8 million in improvements to partially offset his anticipated $62.7 million in overall deterioration of the Business Plan (revenue shortfall plus expense increases). Pl.Ex. 805 at D320490; Tr. at 3221 (Sanregret).
In support of his proposal, Mr. Andresen also provided an update on Pan Am II’s expected liquidity during 1992 reflecting his proposed changes which showed that, even with utilization of its full revolving credit line under the proposed Working Capital Facility, Pan Am II would have a cash balance of only $23 million in December 1992 instead of $50.2 million under the Business Plan, as well as ownership of the $19.5 million in parts which Mr. Andresen proposed in effect to sell to DynAir. Pl.Ex. 805 at page D320491; Tr. at 3223 (Sanregret); Tr. at 793-97 (Andresen).
Mr. Andresen also projected in the November 25 Business Plan Sensitivities that Pan Am II would be not be able to repay Delta as provided under the Senior Notes when those payments were due in 1994, 1995 and 1996. Pl.Ex. 805 at D320492; Tr. at 798 (Andresen). The Business Plan Sensitivities showed that Pan Am II would be $12.8 million in arrears in payments under the Senior Notes as of December 31,1994; $38.9 million in arrears as of the end of 1995; and $45.8 million in arrears as of the end of 1996.
17
Id.
Mr. Sanregret told Mr. Andresen that he was very troubled by Mr. Andresen’s forecast that Pan Am II would be unable to repay Delta as provided under the Senior Notes. Mr. Sanregret also expressed concern that Mr. Andresen’s liquidity forecast showed that “Pan Am would have been bankrupt” by the end of 1993. Tr. 3224-25 (San-regret);
See
Pl.Ex. 805 at D320492. After his meeting with Mr. Andresen, Mr. Sanre-gret immediately faxed the Business Plan Sensitivities to Delta’s Chief Financial Officer, Thomas Roeck. Tr. at 3224-25 (Sanre-gret).
Shortly after November 25, Mr. Andresen informed Mr. Sanregret that Pan Am had reached an agreement with Airbus that would require Pan Am II to bear additional unanticipated expenses of approximately $22 million, plus interest for a total of $25 million, in equal payments over the five years of the Business Plan, for the purchase of certain Airbus spare parts that previously had been consigned to Pan Am. Tr. at 3226-27 (San-regret); Tr. at 303-4 (Davis);
see
Pl.Ex. 3006.
On November 26, 1991, Mr. Andresen and Mr. Punwani of Pan Am prepared another reassessment to the Business Plan. Pl.Ex. 816; Tr. 800 (Andresen). The November 26th Business Plan reassessment showed the same figure for increased expenses of $30.7 million through 1992 and did not account for the $5 million in increased annual expenses associated with the Airbus consignment parts or for any increased Airbus aircraft lease rates during the years after 1992. Tr. at 988-89 (Punwani); Tr. at 1508-09,1512 (Pun-wani); Tr. at 3277 (Sanregret); Pl.Ex. 816 at DT452.
I.
Administrative Solvency
The parties also had meetings about the required administrative solvency of the Pan Am estate,
ie.,
the ability of the Pan Am estate to satisfy administrative claims at the confirmation hearing. Tr. at 3228-29, 3246-48 (Sanregret).
At a meeting on the weekend of October 19th, James Sanregret and other Delta rep
*457
resentatives, Michael Gagnon, an accountant at Price Waterhouse who had been retained by the Creditors Committee, and Pan Am representatives discussed Mr. Gagnon’s then-current solvency analysis, which showed an administrative insolvency of $10-11 million. Tr. at 3191-92 (Sanregret).
Thereafter on November 4, 1991 Mr. Gag-non travelled to Atlanta and told Delta’s Chief Financial Officer Thomas Roeck that the terms of the October 22, 1991 Letter Agreement which the Creditors Committee had agreed to should be changed to provide concessions for the Creditors Committee. Tr. 412-36 (Gagnon).
At a meeting on November 26th, Messrs. Sanregret, Gagnon, Andresen, and others discussed a November 25 draft of Mr. Gag-non’s solvency analysis, which showed an administrative insolvency of $13 million. Tr. at 3246^48 (Sanregret);
see
Def.Ex. NF at 110038. Prior to the meeting on November 26th, Mr. Sanregret reviewed the draft solvency analysis of November 25 and sent Mr. Gagnon a memorandum detailing his disagreement with its assumptions. In the memorandum, Mr. Sanregret pointed out that Mr. Gagnon was assuming the benefit of at least $89 million in assets to which the creditoi’s were not entitled. Def.Ex. TX; Def.Ex. QA. The assets of Pan Am to which the Creditors were entitled are set forth in the Disclosure Statement. Joint Exh. 12 at D378204.
Mr. Gagnon’s analysis provided that the projected $7 million cash balance in the operating account in Pan Am’s Subsidiary Airways as well as $8 million in Pan Am’s corporate operating account would be transferred to the Creditor Trust on the effective date. Joint Exh. 12 at D378248; Def.Ex. NF at 110041. Mr. Gagnon’s analysis provided that the estate would receive $42 million in deposits and $15 million in prepayments on Pan Am’s books
18
as well as the proceeds of $25 million from the projected sale of Pan Am’s L.A.-San Salvador and JFK-Mexico City routes. Def.Ex. NF at 110038. In his memorandum, Mr. Sanregret pointed out that the Joint Plan and the Disclosure Statement provided that certáin of those assets were to be made available to Pan Am II as additional working capital unless Delta and Pan Am agreed otherwise. Def.Ex. TX at PW0110066;
see
Joint Ex. 12 at D378204 (provision of Disclosure Statement delineating assets available for the Creditor Trust). Mr. Sanregret also suggested to Mr. Gagnon that his figure for accounts receivable should not include any non-traffic receivables, since Mr. Sanregret understood that non-traffic receivables would remain with Pan Am II and not be available for the Creditor Trust. Tr. at 3239-3240 (Sanregret); Def.Ex. TX at PW0110066.
After the meeting on November 26th, Mr. Sanregret sent Mr. Gagnon a second memorandum detailing Delta’s disagreements with the assumptions in Mr. Gagnon’s solvency analysis. Def.Ex. QA. Mr. Sanregret’s second memorandum noted that the $13 million insolvency in Mr. Gagnon’s November 25 solvency estimate could actually be as high as $131 million.
Id.
at PW205495. The difference between Mr. Gagnon’s figures and Delta’s resulted from Mr. Gagnon’s assumed use of the proceeds of the projected route sales ($25 million), deposits and prepayments (at least $52 million), and certain accounts receivable not provided to be transferred to the creditors in the Joint Plan and Disclosure Statement.
Id.
at PW205493-94. Mr. San-regret also questioned Mr. Gagnon’s estimate for Creditor Trust and transition costs, and pointed out that Mr. Gagnon had not made provision for any operating losses that could be sustained by Pan Am until the effective date of the Joint Plan.
19
Id.
at PW205494-95. Mr. Sanregret noted that: “In view of Pan Am management’s continued downward revisions of reorganized Pan Am’s projected revenues and cash flow in recent days, it would be imprudent and irresponsible to divert the proceeds of [those assets] from reorganized Pan Am.”
Id.
at PW205494. Mr. Sanregret also stated that the solvency analysis did not address “Pan Am’s funding re
*458
quirements for the 10 day period between the date of confirmation of the Plan of Reorganization and the effective date of the Plan of Reorganization.”
Id.
J.
The Final Week
Late in the week of November 25, 1991, Delta arranged to have over $300 million made available under its bank credit facility so that Delta would be prepared to provide funds contemplated to be invested in Pan Am II. Tr. at 4321-22 (Allen).
On November 27,1991, Mr. Andresen, who understood that Delta had no obligation to provide Pan Am with additional funds under the Junior DIP financing agreement, requested that Delta provide $20 million. Tr. at 1712-14 (Andresen); Pl.Ex. 708; Joint Ex. 10 at D369810. November 28, 1991 was Thanksgiving.
At Mr. Roeck’s instruction, on Friday, November 29, Mr. Sanregret told Mr. Andresen that Delta would respond to his request after Delta had an opportunity to meet with Pan Am the following day. Tr. at 3262-64 (San-regret).
(1)
The November 30, 1991 Meeting at Stroock, Stroock & Lavan
On Saturday November 30, 1991, officers of Delta and Pan Am and their legal and financial advisors held a meeting at the midtown offices of Stroock & Stroock & Lavan.
See
Def.Ex. QT (Agenda). Attendees from Delta and its advisors included Ron Allen, Whitley Hawkins, Robert Harkey, Thomas Roeck, Robert Coggin, Harold Achtziger, James Sanregret, Joseph Rinaldi, Lawrence Handelsman and Joel Beckman. Attendees from Pan Am and its advisors included Russell Ray, Rolf Andresen, John Lewis, Roger Cooke, Robert Davis and Robert Finlayson. Tr. at 3980-81 (Handelsman); Def.Ex. XXY.
The meeting had been requested by Mr. Allen at Mr. Roeck’s suggestion in order for Delta to better understand the revenue and expense information Delta had recently received from Pan Am. Tr. at 3681-82 (Roeck).
(a)
Revenues
The meeting started with a discussion of the differing revenue outlooks for Pan Am II during the first six months of 1992. Mr. Lewis reported that Pan Am’s traffic in November had been 20-25% below forecast. Tr. at 3982 (Handelsman); Tr. at 1967 (Ray); Tr. at 4293 (Allen); Def.Ex. XXY. Mr. Roeck of Delta stated that a 20% traffic miss was a cause for alarm. Def.Ex. DHE at 1; Def.Ex. XXY;
see
Tr. at 3798 (Roeck).
Mr. Lewis reported that his latest revenue forecast for Pan Am II for the first half of 1992 was $33 million below the level projected in the 1992 Revenue and Yield Plan prepared in October. Tr. at 3982 (Handelsman); Tr. at 2984-86 (Harkey); Tr. at 4293 (Allen); Def.Ex. XXY.
Mr. Lewis listed several factors that he believed had contributed to the revenue problems: the shutdown of Midway Airlines; the publication of the Marcus letter; uncertainty about whether Pan Am would emerge from bankruptcy; confusion over whether Pan Am even still existed; disruption of management and sales efforts; and the delay in beginning code sharing. Def.Ex. XXY; Def.Ex. DHE at 2; Tr. at 2984-86 (Harkey); Tr. at 3983 (Handelsman); Tr. at 3685 (Roeck); Tr. at 4172-73 (Coggin); Tr. at 3272-73 (Sanregret).
Mr. Coggin, Vice President of Delta, stated Delta’s view that Pan Am II’s revenue shortfalls for the period from December 1991 through June 1992 would total over $60 million, including the $9 million shortfall for December that had been reported by Mr. Lewis earlier in the month. Tr. at 4174-75 (Coggin); Tr. at 4293 (Allen); Tr. at 3983 (Handelsman); Tr. at 3684 (Roeck); Def.Ex. XXY. Mr. Lewis acknowledged that Mr. Coggin could be right about the revenue outlook. Tr. at 2985 (Harkey); Tr. at 3272 (Sanregret).
Mr. Ray stated that general economic conditions and vigorous competition from American Airlines were contributing to the revenue problem. Tr. at 3983-84 (Handelsman); Tr. at 1760-61 (Andresen); Tr. at 4294 (Allen); Def.Ex. XXY. Part of Mr. Ray’s concern was that American Airlines was then hiring Pan Am marketing and reservations employees in South America. Tr. at 1970 (Ray).
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Mr. Ray reported that Pan Am was planning a significant fare reduction in an effort to regain market share. Tr. at 3983-84 (Handelsman); Tr. at 4176 (Coggin); Def.Ex. XXY. Mr. Ray noted that the commencement of operations for Pan Am II would be a “cold start,” and noted that Pan Am’s name was not even in the Yellow Pages in Queens and Miami. Tr. at 3983-84 (Handelsman); DefiEx. DHE at page 2; Def.Ex. XXY. Later in the meeting, Mr. Ray stated that he . did not “have a clue” how to solve the revenue problems in the down market that Pan Am was facing. Tr. at 4296 (Allen); Tr. at 3992 (Handelsman); Def.Ex. XXY (last page).
(b)
Expenses
Pan Am’s Chief Financial Officer Rolf Andresen then discussed increased expenses for Pan Am II from the levels projected in the Business Plan, which increases he said now totalled approximately $64 million. Tr. at 3274-78 (Sanregret); Tr. at 2988 (Harkey); Tr. at 3984 (Handelsman); Tr. at 4295 (Allen); Tr. at 3571 (Rinaldi); Def.Ex. XXY.
At the meeting, Mr. Andresen presented a business plan update dated November 30 and entitled “Financial Review.” Pl.Ex. 809. In this review he pointed out that the adjustments required due to the October 22, 1991 negotiations would result in losses of $11.3 million in December 1991 and $87.6 million during 1992, but that 1993-96 was forecast as producing $18.6 million in profits.
20
Id.
at DT474. Mr. Andresen’s “Financial Review” then made a new forecast as of November 30, 1991 showing an additional loss for December 1991 of $16.8 million, and for 1992 of $41.6 million, for a total loss of $76.2 million over the Business Plan. Pl.Ex. 809 at DT474; Tr. at 1628, 1667 (Andresen).
The increased Airbus lease rates for 1994-96 ($3 million in 1994; $4 million in each of 1995 and 1996) and the $25 million in increased expenses associated with the Airbus consignment parts were not included in Mr. Andresen’s “Financial Review,” but those items were disclosed at the meeting, Tr. at 1673-75 (Andresen); Tr. at 3274-78 (Sanre-gret).
Mr. Andresen also explained at the November 30 meeting that his “Financial Review” assumed that the Creditors Committee would agree to allow Pan Am II to collect pre-closing operating receivables estimated at $38 million, and to defer payment of those receivables to the Pan Am estate until later in 1992. Tr. at 3690 (Roeck); Tr. at 3279-80 (Sanregret); Tr. at 3987 (Handelsman); Def. Ex. DHE at 6. Mr. Andresen testified that Pan Am II would run out of cash during the first quarter of 1992 if the Creditors Committee did not agree to that receivables deferral. Tr. at 1677 (Andresen). At the meeting on November 30, Mr. Andresen stated that he did not have agreement from the Creditors Committee to the $38 million receivables deferral he had assumed in his “Financial Review.” Tr. at 3279-80 (Sanregret); Tr. at 3690 (Roeck). Mr. Gagnon and Mr. Andre-sen never discussed a dollar amount in connection with such an arrangement and Mr. Gagnon’s testimony was that he did not recall ever discussing such an arrangement with the Creditors Committee. Tr. at 4909-20 (Gagnon).
At the November 30 meeting, one interim solution suggested by Mr. Andresen in response to the deterioration in the Business Plan was to defer $14.7 million in capital expenditures. Mr. Ray responded that such spending cuts were not a good idea because Pan Am was already a run-down airline and its facilities already looked like a “M*A*S*H unit.” Tr. at 3985 (Handelsman); Tr. at 2990 (Harkey);
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
*460
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.
21
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).
22
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
*463
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).
23
(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).
24
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).
25
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).
26
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).
27
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).
28
*467
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).
29
(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.
A.
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
*468
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:
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,
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
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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.
30
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 id.
at D378170, D378176. The Disclosure Statement also provides that Delta’s purchase of the Senior Notes and the common stock would occur on the Effective Date of the Joint Plan. Joint Ex. 12 at D378170, D378176 (senior notes), D378205 (stock).
In a section entitled “Overview of the Plan” on page 5, the Disclosure Statement provides in boldface type that:
THIS DISCLOSURE STATEMENT AND THE PLAN ASSUME THAT THE PLAN IS CONFIRMED BY THE BANKRUPTCY COURT ON DECEMBER 3, 1991, THAT THE SECOND PHASE OF THE DELTA TRANSACTION (DESCRIBED IN SECTION IV(B)) WILL BE CONSUMMATED ON OR ABOUT NOVEMBER 1, 1991 (THE “DELTA CLOSING”) AND THAT THE EFFECTIVE DATE WILL OCCUR ON OR BEFORE DECEMBER 15, 1991.
Joint Ex. 12 at D378170.
The testimony of Pan Am’s counsel Robert Davis that this language was included to obviate the need for recirculation of the Dis
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closure Statement in the event that the confirmation hearing was delayed,
see
Tr. at 293 (R. Davis), ignores the language itself, which provides that,
assuming
confirmation occurs on December 3, 1991, the Effective Date would occur on or before December 15, 1991.
In a subsequent section describing the merger of old Pan Am into Pan Am II, the Disclosure Statement provides that:
The Plan contemplates that, on the Effective Date,
which is expected to occur no earlier than approximately 10 days after the date the Bankruptcy Court confirms the Plan,
or such other date as the Debtors, the Creditors Committee and Delta agree, PAC and PAA will merge with and into Pan Am....
Joint Ex. 12 at D378174 (emphasis added).
The same provision in the September 24th Disclosure Statement does not contain the phrase “which is expected to occur no earlier than approximately 10 days after the date the Bankruptcy Court confirms the Plan ...,”
see
Pl.Ex. 3145 at DT0060829. The only inference that can be drawn is that such language was purposefully added by Pan Am’s counsel between September 24, 1991 and October 24, 1991.
The “Business Plan” section of the Disclosure Statement states in several different places that “If the Plan is confirmed on December 3, 1991, however, it is expected that the Effective Date will occur later in December 1991 but on or prior to December 31,1991.” Joint Ex. 12 at D378233, D378246, D378247, D378248.
(3)
Other Evidence that Pan Am Expected an Interval prior to the Effective Date
In addition to the clear language of the Disclosure Statement and Joint Plan, testimony and other documents show that Pan Am’s senior officials and legal advisors were aware throughout the relevant period of the ten day interval between confirmation of a plan and the Effective Date.
In a newswire to all Pan Am employees on November 11, 1991, Pan Am’s Chief Executive Officer Russell Ray wrote that the confirmation hearing was expected to occur on December 3, 1991, and that “IF THE JUDGE SIGNS THE ORDER ON THAT DATE[,] THE PLAN WILL BECOME EFFECTIVE AFTER A TEN DAY PERIOD WHICH IS SET ASIDE FOR THE APPEALS.” Def.Ex. EA. Employee news-wires from Mr. Ray were ordinarily shown to Pan Am’s counsel before being released. Tr. at 2004 (Ray). The November 11 newswire correctly reflected Mr. Ray’s understanding of the Effective Date at the time. Tr. at 2006 (Ray).
Mr. Ray also testified that to his knowledge, no one had waived the appeal period that he understood would occur after confirmation. Tr. at 2013 (Ray).
Pan Am’s Chief Financial Officer Rolf An-dresen similarly understood that the full ten-day appeal period might have to run before an investment by Delta in Pan Am II could occur. Tr. at 1699 (Andresen). Prior to the filing of the Disclosure Statement on October 24th, Mr. Andresen had a conversation with Pan Am’s general counsel, Roger Cooke, about the Effective Date. During that conversation, Mr. Cooke told Mr. Andresen that the Joint Plan contemplated a ten-day appeal period, which the parties could agree to fore-go, but that a waiver of such appeal period was not assured. Tr. at 1696-97 (Andresen).
A memorandum sent by Mr. Cooke to the prospective members of the reorganized Pan Am’s board of directors on November 20, 1991 also establishes Mr. Cooke’s awareness of the ten-day period.
See
Def.Ex. DY. In that memorandum, Mr. Cooke wrote that:
Assuming the Plan is confirmed on the 3rd, it may become effective as early as December 4, 1991 if Delta Air Lines, Inc. (“Delta”), Pan Am and the Creditors’ Committee agree to the waiver of certain conditions precedent. Otherwise it will become effective on December 13, 1991.
Id.
at D313130. Mr. Cooke discussed a draft of that memorandum with Robert S. Harkey, Delta’s general counsel, on November 19, 1991. Tr. at 2978-82 (Harkey).
In commenting on an earlier draft of Mr. Cooke’s memorandum, Mr. Harkey recognized the ten-day period but did not make reference to the waiver of conditions precedent. Instead, Mr. Harkey proposed language which stated that:
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Assuming the Plan is confirmed on the 3rd, it may become effective as early as 12/4 if Delta, Pan Am and the [Creditors Committee] agree. Otherwise it will become effective on December 13.
Def.Ex. RD; Tr. at 2978-82 (Harkey).
At a meeting on November 30, 1991 between Delta and Pan Am officers and professional advisors, Robert Davis, Pan Am’s outside counsel, acknowledged that Delta had never committed to funding before the plan became effective, Tr. at 3575 (Rinaldi); Tr. at 2998-99 (Harkey), and referred to a period of ten days before the anticipated Effective Date.
Similarly, at a hearing before the Bankruptcy Court on December 3, 1991, Mr. Davis’s partner, George Weisz, told the court:
We all had lived these weeks in the hope that Your Honor would sign a plan and it would be effective on December 13th, we knew of nobody who would appeal who would get a stay.
Def.Ex. BZ at 56.
Pan Am’s claim of reliance on an earlier funding date is overwhelmed by the weight of the evidence. Pan Am offered testimony by Michael Gagnon and Andrew Miller of Price Waterhouse and Pan Am’s Assistant Treasurer Joan Fabio that they relied on conversations with Mr. Roeck and Mr. San-regret of Delta on October 18, 1991 and October 20, 1991 in which each stated that funding by Delta would occur on December 3 or December 4, 1991. Rule 43 Tr. at 513-14 (A. Miller). Mr. Roeck does not recall such a conversation. Tr. at 3716-17 (Roeck). Mr. Miller did not check subsequent documentation to see whether it reflected his discussion with Mr. Roeck. Rule 43 Tr. at 523.
31
After the meeting with Mr. Sanregret, Mr. Andre-sen raised the issue with Pan Am’s general counsel Roger Cooke, Tr. at 1780-82 (Andre-sen), who said that there was a period for appeal up to ten days long between confirmation and the Effective Date that the parties might agree to forego before the Effective Date. Tr. at 1696-97 (Andresen). Thus the CFO of Pan Am could not have relied on Mr. Sanregret’s statement that funding would occur on December 4th. Mr. Andresen was also aware that Mr. Sanregret could not bind Delta to significant business points without first consulting with senior Delta officers in Atlanta. Tr. at 1683 (Andresen); Tr. at 505-06 (Gagnon).
Neither Mr. Miller nor Mr. Gagnon, who were both present at the October 20th meeting with Mr. Sanregret, relied upon any statements by Mr. Sanregret to arrive at an understanding that Delta would fund Pan Am II on December 4th.
See
Rule 43 Tr. at 513-15 (A. Miller); Rule 43 Tr. at 532, 699 (Gagnon).
Mr. Gagnon testified that his understanding that Delta would fund the proposed working capital facility on December 4th was based on a conversation he had with Mr. Handelsman in the hallway of the Bankruptcy Court on October 21st or October 22nd. All Mr. Gagnon recalled from the conversation was the impression that Mr. Handels-man had indicated that funding would be available after the date of confirmation, with no specific date or time period mentioned. Mr. Gagnon could not remember anyone else participating in the conversation, Rule 43 Tr. at 532 (Gagnon), and Mr. Handelsman does not recall participating in any such conversation. Tr. at 4112-13 (Handelsman).
Plaintiffs’ testimony concerning those pre-agreement conversations is inconsistent with the plain language of the Joint Plan and the Disclosure Statement, which were signed by
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Pan Am and the Creditors Committee, filed with the Bankruptcy Court, and circulated to all creditors after those statements were allegedly made by Delta representatives. The only conclusion to draw is that although some individuals working on the Plan of Reorganization may have believed, hoped or have now rationalized that the agreement provided that funding would occur on the date of confirmation, neither Pah Am senior management nor the Creditors Committee had such an understanding and did not rely on such oral statements as commitments by Delta.
(4)
Possibility of an Early Closing Date
Although Delta never agreed to a closing on December 4, 1991, Delta understood that a closing as early as December 4, 1991 was a possibility if no objections were filed or if waivers of appeal were obtained.
See
Tr. at 4080-84 (Handelsman); Tr. at 3099-100; 3138-39 (Harkey). Indeed, in commenting to Roger Cooke, Pan Am’s General Counsel, on a draft memorandum on November 19, 1991, Delta’s General Counsel Robert Harkey wrote that “Assuming the Plan is confirmed on the 3rd, it may become effective as early as 12/4 if Delta, Pan Am and the Creditors Committee agree. Otherwise it will become effective December 13.” Def.Ex. RD; Tr. at 2979-81 (Harkey).
The extrinsic evidence relied upon by Pan Am is consistent with Delta’s position that a closing as early as December 4 was possible but required an evaluation of the events and circumstances at that time.
See, e.g.,
Pl.Ex. 956 at ZS5163 (“Consummation of these transactions, which have been approved by a federal bankruptcy court, can occur on or after December 4, 1991”); Pl.Ex. 512 at PG004315.
Compare
Def.Ex. AIY at SP01791 (same language with date of December 15, 1991).
The early draft of a confirmation order prepared by Delta’s counsel does not show an intent to have an Effective Date immediately following entry of a confirmation order. PL Ex. 525 at DP020911. The last paragraph of that draft confirmation order states:
As allowed by Bankruptcy Rule 8005, notwithstanding Bankruptcy Rule 7062, this order shall become effective and enforceable and effective immediately upon entry.
Pl.Ex. 525 at DP020940;
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
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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.
B.
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.
32
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.
33
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.
34
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).
35
Thus Delta’s refusal of additional funds did not cause the Business Plan to be aborted.
C.
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
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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 De

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/1818218. Public record. Not legal advice.