SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarter ended June 30, 2002 Commission File Number 33-24180
AMFAC HAWAII, LLC
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Hawaii 36-3109397
(State of organization) (IRS Employer Identification No.)
900 N. Michigan Ave., Chicago, IL 60611
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code 312-440-4800
See Table of Additional Registrants Below.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [ X ] No [ ]
As of August 12, 2002, all of Amfac Hawaii LLC's membership interest is
solely owned by Northbrook Corporation, a Delaware corporation, and not
traded on a public market.
ADDITIONAL REGISTRANTS (1)
Address, including,
zip code,
Exact name of State or other IRS and telephone number,
registrant as jurisdiction of Employer including area code of
specified in itsincorporation orIdentificationregistrant's principal
Charter organization Number executive offices
- --------------- --------------- ------------ -----------------------
Amfac Land Hawaii 99-0185633 900 North Michigan Avenue
Company, Chicago, Illinois 60611
Limited (3) 312/440-4800
Amfac Property Hawaii 99-0150751 900 North Michigan Avenue
Development Corp. Chicago, Illinois 60611
312/440-4800
Amfac Property Hawaii 99-0202331 900 North Michigan Avenue
Investment Chicago, Illinois 60611
Corp. ("APIC") 312/440-4800
(2)
H. Hackfeld Hawaii 99-0037425 900 North Michigan Avenue
& Co., Ltd. Chicago, Illinois 60611
312/440-4800
Kaanapali Hawaii 99-0176334 900 North Michigan Avenue
Estate Coffee, Chicago, Illinois 60611
Inc. (3) 312/440-4800
Kekaha Sugar Hawaii 99-0044650 900 North Michigan Avenue
Company, Chicago, Illinois 60611
Limited 312/440-4800
The Lihue Hawaii 99-0046535 900 North Michigan Avenue
Plantation Chicago, Illinois 60611
Company, 312/440-4800
Limited (3)
Oahu Sugar Hawaii 99-0105277 900 North Michigan Avenue
Company, Chicago, Illinois 60611
Limited 312/440-4800
Pioneer Mill Hawaii 99-0105278 900 North Michigan Avenue
Company, Chicago, Illinois 60611
Limited (3) 312/440-4800
Puna Sugar Hawaii 99-0051215 900 North Michigan Avenue
Company, Chicago, Illinois 60611
Limited 312/440-4800
Waikele Golf Hawaii 99-0304744 900 North Michigan Avenue
Club, Inc. (3) Chicago, Illinois 60611
312/440-4800
(1) The Additional Registrants listed are wholly-owned subsidiaries
(except as noted in (2)) of the registrant and are guarantors of
the registrant's Certificate of Land Appreciation Notes due 2008
(the "COLAs").
(2) The registrant, directly or indirectly, owns approximately 16.67% of
the shares of APIC.
(3) On February 27, 2002, these Additional Registrants along with AHI and
certain other subsidiaries and affiliates filed voluntary petitions
under Chapter 11 of the United States Bankruptcy Code.
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements . . . . . . . . . . . . . . . 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . 26
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . 38
Item 3. Defaults Upon Senior Securities. . . . . . . . . . 44
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . 45
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMFAC HAWAII, LLC
Consolidated Balance Sheets
June 30, 2002 and December 31, 2001
(Dollars in Thousands)
JUNE 30, DECEMBER 31,
2002 2001
(Unaudited) (Note 1)
------------- -----------
A S S E T S
- -----------
Current assets:
Cash and cash equivalents . . . . . $ 4,684 9,973
Receivables, net. . . . . . . . . . 1,355 2,028
Inventories . . . . . . . . . . . . 4,956 5,209
Prepaid expenses. . . . . . . . . . 56 103
Escrow deposits and restricted
funds . . . . . . . . . . . . . . 5,859 6,490
-------- --------
Total current assets. . . . . 16,910 23,803
-------- --------
Property, plant and equipment:
Land and land improvements. . . . . 102,746 103,590
Machinery and equipment . . . . . . 26,171 26,514
-------- --------
128,917 130,104
Less accumulated depreciation
and amortization. . . . . . . . . 28,750 28,323
-------- --------
100,167 101,781
-------- --------
Deferred expenses, net. . . . . . . . 4,170 4,493
Other assets. . . . . . . . . . . . . 25,121 23,912
-------- --------
$146,368 153,989
======== ========
AMFAC HAWAII, LLC
Consolidated Balance Sheets - Continued
JUNE 30, DECEMBER 31,
2002 2001
(Unaudited) (Note 1)
------------- -----------
L I A B I L I T I E S
- ---------------------
Current liabilities:
Accounts payable. . . . . . . . . . $ 2,600 1,989
Accrued expenses. . . . . . . . . . 10,167 9,207
Current portion of long-term
debt. . . . . . . . . . . . . . . 2,850 2,850
Amounts due to affiliates . . . . . 11,670 11,684
Amounts due to affiliates -
Senior Debt financing in default. 185,256 183,378
Certificate of Land Appreciation
Notes in default. . . . . . . . . 139,413 139,413
-------- --------
Total current liabilities . . 351,956 348,521
-------- --------
Amounts due to affiliates -
Senior Debt financing . . . . . . . 2,730 2,730
Accumulated postretirement
benefit obligation. . . . . . . . . 28,358 33,118
Other long-term liabilities . . . . . 8,176 9,071
Deferred income taxes . . . . . . . . 11,344 8,603
-------- --------
Total liabilities . . . . . . 402,564 402,043
-------- --------
Commitments and contingencies
(notes 2, 3, 4, 6, 7 and 8)
Investment in unconsolidated entity,
at equity . . . . . . . . . . . . . 11,258 11,168
M E M B E R ' S E Q U I T Y (D E F I C I T )
- ------------------------------------------------
Member's equity (deficit) . . . . . . (267,454) (259,222)
-------- --------
Total Member's equity
(deficit) . . . . . . . . . (267,454) (259,222)
-------- --------
$146,368 153,989
======== ========
The accompanying notes are an integral part
of the consolidated financial statements.
<table>
AMFAC HAWAII, LLC
Consolidated Statements of Operations
Three and Six Months Ended June 30, 2002 and 2001
(Dollars in Thousands)
(Unaudited)
<caption>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
---------------------- ----------------------
2002 2001 2002 2001
-------- -------- -------- --------
<s> <c> <c> <c> <c>
Revenue:
Agriculture . . . . . . . . . . . . . . . . . . $ 549 432 1,213 2,997
Property. . . . . . . . . . . . . . . . . . . . 228 5,203 1,088 24,525
Golf. . . . . . . . . . . . . . . . . . . . . . -- 1,075 -- 2,322
-------- -------- -------- --------
777 6,710 2,301 29,844
-------- -------- -------- --------
Cost of sales:
Agriculture . . . . . . . . . . . . . . . . . . (1,400) 671 (2,134) 1,413
Property. . . . . . . . . . . . . . . . . . . . 195 2,037 395 21,441
Golf. . . . . . . . . . . . . . . . . . . . . . -- 807 -- 1,585
-------- -------- -------- --------
(1,205) 3,515 (1,739) 24,439
Operating expenses:
Selling, general and administrative . . . . . . 1,679 2,336 4,376 4,459
Depreciation and amortization . . . . . . . . . 385 739 769 1,663
-------- -------- -------- --------
Total costs and expenses. . . . . . . . . . . . . 859 6,590 3,406 30,561
Operating income (loss) . . . . . . . . . . . . . (82) 120 (1,105) (717)
-------- -------- -------- --------
Non-operating income (expenses):
Amortization of deferred costs. . . . . . . . . (163) (175) (330) (351)
Interest expense. . . . . . . . . . . . . . . . (42) (6,213) (2,858) (12,932)
Restructuring costs . . . . . . . . . . . . . . (620) -- (1,236) --
Loss on investment in unconsolidated
subsidiary. . . . . . . . . . . . . . . . . . -- (113) (90) (196)
Interest income . . . . . . . . . . . . . . . . 63 108 128 296
-------- -------- -------- --------
(762) (6,393) (4,386) (13,183)
-------- -------- -------- --------
AMFAC HAWAII, LLC
Consolidated Statements of Operations
Three and Six Months Ended June 30, 2002 and 2001 - Continued
(Dollars in Thousands)
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
---------------------- ----------------------
2002 2001 2002 2001
-------- -------- -------- --------
Loss before taxes . . . . . . . . . . . . . . (844) (6,273) (5,491) (13,900)
-------- -------- -------- --------
Income tax benefit (expense). . . . . . . . . . (1,350) 2,301 (2,741) 5,229
-------- -------- -------- --------
Net income (loss) . . . . . . . . . . . . . . $ (2,194) (3,972) (8,232) (8,671)
======== ======== ======== ========
<fn>
The accompanying notes are an integral part of the consolidated financial statements.
</table>
AMFAC HAWAII, LLC
Consolidated Statements of Cash Flows
Six Months Ended June 30, 2002 and 2001
(Dollars in Thousands)
(Unaudited)
2002 2001
-------- --------
Cash flows from operating activities:
Net income (loss) . . . . . . . . . . . . . $ (8,232) (8,671)
Items not requiring (providing) cash:
Depreciation and amortization . . . . . . 769 1,663
Amortization of deferred costs. . . . . . 330 351
Amortization of unrecognized
actuarial gain (note 7) . . . . . . . . (3,950) (3,038)
Deferred income, net of additional
reserves. . . . . . . . . . . . . . . . -- (3,059)
Equity in earnings of investments . . . . 90 196
Income tax benefit. . . . . . . . . . . . 2,741 (5,229)
Interest on advances from affiliates. . . 1,878 8,873
Interest on Certificate of
Land Appreciation Notes . . . . . . . . 883 1,859
Changes in:
Restricted cash . . . . . . . . . . . . . . 631 946
Receivables - net . . . . . . . . . . . . . 673 1,158
Inventories . . . . . . . . . . . . . . . . 976 19,014
Prepaid expenses. . . . . . . . . . . . . . 47 (385)
Accounts payable. . . . . . . . . . . . . . 611 (1,511)
Accrued expenses. . . . . . . . . . . . . . 77 (2,381)
Amounts due to affiliates . . . . . . . . . (14) 330
Other long-term liabilities . . . . . . . . (934) (955)
-------- --------
Net cash provided by (used in)
operating activities. . . . . . . . (3,424) 9,161
-------- --------
Cash flows from investing activities:
Property additions. . . . . . . . . . . . . -- (29)
Property sales, disposals and
retirements - net . . . . . . . . . . . . 1 27
Other assets. . . . . . . . . . . . . . . . (1,088) (1,155)
Other long-term liabilities . . . . . . . . (771) 1,322
-------- --------
Net cash provided by (used in)
investing activities. . . . . . . . (1,858) 165
-------- --------
Cash flows from financing activities:
Deferred expenses . . . . . . . . . . . . . (7) (31)
Net (repayments) proceeds of
long-term debt. . . . . . . . . . . . . . -- (326)
Net amounts due to affiliates . . . . . . . -- (10,538)
-------- --------
Net cash provided by (used in)
financing activities. . . . . . . . (7) (10,895)
-------- --------
Net increase (decrease) in
cash and cash equivalents . . . . . (5,289) (1,569)
Cash and cash equivalents,
beginning of year . . . . . . . . . 9,973 9,660
-------- --------
Cash and cash equivalents,
end of period . . . . . . . . . . . $ 4,684 8,091
======== ========
AMFAC HAWAII, LLC
Consolidated Statements of Cash Flows - Continued
2002 2001
-------- --------
Supplemental disclosure of cash flow
information:
Cash paid for interest (net of
amount capitalized) . . . . . . . . . . . $ 123 4,896
======== ========
Schedule of non-cash investing and
financing activities:
Transfer of property actively held
for sale to real estate inventories . . $ 723 1,482
======== ========
The accompanying notes are an integral part
of the consolidated financial statements.
AMFAC HAWAII, LLC
Notes to Consolidated Financial Statements
June 30, 2002 and 2001
(unaudited)
(Dollars in Thousands)
Readers of this quarterly report should refer to the Company's audited
financial statements for the fiscal year ended December 31, 2001, which are
included in the Company's 2001 Report on Form 10-K, as certain footnote
disclosures which would substantially duplicate those contained in such
audited financial statements have been omitted from this report.
All reference to "Notes" are to Notes to the Consolidated Financial
Statements contained in this report.
(1) BASIS OF ACCOUNTING
Amfac Hawaii, LLC ("AHI", and collectively with the Additional
Registrants, as their respective interests may appear, the "Company") is a
Hawaii limited liability company. AHI is wholly-owned by Northbrook
Corporation, a Delaware corporation ("Northbrook"). AHI changed its name
from Amfac/JMB Hawaii, L.L.C. in March 2001. On February 27, 2002, AHI,
certain of the Additional Registrants and certain other subsidiaries and
affiliates (collectively, the "Debtors") of AHI filed voluntary petitions
under Chapter 11 of the United States Bankruptcy Code. These petitions
have been consolidated for joint administration as a single case (the
"Reorganization Case") in the U.S. Bankruptcy Court for the Northern
District of Illinois. The Debtors filed their petitions in order to enable
them to restructure their debt and convert substantial portions thereof to
equity in an attempt to successfully reorganize with a manageable balance
sheet. Except for current portion of long-term debt (which is of a non-
debtor subsidiary), accumulated post retirement benefit obligation and
income taxes, substantially all of the Company's liabilities in the
accompanying consolidated balance sheet at June 30, 2002, are subject to
compromise under the Plan of Reorganization (the "Plan"). On July 29,
2002, the Plan was confirmed by the U.S. Bankruptcy Court. There are
conditions to the effectiveness of the Plan, and it is currently
anticipated that those conditions will be satisfied, and the Plan will
become effective, prior to the end of the third quarter of 2002.
The primary business activities of the Company have been land
development and sales, golf course management and agriculture. In
September 2000, the Company announced its plan to shut down the remaining
sugar operations which represented a substantial portion of its agriculture
segment. The Company owns, as of the date of this report, approximately
5,100 acres of land primarily located on the island of Maui in the State of
Hawaii. Most of this land is held by the Company's wholly-owned
subsidiaries. In addition to its owned lands, the Company leased
approximately 3,100 acres of land that was primarily used in conjunction
with its agricultural operations. Due to the shutdown of the Company's
remaining sugar plantations, the Company filed a motion in the
Reorganization Case to reject such lease, which was granted by the court
and an order entered on April 2, 2002. The Company's operations are
subject to significant government regulation.
AHI will continue until at least December 31, 2027, unless earlier
dissolved. AHI's sole member (Northbrook) is not obligated for any debt,
obligation or liability of the Company. However, AHI and certain
additional subsidiaries are obligated to Northbrook and its affiliates for
the repayment of substantial loans and advances made to them.
The Company has three primary business segments. The agriculture
segment ("Agriculture") has been responsible for the Company's remaining
agricultural activities (the Company's remaining sugar plantations were
shut down at the end of 2000 and in September 2001 the Company announced a
AMFAC HAWAII, LLC
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands)
winding down of its coffee operations). The real estate segment
("Property") has been responsible for development and sales activities
related to the Company's owned land, all of which is in the State of
Hawaii. The golf segment ("Golf") has been responsible for the management
and operation of the Company's golf course facilities. However, as
described below, a receiver was appointed on March 19, 2002, to manage the
two Royal Kaanapali Golf Courses on Maui. The Company segregates total
revenues, operating income (loss), total assets, capital expenditures and
depreciation and amortization by each industry segment. The Company owns
no patents, trademarks, licenses or franchises that are material to its
business.
Due to the unpredictable nature of the timing and amount of land sales
and the seasonal nature of the agricultural operations, the Company has
experienced, and expects to continue to experience, significant variability
in quarterly revenues and costs of sales. The results of any interim
period are not necessarily indicative of the results that can be expected
for the entire year.
The consolidated financial statements include the accounts of AHI and
its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation. The Company records
its minority investment in Amfac Property Investment Corp. ("APIC") on the
equity method of accounting. Investments in certain partnerships and joint
ventures, if any, over which the Company exercises significant influence
are accounted for by the equity method. To the extent the Company engages
in such activities as a general partner, the Company is contingently liable
for the obligations of its partnership and joint venture investments.
The Company's policy is to consider all amounts held with original
maturities of three months or less in U.S. Government obligations,
certificates of deposit and money market funds (approximately $3,507 and
$8,483 at June 30, 2002 and December 31, 2001, respectively) as cash
equivalents that are reflected at cost, which approximates market. In
addition, escrow deposits and restricted funds ($5,859 and $6,490 at June
30, 2002 and December 31, 2001, respectively), represents cash which was
restricted primarily to fund, among other things, certain liabilities (note
6).
Project costs associated with the acquisition, development and
construction of real estate projects are capitalized and classified as
construction in progress. Such capitalized costs are not in excess of the
project's estimated fair value, as reviewed periodically or as considered
necessary. In addition, interest is capitalized to qualifying assets
(principally real estate under development) during the period that such
assets are undergoing activities necessary to prepare them for their
intended use. Such capitalized interest is charged to cost of sales as
revenue from the real estate development is recognized. No interest costs
have been capitalized for the six months ended June 30, 2002 and 2001.
Land actively held for sale and any related development costs
transferred from construction in progress are reported as inventories in
the accompanying consolidated balance sheets and are stated at the lower of
cost or fair value less costs to sell.
Impairment losses are to be recorded on long-lived assets used in
operation when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the
assets' carrying amount. Land held for sale of approximately $4,876 is
included in inventory in the accompanying consolidated balance sheets at
June 30, 2002 and December 31, 2001, and is carried at the lower of cost or
fair value less cost to sell.
AMFAC HAWAII, LLC
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands)
During the third quarter of 2001, the Company reduced the carrying
value of three land parcels and recorded a $13,725 impairment loss to
reflect the estimated market value of those parcels. During the third
quarter of 2001, the Company recognized impairment losses of $4,384 on
property, plant and equipment, inventory and other assets formerly used in
its agriculture operation. Such losses have been reflected as reduction in
carrying value of assets in operations.
The Company's principal remaining land holdings are in the
Kaanapali/Honokowai area of Maui, referred to by the Company as its
"Kaanapali 2020" project. The Company's ability to generate revenue from
these land holdings in excess of its recorded investment is subject to
obtaining necessary development approvals and its ability to develop and
sell the land holdings in the normal course of business.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information (which assume
that the Company will continue as a going concern) and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three month period ended June 30, 2002
are not necessarily indicative of the results that may be expected for the
year ended December 31, 2002.
Certain amounts in the 2001 financial statements have been
reclassified to conform to the 2002 presentation.
(2) AMOUNTS DUE TO AFFILIATES - SENIOR DEBT FINANCING
AHI has issued certain Certificate of Land Appreciation Notes due 2008
Class A (the "Class A COLAs") and Certificate of Land Appreciation Notes
Class B (the "Class B COLAs", and, collectively with the Class A COLAs, the
"COLAs") pursuant to an Indenture dated March 14, 1989 (the "Indenture")
(see note 3). Under the Indenture, the Company is entitled to borrow
certain amounts from third parties, including affiliates, that qualify as
"Senior Indebtedness" under the Indenture and are senior in priority to the
repayment of the COLAs. Such "Senior Indebtedness" that is due and owing
to Northbrook and its affiliates from time to time is referred to in these
notes as the "Senior Debt". Commencing in August 1989 and from time to
time thereafter, Northbrook (or its predecessor in interest, Amfac, Inc.),
and certain of its affiliates, have made Senior Debt advances to the
Company.
As a consequence of the filing of the Reorganization Case, interest on
the Senior Debt was accrued only up to February 27, 2002 (the date of
voluntary petition under Chapter 11 of the U.S. Bankruptcy Code).
FHT Corporation ("FHT"), an affiliate of Northbrook, is the holder of
a Senior Debt note with an outstanding balance of principal and interest of
approximately $99,737. This note is payable interest only until maturity,
has a maturity date of February 17, 2007 and accrues interest at the prime
rate (4.75% at February 27, 2002) plus 2%. The note defers interest until
December 31, 2002 at which time one-third of such deferred interest is due,
with the remainder of previously deferred interest payable one-half on
December 31, 2003, and one-half on December 31, 2004. Prepayment may be
required of net property sale proceeds remaining after providing reserves
AMFAC HAWAII, LLC
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands)
for anticipated cash needs for the twelve months following the property
sales. As a result of such sales in 2001, prepayments aggregating $6,048
were made on such note in the third and fourth quarters of 2001. It is not
expected that such note will be paid in full.
Northbrook is the holder of a Senior Debt note with an outstanding
balance of principal and interest of approximately $27,605. This note is
payable interest only until maturity, has a maturity date of February 17,
2007 and accrues interest at the prime rate (4.75% at February 27, 2002)
plus 2%. This note defers interest until December 31, 2006. It is not
expected that such note will be paid in full.
AF Investors is the holder of two Senior Debt notes from the Company,
each dated December 29, 2000, but given in replacement for previously
issued notes, one in the original principal amount of $21,318, and one
dated May 31, 1999 in the original principal amount of $26,375, each amount
borrowed in connection with the redemption by the Company of Class B COLAs
on June 1, 1999. Such Senior Debt notes were scheduled to mature on
December 31, 2008 and bore interest at a rate per annum of prime plus 1%.
Interest on such Senior Debt was deferred through December 31, 2001. The
replacement notes accrue interest at the prime rate (4.75% at February 27,
2002) plus 1%, but defer interest through December 31, 2003, with one-half
of such deferred interest payable on such date and the remainder payable on
December 31, 2004. Prepayment may be required of net property sale
proceeds remaining after providing reserves for anticipated cash needs for
the twelve months following the property sales. As a result of the
property sales in 2001, prepayments aggregating $3,487 were made on the
notes in the third and fourth quarters of 2001. Under the terms of these
notes, additional interest may be payable on such Senior Debt upon its
maturity based upon fair market value, if any, of the Company's equity at
that time. Due to the filing of the Reorganization Case, AF Investors will
have a claim against the Debtors in an aggregate amount of approximately
$57,216. It is not expected that such claim will be paid in full.
In 2000, the Company borrowed approximately $5,576 from Northbrook for
purposes of satisfying the Mandatory Base Interest payment related to the
COLAs due in 2000. During 2000, the Company borrowed an additional $4,300
to fund certain capitalizable property development and agriculture
disbursements. Such Senior Debt was originally scheduled to mature on
December 31, 2000, but its maturity date was extended (in September 2000)
to not earlier than February 28, 2001. It bears interest at a rate per
annum equal to prime (4.75% at December 31, 2001) plus 1%, is guaranteed by
the Company and is also to be secured by assets of the Company. The notes
evidencing such borrowings were amended in certain respects effective
December 29, 2000 to, among other things, provide that such notes are due
on demand. Prepayment may be required of net property sale proceeds
remaining after providing reserves for anticipated cash needs for the
twelve months following the property sales. Such notes were paid down to
zero by the Company in January 2001, but remain available to fund further
advances for such purposes at Northbrook's election. During 2001, an
additional $218 was advanced by Northbrook.
AMFAC HAWAII, LLC
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands)
Northbrook also holds a note in the original principal amount of
$9,600, dated September 30, 1998, originally made by Tobishima Pacific,
Inc.'s ("TPI") and subsequently purchased from TPI by an affiliate of
Northbrook. The note is secured by a mortgage on the Company's 50%
ownership interest in the 96-acre beach-front parcel (commonly referred to
as Kaanapali North Beach "the Property") and is "Senior Indebtedness" (as
defined in the Indenture). The note was payable in five annual
installments in the principal amount of $1,920 beginning in September 1999.
The note bore interest of 8.5% and was payable quarterly. The note was
subsequently amended to require quarterly interest payments beginning
June 30, 2001 with principal payable on demand; provided, that if no demand
is previously made, the amendment contains two scheduled principal payments
of $2,730 each in September of 2002 and 2003. In October 2001, Northbrook
purchased the note from its affiliate for the then outstanding balance of
principal and accrued interest aggregating approximately $5,500 and also
demanded a principal payment of $2,300 which was paid the Company in
October 2001. The note remains secured by AHI's 50% undivided interest in
the Property with such entire property also mortgaged as security for the
other Senior Debt.
The Company has provided Northbrook and its affiliates with security
for the Senior Debt held by them. Such security consists of mortgages on
real property owned by the Company, pledges of stock of AHI's direct and
indirect subsidiaries, and security interests on such other unencumbered
assets of the Company and its subsidiaries as Northbrook and its affiliates
holding such Senior Debt may request. As of the date of this report,
Northbrook and its affiliates hold mortgages on substantially all of the
real property of the Company.
The total amount due Northbrook and its subsidiaries for Senior Debt
financing as of June 30, 2002 was $187,986 which includes accrued and
deferred interest to affiliates on Senior Debt to February 27, 2002 of
approximately $47,959. Under the terms of the Indenture, the amounts
borrowed from Northbrook or its affiliates are "Senior Indebtedness" and
are thus senior in priority to the COLAs.
At current interest rates, approximately $46,077 of such deferred
interest relating to all Senior Debt existing prior to the modification of
Senior Debt in December 2000 would have become due and payable on December
31, 2001, but was deferred beyond such date by restatements of the notes in
December 2000 that amended the terms of the notes. Even though it was
hoped that the agreements by Northbrook and its affiliates to further defer
interest under the Senior Debt would assist the Company in the completion
of potential future development activities, it became apparent that
additional debt would be needed in order for the Company to have the
liquidity anticipated to be necessary to pursue its business plan. Thus,
the Debtors filed the Reorganization Case in February 2002. (See
discussion of Reorganization Case). As a consequence, all Senior Debt and
COLAs are now in default.
AMFAC HAWAII, LLC
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands)
(3) CERTIFICATE OF LAND APPRECIATION NOTES
The COLAs are unsecured debt obligations of the Company, and are
subordinated in priority to all "Senior Indebtedness" (as defined in the
Indenture) including, but not limited to, the Senior Debt. Interest on the
COLAs is payable semi-annually on February 28 and August 31 of each year.
The COLAs mature on December 31, 2008. Reference is made to the Company's
Annual Report on Form 10-K for discussion of the issuance and redemption
history of the COLAs. The COLAs are scheduled to mature on December 31,
2008, and bear interest after the Final Issuance Date (August 31, 1989) at
a rate of 10% per annum ("Base Interest") of the outstanding principal
balance of the COLAs on a cumulative, non-compounded basis, of which 6% per
annum is contingent ("Contingent Base Interest"). The Company has not
generated a sufficient level of Net Cash Flow to incur or pay Contingent
Base Interest (interest in excess of 4%) on the COLAs from 1990 through
2001. Due to the filing of the Reorganization Case, the holders of COLAs
will have a claim against the Debtors aggregating approximately $142,200
including accrued and unpaid interest. It is not expected that such claim
will be paid in full. From and after the filing of the Reorganization Case
in February 2002, the Company does not anticipate accruing any further
interest on the COLAs. Approximately $100,221 of cumulative deficiency of
deferred Contingent Base Interest related to the period from August 31,
1989 (Final Issuance Date) through December 31, 2001 has not been accrued
in the accompanying consolidated financial statements as the Company
believes that it is not probable at this time that any Contingent Base
Interest will ultimately be paid. The following table is a summary of
Mandatory Base Interest and Contingent Base Interest for the six months
ended June 30, 2002 and the year ended December 31, 2001:
Six Months The Year
Ended Ended
June 30, December 31,
2002 2001
----------- ------------
Mandatory Base Interest paid. . . . . . . $ -- 5,576
Contingent Base Interest due and paid . . -- --
Cumulative deferred Contingent Base
Interest. . . . . . . . . . . . . . . . $ -- 100,221
Net Cash Flow was $0 for 2001 and is expected to be $0 for 2002.
As of June 30, 2002, the Company had approximately 155,271 Class A
COLAs and approximately 123,554 Class B COLAs outstanding, with a principal
balance of approximately $77,635 and $61,778, respectively.
The Company decided to forego contracting for independent appraisals
to determine the appraised value of substantially all of its assets as of
December 31, 2000. Not obtaining appraisals, with the resultant inability
to provide an Officers' Certificate determining the Value Maintenance
Ratio, could become an event of default, as defined by the Indenture. The
Company received a Notice of Default on June 1, 2001 from the Trustee
regarding the Company's non-delivery of the appraisals and Value
Maintenance Ratio. On October 18, 2001, the Trustee notified the Company
that it had failed to cure the Default described in the June 1, 2001 notice
and that an Event of Default exists. The notice acknowledged that the
Company intended to propose a restructuring of the COLAs subject to
resolution of defaults under the ERS loan. The Trustee indicated that it
expected to participate in the review and discussion of the terms of any
proposed restructuring and has been in contact with the Company regarding
due diligence relating to such review.
AMFAC HAWAII, LLC
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands)
During the fourth quarter of 2001, the Trustee commenced its due
diligence review and entered into discussions with the Company and the
holders of the Senior Debt. In connection with such negotiations, the
Company agreed to pay the reasonable costs incurred by the Trustee
(primarily legal fees and the fees and expenses incurred by the Trustee's
financial advisor) for such review and negotiations. Such negotiations
resulted in agreement between the Company and the Trustee on a framework
for a plan of reorganization (the "Plan") and a commitment by the Trustee
to support confirmation of such Plan in the Reorganization Case. The Plan
and a supporting disclosure statement (the "Disclosure Statement") were
filed initially with the Bankruptcy Court on April 23, 2002, were amended
and restated by a later filing on May 10, 2002 and were further amended and
restated by a later filing on June 11, 2002. Such amended and restated
Plan and Disclosure Statement are filed as exhibits to this report and
reference is made thereto for a description of the terms of the Plan and
significant considerations in connection therewith. A hearing to consider
whether the Disclosure Statement contained adequate information was held on
June 6, 2002. Following such hearing, the Plan was submitted to holders of
unpaid claims including COLA holders for approval in accordance with the
Bankruptcy Code. The solicitation of votes for plan approval resulted in
overwhelming support for the Plan by those COLA Holders and other creditors
that voted on or prior to the July 18, 2002 voting deadline, and,
thereafter, on July 29, 2002, such Plan was confirmed by the Bankruptcy
Court. There are conditions to the effectiveness of the Plan, and it is
currently anticipated that the conditions will be satisfied, and the Plan
will become effective, prior to the end of the third quarter of 2002.
As a consequence of the filing of the Chapter 11 cases on February 27,
2002, the interest payment on the COLAs that was due on February 28, 2002
was not made. On March 11, 2002 the Trustee sent to the Company and COLA
holders a "Notice of Chapter 11 Filing, Non-Payment of Scheduled Interest
Payment, and Negotiation of Term Sheet with Respect to Treatment of
Noteholder and Other Claims." The notice stated, among other things, that
the Chapter 11 filing and the failure to pay interest on the scheduled debt
service date, constitute Events of Default under Section 7.01 of the
Indenture. Section 7.05 of the Indenture provides that the Noteholders
holding a majority in principal amount of outstanding Notes may direct the
Trustee as to the time, method, and place of conducting any proceeding for
any remedy available to the Trustee. The Noteholders' ability to direct
the Trustee is subject to Sections 7.06 and 8.02 of the Indenture, which
state that the Noteholders must provide the Trustee with reasonable
indemnity before the Trustee need follow the direction of the Noteholders.
The exercise of remedies by the Trustee is also subject to the automatic
stay imposed on all creditors under Section 362 of the United States
Bankruptcy Code. As a consequence of the confirmation of the Plan, it is
anticipated that the Indenture will be terminated on the Plan effective
date.
The terms of the Indenture place certain restrictions on the Company's
declaration and payment of dividends. Such restrictions generally relate to
the source, timing and amounts which may be declared and/or paid. The COLAs
also impose certain restrictions on, among other things, the creation of
additional indebtedness for certain purposes, the Company's ability to
consolidate or merge with or into other entities, and the Company's
transactions with affiliates.
AMFAC HAWAII, LLC
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands)
(4) LONG-TERM DEBT
In December 1996, Amfac Property Development Corp. ("APDC"), a wholly-
owned subsidiary of the Company, obtained a $10,000 loan facility from City
Bank. The loan which had been extended through December 1, 2000 with
certain modifications, is secured by a mortgage on certain property under
development at the Oahu Sugar mill-site (the sugar plantation was closed in
1995), and is "Senior Indebtedness" (as defined in the Indenture). Such
extended loan bore interest at the bank's base rate plus 1.25%. In January
2001, APDC reached an agreement with the Bank for an extension until
December 1, 2001 with a principal payment of $150 upon execution of the
agreement leaving a remaining outstanding principal balance of $2,850. On
December 1, 2001, APDC reached an agreement with the bank for an additional
extension until March 1, 2002. APDC continued talks with the bank for a
further extension and renegotiation of the loan and in June 2002, the loan
was extended until December 1, 2002. The extended loan bears interest at
the bank's base rate (4.75% at June 30, 2002) plus 2%. APDC does not have
the funds necessary to pay the remaining balance of the loan without sale
of the remaining mill site land. If such loan cannot be further extended,
it would likely result in APDC no longer having an ownership interest in
the property.
In February 1997, Waikele Golf Club, Inc. ("WGCI"), a wholly-owned
subsidiary of the Company that owned and operated the Waikele Golf Course,
refinanced the Waikele Golf Club in 1997 with a loan facility with the Bank
of Hawaii (as agent for itself and other lenders) in the original principal
amount of $25,000. This loan facility had a maturity date of February
2007, an interest rate of LIBOR plus 2% until the fifth anniversary and
LIBOR plus 2.25% thereafter, principal amortization based on a 30-year
amortization period, was secured by substantially all of the assets of
Waikele Golf Club, Inc., was guaranteed by AHI and was "Senior
Indebtedness" (as defined in the Indenture). At that level of
indebtedness, it was not anticipated that the cash flow of the golf course
could continue to service the debt. In an effort to renegotiate the loan,
the Company commenced discussions with the lender during the third quarter
of 2001. As a result of such negotiations, the lenders agreed to sell the
loan to the Company, at a substantial discount, for a purchase price of
$13,000 and released AHI from its guarantee obligation. The purchase price
approximated the fair market value of the golf course at the time. The
loan purchase agreement also gave the Company the option to simply pay off
the loan at the discounted amount. Though the Company had sufficient cash
to close the sale, it was necessary for it to recover such amount promptly
in order to replenish its cash balances to pay its other obligations and
pursue its business plan. Therefore, the Company entered into a sale
agreement with a newly formed subsidiary of Northbrook, whereby such
subsidiary agreed to purchase the golf course from the Company for $13,000.
Such transactions closed in December 2001, at which time the Company paid
off the Bank of Hawaii loan for $13,000 immediately prior to the purchase
of the property by such subsidiary. The outstanding balance on the Bank of
Hawaii loan on the closing date was approximately $23,800. This transaction
resulted in a loss of $15,137 to the Company for financial reporting
purposes, and a $10,653 extraordinary gain from extinguishment of debt was
also recognized.
AMFAC HAWAII, LLC
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands)
(5) SEGMENT INFORMATION
Agriculture, Property and Golf comprise separate industry segments of
the Company. Operating Income (Loss)-Other consists primarily of
unallocated overhead expenses and Total Assets-Other consists primarily of
cash and deferred expenses. Total assets at the balance sheet dates and
capital expenditures, operating income (loss) and depreciation and
amortization during the six months ended June 30, 2002 and 2001 are set
forth below by each industry segment:
June 30, December 31,
2002 2001
--------- ------------
Total Assets:
Agriculture . . . . . . . . . . . . . . $ 63,322 64,760
Property. . . . . . . . . . . . . . . . 68,856 67,410
Golf. . . . . . . . . . . . . . . . . . -- --
Other . . . . . . . . . . . . . . . . . 14,190 21,819
-------- --------
$146,368 153,989
======== ========
Six Months Ended
June 30,
------------------------
2002 2001
-------- --------
Capital Expenditures:
Agriculture . . . . . . . . . . . . . . $ -- 5
Property. . . . . . . . . . . . . . . . -- --
Golf. . . . . . . . . . . . . . . . . . -- 24
-------- --------
$ -- 29
======== ========
Operating income (loss):
Agriculture . . . . . . . . . . . . . . $ 2,325 100
Property. . . . . . . . . . . . . . . . (1,983) 564
Golf. . . . . . . . . . . . . . . . . . -- 200
Other . . . . . . . . . . . . . . . . . (1,447) (1,581)
-------- --------
$ (1,105) (717)
======== ========
Depreciation and amortization:
Agriculture . . . . . . . . . . . . . . $ 727 1,189
Property. . . . . . . . . . . . . . . . 42 42
Golf. . . . . . . . . . . . . . . . . . -- 432
Other . . . . . . . . . . . . . . . . . -- --
-------- --------
$ 769 1,663
======== ========
The above information includes the results of operations of the
Waikele Golf Club for the six months ending June 30, 2001. Total assets
above do not reflect assets relating to Waikele Golf Club as of June 30,
2002 and December 31, 2001.
AMFAC HAWAII, LLC
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands)
(6) TRANSACTIONS WITH AFFILIATES
Due to the filing of the Reorganization Case and the confirmation of
the Plan, the Company does not expect to pay the Qualified Allowance (as
defined in the Indenture) that could, under certain circumstances, have
become payable to JMB Realty Corporation ("JMB"), an affiliate of the
Company, under the Indenture. Accordingly, the Company has not accrued any
amount for its Qualified Allowance in the accompanying consolidated
financial statements. However, the Company continues to receive and pay for
services from JMB under a service agreement by which JMB provides certain
advisory and administrative services.
The Company, its subsidiaries and their joint ventures reimburse
Northbrook, JMB and their affiliates for direct expenses incurred on their
behalf, including salaries and salary-related expenses incurred in
connection with the management of the Company's or its subsidiaries' and
the joint ventures' operations. The total of such costs for the six months
ended June 30, 2002 and 2001 was approximately $461 and $694, respectively,
of which $228 was unpaid as of June 30, 2002. All amounts described above
are deferred or currently payable and do not bear interest. In addition, as
of June 30, 2002, the current portion of amounts due to affiliates includes
$9,106 and $2,009 of income tax payable related to the Class A COLA
Redemption Offer and Class B COLA Redemption Offer, respectively (see Note
3). Also, the Company pays a non-accountable reimbursement of
approximately $30 per month to JMB or its affiliates in respect of general
overhead expense, all of which was paid as of June 30, 2002.
JMB Insurance Agency, Inc., an affiliate of JMB, earns insurance
brokerage commissions in connection with providing the placement of
insurance coverage for certain of the properties and operations of the
Company. Such commissions are comparable to those available to the Company
in similar dealings with unaffiliated third parties. The total of such
commissions for the six months ended June 30, 2002 and 2001 was
approximately $72 and $124, respectively, and were generally paid by the
Company's third party insurance carriers out of premiums received from the
Company for such coverage.
Northbrook and its affiliates allocated certain charges for services
to the Company based upon the estimated level of services for the six
months ended June 30, 2002 and 2001 of approximately $71 and $75,
respectively, of which $309 (including charges from periods prior to June
30, 2002) was unpaid as of June 30, 2002. These services and costs are
intended to reflect the Company's separate costs of doing business and are
principally related to the inclusion of the Company's employees in the
Northbrook pension plan, payment of severance and termination benefits and
reimbursement for insurance claims paid on behalf of the Company. All
amounts described above are deferred or currently payable and do not bear
interest.
AMFAC HAWAII, LLC
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands)
Under a tax agreement with Northbrook, the Company and its
subsidiaries are responsible for paying their own income taxes on taxable
income generated in 2001 and thereafter. Northbrook has agreed to
contribute the replacement Senior Debt it holds, dated December 29, 2000,
with an outstanding balance of principal and interest of $27,773 on
December 31, 2006, if the new tax agreement remains in effect at that time.
However, due to the filing of the Chapter 11 cases, such note is in default
and Northbrook is entitled to make a claim thereon. The Senior Debt notes
held by Northbrook and its affiliates also require the Company and
subsidiaries to make prepayment amounts on the Senior Debt notes of net
property sale proceeds remaining after providing reserves for anticipated
cash needs for the 12 months following the property sales. As a result of
property sales in 2001, prepayments aggregating $9,500 were made on the
Senior Debt in 2001. (See note 2 for a further description of the Senior
Debt.)
In connection with the restructuring of the Company's Senior Debt held
by Northbrook and its affiliates in December 2000, Northbrook agreed that
it would cause the Northbrook sponsored pension plan to provide early
retirement window benefits that reduced the Company's cash requirements
relative to the shutdown of the remaining sugar plantations on Kauai.
Approximately $5,545 of such benefits were paid by the pension plan in
2000, which were treated as a capital contribution to the Company by
Northbrook. An additional $4,200 of anticipated benefits were reflected as
a liability at December 31, 2000, to be reflected as additional capital
contributions when such benefits were paid by the plan. As of December 31,
2001, an additional $3,222 of such benefits had been paid and therefore
were added to capital during 2001. The remaining $978 is reflected as a
liability at June 30, 2002 in the accompanying financial statements. Such
restructuring also required the Company to reserve $8,000 as restricted
cash for the purpose, among other things, of meeting certain liabilities.
The balance of such restricted cash is $5,804 at June 30, 2002.
Reference is made to Note 2 - Amounts Due to Affiliates - Senior Debt
Financing.
(7) EMPLOYEE BENEFIT PLANS
The Company participates in retirement benefit plans sponsored and
maintained by Northbrook covering employees of Northbrook and certain of
its affiliates including substantially all of the Company's employees.
These plans provide benefits based primarily on length of service and
compensation levels.
In addition to providing pension benefits, the Company currently
provides certain healthcare and life insurance benefits to eligible retired
employees of some of its businesses. Where such benefits are offered,
substantially all employees may become eligible for such benefits if they
reach a specified retirement age while employed by the Company and if they
meet a certain length of service criteria. The postretirement healthcare
plan is contributory and contains cost-sharing features such as deductibles
AMFAC HAWAII, LLC
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands)
and copayments. However, these features, as they apply to bargaining unit
retirees, are subject to collective bargaining provisions of a labor
contract between the Company and the International Longshoremen's &
Warehousemen's Union. The postretirement life insurance plan is
non-contributory. The Company continues to fund benefit costs for both
plans on a pay-as-you-go basis. Depending upon the outcome of the
Reorganization Case, the Company expects to continue funding its post-
retirement health care obligations through the end of 2004, and its post-
retirement life insurance benefits until the Company determines to
terminate such benefit program.
The amount of the decrease related to the Maintenance of Effort
Obligation recognizes that the requirement to maintain an average level of
certain retiree health care benefits expires in 2004. Such obligations are
pursuant to collectively bargained contractual obligations of Lihue
Plantation Company, Limited, Pioneer Mill Company, Limited and Oahu Sugar
Company, Limited. Though the contractual obligation to fund such benefits
for retirees of Puna Sugar Company, Limited has expired, the Company
currently expects to continue such benefits through 2004 to the extent
required to satisfy certain regulatory requirements.
The Company currently amortizes unrecognized gains over the shorter of
ten years or the average life expectancy of the inactive participants since
almost all of the Plans' participants are inactive. The portion of the
unrecognized net actuarial gain represented by the decrease in the
Maintenance of Effort obligation is expected to be amortized over four
years, commencing in 2001. In addition, due to the significant total
amount of unrecognized gain at June 30, 2002, which is included in the
financial statements as a liability, and the disproportionate relationship
between the unrecognized gain and accumulated postretirement benefit
obligation at June 30, 2002, the Company may, in the future, change its
amortization policy to accelerate the recognition of the unrecognized gain.
In considering such change, the Company would need to determine whether
significant changes in the accumulated postretirement benefit obligation
and unrecognized gain may occur in the future as a result of changes in
actuarial assumptions, experience and other factors. Any future change to
accelerate the amortization of the unrecognized gain would have no effect
on the Company's cash flows, but could have a significant effect on its
statement of operations.
(8) COMMITMENTS AND CONTINGENCIES
The Company faces a severe liquidity shortage that ultimately resulted
in the filing of the Reorganization Case in February 2002. The Company
sold a portion of its North Beach property on Maui in the fourth quarter of
2000, a parcel on Maui near Lahaina in the first quarter of 2001, a parcel
in Hanamaulu, Kauai also in the first quarter of 2001, additional parcels
in Hanamaulu, Kauai in the second quarter of 2001 and additional parcels in
Hanamaulu and Lihue on Kauai in the third quarter of 2001, which provided
funds to the Company to help meet its short term liquidity needs. Some of
such funds were used to satisfy Senior Debt prepayments as demanded by the
holders of such Senior Debt. However, the Company believes that, in the
absence of additional land sales, additional senior debt borrowings from
Northbrook or its affiliates would have been necessary to meet its current
COLA-related obligations and its short-term and long-term liquidity needs.
As Northbrook and such affiliates are unwilling to provide additional
liquidity to the Company in the absence of
AMFAC HAWAII, LLC
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands)
an overall restructuring of substantially all of the Company's debt, the
AHI Debtors were forced to seek relief from the Bankruptcy Court to reduce
their debt to manageable levels and give themselves the opportunity to
pursue their land development and sales activities in a manner intended to
maximize the value of the Company's remaining land assets.
On February 27, 2002, AHI and the other Debtors filed separate
petitions for voluntary relief under Chapter 11 of the U.S. Bankruptcy
Code. The other Debtors include FHT, which is a subsidiary of Northbrook
but not a subsidiary of AHI, and the following direct and indirect
subsidiaries of AHI (together with AHI, the "AHI Debtors"), some of which
are Registrants: Amfac Land Company, Limited, Pioneer Mill Company,
Limited, The Lihue Plantation Company, Limited, Kaanapali Estate Coffee,
Inc., KDCW, Inc., Amfac Holdings Corp., Kaanapali Development Corp. and
Waikele Golf Club, Inc. Other subsidiaries and affiliates of AHI,
including for example Oahu Sugar Company, Limited, APIC and APDC, did not
file separate voluntary petitions.
At the time of the filing of the Reorganization Case, AHI had a total
outstanding Senior Debt obligation (principal and accrued interest) to
Northbrook and its affiliates of approximately $187,986 and its outstanding
COLA obligation (principal and accrued interest) totaled approximately
$142,185. Under the Indenture, the Senior Debt held by Northbrook and its
affiliates is senior to the COLAs. Moreover, as described below, the
Senior Debt is supported by mortgages and other security interests on
substantially all of the Company's real property and certain other assets.
These obligations were guaranteed by all of the Company's significant
subsidiaries, including those that are not AHI Debtors in the
Reorganization Case.
The total debt burden evidenced by these obligations alone had proved
unmanageable and was draining the Company of cash needed to pursue its
business plan, including entitling the Company's approximately 4,000
remaining acres "Mauka" of the Kannapali Resort area. During 2002,
additional interest payments on the COLAs were due in the aggregate amount
of approximately $5,577. In addition, substantial amounts of deferred
interest payments under the Senior Debt were also coming due. Because it
was evident that the Debtors would not have the cash resources to satisfy
their respective obligations, let alone to pursue the Company's business
plan, the Reorganization Case was filed in order to give the Debtors the
opportunity to restructure their debt and equity and emerge as a
reorganized group of companies. Thus, as a consequence of the filing, the
interest payment on the COLAs that was due on February 28, 2002 was not
made.
The Debtors and the holders of Senior Debt engaged in extensive
negotiations with the Trustee during the months preceding the filing. Such
negotiations included the Trustee hiring legal counsel and a financial
advisor to perform due diligence concerning the Debtors' assets. Such
negotiations resulted in the agreement of the Trustee and the Debtors on
the framework for a plan. A copy of the notice that the Trustee sent to
all holders of COLAs that describe such negotiations was reported by the
Company on a Form 8-K on March 20, 2002. The Debtors initially filed their
proposed Plan and supporting Disclosure Statement with the Bankruptcy Court
AMFAC HAWAII, LLC
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands)
on April 23, 2002, amended and restated the Plan and Disclosure Statement
by a later filing on May 10, 2002 and further amended and restated the Plan
and Disclosure Statement by a later filing on June 11, 2002. A hearing to
consider whether the Disclosure Statement contained adequate information
was held on June 6, 2002. Following such hearing, the Plan was submitted
to holders of unpaid claims, including COLA holders, for approval in
accordance with the Bankruptcy Code. The solicitation of votes for Plan
approval resulted in overwhelming support for the Plan by those COLA
holders and other creditors that voted on or prior to the July 18, 2002
voting deadline, and, thereafter, on July 29, 2002, such Plan was confirmed
by the Bankruptcy Court. There are conditions to the effectiveness of the
Plan, and it is currently anticipated that the conditions will be
satisfied, and the Plan will become effective, prior to the end of the
third quarter of 2002. The Plan and Disclosure Statement, as amended, and
as confirmed by the Bankruptcy Court on July 29, 2002, will (subject to any
later modifications that may be approved by the Bankruptcy Court) govern
the reorganization of the Debtors.
In the meantime, the filing of the Reorganization Case has stayed all
pending litigation against the Debtors. Though the Bankruptcy Court has
entered certain orders at the request of the Debtors that permit them to
pay certain "pre-petition" amounts and otherwise operate at their
discretion in the ordinary course of business, the Debtors intend to
carefully review all of their options in that regard. The Debtors continue
to operate their business after the filings in the ordinary course, subject
to the jurisdiction of the Bankruptcy Court and the requirements of the
Bankruptcy Court and the rules thereunder.
In late July 2002, the Internal Revenue Service ("IRS") delivered to
the Company a proof of claim in connection with the Reorganization Case.
The IRS proof of claim asserts unsecured priority claims totaling
approximately $19,200 with respect to unassessed tax liabilities against
the Company for the period 1998-2000, as well as unsecured general claims
of approximately $1,400 relating to penalties on the unsecured priority
claims, including interest thereon. The Company is a wholly-owned
subsidiary of Northbrook and joined in Northbrook's consolidated return
and, accordingly, severally liable for the payment of taxes owed by the
consolidated Northbrook group. The IRS audit for the period 1998-2000, is
at its earliest stage, and the Company believes that the IRS has not as yet
examined any tax assessment issues in detail. The Company intends to
contest vigorously any liability for additional taxes asserted by the IRS.
However, there can be no assurance as to the ultimate outcome of this
matter.
In the third quarter of 2000, management announced the shutdown of its
remaining sugar plantations on Kauai. The decision was made as a result of
significant losses incurred during 2000, and the expectation that such
losses would continue for the foreseeable future. The losses resulted from
a significant drop in the domestic price of raw sugar and lower sugar
yields, together with labor costs that were significantly in excess of
those borne by other non-Hawaiian sugar producers supplying the domestic
market. The Company completed its final harvest of sugar cane in November
2000. As a consequence of the shutdown, the Company incurred significant
employee and other closing costs in 2000 and 2001. The Company sold
certain of its field and mill equipment associated with the closed
facilities during 2001 and the first quarter of 2002, but due to the age
and condition of the equipment, the forced nature of the sale and
significant transaction costs, the Company did not obtain significant net
proceeds from such sales.
AMFAC HAWAII, LLC
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands)
In the third quarter of 2001, management announced its intention to
discontinue coffee farming activities based upon the Company's prior
financial losses (which were expected to continue for the foreseeable
future), high production costs and current economic uncertainties including
record-low commodity coffee prices. Such events have entailed employee and
closing costs similar to, though not as substantial as, those connected
with the shutdown of the Company's sugar operations.
The Company faces large contingent cash expenditures relating to (i)
the cost of the Reorganization Case and the resolution of claims made
thereunder, (ii) the cost of the litigation and environmental matters
described below and (iii) the cost of environmental clean up relating to
the land and mill sites associated with Oahu, Kekaha, Lihue and Pioneer
Mill plantations and buildings which could be significant but are presently
not determinable. It is difficult to predict the ultimate outcome of these
various contingencies, any of which could have a material adverse effect on
the financial condition of the Company. However, some of such matters have
been stayed by the filing of the Reorganization Case and others are likely
to be reduced due to the confirmation of the Plan by the Bankruptcy Court.
As a consequence of the shutdown of the Company's sugar operations on
Kauai, Gay & Robinson, Inc. ("G&R") is the sole remaining sugar grower on
the island. In April 2001, the Company entered into a series of Agreements
with G&R, and Hawaii Sugar and Transportation Cooperative ("HSTC"), of
which G&R is a member, whereby (1) G&R would sell and deliver bagasse (a
sugar byproduct) to the Company (as available) for the Company to burn to
generate electric power at the Lihue Plantation power plant, as required by
the Company's power purchase agreement with Kauai Electric (the "PPA"), (2)
the Company would store the raw sugar and molasses produced by G&R and sold
to HSTC in the Company's storage facility in Lihue, subject to a contract
with HSTC and a guaranty of such contract and indemnification by G&R, and
(3) the Company would grant G&R an option to purchase the storage facility
at fair market value, so long as the option was exercised before July 31,
2001. G&R provided the Company with notice that it intended to exercise
the option, which triggered an arbitration process that resulted in a sale
price for the facility of $2,300. The sale of the storage facility closed
in October 2001. As a result of the sale, a $2,300 payment was made by
AHI, during October 2001, on the note payable to Northbrook and secured by
AHI's interest in the North Beach property (see note 2).
As reflected in the Company's June 30, 2002, balance sheet,
approximately $185,256 of Senior Debt owed to affiliates of the Company is
categorized as a current liability. The classification as a current
liability results from defaults that occurred under such Senior Debt due to
actions taken by ERS to realize upon indebtedness owed to it by the Company
and APIC, and due to the adverse verdict in the Oahu Sugar V. Arakaki and
Swift lawsuit described under Part II. "Legal Proceedings". Under the
Restructuring Agreement, effective as of December 29, 2000, among the
Company, certain of the Company's subsidiaries and certain holders of
Senior Debt affiliated with Northbrook, the parties had agreed that the
defaults described above would continue but that the Senior Debt holders
would not exercise their remedies against the Company and its subsidiaries
based upon those defaults until either ERS obtains a judgment, or attempts
to exercise certain remedies, against the Company, or unless necessary to
protect the holders' superior rights under the Senior Debt against the
plaintiffs in the Swift/Arakaki lawsuit. It is anticipated that the claims
of the holders of the Senior Debt will be resolved in the Reorganization
Case as to the Debtors. As to entities that are not Debtors but that are
liable on the Senior Debt, there can be no assurance that the Senior Debt
holders will not pursue their remedies under the Senior Debt, either
because of actions by ERS or the opponents in the Swift/Arakaki lawsuit or
because of additional defaults arising under the Senior Debt.
AMFAC HAWAII, LLC
Notes to Consolidated Financial Statements - Continued
(Dollars in Thousands)
In 2000, the Company borrowed approximately $5,576 from Northbrook for
purposes of satisfying the Mandatory Base Interest payments related to the
COLAs due in 2000. During 2000, the Company borrowed an additional $4,300
from Northbrook to fund capitalizable property development and agriculture
disbursements. The borrowings were repaid with interest in January 2001.
To the extent that Northbrook or its affiliates made such borrowings
available to the Company during 2000, any such borrowings were required
(i) to be "Senior Indebtedness" (as defined in the Indenture), (ii) to
accrue interest at the rate of prime plus 1%, and (iii) to have principal
and interest fully repayable by February 28, 2001 (see Note 2 for a
description of the amendments to such notes). Moreover, as a condition to
the additional Senior Debt loans made by Northbrook and its affiliates
commencing in 1999, the Company agreed to make all of the remaining
unencumbered real and personal property assets of the Company security for
all of the Senior Debt held by Northbrook and its affiliates. All such
Senior Debt, which as of June 30, 2002 had an outstanding balance of
principal and accrued interest of approximately $187,996 is senior in
priority to the COLA's and is guaranteed by each of AHI and its
subsidiaries (except Waikele Golf Club, Inc. due to provisions of the third
party debt owed by that Company prior to its sale of the Waikele Golf Club
in December 2001).
The Company's Property segment had contractual commitments (related to
project costs) of approximately $3,449 as of June 30, 2002. Additional
development expenditures are dependent upon the Company's ability to obtain
financing for such costs and on the timing and extent of property
development and sales.
As of June 30, 2002, certain portions of the Company's land not
currently under development are mortgaged as security for approximately
$423 of performance bonds related to property development.
(9) INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
The amount of temporary differences related to APIC's assets and
liabilities, is reflected in the consolidated financial statements as a
deferred tax liability at 16.67% in the Company's Investment in
unconsolidated entity, at equity.
The statutes of limitations with respect to Northbrook's tax returns
for the years 1998 through 2001 remain open. The Company is a subsidiary
of Northbrook and accordingly is subject to tax liability exposure due to
the several nature of the liability for the payment of taxes for entities
filing consolidated tax returns and will generally be protected for years
through 2000 by Northbrook respecting the tax liabilities for such years
generated by Northbrook and its consolidated affiliates rather than the
Company.
For taxable years commencing in 2001, the Company will be responsible
for paying their own income taxes on taxable income generated in 2001 and
thereafter.
(10) SUBSEQUENT EVENT
On July 29, 2002, the Company's Plan of Reorganization was confirmed
by the U.S. Bankruptcy Court. See Notes 1 and 3 for further discussion of
such confirmation.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
General
In addition to historical information, this Quarterly Report contains
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act 1995. These statements are based on management's
current expectations about its businesses and the markets in which the
Company operates. Such forward-looking statements are not guarantees of
future performance and involve known and unknown risks, uncertainties or
other factors which may cause actual results, performance or achievements
of the Company to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Actual operating results may be affected by various factors
including, without limitation, changes in national and Hawaiian economic
conditions, competitive market conditions, uncertainties and costs related
to and the imposition of conditions on receipt of governmental approvals
and costs of material and labor, all of which may cause such actual results
to differ materially from what is expressed or forecast in this report.
Reorganization Case
On February 27, 2002, AHI and the other Debtors filed separate
petitions for voluntary relief under Chapter 11 of the U.S. Bankruptcy
Code. The other Debtors include FHT, which is a subsidiary of Northbrook
and holder of Senior Debt, but not a subsidiary of AHI and not a guarantor
of the COLAs, and the following direct and indirect subsidiaries of AHI
(together with AHI, the "AHI Debtors"), some of which are Registrants:
Amfac Land Company, Limited, Pioneer Mill Company, Limited, The Lihue
Plantation Company, Limited, Kaanapali Estate Coffee, Inc., KDCW, Inc.,
Amfac Holdings Corp., Kaanapali Development Corp. and Waikele Golf Club,
Inc. Other subsidiaries and affiliates of AHI, including for example Oahu
Sugar Company, Limited, APIC and APDC, did not file separate voluntary
bankruptcy petitions.
At the time of the filing of the Reorganization Case, AHI had a total
outstanding Senior Debt obligation (principal and accrued interest) to
Northbrook and its affiliates of approximately $188 million and its
outstanding COLA obligation (principal and accrued interest) totaled
approximately $142 million. Under the Indenture, the Senior Debt held by
Northbrook and its affiliates is senior to the COLAs. Moreover, as
described below, the Senior Debt is supported by mortgages and other
security interests on substantially all of the Company's real property and
certain other assets. These obligations were guaranteed by all of the
Company's significant subsidiaries, including those that are not AHI
Debtors in the Reorganization Case.
The total debt burden evidenced by these obligations alone had proved
unmanageable and was draining the Company of cash needed to pursue its
business plan, including entitling the Company's approximately 4,000
remaining acres "Mauka" of the Kannapali Resort area. During 2002,
additional interest payments on the COLAs were due in the aggregate amount
of approximately $5.6 million. In addition, substantial amounts of
deferred interest payments under the Senior Debt were also coming due.
Because it was evident that the Debtors would not have the cash resources
to satisfy their respective obligations, let alone to pursue the Company's
business plan, the Reorganization Case was filed in order to give the
Debtors the opportunity to restructure their debt and equity and emerge as
a reorganized group of companies. Thus, as a consequence of the filing,
the interest payment on the COLAs that was due on February 28, 2002 was not
made.
The Debtors and the holders of Senior Debt engaged in extensive
negotiations with the Trustee during the months preceding the filing. Such
negotiations included the Trustee hiring legal counsel and a financial
advisor to perform due diligence concerning the Debtors' assets. Such
negotiations resulted in the agreement of the Trustee and the Debtors on
the framework for a plan. A copy of the form of notice that the Trustee
sent to all holders of COLAs that describes such negotiations was reported
by the Company on a Form 8-K on March 20, 2002. The Debtors initially
filed their proposed Plan and supporting Disclosure Statement with the
Bankruptcy Court on April 23, 2002, amended and restated the Plan and
Disclosure Statement by a later filing on May 10, 2002 and further amended
and restated the Plan and Disclosure Statement by a later filing on June
11, 2002. A hearing to consider whether the Disclosure Statement contained
adequate information was held on June 6, 2002. Following such hearing, the
Plan was submitted to holders of unpaid claims, including COLA holders, for
approval in accordance with the Bankruptcy Code. The solicitation of votes
for Plan approval resulted in overwhelming support for the Plan by those
COLA holders and other creditors that voted on or prior to the July 18,
2002 voting deadline, and, thereafter, on July 29, 2002, such Plan was
confirmed by the Bankruptcy Court pursuant to an Order Confirming Second
Amended Joint Plan of Reorganization Dated June 11, 2002 (the "Order"). A
copy of the Order, and the Plan which is an exhibit thereto, are filed as
exhibits to this report. The Order and the Plan are incorporated herein by
reference. There are conditions to the effectiveness of the Plan, and it
is currently anticipated that those conditions will be satisfied, and the
Plan will become effective, prior to the end of the third quarter of 2002.
The Plan and Disclosure Statement, as amended, and as confirmed by the
Bankruptcy Court on July 29, 2002, will (subject to any later modifications
that may be approved by the Bankruptcy Court) govern the reorganization of
the Debtors.
Pursuant to the terms and conditions of the Plan and except as
otherwise provided in the Plan or the Order, the Debtors shall continue to
exist after the effective date of the Plan (the "Effective Date") as
separate legal entities. Except as otherwise provided in the Order or the
Plan, the Debtors will be discharged from all claims and liabilities
existing through the Effective Date of the Plan. As such, all persons and
entities shall be precluded from asserting any claims against the Debtors
or the assets of the Debtors for any acts, omissions, liabilities,
transactions or activities that occurred before the Effective Date.
On or prior to the Effective Date and as a condition precedent to the
other transactions contemplated by the Plan, Northbrook Corporation, the
sole member of the Company, shall merge with and into FHT Corporation, with
FHT Corporation being the survivor. Pursuant to the Plan and the
Northbrook Merger Agreement, FHT Corporation shall issue (i) one Class A
share to the COLA Holders (other than the AF Investors, LLC) per $500
principal amount of COLAs in full satisfaction of all principal and accrued
interest therein, and one Class A Share to general unsecured creditors of
the Debtors that elect (or are deemed to have elected) to receive Class A
Shares pursuant to the Plan on an equivalent basis per dollar of claim as
the COLA Holders and (ii) Class B Shares to the holders of the Senior Debt
of the Company, to AF Investors, LLC, an affiliate of Northbrook, as the
holder of COLAs, and to the sole stockholder of Northbrook. Following the
issuance of the Class A Shares and the Class B Shares by FHT Corporation,
FHT Corporation shall be merged with and into Kaanapali Land, LLC, with
Kaanapali Land, LLC being the survivor. Pursuant to the Plan and the
Kaanapali Land Merger Agreement, each outstanding Class A Share of FHT
Corporation shall be converted into the right to receive one Class A Share
of Kaanapali Land, LLC and each outstanding Class B Share of FHT
Corporation shall be converted into the right to receive one Class B Share
of Kaanapali Land, LLC; provided however, that pursuant to the terms and
conditions of the Plan, the COLA Holders (other than AF Investors, LLC) may
elect to receive an amount equal to $35 per Class A COLAs or Class B COLAs
(provided that in no event will Kaanapali Land, LLC be required to pay more
than $5.172 million in the aggregate to COLA Holders that elect to receive
the cash distribution), and the holders of allowed general unsecured
creditor claims (other than Affiliates of the Debtors) entitled to receive
Class A Shares of Kaanapali Land, LLC may elect to receive a cash payment
from Kaanapali Land, LLC equal to 15% of such holder's allowed claim,
provided in no event shall Kaanapali Land, LLC be required to pay more than
$.5 million in the aggregate to holders of general unsecured creditor
claims that elect to receive such ash distribution). A bar date for
creditors generally to file claims against the Debtors has been established
as August 30, 2002. COLA Holders need not file proof of claim forms as the
Indenture Trustee has already done so on their behalf.
The Effective Date of the Plan is conditioned upon the occurrence of
certain events as set forth in the Plan and the Order. The required
conditions and the Effective Date have not yet occurred. The Company
anticipates the Effective Date to occur prior to the end of the third
quarter of 2002.
The Company's membership interest is not traded on a public market.
The sole member of the Company, Northbrook Corporation, has one shareholder
who owns 3,990.9483 shares of common stock. The Plan does not require a
reserve of shares of Northbrook Corporation for future issuance in respect
of claims and interests filed and allowed under the Plan. Pursuant to the
Northbrook Merger Agreement and the Plan, all of the issued and outstanding
shares of common stock of Northbrook Corporation shall be cancelled and
retired without payment of any consideration, and, pursuant to the
Northbrook Merger Agreement and the Plan, the sole shareholder of
Northbrook Corporation shall receive Class B Shares of FHT Corporation.
The filing of the Reorganization Case has stayed all pending
litigation against the Debtors. Though the Bankruptcy Court has entered
certain orders at the request of the Debtors that permit them to pay
certain "pre-petition" amounts and otherwise operate at their discretion in
the ordinary course of business, the Debtors intend to carefully review all
of their options in that regard. The Debtors continue to operate their
business after the filings in the ordinary course, subject to the
jurisdiction of the Bankruptcy Court and the requirements of the Bankruptcy
Court and the rules thereunder.
As a consequence of the Chapter 11 filings, the Company has examined
its existing contractual relationships to determine which continuing
contracts should be assumed in order to facilitate the reorganization plan,
and which should be rejected to avoid expenses that would not contribute to
(and may hinder) a successful plan. Though debtors have generally
determined which contracts and leases to assume or reject, there remain a
few contracts that continue to be negotiated by the parties for potential
assumption subject to amendments or other concessions by the other party
thereto. To the extent that any such amendments are negotiated, they would
be subject to Bankruptcy Court approval prior to the effective date of the
Plan. There can be no assurance concerning the disposition of any
individual contract or the timing thereof.
COLA Related Obligations
The Company decided to forego contracting for independent appraisals
to determine the appraised value of substantially all of its assets as of
December 31, 2000. Not obtaining appraisals, with the resultant inability
to provide an Officers' Certificate determining the Value Maintenance
Ratio, could be an Event of Default, as defined by the Indenture. The
Company received a Notice of Default on June 1, 2001 from the Trustee
regarding the Company's non-delivery of the appraisals and Value
Maintenance Ratio. On October 18, 2001, the Trustee notified the Company
that it had failed to cure the Default described in the June 1, 2001 notice
and that an Event of Default exists. The notice acknowledged that the
Company intended to propose a restructuring of the COLAs subject to
resolution of defaults under the ERS loan. The Trustee indicated that it
expected to participate in the review and discussion of the terms of any
proposed restructuring and would be in contact with the Company regarding
due diligence relating to such review.
Significant Liquidity Events During Reporting Period
During the third quarter of 2000, management announced the shutdown of
its remaining sugar plantations on Kauai. The decision was made as a
result of significant losses incurred during 2000, and the expectation that
such losses would continue for the foreseeable future. The losses resulted
primarily from a significant drop in the domestic price of raw sugar and
lower sugar yields, together with labor costs that were significantly in
excess of those borne by other non-Hawaiian sugar producers supplying the
domestic market. The Company completed its final harvest of sugar cane in
November 2000. As a consequence of the shutdown, the Company incurred
significant employee and other closing costs in 2000 and 2001. The Company
sold certain of its field and mill equipment associated with the closed
facilities during 2001 and the first quarter of 2002, but due to the age
and condition of the equipment, the forced nature of the sale and
significant transaction costs, the Company did not obtain significant net
proceeds from such sales.
In the third quarter of 2001, management announced its intentions to
discontinue coffee farming activities based upon the Company's prior
financial losses (which were expected to continue for the foreseeable
future), high production costs and current economic uncertainties including
record-low commodity coffee prices. Such events have entailed employee and
closing costs similar to, though not as substantial, as those connected
with the shutdown of the Company's sugar operations.
As a consequence of the shutdown of the Company's sugar operations on
Kauai, G&R is the sole remaining sugar grower on the island. In April
2001, the Company entered into a series of Agreements with G&R, and Hawaii
Sugar and Transportation Cooperative ("HSTC"), of which G&R is a member,
whereby (1) G&R would sell and deliver bagasse (a sugar byproduct) to the
Company (as available) for the Company to burn to generate electric power
at the Lihue Plantation power plant, as required by the PPA, (2) the
Company would store the raw sugar and molasses produced by G&R and sold to
HSTC in the Company's storage facility in Lihue, subject to a contract with
HSTC and a guaranty of such contract and indemnification by G&R, and (3)
the Company would grant G&R an option to purchase the storage facility at
fair market value, so long as the option was exercised before July 31,
2001. G&R provided the Company with notice that it intended to exercise
the option, which triggered an arbitration process that resulted in a sale
price for the facility of $2.3 million. The sale of the storage facility
closed in October 2001. As a result of the sale, a $2.3 million payment
was made by AHI, in October 2001, on the note payable to Northbrook and
secured by AHI's interest in the North Beach Property (See Note 2).
The Company faces large contingent cash expenditures relating to (i)
the cost of the Reorganization Case and the resolution of claims made
thereunder, (ii) the cost of the litigation and environmental matters
described in Part II. Item 1. "Legal Proceedings" and (iii) environmental
clean up and other shutdown costs relating to the land and mill sites
associated with Oahu, Kekaha, Lihue and Pioneer Mill plantations and
buildings which could be significant but are presently not determinable.
It is difficult to predict the ultimate outcome of these various
contingencies, any of which could have a material adverse effect on the
financial condition of the Company. However, some of such matters have
been stayed by the filing of the Reorganization Case and others are likely
to be reduced due to the confirmation of the Plan by the Bankruptcy Court.
As reflected in the Company's June 30, 2002, balance sheet,
approximately $185 million of Senior Debt owed to affiliates of the Company
is categorized as a current liability. The classification as a current
liability results from defaults that occurred under such Senior Debt due to
actions taken by ERS to realize upon indebtedness owed to it, and due to
the adverse verdict in the Oahu Sugar V. Arakaki and Swift lawsuit
described under Part II. Item 1. "Legal Proceedings". Under the
Restructuring Agreement, effective as of December 29, 2000, among the
Company, certain of the Company's subsidiaries and certain holders of
Senior Debt affiliated with Northbrook, the parties had agreed that the
defaults described above would continue but that the Senior Debt holders
would not exercise their remedies against the Company and its subsidiaries
based upon those defaults until either ERS obtains a judgment, or attempts
to exercise certain remedies, against the Company, or unless necessary to
protect such holders' superior rights under the Senior Debt against the
plaintiffs in the Swift/Arakaki lawsuit. It is anticipated that the claims
of the holders of the Senior Debt will be resolved in the Reorganization
Case as to the Debtors. As to entities that are not Debtors but that are
liable on the Senior Debt, there can be no assurance that the Senior Debt
holders will not pursue their remedies under the Senior Debt, either
because of actions by ERS or the opponents in the Swift/Arakaki lawsuit or
because of additional defaults arising under the Senior Debt.
The Company sold a parcel on Maui near Lahaina in the first quarter of
2001, a parcel in Hanamaulu, Kauai, also in the first quarter of 2001,
additional parcels in Hanamaulu, Kauai in the second quarter of 2001,
additional parcels in Hanamaulu and Lihue on Kauai in the third quarter of
2001 and the Kauai Sugar Storage facility in Lihue in the fourth quarter of
2001 which provided funds to the Company to help meet its short-term
liquidity needs including mandatory prepayment on Senior Indebtedness.
However, the Company believed that in the absence of additional land and
business sales or financing from third parties (which has generally not
been obtainable), additional Senior Debt borrowings from Northbrook or its
affiliates were necessary to meet its COLA related obligations and long-
term liquidity needs. To the extent land sales did occur in 2001, any
funds received in excess of the Company's short-term needs have been used
to pay down Senior Debt in accordance with the debt restructure completed
in December 2000 (see Note 2). As a result of property sales in 2001,
prepayments were made during the third and fourth quarters of 2001.
However, as costs continued to outstrip revenues and sources of liquidity
were no longer available to the Company given its existing debt burden, the
Debtors determined it was necessary to seek financial relief through the
filing of the Reorganization Case, rather than expend its remaining cash
reserves to satisfy its debt service obligations.
During 2000, the Company borrowed approximately $5.6 million from
Northbrook for the Mandatory Base Interest payments related to the COLAs
due in 2000. During 2000, the Company borrowed an additional $4.3 million
from Northbrook to fund capitalizable property development and agriculture
disbursements. The borrowings were repaid with interest in January 2001.
To the extent that Northbrook or its affiliates made such borrowings
available to the Company during 2000, any such borrowings were required (i)
to be "Senior Indebtedness" (as defined in the Indenture), (ii) to accrue
interest at the rate of prime plus 1%, and (iii) to have principal and
interest fully repayable by February 28, 2001. (See Note 2 for a
description of the outstanding Senior Debt notes.) In October 2001, an
additional $0.2 million was funded. All such Senior Debt, which as of
June 30, 2002 had an outstanding balance of principal and accrued interest
of approximately $189.1 million, is senior in priority to the COLA's and is
guaranteed by each of the Registrants except Waikele Golf Club, Inc.
Prepayment of net property sale proceeds remaining after providing reserves
for anticipated cash needs for the twelve months following the property
sales may be required under the terms of the Senior Debt loans. Additional
interest may be payable on such Senior Debt upon its maturity based upon
fair market value, if any, of the Company's equity at that time.
During the year ended December 31, 2001, the Company made principal
and interest payments on Amounts Due Affiliates - Senior debt financing
aggregating $22.7 million which includes prepayments required from net
property sale proceeds discussed above.
The Waikele Golf Club had experienced a significant drop in play from
eastbound (primarily, Japanese) tour groups, which depressed rounds played,
average rate and, as a result, net operating income. In addition,
competition from other, both new and existing golf courses on Oahu, and
continuing softness in the Japanese tour group market thwarted the
Company's efforts to market the golf course in an effort to return it to
its previous level of profitability. The Company had refinanced the
Waikele Golf Club in 1997 with a loan facility with the Bank of Hawaii (as
agent for itself and other lenders) in the original principal amount of $25
million. This loan facility had a maturity date of February 2007, an
interest rate of LIBOR plus 2% until the fifth anniversary and LIBOR plus
2.25% thereafter, principal amortization based on a 30-year amortization
period, was secured by substantially all of the assets of Waikele Golf
Club, Inc., was guaranteed by AHI and was "Senior Indebtedness" (as defined
in the Indenture). At that level of indebtedness, it was not anticipated
that the cash flow of the golf course could continue to service the debt.
In an effort to renegotiate the loan, the Company commenced discussions
with the lender during the third quarter of 2001. As a result of such
negotiations, the lenders agreed to sell the loan to the Company, at a
substantial discount, for a purchase price of $13 million and release AHI
from its guarantee obligation. The purchase price approximated the fair
market value of the golf courses at the time. The loan purchase agreement
also gave the Company the option to simply pay off the loan at the
discounted amount. Though the Company had sufficient cash to close the
sale, it was necessary for it to recover such amount promptly in order to
replenish its cash balances to pay its other obligations and pursue its
business plan. Therefore, the Company entered into a sale agreement with a
newly formed subsidiary of Northbrook, whereby such subsidiary agreed to
purchase the golf course from the Company for $13 million. Such
transactions closed in December 2001, at which time the Company paid off
the Bank of Hawaii loan for $13 million immediately prior to the purchase
of the property by such subsidiary. The outstanding balance on the Bank of
Hawaii loan on the closing date was approximately $23.8 million.
In recent years, the Company has funded its significant cash
requirements primarily through Senior Debt borrowings from Northbrook and
its affiliates and from revenues generated by the development and sale of
its properties. Significant short-term cash requirements relate to the
funding of agricultural deficits including shut down costs related to the
Lihue and Kekaha sugar plantations, interest expenses and overhead
expenses. At June 30, 2002, the Company had unrestricted cash and cash
equivalents of approximately $4.7 million.
Though the Company continues to operate in the ordinary course of
business, the filing of the Reorganization Case in February 2002 and
subsequent confirmation by the U.S. Bankruptcy Court on July 29, 2002 means
that, subject to the effectiveness of the Plan (and subject to any later
modifications that may be approved by the Bankruptcy Court) the debt and
equity structures of the Debtors in such case will be reorganized pursuant
to the approved Plan. Reference is made to the discussion of the
Reorganization Case included above and to the Debtors' Second Amended and
Restated Plan and Disclosure Statement filed with the Bankruptcy Court on
June 11, 2002, which are included as exhibits to this report.
The Company's remaining land holdings on Maui are its primary sources
of future land sale revenues. However, due to current market conditions,
the difficulty in obtaining land use approvals and the high development
costs of required infrastructure, the Company does not believe that it will
be able to generate significant amounts of cash in the short-term from the
development of these lands. As a result, the Company intends to continue to
market certain parcels to generate cash to implement its longer term
Kaanapali 2020 development plans, as described in the Disclosure Statement.
Management is exploring the possible sale of parcels on Maui and Oahu
with prospects that the Company has identified. From time to time certain
of the Company's lands are under contract for sale. However, the contracts
typically have due diligence investigation periods which allow the
prospective purchasers to terminate the agreements. There can be no
assurance that any signed contracts for sale will in fact close under the
original terms and conditions or any other terms or that the Company will
be successful in selling the land at an acceptable price.
During 2001, the Company generated approximately $44.0 million from
the sales of approximately 19,000 acres on Kauai for $28.5 million, 5,540
acres on Maui for $15.3 million and certain other parcels which aggregate
$.2 million.
The Company implemented certain cost savings measures and deferred
certain development costs and capital expenditures for longer-term projects
during the past few years. Nevertheless, the Company's Property segment
expended approximately $3.5 million in project costs during 2001 and
anticipates spending approximately $4.5 million in project costs during
2002. As of June 30, 2002, contractual commitments related to project
costs totaled approximately $3.4 million. However, the Company also had
previously made a number of commitments to fund certain infrastructure
costs relating to the future construction of a new Lahaina/Kaanapali bypass
highway on Maui, that could require additional significant expenditures in
the longer term should such highway be built (see discussion of Maui
Infrastructure Costs below).
APDC, a wholly-owned subsidiary of the Company, obtained a $10 million
loan facility from City Bank, secured by a mortgage on property under
development at the Oahu Sugar mill-site, and is "Senior Indebtedness" (as
defined in the Indenture). The loan as extended has been paid down to a
balance of $3 million, bore interest at the bank's base rate plus 1.25% and
matured on December 1, 2000. In January 2001, APDC reached an agreement
with the Bank for an extension until December 1, 2001 with a principal
payment of $.150 million upon execution of the agreement. On December 1,
2001, APDC reached an agreement with the bank for an additional extension
until March 1, 2002. APDC continued talks with the bank for a further
extension and renegotiation of the loan and in June 2002, the loan was
extended until December 1, 2002. The extended loan bears interest at the
bank's base rate (4.75% at June 30, 2002) plus 2%. APDC does not have the
funds necessary to pay the remaining balance of the loan without sale of
the remaining millsite land. If such loan cannot be further extended, it
would likely result in APDC no longer having an ownership interest in the
property.
Northbrook also holds a note in the original principal amount of $9.6
million, dated September 30, 1998, originally made by TPI and subsequently
purchased from TPI by an affiliate of Northbrook. The note is secured by a
mortgage on AHI's 50% ownership interest in the 96-acre beachfront parcel
(commonly referred to as Kaanapali North Beach the "Property") and is
"Senior Indebtedness" (as defined in the Indenture). The note was payable
in five annual installments in the principal amount of $1.9 million
beginning in September 1999. The note bore interest of 8.5% and was
payable quarterly. The note was subsequently amended to require quarterly
interest payments beginning June 30, 2001 with principal payable on demand;
provided, that if no demand is previously made, the amendment contains two
scheduled principal payments of $2.7 million each in September of 2002 and
2003. In October 2001, Northbrook purchased the note from its affiliate
for the then outstanding balance of principal and accrued interest
aggregating approximately $5.5 million and also demanded a principal
payment of $2.3 million which was paid by the Company in October 2001. The
note remains secured by AHI's 50% undivided interest in the Property with
such entire property also mortgaged as security for the other Senior Debt.
Under a tax agreement with Northbrook, the Company and its
subsidiaries are responsible for paying their own income taxes on taxable
income generated in 2001 and thereafter. Northbrook has agreed to
contribute the replacement Senior Debt it holds, dated December 29, 2000,
with an outstanding balance of principal and interest of $27.8 million on
December 31, 2006, if the new tax agreement remains in effect at that time.
However, due to the filing of the Chapter 11 cases, such note is in default
and Northbrook is entitled to make a claim thereon. The Senior Debt notes
held by Northbrook and its affiliates also require the Company and
subsidiaries to make prepayment amounts on the Senior Debt notes of net
property sale proceeds remaining after providing reserves for anticipated
cash needs for the 12 months following the property sales. As a result of
property sales in 2001, prepayments aggregating $9.5 million were made on
the Senior Debt in 2001. (See note 2 for a further description of the
Senior Debt.)
In connection with the restructuring of the Company's Senior Debt held
by Northbrook and its affiliates in December 2000, Northbrook agreed that
it would cause the Northbrook sponsored pension plan to provide early
retirement window benefits that reduced the Company's cash requirements
relative to the shutdown of the remaining sugar plantations on Kauai.
Approximately $5.5 million of such benefits were paid by the pension plan
in 2000, which were treated as a capital contribution to the Company by
Northbrook. An additional $4.2 million of anticipated benefits were
reflected as a liability at December 31, 2000 and will be reflected as
additional capital contributions when such benefits are paid by the plan.
As of December 31, 2001, an additional $3.2 million of such benefits had
been paid and therefore were added to capital during 2001. The remaining
$1 million is reflected as a liability at December 31, 2001 in the
accompanying financial statements. The Restructuring Agreement also
required the Company to reserve $8 million as restricted cash for the
purpose, among other things, of meeting certain liabilities. The balance
of such restricted cash is $5.8 million at June 30, 2002.
Reference is made to Note 2 - Amounts Due to Affiliates - Senior Debt
Financing. The total amount due Northbrook and its subsidiaries for Senior
Debt financing as of June 30, 2002 was $188 million, which includes accrued
and deferred interest to affiliates on senior debt of approximately $48
million. Under the terms of the Indenture, the amounts borrowed from
Northbrook or its affiliates are "Senior Indebtedness" to the COLAs.
The Company also has received a notice from each of the holders of the
Senior Debt notifying the Company that all Senior Debt is currently in
default due to the existence of other defaults or circumstances that
constitute events of default under the Senior Debt, including, without
limitation (i) the failure of the Company to make quarterly interest
payments on the loan from the ERS related to their $66 million loan secured
by the Royal Kaanapali Golf Courses; and (ii) the entry of, and failure of
the Company to satisfy or otherwise stay, the judgment rendered against the
Company in Oahu Sugar Company, Limited v. Walter Arakaki and Steve Swift
(see Part II. Item 1. Legal Proceedings, below). It is anticipated that
the claims of the holders of the Senior Debt will be resolved in the
Reorganization Case as to the Debtors by conversion of such amounts to
equity in the reorganized Company. As to entities that are not Debtors but
that are liable on the Senior Debt, there can be no assurance that the
Senior Debt holders will not pursue their remedies under the Senior Debt,
either because of actions by ERS or the opponents in the Swift/Arakaki
lawsuit or because of additional defaults arising under the Senior Debt.
During the first six months of 2002, cash decreased $5.3 million from
December 31, 2001. Net cash was used by operating activities of $3.4
million, investing activities of $1.9 million and financing activities of
$.007 million.
During the first six months of 2002, net cash used in operating
activities was $3.4 million, compared to $9.2 million provided by operating
activities for the first six months of 2001. The $12.6 million increase in
cash used in operating activities was primarily due to a decrease in
inventory of $1 million for the six months ended June 30, 2002 compared to
$19 million for the six months ended June 30, 2001, offset in part by an
aggregate use of cash of $4.3 million from changes in Prepaid expenses,
Accounts payable and Accrued expenses for the six months ended June 30,
2001, compared to an aggregate $.7 million provided for the three months
ended June 30, 2002.
During the six months ended June 30, 2002, cash used in investing
activities was $1.9 million compared to $.2 million provided during the
first six months of 2001. The $2.1 million increase in the use of cash is
due primarily to the decrease in Other Long-Term Liabilities of $.8 million
for the first six months of 2002 compared to an increase of $1.3 million
for the first six months of 2001 primarily due to deposits received in 2001
in connection with the sale of certain field and mill equipment as a result
of the shutdown of the Company's sugar plantations on Kauai.
During the first six months of 2002, cash used in financing activities
was $.007 million compared to $10.9 million for the first six months of
2001. The $10.9 million decrease in cash used in financing activities is
primarily due to the use of cash of $10.5 million in principal and interest
payments related to certain Amount Due to Affiliates - Senior Debt during
the first six months of 2001.
RESULTS OF OPERATIONS
AGRICULTURE SEGMENT:
The Company's Agriculture segment remains responsible for activities
related primarily to the cultivation and sale of seed corn under a contract
with a third party. During 2001, Agriculture's revenues were primarily
derived from the Company's coffee operations. The Company shut down its
coffee farming activities in the third quarter of 2001. The Company
continues to market coffee products on a wholesale basis to sell existing
inventories.
Agriculture revenues and cost of sales decreased for the six months
ended June 30, 2002 as compared to the six months ended June 30, 2001 due
to the winding down of the Company's remaining sugar operations on Kauai
which completed its final harvest in November 2000.
During the first six months of 2002 and 2001, Agriculture revenues
were $1.2 million and $2.9 million, respectively. Agriculture revenues for
the three months ended June 30, 2002 and 2001 were $.5 million and $.4
million, respectively. Revenues for the first six months of 2001 included
proceeds related to Kauai's former sugar operations.
Agriculture cost of sales decreased to ($1.4) and ($2.1) million for
the three and six months ended June 30, 2002 compared to $.7 and $1.4
million for the three and six months ended June 30, 2001, primarily due to
costs related to the winding down of former Kauai sugar operations which
are included in cost of sales for 2001 and the additional decrease in the
Maintenance of Effort Obligation as more fully described in the Notes to
the Consolidated Financial Statements.
Agriculture operating expenses, consisting primarily of depreciation
expense, decreased to $1.0 million for the six months ended June 30, 2002
compared to $1.5 million for the six months ended June 30, 2001.
As a result of the above, operating income increased to $2.3 million
for the six months ended June 30, 2002 compared to $.1 million for the six
months ended June 30, 2001.
GOLF SEGMENT:
The Company's golf segment had been responsible for the management and
operation of the two Kaanapali Golf Courses in Kaanapali, Maui and the
Waikele Golf Club on Oahu (prior to its sale). The Company owns only an
approximately 17% interest in APIC. Thus, as of June 30, 2002 and
December 31, 2001, the Company has a minority interest investment in the
Kaanapali Golf Courses and therefore, was accounted for on the equity
method. A receiver was appointed to assume responsibility for the
operation of the two Kaanapali Golf Courses on March 19, 2002. In December
of 2001, the Company sold the Waikele Golf Club to an affiliate of
Northbrook. (Reference is made to Note 4.)
PROPERTY SEGMENT:
The Company's Property segment is responsible for land planning and
development activities; obtaining land use, zoning and other governmental
approvals; selling or financing developed and undeveloped land parcels.
Revenues decreased to $.2 and $1.1 million during the three and six
months ended June 30, 2002 from $5.2 and $24.5 million during the three and
six months ended June 30, 2001. Land sales included revenues for the six
months ended June 30, 2001 of approximately $18.7 million primarily from
the sale of approximately 5,500 acres on Maui and an additional $5 million
related to the recognition of revenue for a land sale of approximately five
acres on Kauai, the proceeds of which had been received in a prior year.
There were no land sales during the first six months of 2002.
During the three and six months ended June 30, 2002, property cost of
sales were $.2 and $.4 million as compared to $2 and $21.4 million for the
three and six months ended June 30, 2001. The decrease in costs was due
primarily to the decrease in land sales (as discussed above).
Property sales and cost of sales decreased for the three and six
months ended June 30, 2002 as compared to the three and six months ended
June 30, 2001 due to a decrease in land sales. Operating loss increased to
$1.2 and $2 million during the three and six months ended June 30, 2002
compared to operating income of $1.9 and $.6 million for the three and six
months ended June 30, 2001.
(a) OAHU.
After the closure of the Oahu Sugar plantation in 1995, the Company
began developing the 64-acre mill site located in Waipahu, which is
approximately 10 miles west of downtown Honolulu near Pearl Harbor. The
Company received county zoning approval for a light industrial subdivision
on the property. (Reference is made to Note 4.)
(b) MAUI.
As of June 30, 2002, the Company owns approximately 4,900 acres of
land on the island of Maui, most of which are classified as agricultural
land and conservation land for State and County purposes. All of the
Company's land holdings are located in West Maui near the Lahaina and the
Kaanapali Beach Resort areas.
In January 2001, the Company sold approximately 5,500 acres of
agricultural and conservation land in Launiupoko for $14.5 million and
generated an additional $.8 million from various other sales during 2001.
The Company has determined that the focus of its future development
efforts should be on its Kaanapali 2020 land holdings (approximately 4,400
acres) on Maui. The Debtors in the Reorganization Case intend to propose a
Plan of Reorganization that will restructure the Company's debt and equity
in a manner by which the Debtors hope to enhance the value of such land
holdings by giving the Company sufficient liquidity to pursue necessary
entitlements for the property. (See also discussion of the Reorganization
Case in Item 2. "Management's Discussion and Analysis of Financial
Condition and Results of Operations"). The Company believes its
development efforts are best concentrated in this area where it has certain
development approvals already secured and where successful resort
development has occurred during the past thirty years. Though there are
substantial risks to the development of these lands, the Company believes
that if, it can obtain the entitlements it needs, the value of the property
could be significantly enhanced, which would permit the Company's planned
reorganization to succeed.
In 1999, the Company began a new approach to planning for its
Kaanapali lands referred to as community based planning or CBP. The
Company works to involve members from all aspects of the West Maui
community in developing an acceptable plan for the Company's Kaanapali land
holdings. CBP has been used successfully in several communities on the
mainland such as in the Weston, Florida development being completed by an
affiliate of Northbrook. Management is optimistic that a plan can be
developed that meets the Company's long-term financial objectives and will
be supported by a broad cross section of the community. (See also
discussion of land sales in "Management Discussion and Analysis of
Financial Condition and Results of Operations - General".)
The properties located in the Kaanapali/Honokowai area that are
currently owned by the Company are described in greater detail below.
While most are intended to be included as part of the Kaanapali 2020 Plan,
some will be marketed for sale to raise cash needed to pursue the Kaanapali
2020 entitlements.
KAANAPALI GOLF ESTATES. The Company has a non-binding contract to
sell Parcel 22/23, the remaining bulk parcel at Kaanapali Golf Estates
("KGE"), a residential community that is part of the Kaanapali Beach Resort
in West Maui. The sale is subject to the purchaser's completing its due
diligence review of the parcel and the workout of the loan for the Royal
Kaanapali Golf Courses with the ERS which is expected, if consummated, to
provide such purchaser with certain property rights that the purchaser
deems important. There can be no assurance that such sale will be
completed.
NORTH BEACH. In December 2000, the Company sold (to a timeshare
company) the 14-acre site known as Lot 1 at Kaanapali North Beach for a
gross selling price of $19.5 million. In addition, the timeshare company
received a five-year option to purchase Lot 2 at Kaanapali North Beach.
The option purchase price is based on the number of units entitled at the
time of closing (if an exercise of the option were to take place). If the
option is exercised, the Company currently expects the purchase price to be
in the range of $9.0 million. The remaining three North Beach lots
(including Lot 2) total approximately 82 acres. Under an agreement that
preceded the sale to the timeshare company, the Company was required to
begin construction of improvements for a 13-acre public park at Wainee,
Maui. The improvements are substantially complete. The park land and
improvements have been dedicated to the County of Maui. The Company is
currently examining its options respecting the Lot 2 option relative to the
Reorganization Case. The Company has been granted an extension from the
Bankruptcy Court with respect to its agreements with the timeshare company
and is currently in negotiations respecting modifications to these
agreements. There can be no assurance that a compromise will be attained
with the timeshare company. Additionally, Lot 4 of Kaanapali North Beach
is currently listed for sale.
The Company's remaining North Beach properties are subject to a
mortgage held by Northbrook securing a loan with the outstanding principal
and accrued interest aggregating approximately $3.2 million, as well as
another mortgage securing the remaining Senior Debt held by Northbrook and
its affiliates. For a further description of such loans, see Note 2.
MAUI INFRASTRUCTURE COSTS. In connection with certain of the
Company's land use approvals on Maui, the Company had agreed to provide
affordable housing and to participate in the funding of the design and
construction of the planned Lahaina/Kaanapali bypass highway. The Company
has entered into an agreement with the State of Hawaii Department of
Transportation covering the Company's participation in the design and
construction of the bypass highway. In conjunction with state urbanization
of the Company's Kaanapali Golf Estates project, the Company committed to
spend up to $3.5 million (of which approximately $.8 million has been spent
as of June 30, 2002) toward the design of the highway. Due to lengthy
delays by the State in the planned start date for the bypass highway, the
Company funded approximately $1.2 million for the engineering and design of
the widening of the existing highway through the Kaanapali Beach Resort.
The Company believes this $1.2 million will be credited against the $3.5
million commitment discussed above. The Company also committed another $6.7
million for the construction of the bypass highway, subject to the Company
obtaining future entitlements on Maui and the actual construction of the
bypass highway. The development and construction of the bypass highway is
expected to be a long-term project that would not be completed until the
year 2007 or later, if ever. The Company is currently examining its
options respecting these agreements relative to the Reorganization Case.
The Company also reached an agreement with Maui County pursuant to
which the Company has conveyed a parcel of land in Lahaina, the Pioneer
Mill office site and five acres of agricultural land, in satisfaction of
employee housing requirements affecting lot 1 of North Beach Makai and
affordable housing requirements affecting Kaanapali Golf Estates parcels.
(c) KAUAI.
In March 2001, the Company sold approximately 460 acres of
agricultural lands on Kauai for approximately $3.5 million.
In July 2001, the Company sold approximately 18,500 acres of land in
Kauai for approximately $25.0 million, the vast majority of which was
classified and zoned, by the State of Hawaii and the County of Kauai
respectively, as agricultural and conservation lands. There were large
contiguous parcels which comprised the bulk of these Kauai land holdings,
located in Lihue/Hanamaulu on the eastern side of Kauai. As of the date of
this report, the Company owns only approximately 70 acres of land in Kauai
that primarily consist of two closed sugar mills and surrounding land, and
other remnant parcels that have little economic value.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Material legal proceedings of the Company are described below. In
proceedings where a Debtor is a defendant, such proceedings have been
stayed as against such Debtor by the filing of the Reorganization Case.
Proceedings against subsidiaries or affiliates of AHI that are not Debtors
may proceed.
APIC is the primary borrower under a $66 million loan made by the ERS
in 1991. The loan, which has a current balance of approximately $75
million, is secured by the RKGC (and certain adjacent lands).
Substantially all of APIC's assets consist of the property that is security
for the loan. The loan matured in June 2001 and has not been extended,
despite efforts of the borrowers to obtain such an extension as described
below.
Due to insufficient cash flow generated by the RKGC and because of
disagreements with the lender over, among other things, lender's failure
(i) to consent to a grant of required easements in order for the Company to
develop and market its adjoining properties and (ii) to release adjacent
lands that are not related to the golf course operations from the mortgage,
as required under the loan documents, the Company did not pay the required
interest payments due in 2000 on the loan secured by these golf courses.
ERS then issued a default notice and instituted a foreclosure action in
August 2000 (Employees' Retirement System of the State of Hawaii v.
Amfac/JMB Hawaii, L.L.C., et. al., Civil No. 00-1-2597-08, First Circuit
Court, State of Hawaii). Pursuant to an agreement between the lender and
the borrowers, the borrowers paid approximately $3.8 million in September
2000 to the ERS for a portion of the past due interest amounts and the ERS
agreed to temporarily suspend its action to realize upon its security while
the parties attempted to negotiate a definitive agreement to extend the
loan beyond its June 30, 2001 maturity date. Efforts of the borrowers to
negotiate such an agreement broke down in December 2001, only after
Northbrook (an affiliate of APIC that had no obligations under the loan)
had funded certain minimum interest payments (together with the ERS' legal
fees and other related costs). In January 2002, ERS recommenced its
foreclosure action, which the borrowers are contesting. The borrowers have
also brought counterclaims against ERS relative to the lender's defaults
described above, which defaults have caused the Company substantial damages
relating to its efforts to sell either the unrelated parcels that the ERS
refused to release from the mortgage or other land parcels that required
easements and other rights to which the ERS was required to consent.
The borrowers' counterclaims against the ERS in such litigation
assert, among other things, that because of the refusal of the ERS to
perform in accordance with the loan documents and grant the required
consents and releases, dating back to the inception of the loan, the
Company suffered damages over time relating to various development projects
and sale transactions that the Company consummated or attempted to
consummate since 1991. Also alleged is that these refusals and the
interference of the ERS with the Company's legitimate development efforts
was intended by ERS to give the ERS leverage over the Company's development
and land sale activities to the benefit of ERS, not to protect the ERS'
bargained for security for its loan on the RKGC. Some projects were
substantially delayed by the ERS' defaults and significant land sales were
either substantially delayed or failed altogether. Income from sales was
also adversely affected in addition to the expenses of development caused
by the ERS' delays and refusals. In addition, the Company suffered
significant damages relative to the costs of attorneys and other
professionals that the Company was forced to pay (including those of ERS'
attorneys and professionals) in its failed attempt to obtain the consents
and releases. Failure to obtain the necessary easements promised by ERS
could subject the Company to damages claims from landowners on parcels
previously sold by the Company and, particularly, could significantly
negatively impact the value and marketability of its remaining land parcels
in Kaanapali Golf Estates, which requires such easements for access and to
ensure that the parcel enjoys necessary water and drainage rights. As a
consequence of the ERS' actions, the borrowers' counterclaims allege, among
other things, that the ERS breached its duties under the contract, breached
the ERS' implied covenant of good faith and fair dealing, fraudulently
induced the borrowers to enter into the loan, acted in a fraudulent manner
respecting its fiduciary relationship with the borrowers and/or acted in
bad faith. The counterclaim seeks, among other things, damages, attorneys'
fees and costs, and an order directing the ERS to provide the releases and
consents required by the loan documents. There can be no assurance that
defendants will prevail in the counterclaim or in the defense of ERS's
attempt to realize on its security. On March 19, 2002, the court entered
an order appointing a receiver for the property that is security for the
loan, as well as for the golf course operations related thereto. The
receiver has taken over the golf course operations from APIC and hired most
of APIC's former employees. APIC's former employees are seeking from APIC
payment of severance and certain benefits, among other things. APIC is in
negotiations over this matter.
The borrowers are currently engaged in settlement discussions with the
ERS. There is a substantial likelihood that any such settlement will
nevertheless result in a transfer of title to the RKGC to the ERS on terms
acceptable to the borrowers. There can be no assurance as to the outcome
of such litigation or any settlement negotiations.
In connection with the Reorganization Case, the ERS, the Debtors and
APIC entered into a Stipulation dated July 22, 2002, which, among other
things, (i) provides for an extension of the bar date by which the ERS must
file any claims it may have against any of the Debtors until October 15,
2002 and (ii) reserves the rights of the ERS and the Debtors with respect
to objections that the ERS may have to the treatment of its claims under
the Plan and further provides that such objections, if asserted, will be
resolved by the Bankruptcy Court following confirmation of the Plan in the
manner as set forth in the Stipulation. The Bankruptcy Court approved the
Stipulation on July 24, 2002.
On October 31, 2001, Amfac/JMB Hawaii, LLC was named in a lawsuit
entitled Lloyd Akiona, et al. v. Amfac/JMB Hawaii, LLC and AquaSource,
Inc., Civil No. 01-1-05979, filed in the Circuit Court of the Second
Circuit, State of Hawaii. Defendant Amfac/JMB Hawaii, LLC has removed the
case to federal court. In this action, six plaintiffs collectively seek
approximately $191 thousand in severance payments they allege they were
entitled to as a result of the sale of the stock of Kaanapali Water
Corporation to AquaSource, Inc. in March 1999. Plaintiffs seek damages,
interest, attorneys' fees, and costs. Defendant believes it has
substantial defenses and intends to vigorously defend itself.
On February 1, 2002, Transcend, Inc. filed a lawsuit entitled
Transcend, Inc. v. Amfac/JMB Hawaii, Inc., et. al., Civ. No. 02-1-0287-02
in the First Circuit Court, State of Hawaii. Plaintiff alleges that it
purchased six cane haul trucks and that defendant entities failed to make
delivery. In this four count complaint for breach of contract, quantum
meruit, conversion and trespass, plaintiff seeks general, special, and
punitive damages. Plaintiff includes a monetary demand for $786 thousand
in the first count of the complaint, as well as a request for attorneys'
fees, costs, and further unspecified relief. Plaintiff names Amfac/JMB
Hawaii, Inc. and Amfac Sugar Kauai as defendants, among others. Defendants
have filed an answer denying the substantive allegations of the complaint.
Defendants believe that they have meritorious defenses.
On July 19, 2001, The Gutman Realty Company filed a lawsuit entitled
Gutman Realty Company v. Amfac Property Investment Co., Civ. No. 01-1-
0392(3), in the Second Circuit Court, State of Hawaii. In the suit,
plaintiff allegedly seeks to recover unpaid rent for premises located at
2350 Kekaa Drive, Lahaina, Maui. The complaint alleges that the unpaid
rent as of July 13, 2001 was $349 thousand and seeks recovery of that
amount with interest, any future rents owing from that date forward,
reasonable attorneys' fees, interest, costs, and any further relief that
the court might deem just and proper. On October 9, 2001, APIC filed its
answer denying the substantive allegations of the complaint and/or seeking
an offset for any rents deemed to be lawfully owing and a counterclaim for
unpaid management fees and reimbursements arising out of the relationship
between the parties. APIC intends to vigorously defend itself in this
matter, but no assurances can be given that it or the Company will not
incur liability in connection with this case.
On September 20, 1996, Oahu Sugar Company, Limited ("Oahu Sugar")
filed a lawsuit, Oahu Sugar v. Walter Arakaki and Steve Swift, Case No. 96-
3880-09, in the Circuit Court of the First Circuit, State of Hawaii. In
the lawsuit, Oahu Sugar alleged that it entered into an agreement to sell
to defendants certain sugar cane processing equipment at Oahu Sugar's sugar
cane mill in Waipahu. Oahu Sugar alleged that defendants failed to timely
dismantle and remove the equipment, as required by the agreement, and that
defendants were obligated to pay Oahu Sugar rent for the area occupied by
the equipment beyond the time provided for by the parties. Oahu Sugar
further alleged that it provided notice to defendants that Oahu Sugar was
entitled to treat the equipment as abandoned property and to sell the
equipment, because the equipment had not been removed from the property in
a timely fashion, as required by the parties' agreement. In its complaint,
Oahu Sugar sought, among other things, declaratory relief that it was
entitled to treat the equipment as abandoned, damages for breach of
contract, and rent under an unjust enrichment theory.
Defendants filed an answer, as amended, denying the substantive
allegations of Oahu Sugar's complaint and asserting various affirmative
defenses. In addition, the defendants filed a seven-count counterclaim
against Oahu Sugar. In the counterclaim, defendants alleged, among other
things, that Oahu Sugar failed to make the equipment available for removal
on a timely basis, and that Oahu Sugar otherwise improperly interfered with
defendants' plans for the removal and subsequent sale of the equipment. In
the counterclaim, defendants sought, among other things, general, special
and punitive damages, attorneys' fees, costs, and such other relief as the
Court may have deemed appropriate.
Oahu Sugar's declaratory relief claim was settled in advance of trial.
Oahu Sugar obtained dismissals and directed verdicts on six of defendants'
claims. The remaining portions of the complaint and counterclaim proceeded
to a jury trial and verdict. On December 2, 1999, the jury denied Oahu
Sugar relief on its remaining claims and awarded the defendants
approximately $2.6 million in damages on their counterclaim. On March 2,
2000, the trial court entered a judgment against Oahu Sugar for the $2.6
million in damages awarded by the jury. In addition, the trial court
awarded counterclaimants $751 thousand in attorneys' fees, $28 thousand in
costs and $866 thousand in prejudgment interest. Oahu Sugar's post trial
motions for judgment as a matter of law and for a new trial were denied.
Oahu Sugar filed a notice of appeal. The defendants began efforts to
collect the amounts awarded to them. Defendants caused garnishee summons
to be issued to various affiliated and unaffiliated entities. The
defendants scheduled a debtor's examination for August 23, 2000 which was
not concluded. The Hawaii Supreme Court scheduled the case for an
appellate conference and mediation that was unsuccessful. Then, on
January 3, 2001, the Hawaii Supreme Court entered an order dismissing the
appeal. The Supreme Court held that it lacked jurisdiction over the appeal
because the judgment entered on March 2, 2000 was legally defective in that
it did not identify the claim for which judgment was entered or dismiss all
of the other claims and counterclaims of the parties. In light of the
order of the Hawaii Supreme Court, the parties filed legal briefs before
the trial court to have the court determine, among other things, whether a
corrected judgment consistent with the jury verdict may be entered as of
March 2, 2000 or a new judgment order is required. After hearing the
arguments of the parties, on March 19, 2001, the trial court ruled that it
would not enter a corrected judgment as of March 2, 2000 and that a new
judgment order will be required. On April 12, 2001, the court entered the
new judgment order on the counterclaims providing for the payment of
approximately $2.6 million in damages, $730 thousand in attorneys' fees,
$28 thousand in costs, $867 thousand in prejudgment interest, and
additional prejudgment interest from January 20, 2000 through April 12,
2001. From and after entry of the order, post-judgment interest will
accrue on the unpaid balance at the statutory rate of ten percent per annum
until paid in full. Oahu Sugar is pursuing an appeal and the opposing side
has filed a cross appeal seeking further relief on any potential retrial of
the matter. The case is fully briefed and awaits a decision by the Hawaii
Supreme Court. Oahu Sugar continues to believe that it is entitled to
affirmative relief on its complaint and that it has meritorious defenses to
the counterclaim that it has pursued on appeal. The Company, however, can
provide no assurances that it will be successful in obtaining affirmative
relief or overturning the verdict against Oahu Sugar. This verdict, if
upheld, could have a material adverse effect on the Oahu Sugar's financial
condition.
On or about December 15, 2000, Oahu Sugar and APDC, among others, were
named in a lawsuit entitled Walter Arakaki and Steve Swift v. Oahu Sugar
Company, Limited et al., Civil No. 00-1-3817-12, and filed in the Circuit
Court of the First Circuit of Hawaii. In the complaint, as amended,
plaintiffs seek a declaration that certain conveyances of real estate made
by Oahu Sugar or APDC, since December 1996, were allegedly fraudulent
transfers made in violation of the common law, the Hawaii fraudulent
transfer act, and rights which they claim arose in connection with the
claims they filed in Oahu Sugar v. Walter Arakaki and Steve Swift, Case No.
96-3880-09, discussed above (hereinafter, "underlying matter"). Plaintiffs
seek, among other things, injunctive and declaratory relief, compensatory
damages, punitive damages, orders of attachment against sales proceeds,
voidance of certain transfers, foreclosure and other remedies in connection
with various transfers of real estate made by Oahu Sugar to APDC, the Young
Men's Christian Association of Honolulu ("YMCA"), and the Filipino
Community Center, Inc. ("FCC"), among others, all over the years 1996-2000.
The YMCA and FCC have also been named defendants in this action and have
filed cross-claims for relief against Oahu Sugar and APDC for alleged
breach of warranty of title, indemnity and contribution in connection with
their respective transactions, and seeking, among other things, damages,
attorneys' fees, costs, and prejudgment interest. Oahu Sugar and APDC have
filed answers to the complaint, as amended, and the cross-claims. On
May 3, 2001, plaintiffs filed an amended complaint dropping the remedy of
foreclosure in connection with certain property transferred to the YMCA and
adding various allegations including, without limitation, allegations
regarding the final judgment entered in the underlying manner. The case is
proceeding and the plaintiffs are currently scheduled to file a pretrial
statement in September 2002. Oahu Sugar and APDC believe they have
meritorious defenses and intend to pursue their defenses vigorously.
However, there can be no assurances that this case, when once adjudicated,
will not have a material adverse effect on the financial condition of Oahu
Sugar or APDC.
On October 7, 1999, Oahu Sugar Company was named in a lawsuit
entitled, Akee, et al. v. Dow Chemical Company, et al., Civil No. 99-3757-
10, and filed in Hawaii State Court (Circuit Court of the First Circuit of
Hawaii). This multiple plaintiff toxic tort case named Oahu Sugar and a
number of additional defendants including several large chemical, petroleum
and agricultural companies. In March 2000, Oahu Sugar Company was
dismissed without prejudice.
On September 30, 1999, Oahu Sugar was one of several defendants named
in a lawsuit entitled, City and County of Honolulu v. Leppert, et al.
Civil No. CV 99 00670 ACK-FIY, and filed in the federal court, District of
Hawaii. The plaintiff asserted several causes of action including actions
for (1) clean-up and other response costs under the Comprehensive
Environmental Response, Compensation, and Liability Act ("CERCLA"); (2)
owner/operator liability, contribution and indemnity under Hawaii statutory
law; (3) strict liability for ultrahazardous activity; and (4) negligence.
Plaintiff alleged that defendant Oahu Sugar previously operated a sugar
mill on property currently owned by plaintiff, and used pesticides,
herbicides, fumigants, petroleum products and by-products and other
hazardous chemicals which were allegedly released into the soil and/or
groundwater at the subject property. Plaintiff sought recovery of response
costs it has incurred and to be incurred, a declaration of the rights and
liabilities for past and any future claims, damages for lost property
value, technical consulting and legal costs in investigating the property,
increased construction costs, and attorneys' fees and costs. Two of the
other defendants, Clinton Churchill and David Heenan, as trustees under the
will and estate of James Campbell ("Campbell Estate"), filed a third party
complaint, as amended, seeking indemnity and contribution from Oahu Sugar
arising from, among other things, a lease between Oahu Sugar and Campbell
Estate concerning the land which is allegedly contaminated. The Campbell
Estate also filed a third party complaint, as amended, against Northbrook
Corporation ("Northbrook") seeking a defense and indemnity.
On September 30, 1999, Oahu Sugar was named in a related lawsuit
entitled, City and County of Honolulu v. Leppert, et al., Civil No. 99-
3678-09, and filed in Hawaii State Court, Circuit Court for the First
Circuit of Hawaii.
These related City and County of Honolulu cases were settled in
September 2001 with releases being exchanged by and between the parties.
The settlement was funded in large part by one of Oahu Sugar's insurers.
On May 10, 2000, Oahu Sugar was named in a civil action entitled,
Albert and Marciana Kalaikai v. Oahu Sugar, et. al., pending in the Circuit
Court of the First Circuit, State of Hawaii, Civil No. 00-1-1497-05.
Pioneer Mill Company was named in this suit, but was not served. In this
case, plaintiffs seek damages for alleged asbestos related injuries
sustained, among other things, from exposure to asbestos-containing
products over the course of in excess of forty years and at numerous
locations including the Oahu Sugar mill site over the period of 1950-1960.
This case has settled in principle for the payment of $15 thousand.
Settlement documents have not bee finalized. Accordingly, no assurance can
be given that the matter will in fact settle. If it does not settle, Oahu
Sugar intends to defend itself vigorously.
An insurance carrier for Oahu Sugar has agreed to defend Oahu Sugar in
the Kalaikai case, subject to a reservation of rights. Oahu Sugar can give
no assurances as to the portion of the defense costs and indemnity costs,
if any, that will be ultimately borne by the insurance carrier.
Oahu Sugar is substantially without assets to satisfy any judgment in
the action. However, the liability, if any, of Oahu Sugar in this asbestos
matter should not extend to AHI and its other subsidiaries.
Oahu Sugar was also named a defendant in another alleged asbestos
related personal injury action entitled, Anthony Fiori and Stella Fiori v.
Raybestos-Manhattan, filed in the San Francisco County Superior Court, Case
No. 304868, filed on or about July 13, 1999. In the complaint, plaintiffs
sought $3.0 million in economic and non-economic damages, as well as $1.0
million in punitive damages, for injuries alleged sustained. The matter
settled in July 2001 with a payment of $10 thousand funded by one of Oahu
Sugar's insurers.
The Company believes that Oahu Sugar has meritorious defenses to the
above referenced pending lawsuits that continue to be pending and Oahu
Sugar will defend itself vigorously. However, there can be no assurances
that these cases (or any of them), if adjudicated, will not have a material
adverse effect on the financial condition of Oahu Sugar.
On or about February 23, 2001 Kekaha Sugar Co., Ltd. received a letter
from the Hawaii Department of Health ("HDOH") assigning the Kekaha Sugar
Co., Ltd. site a high priority status based on HDOH's review of available
environmental data. In the letter, HDOH identified five major areas of
potential environmental concern including the former wood treatment plant,
the herbicide mixing plant, the seed dipping plant, the settling pond, and
the Kekaha Sugar Mill. While setting forth specific concerns, the HDOH
reserved the right to designate still further areas of potential concern
which might require further investigation and possible remediation. HDOH
further reserved the right to modify its prioritization of the site should
conditions warrant. The assignment of the high priority status will likely
result in a high degree of oversight by the HDOH as the issues raised are
studied and addressed. Kekaha Sugar Co., Ltd. has responded to the letter.
Kekaha Sugar Co., Ltd. is substantially without assets and further pursuit
of this matter by HDOH could have a materially adverse effect on the
financial condition of Kekaha Sugar Co., Ltd.
On or about February 23, 2001, Lihue Plantation Co., Ltd. received a
similar letter from the HDOH assigning the Lihue Plantation Co., Ltd. site
a high priority status based on HDOH's review of available environmental
data. In the letter, HDOH identified four major areas of potential
environmental concerning including the Lihue herbicide mixing plant, the
seed dipping plant, the settling pond and the Lihue Sugar Mill. While
setting forth specific concerns, the HDOH reserved the right to designate
still further areas of potential concern which might require further
investigation and possible remediation. HDOH further reserved the right to
modify its prioritization of the site should conditions warrant. As noted
above, the high priority assignment will likely result in a high degree of
oversight by the HDOH as the issues raised are studied and addressed.
APDC has discovered chlorinated solvents in the groundwater at the
former Oahu Sugar Waipahu Sugar Mill site. The contamination does not
appear in high concentrations. APDC's recommendation for remediation using
hydrogen-releasing compounds has been rejected by the HDOH. APDC may have
to do further work at the site. At this point, APDC is unable to identify
with certainty the treatment options, if any, that the HDOH may require or
approve for the site, or the costs of same.
As a result of an administrative order issued to Oahu Sugar Company by
the Hawaii Department of Health, Order No. CH 98-001, dated January 27,
1998, Oahu Sugar is currently engaged in environmental site assessment of
lands it leased from the U.S. Navy and located on the Waipio Peninsula.
Sampling is underway and the investigation is otherwise still in its
preliminary stages.
In late July 2002, the Internal Revenue Service ("IRS") delivered to
the Company a proof of claim in connection with the Reorganization Case.
The IRS proof of claim asserts unsecured priority claims totaling
approximately $19.2 million with respect to unassessed tax liabilities
against the Company for the period 1998-2000, as well as unsecured general
claims of approximately $1.4 million relating to penalties on the unsecured
priority claims, including interest thereon. The Company is a wholly-owned
subsidiary of Northbrook and joined in Northbrook's consolidated return
and, accordingly, severally liable for the payment of taxes owed by the
consolidated Northbrook group. The IRS audit for the period 1998-2000, is
at its earliest stage, and the Company believes that the IRS has not as yet
examined any tax assessment issues in detail. The Company intends to
contest vigorously any liability for additional taxes asserted by the IRS.
However, there can be no assurance as to the ultimate outcome of this
matter.
Other than as described above and the Reorganization Case as described
above, the Company is not involved in any material pending legal
proceedings, other than ordinary routine litigation incidental to its
business. The Company and/or certain of its affiliates have been named as
defendants in several pending lawsuits. While it is impossible to predict
the outcome of such routine litigation that is now pending (or threatened)
and for which the potential liability is not covered by insurance, the
Company is of the opinion that the ultimate liability from any of this
litigation will not materially adversely affect the Company's consolidated
results of operations or its financial condition.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company did not pay the required interest payments due in 2000 on
the loan secured by the RKGC (and certain adjacent lands). ERS then issued
a default notice and instituted a foreclosure action in August 2000.
Pursuant to an agreement between the lender and the borrowers, the
borrowers paid approximately $3.8 million in September 2000 to the ERS for
a portion of the past due interest amounts and the ERS agreed to
temporarily suspend its action to realize upon its security while the
parties attempted to negotiate a definitive agreement to extend the loan
beyond its June 30, 2001 maturity date. Efforts of the borrowers to
negotiate such an agreement broke down in December 2001, only after
Northbrook (an affiliate of APIC that had no obligations under the loan)
had funded certain minimum interest payments (together with the ERS' legal
fees and other related costs). In January 2002, ERS recommenced its
foreclosure action, which the borrowers are contesting. The borrowers have
also brought counterclaims against ERS relative to the lender's defaults
described above, which defaults have caused the Company substantial damages
relating to its efforts to sell either the unrelated parcels that the ERS
refused to release from the mortgage or other land parcels that required
easements and other rights to which the ERS was required to consent. (See
Part II. Item 1. "Legal Proceedings" for further discussion.)
If the borrowers do not achieve an extension of the loan through
settlement discussions with the ERS, and the ERS is permitted to continue
its foreclosure action, it is likely that the ERS will take title to the
RKGC and APIC will have no further interest therein. There is also a
substantial likelihood that any such settlement will nevertheless result in
a transfer of title of the RKGC to the ERS on terms acceptable to the
borrowers. There can be no assurance as to the outcome of such litigation
or any settlement negotiations.
The Company has received a notice from each of the holders of the
Senior Debt notifying the Company that all Senior Debt is currently in
default due to the existence of other defaults or circumstances that
constitute events of default under the Senior Debt. Amounts due on such
indebtedness aggregated $188 million as of June 30, 2002 and are included
in "Amounts due to affiliates - Senior Debt Financing" in the accompanying
Consolidated Balance Sheets. Reference is made to Note 2 of Notes to
Consolidated Financial Statements. As a consequence of the confirmation of
the Plan it is expected that all such Senior Debt together with the
Company's COLA debt and certain of its other unsecured obligations will be
converted to equity in the reorganized Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are included as an exhibits to this
report.
Exhibit
No. Exhibit
- ------- --------
2.1 First Amended Joint Plan of Reorganization of Amfac Hawaii,
LLC, Certain Of Its Subsidiaries And FHT Corporation Under
Chapter 11 Of The Bankruptcy Code incorporated herein by
reference to the Company's Report on Form 10-Q for March 31,
2002 (File No. 33-24180) dated May 13, 2002.
2.2 First Amended Disclosure Statement With Respect To Joint Plan
Of Reorganization Of Amfac Hawaii, LLC, Certain Of Its
Subsidiaries and FHT Corporation Under Chapter 11 Of The
Bankruptcy Code dated May 10, 2002 incorporated herein by
reference to the Company's Report on Form 10-Q for March 31,
2002 (File No. 33-24180) dated May 13, 2002.
2.3 Second Amended Disclosure Statement With Respect to Joint Plan
of Reorganization of Amfac Hawaii, LLC, Certain of its
Subsidiaries and FHT Corporation Under Chapter 11 of the
Bankruptcy Code, incorporated herein by reference to the
Company's Report on Form 8-K for July 29, 2002 (File No.
33-24180) dated August 13, 2002.
2.4 Order Confirming Second Amended Joint Plan of Reorganization
Dated June 11, 2002, including, as an exhibit thereto, the
Second Amended Joint Plan of Reorganization of Amfac Hawaii,
LLC, Certain of its Subsidiaries and FHT Corporation Under
Chapter 11 of the Bankruptcy Code, incorporated herein by
reference to the Company's Report on Form 8-K for July 29,
2002 (File No. 33-24180) dated August 13, 2002.
4.1 Indenture, including the form of COLAs, among Amfac/JMB
Hawaii, Inc., its subsidiaries as Guarantors and Continental
Bank National Association, as Trustee (dated as of March 14,
1989). (2)
4.2 Amendment dated as of January 17, 1990 to the Indenture
relating to the COLAs. (2)
4.3 The five year $66,000,000 loan with the Employees' Retirement
System of the State of Hawaii to Amfac/JMB Hawaii, Inc. as of
June 25, 1991. (3)
4.4 Amendment to the $66,000,000 loan with the Employees'
Retirement System of the State of Hawaii to Amfac/JMB Hawaii,
Inc. as of April 18, 1996. (4)
4.5 $10,000,000 loan agreement between Amfac Property Development
Corp. and City Bank at December 18, 1996. (5)
4.6 Amended and Restated $25,000,000 loan agreement between
Waikele Golf Club, Inc. Bank of Hawaii dated February 4, 1997.
(6)
4.7 Second Supplement to the Indenture dated as of March 1, 1998.
(7)
4.8 Third Supplement to the Indenture dated as of October 16,
2000. (10)
Exhibit
No. Exhibit
- ------- --------
4.9 Promissory Note A, in replacement of Note #1, in the amount of
$28,370,074.56 between Amfac Hawaii LLC and Fred Harvey
Transportation Company dated December 29, 2000. (10)
4.10 Promissory Note B, in replacement of Note #1, in the amount of
$68,059,328.34 between Amfac Hawaii LLC and Fred Harvey
Transportation Company dated December 29, 2000. (10)
4.11 Amended and Restated Promissory Note in the amount of
$26,375,300 between Amfac Hawaii LLC and AF Investors LLC
dated December 29, 2000. (10)
4.12 Amended and Restated Promissory Note in the amount of
$21,318,000 between Amfac Hawaii LLC and AF Investors LLC
dated December 29, 2000. (10)
4.13 Amended and Restated Promissory Note in the amount of
$10,000,000 between Amfac Hawaii LLC and Northbrook
Corporation dated December 29, 2000. (10)
4.14 Amended and Restated Promissory Note between The Lihue
Plantation Company, Limited and Northbrook Corporation dated
December 29, 2000. (10)
4.15 Amended and Restated Promissory Note between The Lihue
Plantation Company, Limited and Northbrook Corporation dated
December 29, 2000. (10)
4.16 Assignment of Loan Documents between Tobishima Pacific, Inc.
and 900 Investment Management, L.P. dated September 29, 2000.
(10)
4.17 Assignment of Loan Documents between 900 Investment Management
L.P. and NB Realty Holdings-VI, Inc. dated September 29, 2000.
(10)
4.18 Note Modification Agreement between Amfac Property Investment
Corp. and NB Realty Holdings-VI, Inc. dated October 2, 2000.
(10)
4.19 Second Note Modification agreement between Amfac Hawaii and NB
Holdings-VI, Inc. dated December 31, 2000. (10)
10.1 General Lease S-4222, dated January 1, 1969, by and between
the State of Hawaii and Kekaha Sugar Company, Limited. (1)
10.2 Amended and Restated Power Purchase Agreement, dated as of
June 15, 1992, by and between The Lihue Plantation Company,
Limited and Citizens Utilities Company. (1)
10.3 U.S. Navy Waipio Peninsula Agricultural Lease, dated May 26,
1964, between The United States of America (as represented by
the U.S. Navy) and Oahu Sugar Company, Ltd. (1)
10.4 Amendment to the Robinson Estate Hoaeae Lease, dated May 15,
1967, by and between various Robinsons, heirs of Robinsons,
Trustees and Executors, etc. and Oahu Sugar Company, Limited
amending and restating the previous lease. (1)
10.5 Amendment to the Campbell Estate Lease, dated April 16, 1970,
between Trustees under the Will and of the Estate of James
Campbell, Deceased, and Oahu Sugar Company, Limited amending
and restating the previous lease. (1)
Exhibit
No. Exhibit
- ------- --------
10.6 Bishop Estate Lease No. 24,878, dated June 17, 1977, by and
between the Trustees of the Estate of Bernice Pauahi Bishop
and Pioneer Mill Company, Limited. (1)
10.7 General Lease S-4229, dated February 25, 1969, by and between
the State of Hawaii, by its Board of Land and Natural
Resources and Pioneer Mill Company, Limited. (1)
10.8 Honokohau Water License, dated December 22, 1980, between Maui
Pineapple Company Ltd. and Pioneer Mill Company, Limited. (1)
10.9 Water Licensing Agreement, dated September 22, 1980, by and
between Maui Land & Pineapple Company, Inc. and Amfac, Inc.
(1)
10.10 Amfac Hawaii Tax Agreement, dated November 21, 1988 between
Amfac/JMB Hawaii, Inc., and Amfac Property Development Corp.;
Amfac Property Investment Corp.; Amfac Sugar and Agribusiness,
Inc.; Kaanapali Water Corporation; Amfac Agribusiness, Inc.;
Kekaha Sugar Company, Limited; The Lihue Plantation Company,
Limited; Oahu Sugar Company, Limited; Pioneer Mill Company,
Limited; Puna Sugar Company, Limited; H. Hackfeld & Co., Ltd.;
and Waiahole Irrigation Company, Limited. (2) Amfac-Amfac
Hawaii Tax Agreement, dated February 21, 1989 between Amfac,
Inc. and Amfac/JMB Hawaii, Inc. (2) Services Agreement, dated
November 18, 1988, between Amfac/JMB Hawaii, Inc., and Amfac
Property Development Corp.; Amfac Property Investment Corp.;
Amfac Sugar and Agribusiness, Inc.; Kaanapali Water
Corporation; Amfac Agribusiness, Inc.; Kekaha Sugar Company,
Limited; The Lihue Plantation Company, Limited; Oahu Sugar
Company, Limited; Pioneer Mill Company, Limited; Puna Sugar
Company, Limited; H. Hackfeld & Co., Ltd.; and Waiahole
Irrigation Company, Limited and JMB Realty Corporation. (2)
10.11 Amfac-Amfac Hawaii Tax Agreement, dated February 21, 1989
between Amfac, Inc. and Amfac/JMB Hawaii, Inc. (2)
10.12 Agreement Concerning Amfac - Amfac Hawaii Tax Agreement by and
among Amfac Hawaii LLC and Northbrook Corporation dated
November 30, 2000. (10)
10.13 Tax Agreement by and among Northbrook Corporation and Amfac
Hawaii LLC dated December 29, 2000. (10)
10.14 Contribution Agreement by and among Amfac Property Investment
Corp., Pioneer Mill Company, Limited, Northbrook Corporation,
AF Investors, LLC and Fred Harvey Transportation Company dated
November 27, 2000. (10)
10.15 Restructuring Agreement by and among Amfac Hawaii LLC, and
subsidiaries, Amfac Property Investment Corp., Northbrook
Corporation, AF Investors, LLC, Fred Harvey Transportation
Company, Amfac Finance Limited Partnership and NV Realty
Holdings-VI, Inc. dated December 29, 2000. (10)
10.16 Services Agreement, dated November 18, 1988, between Amfac/JMB
Hawaii, Inc., and Amfac Property Development Corp.; Amfac
Property Investment Corp.; Amfac Sugar and Agribusiness, Inc.;
Kaanapali Water Corporation; Amfac Agribusiness, Inc.; Kekaha
Sugar Company, Limited; The Lihue Plantation Company, Limited;
Oahu Sugar Company, Limited; Pioneer Mill Company, Limited;
Puna Sugar Company, Limited; H. Hackfeld & Co., Ltd.; and
Waiahole Irrigation Company, Limited and JMB Realty
Corporation. (2)
Exhibit
No. Exhibit
- ------- --------
10.17 Assignment and assumption agreement dated September 30, 1998,
executed by TPI and APIC. (8)
10.18 Assignment and Contribution Agreement effective December 31,
1998 between Northbrook Corporation and Amfac/JMB Hawaii,
L.L.C. (9)
10.19 Note Modification Agreement dated December 31, 1998 between
Amfac/JMB Hawaii, L.L.C. and Fred Harvey Transportation
Company. (9)
10.20 Purchase Agreement by and between Waikele Golf Club, Inc., and
Waikele Golf, LLC dated December 14, 2001. (11)
10.21 Loan Purchase Agreement by Bank of Hawaii, Amfac Hawaii, LLC
and Waikele Golf Club, Inc., dated December 14, 2001. (11)
10.22 Amfac Hawaii, LLC's press release dated February 27, 2002,
incorporated herein by reference to the Company's Report for
February 27, 2002 on Form 8-K (File No. 33-24180) dated
March 8, 2002.
10.23 Letter of Bank One Trust Company, N.A. dated March 11, 2002 to
the Holders of the Amfac Hawaii, LLC Certificate of Land
Appreciation Notes due 2008 incorporated herein by reference
to the Company's Report for March 11, 2008 on From 8-K (File
No. 33-24180) dated March 20, 2002.
99. Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 is
filed herewith.
(1) Previously filed as exhibits to the Company's Registration
Statement of Form S-1 (as amended) under the Securities Act of 1933 (File
No. 33-24180) and hereby incorporated by reference.
(2) Previously filed as exhibits to the Company's Form 10-K report
under the Securities Act of 1934 (File No. 33-24180) filed on March 27,
1989 and hereby incorporated by reference.
(3) Previously filed as exhibits to the Company's Form 10-Q report
under the Securities Act of 1934 (File No. 33-24180) filed on August 13,
1991 and hereby incorporated by reference.
(4) Previously filed as an exhibit to the Company's Form 10-Q
report under the Securities Act of 1934 (File No. 33-24180) filed May 13,
1996 and hereby incorporated by reference.
(5) Previously filed as exhibit to the Company's Form 10-K report
under the Securities Act of 1934 (File No. 33-24180) filed March 21, 1997
and hereby incorporated by reference.
(6) Previously filed as exhibit to the Company's Form 10-Q report
under the Securities Act of 1934 (File No. 33-24180) filed May 15, 1996 and
hereby incorporated by reference.
(7) Previously filed as exhibit to the Company's Form 8-K report
under the Securities Act of 1934 (File No. 33-24180) filed March 3, 1998
and hereby incorporated by reference.
(8) Previously filed as exhibit to the Company's Form 10-Q report
under the Securities Act of 1934 (File No. 33-24180) filed November 12,
1998 and hereby incorporated by reference.
(9) Previously filed as exhibit to the Company's Form 10-K report
under the Securities Act of 1934 (File No. 33-24180) filed March 8, 1999
and hereby incorporated by reference.
(10) Previously filed as exhibit to the Company's Form 10-K report
under the Securities Act of 1934 (File No. 33-24180) filed March 30, 2001
and hereby incorporated by reference.
(11) Previously filed as exhibit to the Company's Form 8-K report
under the Securities Act of 1934 (File No. 33-24180) filed December 28,
2001 and hereby incorporated by reference.
(b) No reports on Form 8-K have been filed since the beginning of
the last quarter of the period covered by this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
AMFAC HAWAII, LLC
/s/ GAILEN J. HULL
-------------------
By: Gailen J. Hull
Senior Vice President
Date: August 12, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following person in the capacity
and on the date indicated.
/s/ GAILEN J. HULL
-------------------
Gailen J. Hull
Principal Accounting Officer
Date: August 12, 2002
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
AMFAC LAND COMPANY, LIMITED
/s/ GAILEN J. HULL
-------------------
By: Gailen J. Hull
Vice President
Date: August 12, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following person in the capacity
and on the date indicated.
/s/ GAILEN J. HULL
-------------------
Gailen J. Hull
Principal Accounting Officer
Date: August 12, 2002
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
AMFAC PROPERTY DEVELOPMENT CORP.
/s/ GAILEN J. HULL
-------------------
By: Gailen J. Hull
Vice President
Date: August 12, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following person in the capacity
and on the date indicated.
/s/ GAILEN J. HULL
-------------------
Gailen J. Hull
Principal Accounting Officer
Date: August 12, 2002
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
AMFAC PROPERTY INVESTMENT CORP.
/s/ GAILEN J. HULL
-------------------
By: Gailen J. Hull
Vice President
Date: August 12, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following person in the capacity
and on the date indicated.
/s/ GAILEN J. HULL
-------------------
Gailen J. Hull
Principal Accounting Officer
Date: August 12, 2002
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
H. HACKFIELD & CO., LTD.
/s/ GAILEN J. HULL
-------------------
By: Gailen J. Hull
Vice President
Date: August 12, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following person in the capacity
and on the date indicated.
/s/ GAILEN J. HULL
-------------------
Gailen J. Hull
Principal Accounting Officer
Date: August 12, 2002
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
KAANAPALI ESTATES COFFEE, INC.
/s/ GAILEN J. HULL
-------------------
By: Gailen J. Hull
Vice President
Date: August 12, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following person in the capacity
and on the date indicated.
/s/ GAILEN J. HULL
-------------------
Gailen J. Hull
Principal Accounting Officer
Date: August 12, 2002
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
KEKAHA SUGAR COMPANY, LIMITED
/s/ GAILEN J. HULL
-------------------
By: Gailen J. Hull
Vice President
Date: August 12, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following person in the capacity
and on the date indicated.
/s/ GAILEN J. HULL
-------------------
Gailen J. Hull
Principal Accounting Officer
Date: August 12, 2002
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
THE LIHUE PLANTATION COMPANY, LIMITED
/s/ GAILEN J. HULL
-------------------
By: Gailen J. Hull
Vice President
Date: August 12, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following person in the capacity
and on the date indicated.
/s/ GAILEN J. HULL
-------------------
Gailen J. Hull
Principal Accounting Officer
Date: August 12, 2002
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
OAHU SUGAR COMPANY, LIMITED
/s/ GAILEN J. HULL
-------------------
By: Gailen J. Hull
Vice President
Date: August 12, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following person in the capacity
and on the date indicated.
/s/ GAILEN J. HULL
-------------------
Gailen J. Hull
Principal Accounting Officer
Date: August 12, 2002
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
PIONEER MILL COMPANY, LIMITED
/s/ GAILEN J. HULL
-------------------
By: Gailen J. Hull
Vice President
Date: August 12, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following person in the capacity
and on the date indicated.
/s/ GAILEN J. HULL
-------------------
Gailen J. Hull
Principal Accounting Officer
Date: August 12, 2002
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
PUNA SUGAR COMPANY, LIMITED
/s/ GAILEN J. HULL
-------------------
By: Gailen J. Hull
Vice President
Date: August 12, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following person in the capacity
and on the date indicated.
/s/ GAILEN J. HULL
-------------------
Gailen J. Hull
Principal Accounting Officer
Date: August 12, 2002
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
WAIKELE GOLF CLUB, INC.
/s/ GAILEN J. HULL
-------------------
By: Gailen J. Hull
Vice President
Date: August 12, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following person in the capacity
and on the date indicated.
/s/ GAILEN J. HULL
-------------------
Gailen J. Hull
Principal Accounting Officer
Date: August 12, 2002