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Case 10-28831-AJC Doc 134 Filed 07/29/10 Page 1 of 12






UNITED STATES BANKRUPTCY COURT

SOUTHERN DISTRICT OF FLORIDA

MIAMI DIVISION

www.flsb.uscourts.gov

In re:

ARROW AIR, INC. AND
ARROW AIR HOLDINGS CORP.1



Debtors.


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§
§
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§



(Chapter 11)



Case number 10-28831-AJC
Case number 10-28834-AJC



(Jointly Administered under
Case number 10-28831-AJC)


DEBTORS’ EXPEDITED MOTION FOR (A) APPROVAL OF SOLICITATION AND
BID PROCEDURES FOR THE ACQUISITION OF THE DEBTORS’ BUSINESS AND

(B) SCHEDULING A HEARING TO APPROVE THE SELECTION OF THE

HIGHEST AND BEST OFFER AND CERTAIN RELATED RELIEF

[Hearing Requested on August 5, 2010 at 2:30 a.m.]



Arrow Air, Inc. (“Arrow”) and Arrow Air Holdings Corp. (“Holdings”) (collectively, the

“Debtors”) file this Expedited Motion for (A) Approval of Solicitation and Bid Procedures for

the Acquisition of the Debtors’ Business and (B) Scheduling a Hearing to Approve the Selection

of the Highest and Best Offer and Certain Related Relief (the “Motion”).

Introduction

1.

The Debtors are a Miami-based international air carrier that provided cargo

services to and from international locations. Shortly before filing for bankruptcy protection, the

Debtors discontinued flight operations, and are now in the process of winding down their

operations and liquidating their assets for the benefit of creditors.

2.

As outlined below in greater detail, both before and after the bankruptcy filings,

the Debtors have had discussions with a number of parties regarding a possible business

combination transaction or other acquisition of the Business (as defined below) or the underlying


1
Holdings Corp. are 0895. The debtors’ address is 1701 63rd Avenue, Building 712, Miami, Florida 33126.

The last four digits of the taxpayer identification number for Arrow Air, Inc. are 9045 and for Arrow Air

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physical assets. The Debtors, however, have been unable to consummate such a transaction for

various reasons. In an effort to maximize the value of their Business, the Debtors have

undertaken a number of measures to ensure the continued viability of its operating authorities.

The costs of these efforts are substantial.

3.

By this Motion, the Debtors seek approval of certain procedures that would

govern the solicitation and submission of proposals for the acquisition of the Business or its

underlying assets, as well as the scheduling of a hearing to consider the Debtors' selection of the

highest and best acquisition offer, if any. The Debtors believe procedures with reasonable

deadlines would lend focus to the sale process and will help maximize the value of a potential

acquisition transaction.

Jurisdiction

4.

This Court has jurisdiction to consider this Motion pursuant to 28 U.S.C. §§ 157

and 1334. This matter is a core proceeding under 28 U.S.C. § 157(b)(2). Venue is proper in this

Court under 28 U.S.C. §§ 1408 and 1409.

Background

A.

The Bankruptcy Cases and Debtors’ Business Operations.

5.

On June 30, 2010 (the “Petition Date”), the Debtors each filed a voluntary petition

for relief under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”). The

Debtors continue to manage their property and assets as debtors-in-possession under 11 U.S.C.

§§ 1107(a) and 1108.

6.

The United States Trustee has appointed an official committee of creditors

holding unsecured claims (the “Committee”) to serve in Arrow's bankruptcy case.

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7.

The Debtors are a Miami-based

international air carrier

that provided

comprehensive cargo logistic services between the United States and locations in the Caribbean,

Central America, and South America. Founded in 1950, Arrow was the largest single cargo

carrier operating out of Miami International Airport in 2009, having carried almost 204,000 short

tons of freight. Arrow operated a fleet comprised of wide-body DC-10 aircraft and narrow-body

757-200 aircraft.

8.

The Debtors maintained branch offices in a number of foreign countries in

conjunction with their business operations. Prepetition, the Debtors ceased flight operations and

terminated the majority of their employees. The Debtors are therefore in the process of winding

down their business operations and liquidating their remaining assets in an orderly fashion.

B.

The Debtors' Prior Efforts to Sell the Business and Related Assets.

9.

The Debtors made substantial efforts to consummate a sale of their business

and/or underlying assets before seeking bankruptcy protection. Beginning in January 2010, after

implementing operational changes and cost-cutting measures to increase the sustainability and

profitability of their business operations, the Debtors explored in earnest the possibility of a

merger and acquisition transaction with several strategic partners. These transaction efforts

continued through February 2010, with discussions and negotiations with four or five potential

aviation-related strategic partners regarding various acquisition transactions. The Debtors,

however, were ultimately unable to finalize term sheets and/or definitive documentation

concerning a possible merger and/or acquisition transaction with any of these parties.

10.

In March 2010, facing continuing operating losses, the Debtors renewed and

expanded their marketing efforts concerning a business combination transaction and even a sale

of their business to a strategic purchaser. To assist in this process, the Debtors retained Seabury

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Advisors, LLC (“Seabury”), which is one of the largest investment banking, restructuring, and

management consulting firms in the world dedicated to the transportation sector, with its

principal focus on the aviation and aerospace industries. The Debtors and Seabury contacted

numerous parties that could potentially have an interest in acquiring the business and related

assets, including customers, investors, lessors, and strategic buyers or partners known to invest in

aviation-related ventures. The potential strategic partners the Debtors had discussions with

earlier in 2010 regarding a possible merger and acquisition transaction were again contacted to

determine whether they had any renewed interest in consummating a transaction. Additionally, a

data room was established with relevant financial and business information to allow interested

parties to conduct due diligence.

11.

The Debtors' renewed marketing efforts resulted in substantial discussions with

some of the former potential strategic partners and a number of new potential purchasers. These

discussions took place through June 2010, and resulted in the negotiation of six terms sheets or

letters of intent. Ultimately, definitive documentation was negotiated and drafted for two

separate purchasers; however, neither of these transactions closed due to reasons beyond the

Debtors' control. The sale efforts continued in earnest up until a few days before the Debtors

ceased their scheduled service operations, but no viable purchaser ever came forward nor was

any transaction ever closed.

12.

Since discontinuing flight operations and filing for bankruptcy protection, the

Debtors and their professionals have received expressions of interest regarding a potential

acquisition of their business or assets from a number of parties, including some parties who the

Debtors had discussions with prepetition.

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13.

The Debtors possess certain assets and authorities as part of their business,

including: a number of executory contracts and unexpired leases; certain intellectual property,

including tradenames/trademarks and copyrights; goodwill; manuals, logs, and records related to

their operating assets and authorities; authorizations that allow them to operate as a commercial

airline; computer databases and software; accounts receivable, spare parts and rotables, and other

miscellaneous tangible and intangible assets (collectively, the “Business”). The Debtors have

taken certain actions (at a substantial monthly cost) to continue the viability of their operating

authorities, including the retention of certain employees, aircraft equipment, and facilities. To

accomplish a potential sale of the Business in the most efficient and effective manner and to

promote an orderly marketing process, the Debtors believe it would be beneficial to establish

procedures governing the solicitation and submission of bids by interested third parties. The

Debtors reserve the right (in consultation with MP Arrow III, LLC, the Debtors' primary secured

lender) to exclude any asset from the sale of the Business.

14.

In the event an acceptable offer for the acquisition of the Business is received, the

Debtors intend to propose a chapter 11 plan that provides for the issuance of equity in the

reorganized Debtors to the purchaser. The Debtors believe that an orderly process for soliciting

offers and subsequent auction of the Business will achieve the highest and best offer for a

potential transaction, and is therefore in the best interest of the bankruptcy estates and their

creditors.

C.

The Proposed Solicitation and Bid Procedures.

15.

The Debtors propose the following rules and procedures (the “Bid Procedures”)

that will govern the solicitation and submission of proposals for the acquisition of the Business.

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Case 10-28831-AJC Doc 134 Filed 07/29/10 Page 6 of 12

a.


b.

Notice of the Bid Procedures. Within two business days after entry of an
order approving the Motion and containing the Bid Procedures (the “Bid
Procedures Order”), the Debtors will serve a copy of the Bid Procedures
Order on (i) all parties who have previously expressed an interest to the
Debtors in acquiring all or any portion of the Business, (ii) the United
States Trustee, (iii) MP Arrow III, LLC, (iv) counsel for the Committee,
and (v) all parties identified on the operative Master Service List.

Bid Proposals. All bid proposals for the acquisition of the Business (each
a “Bid Proposal”) must conform to the following requirements:

i.


ii.

iii.

ACCEPT,

ANY

Each Bid Proposal must be in writing and contain the material
terms and conditions regarding a proposed sale or other transfer of
the Business through a stock transaction, which may include the
assumption and assignment of executory contracts and unexpired
leases. THE DEBTORS ARE NOT SOLICITING, AND WILL
NOT
THAT
CONTEMPLATE SOLELY THE ACQUISITION OF THE
DEBTORS' OPERATING CERTIFICATE AS A STAND-
ALONE ASSET.
Each Bid Proposal shall be subject to
bankruptcy court approval, but cannot contain any financing
contingency(ies). The Debtors prefer to receive a Bid Proposal for
the acquisition of the Business through a stock transaction, but will
give consideration to a sale of individual assets subject to the
limitations described above.

PROPOSALS

BID

All Bid Proposals for acquisition of the Business must identify the
net cash consideration to be paid to the bankruptcy estates. Bid
Proposals should also account for the costs to be incurred by the
Debtors to maintain the assets to be acquired under the Bid
Proposal, including operating authorizations, for the period from
August 2010 until the closing of the transaction embodied in the
Bid Proposal.

The person or entity making the Bid Proposal must deliver to the
Debtors by the Proposal Deadline (as defined below) the
following: (A) copies of financial statements, letters of credit, and
any other documents satisfactory to the Debtors evidencing the
prospective purchaser’s ability to consummate the contemplated
transaction; (B) information and satisfactory assurances that there
is no regulatory
the domestic ownership
requirements imposed by the Federal Aviation Administration) that
would prevent the prospective purchaser from fulfilling the terms,
conditions, and obligations under the proposed sale transaction;
and (C) the Bid Proposal. The Debtors, in their sole discretion,

issue (including

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shall have the right to determine the adequacy of the foregoing
information and documents.

By the Proposal Deadline, the entity making a Bid Proposal must
also tender to the Debtors a good faith deposit, in cash, in an
amount equal to the greater of (A) $500,000 or (B) ten percent
(10%) of the consideration specified in the Bid Proposal. The
Debtors will maintain the deposits (including any additional
deposit(s) required under paragraph 15(h) below) in a segregated,
non-interest bearing account.

All Bid Proposals must be delivered to the following parties
(collectively, the "Notice Parties"):

iv.

v.

Seabury Advisors, LLC
Attn: Ginger Hughes
1350 Avenue of the Americas
25th Floor
New York, NY 10019
Facsimile:(212) 284-1144
Email: [email protected]

Haynes and Boone, LLP
Attn: Kourtney P. Lyda
1 Houston Center
1221 McKinney Street
Suite 2100
Houston, Texas 77010
Facsimile: (713) 236-5687
Email: [email protected]

Bracewell & Guiliani LLP
Attn: Jennifer Feldsher
1251 Avenue of the Americas
49th Floor
New York, New York 10020
Facsimile: (212) 938-3837
Email: [email protected]


No letter of intent or other written proposal submitted to the
Debtors prior to the filing of the Motion in connection with the
acquisition of the Business (or any subpart thereof) shall be
considered as a Bid Proposal for purposes of these Bid Procedures.

vi.

c.

Due Diligence Materials. To assist prospective purchasers in their
evaluation of the Business, the Debtors will provide access to information

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and documentation related to the Business in an online virtual data room
(collectively, the “Due Diligence Materials”). As part of the Due
Diligence Materials, the Debtors will provide prospective purchasers with
information concerning the monthly expenses associated with retaining the
assets comprising the Business.
Only those parties who sign a
confidentiality agreement in a form acceptable to the Debtors will be
provided with access to the Due Diligence Materials. All contacts and
requests regarding the Due Diligence Materials by potential purchasers
should be directed to the Debtors’ counsel: Haynes and Boone, LLP,
Attn: Kourtney P. Lyda, 1 Houston Center, 1221 McKinney Street, Suite
2100,
236-5687,
[email protected] The Debtors reserve the right to
restrict or deny access to any prospective purchasers.

Houston,

Texas

77010,

(713)


d.

e.



Deadline for Submission of Bid Proposals. Parties must deliver any Bid
Proposal so that it is actually received by the Notice Parties on or before
August 23, 2010 at 5:00 p.m. prevailing eastern time (the “Proposal
Deadline”). Each Bid Proposal shall be irrevocable.

Auction. In the event that more than one satisfactory Bid Proposal is
submitted, as determined in the sole discretion of the Debtors, the Debtors
will conduct an auction (if necessary) on August 25, 2010 at 10:00 a.m.
prevailing eastern time (the “Auction”) at the offices of Berger Singerman,
200 South Biscayne Boulevard, Suite 1000, Miami, Florida, 33131.
ONLY PARTIES WHO SUBMITTED A BID PROPOSAL WILL BE
ALLOWED TO PARTICIPATE IN THE AUCTION. The Auction shall
be conducted as follows:

i.


ii.

iii.

iv.

At the commencement of the Auction, the Debtors will announce
the highest or otherwise best Bid Proposal;

then commence an Auction

The Debtors shall
recorded
stenographically, calling for incremental bids from bidders who
submitted proper Bid Proposals, with minimum overbid increments
of $100,000;

Bidders shall be allowed to caucus privately among themselves
(but not with other bidders) at any time; provided, however, that
the Debtors may impose uniform reasonable time restrictions on
such caucuses so that the Auction may continue and be completed
in an orderly and timely manner; and

The Debtors may adopt such other rules for the Auction (including
rules that may depart from those set forth herein) that they
anticipate will result in the highest or otherwise best value for the
estates and that are not inconsistent with any Bankruptcy Court

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f.

g.

h.

order; provided that any changed or additional rules for the
Auction are not materially inconsistent with the Bid Procedures
and are communicated to all qualified participants at or before the
Auction.

Selection of the Highest and Best Offer. The Debtors, in their sole
discretion, but in consultation with MP Arrow III, LLC and the
Committee, will determine which Bid Proposal (if any) is the highest and
best offer for the sale or other transfer of the Business (the “Prevailing
Bid”) and the next highest or otherwise best bid (the “Back-Up Bid”)2.
The following non-exclusive factors will
the Debtors’
determination of the Prevailing Bid and Back-Up Bid:
(i) the
consideration offered to be paid; (ii) the potential purchaser’s financial
strength and ability to timely close on the proposed transaction; (iii) any
consent issues surrounding the assumption and assignment of executory
contracts and unexpired leases; and (iv) any regulatory issues implicated
by the proposed sale transaction. The Debtors shall have the right, in their
sole discretion, to waive any technical violation of, or deviation from, the
Bid Procedures consistent with the goal of maximizing the sale price for
the Business.

influence

Hearing to Approve the Prevailing Bid. The Bankruptcy Court will hold a
hearing on August ___, 2010 at ___:___ __.m. prevailing eastern time (the
“Selection Hearing”) to consider approving the Debtors’ determination of
the Prevailing Bid. At the Selection Hearing, the Debtors will seek
approval of their selection of the Prevailing Bid and certain related relief.

Deposit(s). Within two business days after conclusion of the Selection
Hearing, the proponent of the Prevailing Bid must tender to the Debtors
additional cash in order to increase its deposit so that the total deposit for
the Prevailing Bid equals 25% of the proposed consideration to be paid
under the Prevailing Bid. Such deposit (including the initial deposit
required under paragraph 15(b)(iv) above) shall not be refundable unless
the Prevailing Bid fails to close solely as a result of the Debtors' breach of
their obligations thereunder. In the event the transaction embodied in the
Prevailing Bid fails to close and the Debtors' elect to close the transaction
described in the Back-Up Bid, then the provisions of this paragraph shall
apply to the party who submitted the Back-Up Bid. Any deposit(s)
received under these Bid Procedures shall be returned within ten business
days after the Bankruptcy Court enters an order approving the Prevailing
Bid, except for deposits submitted by the Prevailing Bid and Back-Up Bid.










2
To the extent the Prevailing Bid fails to consummate a transaction or otherwise comply with any
requirements imposed during the bankruptcy proceedings, all references to Prevailing Bid shall be substituted with
Back-Up Bid.

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i.

Credit Bid. MP Arrow III, LLC may exercise its right to credit bid all or a
portion of its indebtedness in accordance with 11 U.S.C. § 363(k).
Notwithstanding any provision of the Bid Procedures to the contrary, MP
Arrow III, LLC shall not be required to submit a Bid Proposal or a Deposit
in order to exercise its right to credit bid.

Relief Requested and Applicable Authority

16.

The Debtors request entry of an order (a) approving the Bid Procedures outlined

in the Motion and (b) scheduling a hearing to consider approval of the Debtors' selection of the

Prevailing Bid and certain related relief. The Debtors believe that the Bid Procedures will

promote an efficient and effective mechanism for the solicitation and submission of bids for the

acquisition of the Business, and are therefore in the best interests of the bankruptcy estate and its

creditors. The Bid Procedures are designed to maximize value for the Debtors’ bankruptcy

estates, while ensuring an orderly process consistent with the Federal Rules of Bankruptcy

Procedure..

17.

The paramount goal in any proposed sale of property of a bankruptcy estate is to

maximize the proceeds received by the estate. See, e.g., Four B. Corp. v. Food Barn Stores, Inc.,

107 F.3d 558, 564-65 (8th Cir. 1997) (in bankruptcy sales, “a primary objective of the Code [is]

to enhance the value of the estate at hand”); Official Committee of Subordinated Bondholders v.

Integrated Resources, Inc., 147 B.R. 650, 659 (S.D.N.Y. 1992)(“It is a well-established principle

of bankruptcy law that the objective of bankruptcy sales and the debtor’s duty with respect to

such sales is to obtain the highest price or overall greatest benefit possible for the estate.”

(quoting In re Atlanta Packaging Products, Inc., 99 B.R. 124 (Bankr. N.D. Ga. 1988)).

18.

Case law uniformly recognizes that procedures intended to enhance competitive

bidding are consistent with the goal of maximizing the value received by the estate, and therefore

are appropriate in the context of bankruptcy sales. See, e.g., Integrated Resources, 347 B.R. 659

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(such procedures “encourage bidding and maximize the value of the debtor’s assets”); In re

Financial News Network Inc., 126 B.R. 152, 156 (S.D.N.Y. 1991) (“court-imposed rules for the

disposition of assets . . . [should] provide an adequate basis for comparison of offers, and [ ]

provide for a fair and efficient resolution of bankrupt estates”).

19.

Courts have made clear that a debtor’s business judgment is entitled to substantial

deference with respect to the procedures to be used in selling assets from the estate. See, e.g.,

Integrated Resources, 147 B.R. at 656-57 (affirming Integrated Resources, 135 B.R. 746 (Bankr.

S.D.N.Y. 1992)), appeal dismissed, 3 F.3d 49 (2d Cir. 1993); In re 995 Fifth Ave. Assoc., L.P.,

96 B.R. 24, 28 (Bankr. S.D.N.Y. 1989).

20.

The Bid Procedures are designed to further the Debtors’ marketing efforts

concerning a sale of the Business through an efficient solicitation process and to facilitate the

submission of easily comparable bids. The Bid Procedures provide an orderly process for the

Debtors to solicit offers for the Business by, among other things: (i) allowing prospective bidders

to perform due diligence, (ii) establishing guidelines and deadlines for prospective bids; and (iii)

scheduling an auction, if necessary. The Debtors believe that the Bid Procedures are reasonable,

appropriate, and within the Debtors’ sound business judgment. Approval of the Bid Procedures

is therefore in the best interest of the bankruptcy estates and their creditors.

Conclusion

21.

Based on the foregoing, the Debtors request entry of an order (a) approving and

establishing the Bid Procedures; (b) authorizing the Debtors to conduct an auction, if necessary,

to determine the highest and best offer for the Business; (c) scheduling a hearing to consider

approval of the Debtors' selection of the Prevailing Bid and certain related relief; and (d) any

other legal and equitable relief to which the Debtors are entitled.

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CERTIFICATION PURSUANT TO LOCAL RULE 9011-4(B):


I certify that I am admitted to the Bar of the United States District Court for the Southern

District of Florida and I am in compliance with the additional qualifications to practice in this
court set forth in Local Rule 2090-1(A).


Dated: July 29, 2010




Respectfully submitted:





– and –

/s/ Jordi Guso

BERGER SINGERMAN




Paul Steven Singerman
Florida Bar No. 378860
Jordi Guso
Florida Bar No. 0863580
200 South Biscayne Boulevard, Suite 1000
Miami, Florida 33131
Telephone (305) 755-9500
Facsimile (305) 714-4340



HAYNES AND BOONE, LLP

Kenric D. Kattner
Texas Bar No. 11108400
Doug H. Edwards
Texas Bar No. 24039307
1 Houston Center
1221 McKinney, Suite 2100
Houston, Texas 77010
Telephone (713) 547-2000
Facsimile (713) 236-5608

Counsel for Debtors-in-Possession













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