IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
In re: : Chapter 11
:
AMFAC HAWAII, LLC, et al., <F1> : Jointly Administered
: Case No. 02-07637
Debtors. :
: Honorable Bruce W. Black
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
Brad B. Erens (IL 6206864) David S. Curry (IL 6184327)
Ann Marie Bredin (IL 6255663) Richard G. Ziegler (IL 6209241)
JONES, DAY, REAVIS & POGUE MAYER, BROWN, ROWE & MAW
77 West Wacker Drive 190 South LaSalle Street
Chicago, Illinois 60601 Chicago, Illinois 60603
(312) 782-3939 (312) 782-0600
Richard M. Cieri (OH 0032464) SPECIAL COUNSEL FOR FHT
JONES, DAY, REAVIS & POGUE CORPORATION
North Point
901 Lakeside Avenue
Cleveland, Ohio 44114
(216) 586-3939
ATTORNEYS FOR DEBTORS AND
DEBTORS IN POSSESSION
Dated: June 11, 2002
- ------------------------
<F1> The Debtors are the following 10 entities: Amfac Hawaii, LLC,
Amfac Holdings Corp., Amfac Land Company, Limited, FHT Corporation, Kaanapali
Development corp., Kaanapali Estate Coffee, Inc., KDCW, Inc., Pioneer Mill
Company, Limited, The Lihue Plantation Company, Limited and Waikele Golf Club,
Inc.
TABLE OF CONTENTS
Page
I. INTRODUCTION.......................................................1
A. Holders of Claims Entitled to Vote........................4
B. Voting Procedures.........................................4
C. Confirmation Hearing......................................5
II. OVERVIEW OF THE PLAN...............................................5
A. Summary of and Rationale for the Plan.....................6
B. Summary of Distributions..................................8
III. KAANAPALI LAND AND THE REORGANIZED DEBTORS AFTER
IMPLEMENTATION OF THE PLAN........................................15
A. Businesses...............................................15
B. Strategy.................................................20
C. Projected Asset Sales....................................21
D. Management...............................................22
E. Discussion of Financial Projections and Other
Projected Financial Data (unaudited).....................22
F. Value of Reorganized Debtors............................23
IV. GENERAL INFORMATION ABOUT THE AHI DEBTORS........................25
A. Description and History of AHI Debtors' Business........25
B. Management..............................................25
C. Description of COLA Notes and Indenture.................25
D. Description of Northbrook Senior Claims.................27
E. Possible Challenges to the Northbrook Senior Claims.....29
F. Other Liabilities.......................................30
G. Financial Results - AHI and Subsidiaries................32
H. Non-Debtor AHI Subsidiaries.............................32
I. Events Leading to Chapter 11 Filing.....................32
J. Negotiation of the Plan.................................33
V. GENERAL INFORMATION ABOUT DEBTOR FHT CORPORATION.................33
A. Description and History of FHTC.........................33
B. Description of Indebtedness Owed to AFI.................34
i
C. Events Leading to Chapter 11 Filing.....................34
VI. INFORMATION CONCERNING NORTHBROOK CORPORATION....................34
A. Business and History....................................34
B. Financial Information...................................35
C. Significant Assets and Liabilities......................35
VII. THE CHAPTER 11 CASES.............................................35
A. First Day Motions Filed.................................36
B. Motion for Authority to Pay Critical Vendors............36
C. Other Significant Events Since Commencement of
Chapter 11 Cases........................................36
VIII. THE PLAN OF REORGANIZATION.......................................36
A. Overview of Chapter 11..................................37
B. Overall Structure of the Plan...........................38
C. Classification and Treatment of Claims and Interests....38
D. Unclassified Claims.....................................42
E. No Waiver of Defenses Regarding Unimpaired Claims.......44
F. Method of Distribution Under the Plan...................44
G. Resolution of Disputed, Contingent and
Unliquidated Claims.....................................48
H. Means for Implementation of the Plan....................48
I. Treatment of Executory Contracts and Unexpired Leases...55
J. Confirmation and Effectiveness of the Plan..............57
K. Effect of Vacation of Confirmation Order................57
L. Effect of Plan Confirmation.............................57
M. Summary of Other Provisions of the Plan.................61
IX. CONFIRMATION AND CONSUMMATION PROCEDURE..........................62
A. Solicitation of Votes Generally.........................63
B. The Confirmation Hearing................................64
C. Confirmation............................................64
X. RISK FACTORS TO BE CONSIDERED....................................67
A. Certain Bankruptcy Considerations.......................67
ii
B. Factors Affecting the Value of the Securities to
Be Issued Under the Plan................................69
C. Risks Relating to the Reorganized Debtors...............70
D. Special Note Regarding Forward-Looking Statements.......79
XI. CERTAIN OTHER LEGAL CONSIDERATIONS...............................80
A. Section 1145 of the Bankruptcy Code.....................80
B. Registration and Rule 144...............................80
XII. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN..............81
A. General.................................................81
B. Certain U.S. Federal Income Tax Consequences to
the Reorganized Debtors.................................82
C. Federal Income Tax Consequences to Holders of Claims....83
D. Federal Income Tax Consequences to Holders of
Class 5 General Unsecured Claims........................86
E. Tax Consequences of Ownership of Kaanapali Land Shares..87
F. Information Reporting and Backup Withholding............87
G. Importance of Obtaining Professional Tax Assistance.....87
XIII. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN........88
XIV. CONCLUSION AND RECOMMENDATION....................................88
EXHIBITS [NOT ATTACHED]
- --------
EXHIBIT A SECOND AMENDED JOINT PLAN OF REORGANIZATION OF AMFAC HAWAII, LLC,
CERTAIN OF ITS SUBSIDIARIES AND FHT CORPORATION UNDER CHAPTER 11
OF THE BANKRUPTCY CODE
EXHIBIT B ANNUAL REPORT ON FORM 10-K
EXHIBIT C PROJECTED BALANCE SHEET
EXHIBIT D LIQUIDATION ANALYSIS
EXHIBIT E PROJECTIONS
EXHIBIT F AUDITED FINANCIAL STATEMENTS OF NORTHBROOK
iii
I. INTRODUCTION
Amfac Hawaii, LLC ("AHI") and the other above-captioned
debtors (collectively with AHI, the "Debtors") submit this disclosure
statement (the "Disclosure Statement") to Holders of Claims against and
Interests in the Debtors in connection with the solicitation of acceptances
of 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, dated June 11, 2002, as the same may be amended (the
"Plan"). Unless otherwise defined herein, all capitalized terms contained
herein have the meanings ascribed to them in the Plan.
The Debtors believe that the best way to maximize the
value of their assets - and to generate the greatest recovery for all
creditors as a group - is to restructure around their land development
business, principally their Kaanapali land holdings located on the Island
of Maui. The Debtors also believe that the value of their land holdings
will appreciate if they are able to continue efforts to obtain governmental
entitlements permitting commercial and residential development of the land,
assuming that such entitlements are granted.
As a necessary step toward achieving these objectives,
the AHI Debtors have exited from unprofitable agricultural businesses.
These measures have curtailed operating losses and eliminated large amounts
of overhead expense. However, the AHI Debtors continue to carry extremely
heavy levels of debt, and the burden of that debt is standing in the way of
the AHI Debtors' ability to realize the potential value of their land
holdings.
The principal goal of the Plan, therefore, is to address
the Debtors' debt burdens so that the Debtors can emerge from chapter 11
with a viable capital structure and with the resources necessary to operate
their land development business. The Plan proposes to achieve this goal by
converting the Northbrook Senior Indebtedness (approximately $188 million),
the COLA Note Claims (approximately $142 million) and other liabilities
into new equity (to the extent COLA Holders and certain other creditors so
elect) of a reorganized entity, Kaanapali Land, LLC, a Delaware limited
liability company ("Kaanapali Land"). Another goal of the Plan is to secure
additional liquidity for the Debtors to help fund future operations. The
Plan will achieve this goal through the Merger of FHT Corporation ("FHTC")
with Northbrook Corporation ("Northbrook"), which will make the assets and
liquidity of Northbrook available to the Debtors to help fund their land
development business.
The Plan also seeks to achieve a fair and equitable
allocation of the Debtors' reorganization value among the competing
stakeholders, taking into account that the current value of the Debtors'
assets is estimated by the Debtors to be less than half of the Northbrook
Senior Indebtedness, which management of the AHI Debtors has determined is
senior to the COLA Note Claims. The Debtors believe this objective has been
achieved through negotiation among Northbrook, the other Holders of the
Northbrook Senior Claims and Bank One Trust Company, N.A., the Indenture
Trustee, on behalf of the COLA Holders. Reflecting the results of that
negotiation, before taking into account amounts allocated to other
unsecured creditors under the Plan, the Plan allocates up to 15% of the pro
forma economic value of the Reorganized Debtors to the COLA Holders, with
the remaining shares being allocated collectively to the Holders of the
Northbrook Senior Claims and Pacific Trail Holdings, LLC ("Pacific
Holdings"), the pre-Merger shareholder of Northbrook.
For the reasons discussed in the accompanying letter from
the Indenture Trustee, the Indenture Trustee fully supports Confirmation of
the Plan. As a result, the Indenture Trustee encourages all COLA Holders to
favorably consider voting for the Plan.
On June 6, 2002, this Disclosure Statement was approved
by the Bankruptcy Court as containing adequate information, as required by
section 1125 of the Bankruptcy Code, to permit Holders of Impaired Claims
and Interests to make an informed judgment in exercising their right to
vote to accept or to reject the Plan. The Bankruptcy Court, however, has
not conducted an independent review or investigation of the factual and
financial matters described herein, nor has the Bankruptcy Court approved
or ruled on the merits of the Plan.
This Disclosure Statement describes certain aspects of
the Plan, the Debtors' operations, the Debtors' projections with respect to
their intended operations following implementation of the Plan and other
related matters. For a complete understanding of the Plan, you should read
the Disclosure Statement, the Plan and the exhibits and schedules thereto
in their entirety.
The Debtors believe that confirmation of the Plan and
consummation of the restructuring provided for therein is in the best
interests of the Debtors and their respective creditors and equity holders.
Accordingly, the Debtors urge each creditor that is Impaired under, and
entitled to vote with respect to, the Plan, to vote to accept the Plan.
Detailed voting instructions are set forth in Section I.B. of this
Disclosure Statement. To be counted, a ballot containing your vote to
accept or reject the Plan must be received by the Debtors' balloting agent,
Logan & Company, Inc., no later than the balloting deadlines provided in
the Ballot. Please note that to the extent you are instructed to return
your Ballot to your Nominee you must leave sufficient time for your Ballot
to be processed by your Nominee and submitted to Logan & Company, Inc., the
Debtors' balloting agent, before the voting deadline. Please carefully
review the more detailed instructions that accompany the Ballot.
THE DEBTORS STRONGLY URGE ACCEPTANCE OF THE PLAN.
THE DEBTORS HAVE NEGOTIATED THE TERMS OF THIS PLAN WITH
THE INDENTURE TRUSTEE FOR THE COLA NOTES. FOR THE REASONS DISCUSSED IN THE
ACCOMPANYING LETTER FROM THE INDENTURE TRUSTEE, THE INDENTURE TRUSTEE FULLY
SUPPORTS CONFIRMATION OF THE PLAN. AS A RESULT, THE INDENTURE TRUSTEE
ENCOURAGES COLA HOLDERS TO FAVORABLY CONSIDER VOTING FOR THE PLAN.
NO PERSON IS AUTHORIZED BY ANY OF THE DEBTORS IN
CONNECTION WITH THE PLAN OR THE SOLICITATION OF ACCEPTANCES OF THE PLAN TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION REGARDING THIS
DISCLOSURE STATEMENT OR THE PLAN OTHER THAN AS CONTAINED IN THIS DISCLOSURE
STATEMENT AND THE EXHIBITS AND SCHEDULES ATTACHED HERETO.
2
THE ACCURACY OF THE ACCOUNTING, FINANCIAL, ECONOMIC AND
OTHER INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT IS THE EXCLUSIVE
RESPONSIBILITY OF THE DEBTORS.
THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT ARE
MADE AS OF THE DATE HEREOF UNLESS ANOTHER TIME IS SPECIFIED HEREIN, AND THE
DELIVERY OF THIS DISCLOSURE STATEMENT SHALL NOT CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE INFORMATION STATED HEREIN.
THE INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT,
INCLUDING THE INFORMATION REGARDING THE HISTORY, BUSINESS AND OPERATIONS OF
THE DEBTORS AND THE HISTORICAL FINANCIAL INFORMATION REGARDING THE DEBTORS
IS INCLUDED FOR PURPOSES OF SOLICITING ACCEPTANCES OF THE PLAN BUT, AS TO
CONTESTED MATTERS AND ADVERSARY PROCEEDINGS, IS NOT TO BE CONSTRUED AS
ADMISSIONS OR STIPULATIONS BUT RATHER AS STATEMENTS MADE IN SETTLEMENT
NEGOTIATIONS.
FOR THE CONVENIENCE OF CREDITORS AND EQUITY HOLDERS, THIS
DISCLOSURE STATEMENT SUMMARIZES THE TERMS OF THE PLAN, BUT THE PLAN ITSELF
QUALIFIES ALL SUMMARIES. IF ANY INCONSISTENCY EXISTS BETWEEN THE PLAN AND
THE DISCLOSURE STATEMENT, THE TERMS OF THE PLAN ARE CONTROLLING. SUMMARIES
OF CERTAIN PROVISIONS OF AGREEMENTS REFERRED TO IN THIS DISCLOSURE
STATEMENT DO NOT PURPORT TO BE COMPLETE AND ARE SUBJECT TO, AND ARE
QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO, THE FULL TEXT OF THE
APPLICABLE AGREEMENT.
STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT ABOUT
THE DEBTORS' FUTURE OUTLOOK, PROSPECTS AND PLANS, INCLUDING THOSE THAT
EXPRESS BELIEF, EXPECTATION, ESTIMATES OR INTENTIONS, AS WELL AS THOSE THAT
ARE NOT STATEMENTS OF HISTORICAL FACT, ARE FORWARD LOOKING. THESE
STATEMENTS ARE BASED ON THE DEBTORS' CURRENT EXPECTATIONS AND ASSUMPTIONS
ABOUT THEIR BUSINESSES AND THE MARKETS IN WHICH THEY OPERATE. 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 DEBTORS TO BE
MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS
EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. SUCH FACTORS
INCLUDE THOSE INDICATED IN THIS DISCLOSURE STATEMENT AS WELL AS OTHER RISKS
AND UNCERTAINTIES THAT CANNOT PRESENTLY BE IDENTIFIED, AS WELL AS THE RISK
FACTORS DISCUSSED IN THE DEBTORS' FILINGS WITH THE SECURITIES AND EXCHANGE
COMMISSION, INCLUDING THEIR MOST RECENT ANNUAL REPORT ON FORM 10-K, A COPY
OF WHICH IS ATTACHED TO THIS DISCLOSURE STATEMENT AS EXHIBIT B. THE
FORWARD-LOOKING STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT SPEAK
ONLY AS OF THE DATE HEREOF, AND THE DEBTORS DISCLAIM ANY DUTY TO UPDATE
THESE STATEMENTS.
3
A. Holders of Claims Entitled to Vote
Under the Bankruptcy Code, classes of Claims that are
unimpaired under a chapter 11 plan are deemed to have accepted the plan and
are not entitled to vote to accept or reject the plan. Classes of Claims
that are not entitled to receive any distribution on account of their
Claims are deemed to have rejected the plan and are not entitled to vote to
accept or reject the plan.
Under the terms of the Plan, the Holders of Claims and
Interests in the following Classes are Impaired and the Holders of such
Claims as of June 5, 2002 (the "Voting Record Date") are entitled to vote
to accept or reject the Plan:
Class Description
----- -----------
Class 2 Northbrook Senior Claims
Class 4 COLA Holder Claims
Class 5 General Unsecured Claims against the AHI Debtors
Class 6 Intercompany Claims
Class 8 AHI Interests
Class 3A AFI Claim
Class 5A Stock Interests
Votes on the Plan are not being solicited from Holders of
Priority Claims against the AHI Debtors (Class 1), Other Secured Claims
against the AHI Debtors (Class 3), Convenience Claims (Class 5.1),
Subsidiary Stock Interests (Class 7), Priority Claims against FHTC (Class
1A), Other Secured Claims against FHTC (Class 2A) and General Unsecured
Claims against FHTC (Class 4A). Holders of such Claims and Interests will
be conclusively presumed to have accepted the Plan.
Under the Bankruptcy Code, a class of Claims accepts a
plan if Holders of at least two-thirds in dollar amount and more than
one-half in number of the Claims properly voted in that class, vote to
accept the plan. The confirmation process is described in more detail in
Section IX of this Disclosure Statement.
B. Voting Procedures
If you are entitled to vote to accept or reject the Plan,
a Ballot is enclosed for the purpose of voting on the Plan. Please
carefully follow the instructions set forth in the Ballot and vote and
return your Ballot(s) to:
4
Logan & Company, Inc.
546 Valley Road
Upper Montclair, New Jersey 07043
Attn: Amfac Hawaii Balloting Center
or, if you are a beneficial owner of a COLA Note and you receive a Ballot
from your Nominee you should return the Ballot to such Nominee in
accordance with the instructions provided with your Ballot.
TO BE COUNTED, YOUR BALLOT INDICATING ACCEPTANCE OR
REJECTION OF THE PLAN MUST BE RECEIVED BY LOGAN & COMPANY, INC. NO LATER
THAN THE VOTING DEADLINE SPECIFIED IN THE BALLOTS (THE "VOTING DEADLINE").
ANY BALLOT THAT IS EXECUTED BUT DOES NOT INDICATE AN
ACCEPTANCE OR REJECTION OF THE PLAN AND ANY BALLOT THAT IS NOT EXECUTED OR
IN WHICH BOTH THE ACCEPTANCE AND REJECTION BOXES ARE CHECKED WILL BE, IN
EITHER INSTANCE, CONSIDERED NULL AND VOID AND WILL NOT BE COUNTED.
If you are a Holder of a Claim entitled to vote on the
Plan and did not receive a Ballot, received a damaged Ballot or lost your
Ballot, or if you have any questions concerning the Disclosure Statement,
the Plan or the procedures for voting on the Plan, please call Logan &
Company, Inc., at 973-509-3190. For additional information on voting, see
Section IX.A. of this Disclosure Statement.
C. Confirmation Hearing
Section 1128(a) of the Bankruptcy Code requires the
Bankruptcy Court, after notice, to hold a hearing to determine whether the
Plan meets the requirements for confirmation established by section 1129 of
the Bankruptcy Code. Any party in interest may object to confirmation of
the Plan. The Bankruptcy Court has scheduled a hearing with respect to
confirmation of the Plan for July 29, 2002 at 1:30 p.m. (the "Confirmation
Hearing"). Notice of the Confirmation Hearing has been, or will be,
provided to Holders of Claims and Interests or their representatives (the
"Confirmation Notice"). Objections to confirmation must be filed with the
Bankruptcy Court by July 18, 2002 at 4:30 p.m. and served in accordance
with the Confirmation Notice and are governed by Bankruptcy Rules 3020(b)
and 9014 and local rules of the Bankruptcy Court. UNLESS AN OBJECTION TO
CONFIRMATION IS TIMELY SERVED AND FILED, IT MAY NOT BE CONSIDERED BY THE
BANKRUPTCY COURT.
II. OVERVIEW OF THE PLAN
The following is an overview of certain material
provisions of the Plan, which is attached hereto as Exhibit A. The
following summaries of the material provisions of the Plan do not purport
to be complete and are qualified in their entirety by reference to all the
provisions of the Plan, including all exhibits thereto.
5
A. Summary of and Rationale for the Plan
The Debtors believe that the Plan presents the best
opportunity to maximize the recovery of all creditors as a group. The
starting point for this conclusion is the value of the AHI Debtors' assets.
Currently, without governmental entitlements permitting development of
their land holdings, the Debtors estimate the orderly sale value of their
assets to be approximately $60 to $70 million, before taking into account
costs of sale. This estimate is based primarily on the Debtors' knowledge
of recent sales of comparable land which the Debtors believe to be the best
basis of valuing their property, although this methodology is one of a
number of different valuation methods, each of which may produce differing
results. Against that estimate of current value, the AHI Debtors have
fixed, non-contingent liabilities in excess of $325 million. The Northbrook
Senior Claims alone are approximately $188 million, and that debt is
secured by liens on substantially all of the AHI Debtors' real property and
related personal property. Also, management of the AHI Debtors has
determined that all or substantially all of the Northbrook Senior Claims
are "Senior Indebtedness" under the COLA Indenture dated March 14, 1989
(the "Indenture"). In light of the Northbrook Senior Claims, it is expected
that no value would be available for distribution to the COLA Holders in
the event of a liquidation of the AHI Debtors. Based on the foregoing, it
is expected that a sale of the AHI Debtors' assets would not be sufficient
to pay even 50% of the Northbrook Senior Claims. In addition, because the
Northbrook Senior Claims are secured by the aforementioned liens, the
General Unsecured Creditors of the AHI Debtors also would receive only a de
minimis distribution, if any, in the event of a sale.
In contrast, the Plan provides the prospect for a greater
recovery for all creditors as a group. The prospect for greater recovery is
further premised on the Debtors' business plan to restructure around their
land development business, which will focus on development of their
Kaanapali land holdings. (See Section III of this Disclosure Statement.) If
the Plan is confirmed and the Debtors are able in the future to obtain
entitlements for such land development, the value of the land is likely to
increase. (See Section III.F. hereof, concerning valuation of the
Reorganized Debtors). While the Debtors' management does not believe it is
possible to accurately predict the extent to which the value of such land
might increase, the holders of the Northbrook Senior Claims have decided to
contribute liquidity to the Debtors under the Plan to help fund the
Debtors' attempt to develop the land and increase the value thereof for the
holders of such claims. (See Section VI.C. hereof concerning the
contributions of assets under the Plan by Northbrook). As with any real
estate investment, there are a variety of risks that could cause the
expected appreciation or value to fail to materialize, or even cause the
property to decrease in value. Nevertheless, the Debtors believe the Plan
presents an opportunity to create substantially greater value for all
creditors as a group than would be the case under any other scenario.
As noted above, the Plan increases the likelihood that
the AHI Debtors will have the resources to carry out their business plan.
First, through the merger of FHTC with Northbrook under the Plan, the
assets and liquidity of Northbrook will be available to help fund ongoing
development efforts. Second, the prospect for success is further enhanced
by the Plan's elimination of the AHI Debtors' debt burden. Under the Plan,
the entirety of the approximately $188 million of Northbrook Senior Claims
and the approximately $142 million of COLA Note Claims are to be converted
into equity, except to the extent COLA Holders elect to take a cash out
payment of $35 per Class A or Class B COLA Note.
6
The Plan also provides a greater possibility of recovery
to the COLA Holders. It does so by giving each COLA Holder the right to
elect to receive equity in a reorganized parent of AHI - Kaanapali Land -
or to take, subject to certain limitations, a cash out payment of $35 per
$500 face amount of a Class A COLA Note or a Class B COLA Note in full
satisfaction of principal and accrued interest thereon. If the election to
take equity is made, a COLA Holder will receive an equity interest in
Kaanapali Land, in the form of the Class A Shares (other than AF Investors,
LLC ("AFI"), which shall receive Class B Shares), with up to 15% of the pro
forma equity value of Kaanapali Land being allocated, in the aggregate, to
the COLA Holders, assuming for purposes of such calculation that all COLA
Holders were to elect to receive equity and other unsecured creditors do
not elect to receive any equity in Kaanapali Land.<F2> To the extent other
unsecured creditors do elect to receive equity, the COLA Holders and the
Northbrook Senior Creditors will be diluted on an equivalent basis. As
shareholders in Kaanapali Land, COLA Holders will have the opportunity to
share in any appreciation in the value of Kaanapali Land that may be
achieved from future land development efforts.
If the cash out election is made, a COLA Holder will
receive a cash payment equal to $35 per $500 face amount of Class A Note or
Class B COLA Note in full satisfaction of principal and accrued interest
thereon, with payment to be made promptly after the Plan becomes effective.
If more than 65% of the aggregate amount of COLAs elect the cash option
(excluding COLA Notes held by AFI, which has agreed not to take the cash
option and to take Class B Shares instead of Class A Shares), the electing
Holders will receive a combination of cash and Class A shares, as further
explained below. Under the Plan, General Unsecured Creditors in Class 5
also have the option to elect cash or equity. Moreover, because Class 5
Creditors are not subject to the subordination provisions of the Indenture
in favor of the Northbrook Senior Creditors, the Plan offers Class 5
Creditors a higher cash out option, equal to 15% of their Allowed Claims,
payable six months after the Plan becomes effective. If the amount of cash
payable to Class 5 Creditors under this option would exceed $500,000, those
Class 5 Creditors electing the cash out option will receive a pro rata
share of such $500,000 plus Class A Shares for the remainder of their
Allowed Claim on the same basis as COLA Holders that elect to receive Class
A Shares. Affiliates of the Debtors that are Class 5 Creditors are not
entitled to elect the cash option and will receive Class B Shares instead
of Class A Shares. The Plan does not give the Northbrook Senior Creditors a
cash option. Finally, Allowed Class 5 Claims can elect to be in Class 5.1,
the convenience class, and receive $500 on account of their Allowed Claims.
The Plan's treatment of COLA Holders is the product of
extensive negotiation between the Debtors, the Indenture Trustee and the
Northbrook Senior Creditors. As a result of those negotiations, the Plan
includes significant concessions from the Northbrook Senior Creditors.
First, they have agreed as part of the Plan to convert the entirety of
their $188 million senior debt Claim into equity, and by doing so, the
- ---------------------
<F2> As explained in Section VIII.H. of this Disclosure Statement
Kaanapali Land will be a limited liability company taxable as a corporation,
and the Class A Shares and Class B Shares shall constitute membershihp
interests in Kaanapali Land.
7
Northbrook Senior Creditors, on a going forward basis, have aligned their
interests with those of the COLA Holders that elect to receive equity.
Second, the Northbrook Senior Creditors have agreed as part of the Plan to
waive the subordination and turnover provisions of the Indenture so that
the COLA Holders can retain their distributions under the Plan even though
the Northbrook Senior Creditors will not be paid in full. Third, they have
agreed to cause Northbrook to contribute assets under the Plan through the
merger of Northbrook with FHTC, which will provide additional liquidity to
help fund the land development activities of the Reorganized Debtors.
Finally, the compromises embodied in the Plan will benefit all parties by
avoiding costly and protracted bankruptcy proceedings, the expense and
delay of which might impair the Debtors' ability to execute their plan to
develop the Kaanapali lands.
Absent the consensual compromises contained in the Plan,
the COLA Holders have no certain right to any recovery from the AHI
Debtors. The Northbrook Senior Claims have priority both to the extent they
are secured and because they are Senior Indebtedness under the Indenture.
The Indenture subordinates any recovery for the COLA Holders to payment in
full of Senior Indebtedness of the AHI Debtors which includes, among other
things, the Northbrook Senior Claims.<F3> For that reason, among others, the
Indenture Trustee supports Confirmation of the Plan and therefore
encourages COLA Holders to favorably consider voting for the Plan. If the
Plan is not approved, the Northbrook Senior Creditors have indicated that
they would attempt to seek to lift the automatic stay imposed by the
Bankruptcy Code to foreclose on the assets securing their debt, which may
lead to protracted litigation regarding such action. (See Section IV.D.
regarding the Northbrook Senior Claims).
B. Summary of Distributions
Under the Plan, Claims against and Interests in the
Debtors are divided into Classes. Certain unclassified Claims, including
Administrative Claims and Priority Tax Claims, will be paid in full in cash
or receive such other treatment that will not impair the Holders of such
Claims under section 1124 of the Bankruptcy Code. All other Claims and all
Interests will be divided into 14 Classes and will receive the
distributions and recoveries (if any) described in the tables below.
The Plan constitutes a plan of reorganization for each
Debtor. For administrative convenience, the Plan places Claims against and
Interests in the AHI Debtors into Classes 1 through 8 and the Claims
against and Interests in FHTC in Classes 1A through 5A. The Plan is
premised on the substantive consolidation of the AHI Debtors solely with
respect to the voting and treatment of Classes 2, 4, 5 and 5.1. (See the
discussion in Section VIII.H. of this Disclosure Statement.) The Plan does
not contemplate substantive consolidation of the Debtors with respect to
other Classes of Claims or Interests.
The following table briefly summarizes the classification
and treatment of Claims and Interests with respect to the AHI Debtors:
- ---------------------
<F3> The Indenture specifically contemplated that affiliates of the
AHI Debtors may loan money to the AHI Debtors on a senior basis for any of the
purposes permitted under the Indenture. The Northbrook Senior Claims drive
from loans made in cash for such purposes.
8
- -------------------------------------------------------------------------------
Description and Estimated Amount Summary of Treatment
of Claims or Interests
- -------------------------------------------------------------------------------
Class 1 (Priority Claims) Class 1 is unimpaired by the Plan.
Each Holder of an Allowed Priority
A Claim accorded priority in right Claim is conclusively presumed
of payment under have accepted the Plan to have accepted the Plan and is
and is not entitled to vote to section not entitled to vote to accept or
507(a) of the Bankruptcy Code, other reject the Plan.
than an accept or reject the Plan.
Administrative Expense Claim or a The legal, equitable and contractual
Priority Tax Claim. rights of the Holders of Priority
Claims are unaltered by the Plan. On
or as soon as reasonably practicable
after (i) the Effective Date if such
Priority Claim is an Allowed
Priority Claim as of the Effective
Date or (ii) the date on which
such Priority Claim becomes an
Allowed Priority Claim, each Holder
of an Allowed Priority Claim shall
receive in full satisfaction,
settlement and release of and in
exchange for such Priority Claim at
the election of the Debtors (a)
cash equal to the amount of such
Priority Claim; (b) such other
treatment as to which the Debtors or
the Reorganized Debtors and the
Holder of such Allowed Priority
Claim have agreed upon in writing;
or (c) treatment such that the Claim
will not be impaired pursuant to
section 1124 of the Bankruptcy
Code.
Estimated Amount of Allowed Claims: Estimated Percentage Recovery: 100%
approximately $300,000
- -------------------------------------------------------------------------------
Class 2 (Northbrook Senior Claims) Class 2 is impaired and therefore
entitled to vote on the Plan.
Secured Claims and Unsecured Claims
against the AHI Debtors held by (i) On the Effctive Date, the
FHTC (approximately $100 million); Northbroiok Senior Claims shall be
(ii)AFI (approximately $57 million deemed to be Allowed Claims, and
and (iii) Northbrook (approximately each Holder of a Northbrook Senior
$31 million, including indebtedness Claim (i) will receive in full
originally owed to Tobishima Pacific, satisfaction, settlement of and in
Inc.) on account of and pursuant to the exchange for such Claim, its Pro
Northbrook Senior Debt Instruments. Rata share of 1,270,203 Class B
Shares, Instruments. and (ii) shall
be entitled to a lease from the
Debtors. The portion of the Class B
Shares so distributed to FHTC shall,
pursuant to the Plan, be reallocated
to AFI, and the Class B Shares so
distributed to Northbrook shall,
pursuant to the Northbrook Merger
Agreement, be retired and shall no
longer be issued and outstanding
Class B Shares.
Estimated Percentage Range of
Recovery: approximately 22% - 26%,
based upon estimated orderly sale
Estimated Amount of Allowed Claims: value of the Kaanapali Land Shares
approximately $188 million as of the Effective Date.
- -------------------------------------------------------------------------------
9
- -------------------------------------------------------------------------------
Description and Estimated Amount Summary of Treatment
of Claims or Interests
- -------------------------------------------------------------------------------
Class 3 (Other Secured Claims) Class 3 is unimpaired by the Plan.
Each Holder of an Allowed Other
Secured Claim is conclusively
presumed to have accepted the Plan
Secured Claims against an AHI Debtor and is not entitled to vote to
other than Claims in Classes 2 and 4. accept or reject the Plan.
The legal, equitable and contractual
rights of the Holders of Other
Secured Claims are altered by the
Plan. On (i) the Effective Date
if such Other Secured Claim is an
Allowed Other Secured Claim or (ii)
the date on which such Other Secured
Claim becomes an Allowed Other
Secured Claim, each Holder of an
Allowed Other Secured Claim shall
receive in full satisfaction,
settlement of, and in exchange
for, such Allowed Other Secured
Claim, at the election of the
Debtors: (a) reinstatement of the
legal, equitable and contractual
rights to which such Claim entitles
the Holder thereof and payment in
accordance with such legal,
equitable and contractual rights;
(b) such other treatment as to
which the Holder of such Claim and
the Debtors or Reorganized Debtors
agree in writing; or (c) such Claim
will be otherwise treated in any
other manner such that it will not
be impaired pursuant to section 1124
of the Bankruptcy Code.
Estimated Amount of Allowed Claims: Estimated Percentage Recovery: 100%
unliquidated claims (not to exceed
$750,000) in respect of bonds
- -------------------------------------------------------------------------------
10
- -------------------------------------------------------------------------------
Description and Estimated Amount Summary of Treatment
of Claims or Interests
- -------------------------------------------------------------------------------
Class 4 (COLA Note Claims) Class 4 is impaired and therefore
entitled to vote on the Plan.
Claims of COLA Holders based on
COLA Notes. On the Effective Date, the COLA Note
Claims shall be deemed to be Allowed
Claims in the aggregate amount of
approximately $142,000,000, which
includes principal plus accrued and
unpaid interest through the
Petition Date. Each Holder of a COLA
Note Claim will receive, at the
Holder's election, one of the
following alternative treatments in
full satisfaction of and in exchange
for such COLA Note Claim: (i) cash
in an amount equal to $35 per $500
face amount of Class A or Class B
COLA Note in full satisfaction of
principal and accrued and unpaid
interest thereon; provided, however,
that if the aggregate cash payments
to COLA Holders would exceed
$5,172,000, then each electing COLA
Holder shall receive (x) its Pro
Rata share of $5,172,000 and (y)
Class A Shares on account of the
balance of its COLA Note Claim on
the same basis as provided in (ii)
below; or (ii) if a COLA Holder does
not receive the cash treatment set
forth in clause (i), each COLA
Holder shall receive one Class A
Share for each $500 in principal of
COLA Note Claims in full
satisfaction of principal and
accrued and unpaid interest on each
Class A or Class B COLA Note
represented thereby. COLA Note
Claims held by AFI shall not be
eligible for cash treatment and
shall receive Class B Shares on the
same basis as Class A Shares
otherwise issuable to other Holders
of COLA Note Claims. In addition,
Kaanapali Land shall enter into the
Estimated Amount of Allowed Claims: Kaanapali Land Company Agreement
approximately $142 million which shall contain certain
corporate governance provisions for
the benefit of the Holders of the
Class A Shares.
Estimated Percentage Range of
Recovery: approximately 7% based on
cash election where total payments
are not greater than $5,172,000
- approximately 6.5% - 7.5%, based
on the estimated orderly sale value
of the Kaanapali Land Shares as of
the Effective Date, if the cash
treatment is not received.
- -------------------------------------------------------------------------------
11
- -------------------------------------------------------------------------------
Description and Estimated Amount Summary of Treatment
of Claims or Interests
- -------------------------------------------------------------------------------
Class 5 (General Unsecured Claims) Class 5 is impaired and therefore
entitled to vote on the Plan.
Unsecured Claims against an AHI Debtor
other than a COLA Note Claim, or the Each Holder of an Allowed General
AFI Claim. Unsecured Claim shall receive, in
full satisfaction of and in exchange
for its Allowed Claim, one of the
following alternative treatments, at
the election of the Holder of such
Claim:
(a) payment in cash from Kaanapali
Land equal to 15% of the amount of
the Allowed General Unsecured Claim,
payable without interest on or as
soon as practicable after the six
month anniversary of the Effective
Date, provided, however in no event
shall Kaanapali Land be required to
pay more than $500,000 in the
aggregate to Holders of Class 5
Claims that elect a cash
distribution. If the aggregate of
such payments will exceed $500,000,
each electing creditor shall receive
its Pro Rata share of $500,000 and
on account of the balance of its
Allowed Claim shall receive Class A
Shares on the same basis as
provided in clause (b) below; or
(b) if a Holder of a Class 5
Allowed Claim does not receive the
cash treatment set forth in clause
(a), the Holder of a Class 5
Allowed Claim shall receive Class A
Shares on an equivalent basis per
dollar <F4> of Allowed Claim as
COLA Holders that receive Class A
Shares. Holders of Class 5 Allowed
Claims that are Affiliates of the
Debtors shall receive Class B
Shares on the same basis as other
Holders of Class 5 Allowed Claims
receiving Class A Shares, and shall
not be eligible to elect the cash
treatment set forth in clause (a).
In addition, Kaanapali
Land shall enter into the
Estimated Amount of Allowed Claims: Kaanapali Land Company Agreement,
approximately $2 milklion, excluding which contains certain corporate
(i) contingent claims arising if governance provisions, for the
certain executory contracts are rejected benefit of the Holders of Class A
as described in Section IV.F. and (ii) Shares.
inter-company Claims of Non-Debtor
Subsidiaries, which will be subject to Estimated Percentage Range of
the rights of set off as described in Recovery: (i) 15% (undiscounted) of
off as described in Section VIII.L. cash election is made, where total
payments are not greater than
$500,000; (ii) approximately
6.5% - 7.5%, based on the estimated
value of the Kaanapali Land Shares as
of the Effective Date, if the cash
treatment is not received.
- -------------------------------------------------------------------------------
- -------------------
<F4> Such Holder thus receives a Class A Share for each $510 of
unsatisfied Allowed Claim, which is equivalent to the treatment of Allowed
Class 4 Claims, which receive one Class A Share for each $500 in principal and
$10 in accrued interest.
12
- -------------------------------------------------------------------------------
Description and Estimated Amount Summary of Treatment
of Claims or Interests
- -------------------------------------------------------------------------------
Class 5.1 (Convenience Claims) Class 5.1 is unimpaired by the Plan.
Each Holder of a Convenience Claim is
conclusively presumed to have
An unsecured, nonpriority Claim (other accepted the Plan and is not entitled
than a COLA Note Claim) as of the to vote to accept or reject the Plan.
Petition Date in the amount of
$500 or less; provided, however, On the Effective Date, each Holder of
that if the Holder of an unsecured, an Allowed Convenience Claim shall be
nonpriority Claim (other than a COLA Note entitled to receive from Kaanapali
Claim) in an amount greater than $500 Land in full satisfaction of and in
shall make an election to reduce such exchange for such Claim, payment of
Claim to $500, such Claim shall be an Allowed Convenience Claim in
treated as a Convenience Claim for full, in cash.
all purposes.
Estimated Amount of Allowed Claims:
$200,000 Estimated Percentage Recovery: 100%
- -------------------------------------------------------------------------------
Class 6 (Intercompany Claims) Class 6 is impaired and therefore
entitled to vote on the Plan.
Amounts owing for money borrowed or On the Effective Date, the
for goods and services rendered as Intercompany Claims shall be
reflected on the books and records discharged and extinguished and the
of any AHI Debtor as of the Petition Holders of the Intercompanyu Claims
Date by any AHI Debtor to another AHI shall not receive any distribution
Debtor or retain any rights on account of
such Claims.
Estimated Amount of Allowed Claims: N/A Estimated Percentage Recovery: 0%
- -------------------------------------------------------------------------------
Class 7 (Subsidiary Stock Interests) Class 7 is unimpaired by the Plan.
Each Holder of a Subsidiary Stock
Equity interests held by AHI in any Interest is conclusively presumed to
AHI Subsidiary or by any AHI have accepted the Plan and is not
Subsidiary in any other AHI entitled to vote to accept or reject
Subsidiary. the Plan.
The legal, equitable and contractual
rights of Holders of Class 7
Interests are unaffected by the
Merger Agreements and the Plan.
- -------------------------------------------------------------------------------
Class 8 (AHI Interests) Class 8 is impaired and therefore
entitled to vote on the Plan.
Equity interests of Northbrook in AHI.
After giving effect to the Northbrook
Merger and the Kaanapali Land Merger,
upon, or immediately following the
Effective Date, the Interests of
Northbrook in AHI shall become the
Interests of Kaanapali Land in AHI.
- -------------------------------------------------------------------------------
The following table briefly summarizes the classification
and treatment of Claims and Interests with respect to FHTC:
- -------------------------------------------------------------------------------
Description and Estimated Amount Summary of Treatment
of Claims or Interests
- -------------------------------------------------------------------------------
Class 1A (Priority Claims) Class 1A is unimpaired by the Plan.
Each Holder of an Allowed Priority
Claim is conclusively presumed to
A Claim accorded priority in right of have accepted the Plan and is not
payment under section 507(a) of the entitled to vote to accept or reject
Bankruptcy Code, other than an the Plan.
Administrative Expense Claim or a
Priority Tax Claim.
The legal, equitable and contractual
rights of the Holders of Priority
Claims are unaltered by the Plan. On
or as soon as reasonably practicable
after (i) the Effective Date if such
Priority Claim is an Allowed Priority
Claim as of the Effective Date or
13
- -------------------------------------------------------------------------------
Description and Estimated Amount Summary of Treatment
of Claims or Interests
- -------------------------------------------------------------------------------
(ii) the date on which such Priority
Claim becomes an Allowed Priority
Claim, each Holder of an Allowed
Priority Claim shall receive in full
satisfaction, settlement and release
of and in exchange for such Priority
Claim at the election of the Debtors
(a) cash equal to the amount of
such Priority Claim; (b) such other
treatment as to which the Debtors or
the Reorganized Debtors and the
Holder of such Allowed Priority Claim
have agreed upon in writing; or (c)
treatment such that the Claim will
not be impaired pursuant to section
1124 of the Bankruptcy Code.
Estimated Amount of Allowed Claims:
no known claims Estimated Percentage Recovery: 100%
- -------------------------------------------------------------------------------
Class 2A (Other Secured Claims) Class 2A is unimpaired by the Plan.
Each Holder of an Allowed Other
Secured Claim is conclusively
Secured Claims against FHTC presumed to have accepted the Plan
and is not entitled to vote to
accept or reject the Plan.
The legal, equitable and contractual
rights of the Holders of Other
Secured Claims are unaltered by
the Plan. On (i) the Effective Date
if such Other Secured Claim is an
Allowed Other Secured Claim on the
Effective Date or (ii) the date on
which such Other Secured Claim
becomes an Allowed Other Secured
Claim, each Holder of an Allowed
Other Secured Claim shall receive in
full satisfaction, settlement of,
and in exchange for, such Allowed
Other Secured Claim, at the election
of the Debtors: (a) the reinstatement
of the legal, equitable and
contractual rights to which such
Claim entitles the Holder thereof
and payment in accordance with
such legal, equitable and contractual
rights; (b) such other treatment as
to which the Holder of such Claim and
the Debtors or Reorganized Debtors
agree in writing; or (c) such Claim
will be otherwise treated in any
other manner such that it will not be
impaired pursuant to section 1124 of
the Bankruptcy Code.
Estimated Amount of Allowed Claims:
no known claims Estimated Percentage Recovery: 100%
- -------------------------------------------------------------------------------
Class 3A (AFI Claims) Class 3A is impaired and therefore
entitled to vote on the Plan.
All Claims held by AFI against FHTC
(approximately $203 million) whether
evidenced by promissory note, On the Effective Date, the AFI Claim
intercompany account or otherwise. shall be deemed to be an Allowed
Claim, and AFI shall receive in full
satisfaction of and in exchange
for such Allowed Claim, a
distribution of the portion of the
Class B Shares that is to be
distributed to FHTC pursuant to the
Plan, which Class B Shares shall be
reallocated and issued to AFI.
Estimated Amount of Allowed Claims:
approximately $203 million
14
- -------------------------------------------------------------------------------
Description and Estimated Amount Summary of Treatment
of Claims or Interests
- -------------------------------------------------------------------------------
Class 4A (General Unsecured Claims) Class 4A is unimpaired by the Plan.
Each Holder of an Allowed General
Unsecured Claim is conclusively
General Unsecured Claims against presumed to have accepted the Plan
FHTC other than the AFI Claims. and is not entitled to vote to
accept or reject the Plan.
The legal, equitable and contractual
rights of the Holders of General
Unsecured Claims are unaltered by
the Plan. On or as soon as reasonably
practicable after (i) the Effective
Date if such General Unsecured Claim
is an Allowed General Unsecured Claim
as of the Effective Date or (ii) the
date on which such General Unsecured
Claim becomes an Allowed General
Unsecured Claim, each Holder of an
Allowed General Unsecured Claim: (a)
shall receive in full satisfaction,
settlement and release of and in
exchange for such General Unsecured
Claim cash equal to the amount of
such General Unsecured Claim; or (b)
such Claim will be otherwise treated
in any other manner such that it
will not be impaired pursuant to
section 1124 of the Bankruptcy Code.
Estimated Amount of Allowed Claims:
$1,000 Estimated Percentage Recovery: 100%
- -------------------------------------------------------------------------------
Class 5A (Old Stock Interests) Class 5A is impaired and therefore
entitled to vote on the Plan.
Equity interests in FHTC
On or prior to the Effective Date,
Northbrook will be merged into
FHTC pursuant to the Northbrook
Merger Agreement and the Old Stock
Interests will be cancelled
pursuant to the Northbrook Merger
Agreement.
- -------------------------------------------------------------------------------
III. KAANAPALI LAND AND THE REORGANIZED DEBTORS
AFTER IMPLEMENTATION OF THE PLAN
Upon confirmation of the Plan, Kaanapali Land will pursue
its businesses utilizing the assets of the AHI Debtors and the Non-Debtor
AHI Subsidiaries and the assets formerly owned by Northbrook and its
subsidiaries. The assets of Northbrook and its subsidiaries to be
contributed to Kaanapali Land under the Plan are expected to provide
liquidity needed to (i) consummate the Plan (including, among other things,
cash needed to fund the cash options offered to non-affiliated COLA Holders
and other unsecured creditors) and (ii) help fund operations of the AHI
Debtors and Non-Debtor AHI Subsidiaries during the initial years after the
Effective Date while pursuing the Kaanapali Land's Kaanapali 2020
development plans.
A. Businesses
Kaanapali Land will operate three primary business
segments after confirmation of the Plan: (i) Land Development, Management
and Sales, (ii) Agriculture and (iii) Golf. As discussed below, of the
foregoing, Kaanapali Land's primary business will be Land Development,
Management and Sales.
15
Land Development, Management and Sales
Kaanapali 2020 Development Plans. The central feature of
Kaanapali Land's business plan is "Kaanapali 2020", Debtor Kaanapali
Development Corp.'s ("KDC") comprehensive development plan for
approximately 4,000 acres of land in the Kaanapali/Honokawai area on the
west side of Maui, Hawaii. Currently, KDC is preparing market and
feasibility studies in anticipation of applying for the necessary
entitlements to carry out the Kaanapali 2020 development plan. While some
of these lands have some form of entitlements, it is anticipated that all
of the land to be developed will require state district boundary amendments
and county general plan amendments, as well as rezoning approvals.
Approximately 1,500 acres of this land is located towards the top of
mountain ridges and in gulches and is classified as conservation, which
precludes development. However, this land, and other land that will be
designated as open space, is an important component of the overall project
and is part of obtaining the entitlements for the land as a whole.
Once KDC obtains the necessary entitlements, it intends
to develop some or all of the project (either alone or through one or more
joint ventures with strategic partners) and/or sell some or all of the
entitled parcels. KDC will need to apply for subdivision of the land in
order to develop or sell the parcels. As a condition to subdivision of the
land, the county will generally require the completion or bonding of
certain infrastructure, including roads, water and sewer facilities. In the
event KDC constructs the requisite infrastructure, it will be required to
obtain building and grading permits.
For the last few years, KDC has been working with the
West Maui community to involve the community in plans for the use and
development of the Kaanapali 2020 lands. Committees, comprised of private
sector individuals from the community as well as public employee
participants, have been working with KDC to create a vision for the future
of the Kaanapali lands. This community-based planning, or "CBP",
development initiative, though not a legal requirement of the entitlement
process, appears to have resulted in significant community support for the
Kaanapali 2020 plans. The CBP development strategy has been used in several
communities, including the successful Weston, Florida planned community
being completed by an affiliate of Northbrook. Management is optimistic
that a development plan can be implemented with the support of the
community that meets Kaanapali Land's long-term financial objectives.
The Kaanapali 2020 development plan is currently at a
predevelopment stage. Once the market and financial feasibility studies are
completed, the development plan will be finalized and the entitlement
process will commence. Approximately 990 acres of land have been identified
for development with up to approximately 5,500 residential units along with
commercial, retail and recreational assets. The balance of the land is
expected to remain open space or agricultural. Over the next few years,
Kaanapali Land will seek the necessary approvals to pursue its business
strategy.
16
The Kaanapali 2020 land is currently owned by Debtors
KDC, Pioneer Mill Company, Limited ("Pioneer Mill") and AHI. After the
Effective Date, Kaanapali Land may cause these entities to transfer this
land to a single entity. Otherwise, KDC will undertake the development on
behalf of itself and the other landowners. Upon completion of the
development, it is anticipated that the Kaanapali 2020 plan will encompass
a complete community, including primary and resort residential units,
schools, parks and other commercial and recreational development and public
facilities that benefit the community and Kaanapali Land.
Project Planning and Development. Kaanapali Land's real
estate development approach will be designed to enhance the value of its
properties in phases. In most instances, the development process begins
with the preparation of market and feasibility studies that consider
potential uses for the property, as well as costs associated with the
development of those uses. The studies consider factors such as location,
physical characteristics, demographic patterns, anticipated absorption
rates and regulatory and environmental requirements.
Based on the results of these market and feasibility
studies, Kaanapali Land will prepare a land plan that is consistent with
the findings of the studies. Kaanapali Land, acting through the appropriate
AHI Subsidiary, would then commence the process of applying for the
entitlements necessary to permit the development of the property in
accordance with the land plan. The length and difficulty of obtaining the
requisite entitlements, as well as the cost of complying with any
conditions attached to the entitlements, are significant factors in
determining the viability of Kaanapali Land's development projects.
Applications for entitlements include applications for state land use
reclassification, county community plan amendments and changes in zoning.
The entitlement process can involve substantial amounts
of time and expense. The applications generally require the submittal of
comprehensive plans that involve the use of consultants and other
professionals. Parties affected by the development can challenge the
applications at the time of submittal, which may substantially delay the
process. Generally, once the applications are deemed acceptable, the
various governing agencies involved in the entitlement process commence
consideration of the requested entitlements. The applicable agencies often
impose conditions, which may be costly to the developer, on any approvals
of the entitlements. These conditions may include the requirement that
Kaanapali Land dedicate land for public use, fund infrastructure
improvements, pay impact fees and provide affordable housing in the area of
the development. Kaanapali Land may also be subject to conditions that the
entitlement will be revoked if the development of the project does not take
place within a particular time period. If there is a significant change in
the land plans subsequent to obtaining the county approvals, Kaanapali Land
may be required to apply for amendments to the existing entitlements. The
amendment process can also be lengthy and costly, and it may result in
additional conditions attaching to any approvals.
If Kaanapali Land is not successful in obtaining the
necessary entitlements to develop the property as originally planned,
Kaanapali Land may be required to revise its land plan. In that case,
development of the land in accordance with revised plans may not be as
economically viable as the original land plan. There can be no assurance
that all necessary approvals will be obtained, that modifications to those
plans will not require additional approvals, or that such additional
approvals will be obtained.
17
Oahu Sugar Mill Site Development. In 1995, the Debtors
closed the Oahu Sugar Company plantation. The former sugar mill site, now
owned by Non-Debtor Amfac Property Development Corp. ("APDC"), comprises
approximately 15 acres and is located in Waipahu, approximately 10 miles
west of downtown Honolulu, near Pearl Harbor. APDC is engaged in efforts to
develop the property and has received county zoning approval for a light
industrial subdivision on the property. The Debtors expect to market this
property in bulk after addressing certain identified environmental issues.
However, sale of the property is not expected to yield significant net cash
proceeds to Kaanapali Land because the property is encumbered by liens
pursuant to bank mortgage financing in an amount which approximates the
anticipated value of the property. Furthermore, there can be no assurance
that Kaanapali Land will be able to sell the property.
Land Management and Sales. Apart from the golf course
properties (discussed below), the Kaanapali 2020 lands and the Oahu Sugar
mill site, AHI and its subsidiaries own approximately 500 acres of
remaining land. Parcel 22/23 (defined in and more fully discussed in
Section III.C.) is the only remaining fully entitled parcel in the
Kaanapali Golf Estates development and consists of approximately 110 acres
zoned for residential development. Parcel 22/23 is currently undeveloped.
The Pioneer Mill site, located in Lahaina ("Pioneer Mill Site"), is
approximately 19.5 acres and is zoned for industrial use. Pioneer Mill also
owns several parcels, known collectively as the "Wainee Lands", which are
located in Lahaina south of the mill site. The Wainee Lands include
approximately 235 acres and are classified and zoned for agricultural use.
However, the Debtors believe that certain portions of the Wainee Lands
might be developed as an affordable housing community once the property is
reclassified and rezoned. There are also less than 100 acres of
miscellaneous land parcels located on the Islands of Kauai, Maui and Oahu.
These miscellaneous parcels primarily include mill sites and other land
associated with now-closed sugar growing and processing operations and
water-related assets. It is not expected that upon sale these miscellaneous
parcels will yield any significant cash proceeds to Kaanapali Land.
Agriculture
Historic Operations. Until recently, a significant
portion of the Debtors' revenues derived from agricultural operations
primarily consisting of the cultivation, milling and sale of raw sugar. The
last remaining sugar plantation of the AHI Debtors, owned by Debtor The
Lihue Plantation Company, Limited ("Lihue Plantation") was shut down at the
end of 2000. In September 2001, the Debtors also ceased their coffee
operations, which were owned by Debtor Kaanapali Estate Coffee, Inc.
("KEC"). KEC intends to liquidate its remaining inventory of coffee beans
and its mill equipment. Most sugar mill equipment with significant value
has already been sold.
Seed Corn Operations. Pioneer Mill's seed corn operations
are located on former Maui sugar lands that are now part of the Kaanapali
2020 area. The Debtors earn modest income under a contract with Monsanto
Seed Company, to grow seed corn according to Monsanto's specifications. In
addition to generating approximately $100,000 in net revenues per year,
this operation is politically advantageous, because the cultivated land
helps control dust and soil erosion and keeps the fields green, to the
benefit of the local community. The Debtors may seek to expand this
operation if they can find ready markets for their products and it is
profitable to do so. There can be no assurance that any expansion will
occur or that current operations will remain profitable.
18
Lihue Power Plant. Lihue Plantation historically used a
by-product of its sugar cane processing, called bagasse, as the main fuel
source for its sugar plantation boilers. Lihue Plantation generated
sufficient electrical power and steam for the plantation's own use and for
sale under contract to the local public electric utility, Kauai Electric.
After the Debtors shut down their sugar operations, bagasse was no longer
available and the Debtors had to use alternative fuels to fulfill their
obligations under the contract with Kauai Electric. The arrangements with
Kauai Electric were no longer economically viable for the Debtors, who
renegotiated the power purchase agreement in 2001. Kauai Electric wanted to
ensure the continued operation of the Debtors' power plant until Kauai
Electric could complete construction of its new power generation facility
which is scheduled to come online in 2002. The amended contract provides
that Kauai Electric will reimburse the Debtors for substantially all
operating costs until the contract expires, at a date not later than
December 31, 2002. As a result, the Debtors do not expect power production
costs or revenues to have a significant effect on future operations.
Golf
Kaanapali Land will be responsible for the management and
operation of an 18-hole golf course known as the Waikele Golf Club on Oahu.
The Waikele Golf Course is currently not owned by any of the AHI Debtors,
but, as an asset of Northbrook, will be made available to Kaanapali Land
upon consummation of the Plan and the Mergers. The Waikele Golf Course has
a fair market value (net of associated indebtedness) of approximately $4.5
million, and is modestly profitable at current levels of debt. Substantial
improvements in local economic conditions and the Hawaiian tourism industry
would be necessary for Kaanapali Land to realize significant cash proceeds
from this business segment. There can be no assurance that such
improvements will occur in the near term. For risk factors related to
Kaanapali Land's anticipated golf operations, see Section X.C. of the
Disclosure Statement.
Other golf courses, known as the Royal Kaanapali Golf
Courses ("RKGC"), are on Maui adjacent to the primary resort facilities at
Kaanapali. The RKGC are owned by Amfac Property Investment Corp. ("APIC"),
a corporation that is approximately 16.7% owned by AHI and its subsidiaries
and 83.3% owned by AFI. APIC, and with respect to certain limited recourse
obligations, AHI and Pioneer Mill are borrowers under a $66 million loan
made by the Employees' Retirement System of the State of Hawaii ("ERS") in
1991. The loan, which has a current balance in excess of $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 ERS over, among other things, ERS's failure
to consent to a grant of required easements in order for AHI to develop and
market the adjoining properties and to release unrelated adjacent lands
from the mortgage, as the borrowers believe is required under the loan
documents, APIC did not pay the required interest payments due in 2000 on
the loan secured by the RKGC. ERS issued a default notice and instituted a
foreclosure action in August 2000. Pursuant to an agreement between ERS and
19
the borrowers, the borrowers paid approximately $3.8 million in September
2000 to ERS for a portion of the past due interest amounts and ERS agreed
to temporarily suspend its foreclosure 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. During the
settlement negotiations, Northbrook, an affiliate of APIC that had no
obligations under the loan, had funded certain minimum interest payments
(together with ERS's legal fees and other related costs). In January 2002,
ERS resumed its foreclosure action, and in March 2002 a receiver was
appointed to operate the golf course. The borrowers are contesting the
foreclosure. The borrowers have also brought counterclaims against ERS
relative to ERS's alleged defaults described above. The ERS is contesting
the counterclaim. Failure to obtain the necessary easements could subject
Pioneer Mill to damage claims from landowners on parcels recently sold by
it and could significantly negatively impact the value and marketability of
Parcel 22/23, which requires such easements for access and to ensure that
the parcel enjoys necessary water and drainage rights. It should not be
anticipated that the RKGC will be a source of any liquidity or will
contribute any value to Kaanapali Land. It is likely that Kaanapali Land
and its subsidiaries will have no further interest in the RKGC after 2002.
Although the borrowers are currently engaged in settlement negotiations
with ERS, there can be no assurance as to the outcome of such litigation or
any settlement negotiations related thereto.
Other
Olympic Hotel. AFI, an indirect approximately 85%
subsidiary of Northbrook, owns a 27.55% limited partnership interest (the
"Olympic Interest") in a partnership that owns the Olympic Four Seasons
Hotel in Seattle, Washington. The hotel is subject to a third party ground
lease on the underlying land. AFI has agreed to transfer the Olympic
Interest to an Affiliate and to distribute certain cash proceeds to AFLP,
which in turn has agreed to distribute such cash proceeds to Northbrook.
These transactions will result in approximately $6.5 million of cash being
distributed to Northbrook which will be available to Kaanapali Land to
pursue its primary business objectives. This transfer is contingent upon
receipt of consent of the third-party ground lessor and may occur either
prior to or after the Effective Date. There can be no assurance that such
consent will be obtained or the timing thereof. In the event of any such
transfer, although the proceeds thereof that would be distributable to
Kaanapali Land will be available to Kaanapali Land's owners, there would be
no further cash flow from this asset.
B. Strategy
The focus of Kaanapali Land's business will be to
continue to finalize and pursue the Kaanapali 2020 development plan.
Kaanapali Land will utilize existing cash resources and cash flow from
other assets, including the Olympic Interest (or the proceeds of the sale
of this asset) and the Waikele Golf Course, to further the Kaanapali 2020
development.
Four strategic land sales are also being pursued to raise
additional cash for Kaanapali 2020 as are described under "Projected Asset
Sales" below.
20
Certain Non-Debtor Subsidiaries have no substantial
assets (in excess of liabilities) and will not be direct participants in
the Plan. In the unlikely event that a Non-Debtor Subsidiary generates
proceeds in excess of its third-party obligations, such proceeds would be
available to Kaanapali Land. None of the Kaanapali Land subsidiaries other
than the AHI Debtors (and FHTC, which will become Kaanapali Land from and
after the Effective Date) have filed bankruptcy petitions and their
existing obligations will be resolved separately. The only entities that
have significant assets available to a reorganized Kaanapali Land will be
Waikele Golf, LLC (the owner of the Waikele Golf Course) and Amfac Finance
Limited Partnership ("AFLP", in which Kaanapali Land will own an
approximate 85% limited partnership interest (the "AFLP Interest")).
AFLP owns a 99.75% non-managing membership interest in
AFI, as well as a modest amount of cash and an interest as a plaintiff in
certain litigation that is currently expected to produce net proceeds to
AFLP of $1-2 million, though the outcome of such litigation, as with any
litigation, cannot be assured. After consummation of the Plan, AFI's only
significant asset is expected to be the Olympic Interest, assuming that it
has not been previously transferred as discussed above. AFI's continuing
indirect interest in the Olympic Interest is not currently expected to be a
source of liquidity assuming it is so transferred.
C. Projected Asset Sales
There are strategic land sales that are needed to raise
additional cash to fund the Kaanapali 2020 development.
Parcel 22/23. Kaanapali Golf Estates ("KGE") is a
residential community that is part of the Kaanapali Beach Resort in West
Maui. KGE has been subdivided into several parcels that have been sold to
residential developers. There is one remaining parcel available for sale in
the residential community called "Parcel 22/23". As described above, Parcel
22/23 includes approximately 110 acres and is currently subject to a
property purchase agreement. However, the litigation with the ERS described
above may adversely impact the Debtors' ability to consummate the sale.
Estimated net sales proceeds are dependent upon the pending litigation
being settled or disposed of on a satisfactory basis such that the
contemplated sale may be completed, and are subject to completion by
Kaanapali Land of site improvements required by the buyer.
North Beach. KDC and AHI jointly own three beachfront
lots that total approximately 82 acres, commonly known as Lots 2, 3 and 4.
All three lots are zoned for hotel development. In December 2000, these
companies sold a fourth parcel, the 14-acre Kaanapali Ocean Resort ("KOR")
site known as Lot 1, to SVO Pacific, Inc. ("SVO"), an affiliate of Starwood
Hotels and Resorts, which is in the process of developing time-share units
on the property. In addition, SVO received a five-year option to purchase
Lot 2, which contains approximately 11.5 acres. 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). This option expires in late
2005 and pursuant to the option agreement the owners expect the sale to be
consummated prior to that time. The Debtors continue to examine their legal
rights and alternatives with respect to such option agreement as described
in Section IV.F. The Debtors have determined to attempt to sell Lot 4 to
raise cash. Lot 4 contains approximately 40 acres but, due to requirements
arising from an earlier entitlement proceeding, five acres must be
dedicated as a community park. Both Lot 2 and Lot 4 are zoned for hotel
use. The Debtors intend to retain Lot 3 for the foreseeable future.
Pioneer Mill Site. Pioneer Mill owns approximately 19
acres in Lahaina, known as the Pioneer Mill Site, which is zoned for
industrial development. This was the former site of AHI's sugar and coffee
mills on Maui. Pioneer Mill is evaluating a possible redevelopment of the
site, but will likely attempt to sell the property in bulk in either 2003
or 2004.
21
D. Management
Gary Nickele has been President of AHI since February
2001. Mr. Nickele has been associated with Northbrook, AHI and their
respective affiliates for over 18 years. These affiliates include Xanterra
Resorts (a mainland concession and hospitality company), Arvida Company
(residential community developer operating primarily in Florida) and JMB
Realty Corporation (a diversified real estate investment company). Mr.
Nickele holds a bachelor's degree from the University of Notre Dame and a
J.D. degree from the University of Michigan.
Stephen Lovelette has been an Executive Vice President
of AHI since 2000. Mr. Lovelette is in charge of implementing the
Kaanapali 2020 development plan. Mr. Lovelette has been
associated with Northbrook and its affiliates for over 15 years.
Prior to joining an affiliate of Northbrook, Mr. Lovelette worked
for Arvida Company under its previous ownership and continues to
oversee its development efforts. He has extensive experience in
the community development business. Mr. Lovelette holds a
bachelor's degree from The College of the Holy Cross and an MBA
from Seton Hall University.
Tamara Edwards has been Vice President of AHI, President
of its land sale subsidiary since 1997 and President of its golf subsidiaries
since 1998. Ms. Edwards is in charge of the Land Management and Sales
operations of the AHI Debtors. She has been associated with AHI and its
affiliates since 1995. Ms. Edwards holds a bachelor's degree from the
University of California at Los Angeles and a J.D. degree from the University
of Southern California.
Peggy Sugimoto has been Senior Vice President of AHI and
Vice President of the other AHI Debtors since 1994. She has been associated
with AHI and its affiliates for over 25 years. Ms. Sugimoto has a
bachelor's degree from the University of Hawaii and is a Certified Public
Accountant.
James Falconer has been a Vice President of Pioneer Mill
Company, Limited and Kaanapali Estate Coffee, Inc. since 1997 and has been
associated with the Debtors for over 20 years. Mr. Falconer is in charge of
Pioneer Mill's agricultural operations on Maui. Mr. Falconer has a bachelor's
degree from California Polytechnic State University.
Lyle Tabata has been a Vice President of The Lihue
Plantation Company, Limited since 1997 and has been associated with the
Debtors for over 20 years. Mr. Tabata is in charge of operating the Lihue
Plantation power plant. Mr. Tabata has a bachelor's degree from Bradley
University and is a professional engineer.
E. Discussion of Financial Projections and Other Projected Financial
Data (unaudited)
The projected balance sheet of Kaanapali Land as of June
30, 2002, is attached hereto as Exhibit C (the "Projected Balance Sheet").
The Pro Forma Financial Projections of Kaanapali Land from July 1, 2002
through December 31, 2005 are attached hereto as Exhibit E (the
22
"Projections"). Such cash flows do not contemplate any distributions to
equity holders over the projected period. The Projected Balance Sheet shows
assets totaling approximately $215 million (including property carried at
book value on a GAAP basis), liabilities of approximately $126 million,
investments in unconsolidated entities of approximately $58 million and
equity of approximately $31 million. This compares to an estimated balance
sheet of AHI, as of the same date, without taking into account the effects
of the Plan, with assets of approximately $147 million, liabilities of
approximately $415 million, investments in unconsolidated entities of
approximately $12 million and equity of approximately negative $280
million. The additional assets on the Kaanapali Land pro forma balance
sheet are attributable principally to additional cash balances, overfunded
pension plan assets, and ownership of the Waikele Golf Course, all of which
will be contributed by Northbrook and its subsidiaries to the
reorganization. The conversion of the Northbrook Senior Claims and the COLA
Notes to equity account for substantially all of the decrease in the amount
of liabilities shown on the Kaanapali Land pro forma balance sheet, when
compared to the estimated balance sheet for AHI as of June 30, 2002. As a
consequence of the foregoing, Kaanapali Land will operate with an initial
positive equity balance, while the current equity balance of AHI is
substantially negative.
F. Value of Reorganized Debtors
The Debtors have prepared their own analysis of the
reorganization equity value of Kaanapali Land. The reorganization equity
value of Kaanapali Land, which includes the Debtors' operating business, is
also based on the expected present value of certain non-operating assets
and the estimated debt balances at the Effective Date of the Plan (assumed
to be June 30, 2002), and is estimated by the Debtors to be approximately
$60 million to $70 million. The Debtors' reorganization equity value
(ascribed as of the date of this Disclosure Statement) reflects, among
other things, factors discussed below and current financial market
conditions.
Based on the assumed reorganization equity value set
forth above, the value of the Kaanapali Land Shares to be issued to the
Holders of Allowed Claims in Class 2 and to the Holders of Allowed Claims
in Class 4 and Class 5 who elect to receive Kaanapali Land Shares is
estimated to be approximately $32 to $38 per share. The foregoing valuation
also reflects a number of assumptions, including a successful
reorganization of the Debtors' business and finances in a timely manner,
the amount of available cash, market conditions and the Plan becoming
effective in accordance with its terms on a basis consistent with the
estimates and other assumptions discussed therein.
Estimates of reorganization equity value do not purport
to be appraisals, nor do they necessarily reflect the values that might be
realized if assets were sold. The estimates of reorganization equity value
prepared by the Debtors assume that the Reorganized Debtors continue as the
owners and operators of their businesses and assets. Such estimates were
developed solely for purposes of formulation and negotiation of a plan of
reorganization and analysis of implied relative recoveries to creditors
thereunder. Such estimates reflect computations of the estimated
reorganization equity value of the Reorganized Debtors through the
application of various valuation techniques and do not purport to reflect
or constitute appraisals, liquidation values or estimates of the actual
market values that may be realized through the sale of any securities to be
issued pursuant to the Plan, which may be significantly different from the
amounts set forth herein. The value of an operating business is subject to
23
uncertainties and contingencies that are difficult to predict and will
fluctuate with changes in factors affecting the financial conditions and
prospects of such a business. As a result, the estimate of reorganization
equity value set forth herein is not necessarily indicative of actual
outcomes, which may be significantly more or less favorable than those set
forth herein. Because estimates are inherently subject to uncertainties,
neither the Debtors nor any other person assumes responsibility for their
accuracy.
In addition, the valuation of the Class A Shares is
subject to additional uncertainties and contingencies, all of which are
difficult to predict. As set forth in the Projections, it is not
contemplated that Kaanapali Land will make any distributions to its
shareholders through the end of the year 2005. There can be no assurance
that any trading market for the Class A Shares will develop, and the
ability of holders of Class A Shares to sell their Class A Shares at any
price may be limited. Kaanapali Land is under no obligation to cause a
trading market for the Class A Shares to develop. If a market were to
develop, the trading price of Class A Shares may be adversely affected by
many factors. (See "Risk Factors to be Considered--Factors Affecting the
Value of the Securities to be Issued Under the Plan" in Section X.B.)
Accordingly, the reorganization equity value estimated by the Debtors does
not necessarily reflect, and should not be construed as reflecting values
that will be attained by Kaanapali Land or that will be reflected in the
value of the Class A Shares.
The AHI Debtors believe there is a reasonable possibility
that by pursuing their Kaanapali 2020 development plan they may be able to
achieve significant appreciation in the value of their Kaanapali assets.
However, the AHI Debtors have not attempted to forecast the value of the
Reorganized Debtors' assets at the end of the projection period. Any such
forecast would be, in the judgment of management, too speculative, due to
the risk factors discussed in this disclosure statement. Of special
importance in determining any such forecast would be an assumption
concerning the amount, location and configuration of the land that
ultimately receives the entitlements described herein, as well as type and
density of development that is ultimately approved for such land. Due to
the preliminary nature of the Kaanapali 2020 development plan, it is not
possible to accurately predict the time frame for any such approvals or the
outcome of these entitlement matters at this time. Moreover, even if such
predictions could be made, they would be subject to further assumptions
concerning the market for the entitled land 3 to 5 years after the Plan's
Effective Date. Although the Debtors believe that the assumptions
underlying the cash flow projections included as Exhibit E of this
disclosure statement are reasonable and give the Reorganized Debtors a
reasonable opportunity to obtain sufficient entitlements during the
projection period to ultimately permit them to pursue the Kaanapali 2020
plan in a manner that could provide significant appreciation from current
values, there are significant risks associated with such cash flow
projections as described elsewhere herein, such that the Reorganized
Debtors may find it necessary to sell portions of the Kaanapali 2020 lands
in an unentitled state in order to raise cash to continue the entitlement
and/or development process on the remaining lands. As the entitlement
process proceeds, any significant delays or unforeseen costs or events, or
further erosion of market conditions, could materially and adversely impact
the ability of the Reorganized Debtors to achieve any significant
appreciation on its assets before being forced to sell them. Therefore,
though the Reorganized Debtors hope to achieve significant appreciation in
pursuing the Kaanapali 2020 plan, there can be no assurance that any such
appreciation will materialize, or that the aggregate value of the assets of
the Reorganized Debtors can be maintained at their current levels. Actual
results achieved necessarily will vary from projected results, and such
variations may be material and adverse.
24
IV. GENERAL INFORMATION ABOUT THE AHI DEBTORS
A. Description and History of AHI Debtors' Business
Amfac Hawaii, Inc. (which was merged into AHI in 1998)
was formed in 1982 as a holding company for Amfac Inc.'s Hawaiian
agricultural, land development, golf and water businesses. Each of the
other AHI Debtors are wholly-owned subsidiaries of AHI and were formed to
operate specific components of AHI's business. A more detailed description
of the AHI Debtors and their businesses is included in the Form 10-K filed
by AHI, a copy of which is attached hereto as Exhibit B.
B. Management
A discussion of the management of the AHI Debtors is set
forth in the annual report on Form 10-K attached hereto as Exhibit B.
C. Description of COLA Notes and Indenture
General Information. In 1989, AHI issued approximately
$385 million in aggregate principal amount of Certificate of Land
Appreciation Notes due 2008 Class A (the "Class A COLAs") and Certificate
of Land Appreciation Notes Class B due 2008 (the "Class B COLAs," and
together with the Class A COLAs, the "COLAs") pursuant to the Indenture.
The COLAs have been guaranteed by the material subsidiaries of AHI,
including the AHI Subsidiaries.
As of the Petition Date, approximately $142 million of
the COLAs, including principal and accrued and unpaid interest, remained
outstanding, consisting of approximately $77 million aggregate principal
amount in Class A COLAs and approximately $62 million aggregate principal
amount in Class B COLAs. The reduction in the amount of the COLAs has
occurred as a result of two COLA redemptions made by AHI pursuant to the
Indenture, as described below.
The COLAs are unsecured debt obligations of AHI and of
each of the subsidiaries that has guaranteed the COLAs. The Indenture
provides that the COLAs are subordinated in priority to indebtedness that
qualifies as "Senior Indebtedness" under the Indenture. As a result, the
Holders of Senior Indebtedness are entitled to payment in full of their
senior debt Claims in the bankruptcy case of the obligors on that senior
debt before the COLA Holders are entitled to receive or retain any payments
or other distributions. See Section IV.D. below for a description of the
Senior Indebtedness owed to the Northbrook Senior Creditors.
Interest on the COLAs is payable semi-annually on
February 28 and August 31 of each year. The COLAs bear interest at a rate
of 10% per annum, of which 4% per annum is mandatory ("Mandatory Base
Interest") and 6% per annum is contingent ("Contingent Base Interest"). AHI
has never generated sufficient net cash flow to be required to pay any
Contingent Base Interest. The Mandatory Base Interest due on February 28,
2002 was not paid.
25
COLA Repurchase and Redemption. As part of the original
issuance of the COLAs, a subsidiary of Northbrook ("AJF") and AHI entered
into an agreement under which AJF undertook the obligation to repurchase
the COLAs on two specified dates. This agreement entitled the Holders to
request AJF to repurchase their Class A COLAs on June 1, 1995 at a price
equal to the original principal amount of such COLAs ($500) minus all
payments of principal and interest previously made to such COLAs and to
repurchase their Class B COLAs on June 1, 1999 at a price equal to 125% of
the original principal amount of such COLAs ($500) minus all payments of
principal and interest previously made on such Class B COLAs. At the same
time, Northbrook entered into a keep-well agreement with AJF, whereby it
agreed to contribute sufficient capital or make loans to AJF to enable AJF
to meet its COLA repurchase obligations. However, the Indenture and the
repurchase agreement also provided that, with respect to both the Class A
COLAs and the Class B COLAs, in lieu of AJF's repurchase of the COLAs, AHI
had the right, in its sole discretion, to redeem the COLAs from the Holders
who elected to have their COLAs redeemed. On both occasions, AHI elected to
redeem the COLAs.
June 1995 Class A Redemption. In accordance with the
Indenture and the repurchase agreement, on March 15, 1995, AHI elected to
offer to redeem for cash all Class A COLAs submitted for redemption. In
conjunction with its offer to redeem Class A COLAs, AHI also made a tender
offer to purchase up to approximately $68 million of the Class B COLAs at a
price of $220 per Class B COLA. Approximately 229,000 Class A COLAs were
submitted for redemption pursuant to AHI's redemption offer, and
approximately 99,000 Class B COLAs were submitted for repurchase pursuant
to AHI's tender offer, requiring an aggregate payment by AHI of
approximately $105 million on June 1, 1995. AHI borrowed $52 million from
Northbrook to purchase the Class A COLAs. Under the terms of the Indenture,
the amount borrowed from Northbrook, including interest on that amount, is
Senior Indebtedness. AHI used its available cash to purchase the Class B
COLAs.
June 1999 Class B Redemption. As of December 21, 1998,
AHI elected to exercise its right to redeem the Class B COLAs. Accordingly,
in accordance with the Indenture and the repurchase agreement, on March 15,
1999, AHI offered to redeem for cash all outstanding Class B COLAs
submitted for redemption. Approximately 162,000 Class B COLAs were
submitted for redemption, including approximately 98,000 Class B COLAs by
persons unaffiliated with AHI. The redemption required a cash payment by
AHI of approximately $40 million on June 1, 1999. AHI borrowed
approximately $21.3 million from AFI, an affiliate of Northbrook, to make
the required payment. Under the terms of the Indenture, that borrowing,
including interest on that amount, is Senior Indebtedness. AFI submitted
approximately 64,000 of its 89,325 Class B COLAs for repurchase pursuant to
the redemption offer; however, AFI agreed to relieve AHI from the
obligation to redeem its Class B COLAs in cash, and instead agreed to
receive payment by way of a promissory note from AHI, which is also Senior
Indebtedness under the Indenture.
COLAs Held by AFI. The Class B COLAs submitted for
redemption by AFI were acquired through public tender offers made by an
affiliate of AFI. AFI still holds approximately $25.7 million in principal
amount of COLAs.
26
Value Maintenance Ratio Covenant. The Indenture contains
a covenant requiring AHI to maintain a Value Maintenance Ratio of 1.05 to
1.00, calculated as of the end of each year. This ratio is the relationship
of "Net Asset Value" (as defined in the Indenture) to the sum of: (i) the
outstanding principal amount of the COLAs, (ii) any unpaid base interest,
and (iii) the outstanding principal balance of indebtedness incurred to
redeem COLAs. Net Asset Value represents the excess of the "Fair Market
Value" (as defined in the Indenture) of the gross assets of AHI and its
subsidiaries over their liabilities (other than the COLAs and certain other
obligations). The Indenture requires use of independent appraisals to
calculate the Value Maintenance Ratio in even-numbered years. Commencing
with the year ended December 31, 2000, AHI failed to contract for
independent appraisals and has not provided certification as to compliance
with this covenant of the Indenture. The Indenture Trustee has notified AHI
that such failure constituted a default under the Indenture.
Additional information concerning the COLAs is contained
in the Form 10-K attached hereto as Exhibit B.
D. Description of Northbrook Senior Claims
General. As of the Petition Date, all of the AHI Debtors
with assets of any significance were jointly and severally liable (each as
maker or Guarantor) to the Northbrook Senior Creditors in the approximate
amount of $188 million. The Northbrook Senior Claims consist of the
following:
a. Indebtedness owed to FHTC, a subsidiary of Northbrook,
in the approximate amount of $100 million, as evidenced by an amended and
restated promissory note of AHI dated as of December 29, 2000. This note
evidences indebtedness (principal and accrued interest) incurred in connection
with, among other things, AHI's redemption of the Class A COLAs in June 1995,
loans to AHI to pay interest on the COLAs and a portion of the original bridge
financing for the acquisition of AHI obtained in 1988.
b. Indebtedness owed to AFI, an affiliate of Northbrook, in
the approximate amount of $57 million, as evidenced by two amended and
restated promissory notes of AHI, each dated December 29, 2000. These notes
evidence indebtedness (principal and accrued interest) incurred by AHI in
connection with AHI's redemption in June 1999 of Class B COLAs.
c. Indebtedness owed to Northbrook in the approximate amount
of $31 million, as evidenced by (i) an amended and restated promissory note of
AHI (payable to FHTC and assigned to Northbrook) dated December 29, 2000, (ii)
an amended and restated promissory note of AHI (payable to Northbrook) dated
December 29, 2000, and (iii) a promissory note of AHI (originally payable to
Tobishima Pacific, Inc. and now owned through successive assignments by
Northbrook) dated September 30, 1998. These notes evidence indebtedness
(principal and accrued interest) incurred in connection with, among other
things, a portion of the remaining outstanding principal balance of the
original 1988 bridge financing, the purchase by AHI from Tobishima of its
interest in a joint venture and loans for certain working capital needs of AHI
or its subsidiaries.
27
Security for the Senior Debt. The Northbrook Senior Claims are
guaranteed by all material direct and indirect subsidiaries of AHI. The
Northbrook Senior Claims and the guaranties are secured by mortgage liens
and security interests against substantially all of the real property
(including fixtures and personal property located thereon) of the AHI
Debtors, pursuant to certain Mortgage, Security Agreement and Financing
Statement agreements given in favor of the Northbrook Senior Creditors, and
filed of record in Hawaii. The AHI Debtors agreed to collateralize the
Northbrook Senior Claims in December 1998, in connection with the agreement
of the Northbrook Senior Creditors to provide additional financing and
other accommodations, as described below.
Certain Senior Debt Restructurings. As of December 31,
1998, in advance of the 1999 redemption of Class B COLAs, AHI and its
subsidiaries agreed to grant collateral to secure existing and future
Northbrook Senior Claims. That agreement was part of an overall agreement
under which the Northbrook Senior Creditors agreed (a) to forgive
approximately $55 million of the then outstanding Northbrook Senior Claims
by contributing it to the capital of AHI, (b) to help AHI redeem the COLAs
by making additional loans and/or accepting a note (in lieu of cash) for
the Class B COLAs then owned by AFI and (c) to defer for a period of three
years, until December 31, 2001, AHI's obligation to pay the interest
accruing on approximately $100 million of Northbrook Senior Claims.
Pursuant to a Restructuring Agreement dated as of December 29, 2000, the
Northbrook Senior Creditors further agreed (i) to forgive, by way of
contribution to AHI's capital, $15 million (which was effective
immediately) and an additional $25 million (which is to become effective in
2006) of the Northbrook Senior Claims, (ii) to consent to the sale of the
real property securing the Northbrook Senior Claims in order to permit AHI
to continue to fund its land development business, (iii) to contribute to
the capital of AHI approximately $10 million (which amount included a then
existing loan) for the payment by AHI or its subsidiaries of shutdown
expenses related to the shutdown of sugar operations, and (iv) to extend
the maturity date and modify for the benefit of AHI other terms of the
Northbrook Senior Claims. In return, AHI and its subsidiaries agreed, among
other things, to enter into a new tax agreement so that AHI and its
subsidiaries would be responsible for their own income taxes on taxable
income generated in and after 2001 and to create and fund from land sales
segregated accounts to pay, among other things, certain employee-related
costs.
Status as Senior Debt. Management of the AHI Debtors has
determined that all or substantially all of the Northbrook Senior Claims
qualify as Senior Indebtedness under the terms of the Indenture. The
largest amount of the Northbrook Senior Claims represents loans to finance
AHI's redemption of COLAs, and accrued and unpaid interest on those loans,
including: (i) a loan of $52 million in 1995 as part of the Class A
redemption, (ii) a loan of approximately $21.3 million in 1999 as part of
the Class B redemption and (iii) the issuance by AHI of a note in the
amount of approximately $26.4 million in 1999 in connection with the
redemption of Class B COLAs from AFI. In addition, approximately $13.2
million of the Northbrook Senior Claims represent loans made to enable AHI
to pay interest on the COLAs in 1995 and 1996, and that amount is also
expressly stated to be Senior Indebtedness under the Indenture. An
additional amount of the Northbrook Senior Claims represents the remaining
outstanding principal amount of the original 1988 bridge financing
28
(approximately $10.5 million) plus approximately $200,000 loaned in 2001
for certain working capital needs of AHI or its subsidiaries, which AHI
believes also qualifies as Senior Indebtedness under the terms of the
Indenture. The remaining portion of the approximately $188 million of total
Northbrook Senior Claims includes the remaining portion of the loan
originally payable to Tobishima Pacific, Inc. (approximately $3.2 million),
and accrued and unpaid interest on the foregoing amounts. Senior
Indebtedness under the Indenture is entitled to priority in payment over
the COLAs.
Additional information concerning the Northbrook Senior
Debt is contained in the Form 10-K attached hereto as Exhibit B.
E. Possible Challenges to the Northbrook Senior Claims
In connection with the negotiation of the Plan, the
Indenture Trustee identified various arguments that could be raised with
respect to the Northbrook Senior Claims so as to enhance the resulting
allocation to the COLA Holders. Specifically, it was discussed that
arguments could be raised that the Northbrook Senior Claims could, in light
of the insider status of the claim holder, be argued to be (i) capital
contributions made by insiders and not debt or (ii) subject to
subordination to other debt of AHI. All parties to the negotiation
recognized, however, that such arguments are generally very difficult to
prosecute successfully. In addition to this argument, the Indenture Trustee
raised the issue of the appropriateness of the borrowings from Northbrook
and other insider affiliates to redeem the COLAs, which loans were then
structured to constitute Senior Indebtedness, as opposed to AJF
repurchasing the COLAs if requested pursuant to the agreement between AHI
and AJF as referenced in Section 5.18 of the Indenture and as described
herein in the subsection entitled COLA Repurchase and Redemption in Article
IV.C. of this Disclosure Statement. The representatives of the Northbrook
Senior Creditors countered by referencing (i) that the Indenture expressly
permitted AHI to redeem the COLAs and to incur Senior Indebtedness to do
so, (ii) that AHI's incurrence of the Senior Indebtedness to fund the
redemption was fully disclosed and that the COLA Holders all had the
opportunity to have their COLAs redeemed, (iii) that a significant portion
of the Senior Indebtedness was not incurred to fund redemptions but to
support operations and working capital costs or for other permitted
purposes under the Indenture and (iv) that other consideration or value was
provided by Northbrook and other affiliates in, among other things, the
various transactions referenced above in Article IV.D. of the Disclosure
Statement, including the contribution of $70 million of Senior Indebtedness
to AHI's capital, the acceptance of a note (in lieu of cash) for Class B
COLAs owned by AFI and the deferral of interest on $100 million of Senior
Indebtedness. They therefore concluded that recharacterizing the Senior
Indebtedness incurred for redemptions would be an extremely difficult case
to establish. Moreover, they further concluded that, even if the COLA
Holders were to be successful in such a recharacterization, a significant
portion of the Senior Indebtedness (that which was incurred for other
purposes) would still remain and would have to be repaid in full before any
distribution could be made on the COLAs. As a result, they concluded that
even if the COLA Holders were somehow successful with this
recharacterization argument, there still would be a substantial likelihood
that COLA Holders would not receive any distribution.
29
Based on the foregoing, in the judgment of the Debtors'
management it is highly doubtful that a legal challenge would yield a
recovery for COLA Holders as favorable to that offered to them under the
Plan. For the same reason, the Indenture Trustee fully supports
Confirmation of the Plan.
F. Other Liabilities
Certain Retiree Benefits. AHI and its subsidiaries
currently provide healthcare and life insurance benefits in addition to
providing pension benefits to eligible retired employees of some of their
businesses. Substantially all employees could become eligible for such
benefits if they reach a specified retirement age while employed by the AHI
Debtors and if they meet a certain length of service criteria. The
postretirement healthcare plan is contributory and contains cost-sharing
features such as deductibles and co-payments. However, these features, as
they apply to bargaining unit retirees, are subject to collective
bargaining provisions of a labor contract between AHI and the International
Longshoreman's & Warehouseman's Union. These collective bargaining
provisions expire in 2004, at which time the funding obligations of AHI and
its subsidiaries will expire. Other employees have traditionally received
benefits that mirror those of the union employees. Thus, it is anticipated
that the Reorganized Debtors would also terminate the retiree medical
program for such other employees in 2004, unless it is deemed advantageous
to continue it beyond such time. The postretirement life insurance plan is
non-contributory. As of December 31, 2001, the benefit obligations under
these plans and for non-bargaining unit employees treated similarly were
recorded as $9.6 million.
ERS Loan. In 1991, APIC, Pioneer Mill, and AHI
(collectively, the "ERS Borrowers") borrowed $66,000,000 (the "ERS Loan")
from ERS. The loan is secured by a mortgage (the "ERS Mortgage") on the
RKGC and certain adjacent lands. Under the ERS Loan documents, Pioneer Mill
and AHI have certain limited recourse obligations. As discussed below,
those liabilities, if they exist at all, are not expected to be
significant.
After APIC failed to make certain interest payments due
under the ERS Loan in 2000, ERS commenced a foreclosure action in August,
2000. The foreclosure action was temporarily suspended in September 2000
while the ERS Borrowers attempted to negotiate an extension of the ERS
Loan. In May 2001, the Borrowers and ERS entered into a non-binding term
sheet that set forth certain parameters for the negotiation of a definitive
extension agreement. However, negotiations concerning a restructuring
terminated without an agreement in December 2001. The outstanding balance
of the ERS Loan in excess of $75,000,000.
In January 2002, ERS resumed the foreclosure suit against
the ERS Borrowers. The action is stayed as to Pioneer Mill and AHI, which
are Debtors, but it has been permitted to proceed against APIC, which owns
the property subject to the ERS Mortgage. The ERS Borrowers are contesting
the foreclosure and have brought counterclaims against ERS, primarily
alleging damages relative to ERS's refusal to grant certain easements and
releases agreed to by ERS in prior agreements with the ERS Borrowers. The
ERS is contesting the counterclaim.
The parties are currently engaged in settlement
negotiations. There can be no assurance that any such settlement will be
consummated.
The Debtors do not believe that ERS would be successful
in asserting any Claims against them based on the recourse obligations in
the ERS Loan Documents; however, it is possible that ERS will bring Claims
against AHI and/or Pioneer Mill based on such provisions. The Debtors would
contest those Claims.
30
For further discussion of the ERS Loan see Section III.A.
hereof.
APIC Kaanapali Business Center Lease. KDC may have
liability to APIC and/or Gutman Realty Company ("Gutman") arising out of a
real property lease between Gutman and APIC. Gutman has commenced
litigation against APIC in which it alleges to be owed over $600,000 in
unpaid rent. APIC has asserted various counterclaims and defenses in the
lawsuit. To the extent it is established that APIC is liable to Gutman, KDC
may have liability for that obligation by reason of an agreement between
KDC and APIC (among others) entered into in November 2000, pursuant to
which KDC agreed to assume and be liable for certain then existing
liabilities of APIC.
Road Construction Project. As a part of its land
development business, The Lihue Plantation Company ("Lihue Plantation")
became obligated to the state of Hawaii and the county of Kauai to
construct a road to provide a public improvement for land previously owned
by it. To satisfy that obligation Lihue Plantation entered into a
construction contract with Goodfellow Bros., Inc. As of the Petition Date,
Goodfellow had just commenced construction of the road, and the Debtors
estimate that the cost to Lihue Plantation to complete the construction
project is approximately $2 million. At present, given the opposition of
key creditors, it is doubtful that the project will be completed unless
Lihue Plantation obtains concessions that will significantly reduce its
overall funding obligations. Lihue Plantation is now in negotiations with
the involved parties concerning the concessions that it has requested. To
date, the negotiations have been constructive; however, there can be no
assurance that an acceptable agreement will be reached. If an agreement is
reached, Lihue Plantation will seek approval from the Bankruptcy Court to
perform its obligations, as modified. If no agreement is reached, it is
likely that Lihue Plantation will not continue the project and will seek to
reject any related executory contracts. In a rejection scenario, the
Debtors expect that Goodfellow and the involved governmental entities will
assert Claims for damages against Lihue Plantation, which will increase the
amount of the Claims in Class 5 of the Plan; however, the Debtors would be
relieved from paying the remaining construction costs.
SVO Pacific Option. One or more of the Debtors is a party
to agreements (the "Option Agreements") with SVO pursuant to which SVO has
an option to purchase approximately 11.5 acres of unimproved land located
in Kaanapali. The option extends until 2005 and has an option price of not
less than $9 million, subject to adjustment and modification as provided in
the agreements. The Debtors are continuing to evaluate the Option
Agreements and have not yet made a decision whether to request assumption
or rejection of any of them pursuant to section 365 of the Bankruptcy Code.
Unless otherwise agreed with SVO, the Debtors will make this election not
later than 10 days prior to the hearing on confirmation of the Plan. If the
Bankruptcy Court approves the Debtors' rejection of any of the Option
Agreements, the Debtors expect that SVO will assert Claims against the
Debtors, which may increase the amount of the Claims in Class 5 of the
Plan. However, following a rejection of any of the Option Agreements, the
Debtors would be relieved from their ongoing performance obligations under
such rejected agreements.
31
G. Financial Results - AHI and Subsidiaries
The financial results of the Debtors in respect of the
operation of their business, and management's discussion and analysis of
such results and matters related thereto for the fiscal year ended December
31, 2001 are described in detail in the Form 10-K filed by AHI, a copy of
which is attached hereto as Exhibit B. In addition, such information is
available in the Form 10-Q filed by AHI with the SEC.
H. Non-Debtor AHI Subsidiaries
Certain subsidiaries of AHI are not Debtors in these Chapter
11 Cases. These entities include APDC, Amfac Property Investment Corp.,
H. Hackfeld & Co., Ltd., Kekaha Sugar Company, Limited ("KSCo"), Oahu Sugar
Company, Ltd. ("Oahu Sugar") and Puna Sugar Company, Limited. Many of these
entities were involved in agricultural, land development or investment
businesses that have ceased operation. These companies either have no value
or assets that are encumbered by debt which exceeds or approximates the
value of their assets; therefore, they are not expected to add any
significant value to Kaanapali Land after giving effect to the Mergers and
the Plan. For more information on the Non-Debtor AHI Subsidiaries, see the
Form 10-K attached as Exhibit B.
I. Events Leading to Chapter 11 Filing
The primary reason for the chapter 11 filing is that the
AHI Debtors' cash flow from their ongoing businesses has declined
substantially and as a result has not been, and is not expected to be,
sufficient to cover their expenses, the predominant amount of which relate
to debt service. In addition to the AHI Debtors' obligations under its
outstanding indebtedness described elsewhere in this Disclosure Statement
and in the Form 10-K this insufficient cash flow is due to several
additional factors. First, the AHI Debtors and certain Non-Debtor
Subsidiaries have recently shut down their various agricultural operations
due to the significant losses being incurred by those businesses and the
expectation that such losses would continue for the foreseeable future.
These losses in the sugar businesses were caused by the significant drop in
the domestic price of raw sugar, the lower sugar yields being produced by
the AHI Debtors' and related entities' sugar business, labor costs that
were significantly in excess of those borne by other non-Hawaiian sugar
producers supplying sugar to the domestic market, deteriorating equipment
and resources with insufficient capital to replace and unforeseen
environmental liabilities. The losses in the coffee business were caused by
high production costs, deteriorating equipment and resources with
insufficient capital to replace and various economic uncertainties
including record low commodity coffee prices. The AHI Debtors and their
related entities also incurred significant employee and closing costs in
connection with shutting down these businesses.
Second, the golf business of the AHI Debtors and their
Affiliates have experienced a significant drop in revenue caused by the
depressed Japanese and U.S. economies and reduced travel, which reduced
rounds played, average rate and, as a result, net operating income and cash
flow. In addition, competition from other, both new and existing golf
courses on Oahu, and continuing softness in the Japanese tour group market
thwarted their efforts to market their golf business in an effort to return
them to their previous level of profitability. Finally the remaining golf
business has high debt service requirements due to large loans that were
obtained based on significantly different market conditions.
32
Finally, land development and sales have not kept pace
with expectations. Land values have been slow to recover from their decline
in the early 1990's. Recently, in order to raise cash, the AHI Debtors have
found it necessary to sell large land parcels prior to being able to
realize their full economic potential through the entitlement process. In
addition, due to current market conditions, the difficulty and the extended
time line in obtaining land use approvals or entitlements and the high
development costs of required infrastructure, the AHI Debtors do not
believe that, in the absence of the restructuring provided for under the
Plan, they would be able to generate sufficient cash in the short-term from
future land sales to continue to meet their obligations. For the above
reasons, the AHI Debtors concluded that, in order to increase the value of
their Maui land holdings and maximize values for creditors, a significant
financial restructuring through the bankruptcy process was necessary.
J. Negotiation of the Plan
After pursuing various out-of-court strategies to attempt
to make the AHI Debtors profitable, including the closing of unprofitable
sugar plantation operations and workouts of various loans, the Debtors
concluded that the operations were still overleveraged and that the best
vehicle to achieve a restructuring of their indebtedness was through a
pre-negotiated chapter 11 process. The Debtors also concluded that in order
to maximize the value of their most valuable assets, they would have to
emerge from any restructuring by converting substantially all of their debt
into equity.
Accordingly, in October 2001, the Debtors began
discussions with representatives of its key creditors concerning an overall
financial restructuring. The Debtors concluded that a viable restructuring
would require a complete de-leveraging of their balance sheets. As a result
of those negotiations, the Debtors, the Holders of Northbrook Senior Claims
and the Indenture Trustee reached agreement with respect to a term sheet
for the Plan the Debtors are now proposing. Under that agreement, up to 15%
of the pro forma ownership of Kaanapali Land (consisting of 278,825 shares)
will be distributed to COLA Holders, assuming none elect to take cash and
after giving effect to the AFI Distribution (and without regard to any
shares that may be distributed to Class 5 Creditors). With such agreement
in place, the Debtors each filed voluntary petitions under Chapter 11 of
the Bankruptcy Code on February 27, 2002.
V. GENERAL INFORMATION ABOUT DEBTOR FHT CORPORATION
A. Description and History of FHTC
FHTC was incorporated on December 9, 1963 in the state of
Arizona. FHTC was purchased by a former affiliate of AHI in 1968. FHTC
conducted a transportation and tourism business through the mid-1990s,
consisting primarily of owning (or leasing) buses and related assets and
offering bus tours for visitors to tourist destinations in the Western
United States.
In 1997, FHTC became a direct subsidiary of Northbrook;
however, the remaining physical assets were distributed to its former
parent corporation immediately prior thereto. Since that time, FHTC has
engaged in various financial and lending transactions, primarily with
affiliated entities, but has not conducted any service business. FHTC's
most significant asset is its senior secured loans to AHI.
33
B. Description of Indebtedness Owed to AFI
On February 17, 1997, FHTC became obligated under a Note
(the "First FHT Note") payable to Northbrook in the original principal
amount of $90,653,000. On January 1, 1998, FHTC became obligated under a
Promissory Note (the "Second FHT Note") payable to Northbrook in the
original principal amount of $99,594,751.09.
The First FHT Note evidences FHTC's indebtedness to
Northbrook (i) for the purchase of a promissory note then held by
Northbrook and made by an affiliate of Northbrook in the original principal
amount of $33 million and (ii) for certain loans by Northbrook to FHTC and
used by FHTC for other business purposes. It accrues interest at the rate
of 11.5% per annum, matures on February 17, 2007, and may be prepaid,
subject to certain prepayment penalties. The Second FHT Note evidences
FHTC's indebtedness to Northbrook incurred by FHTC to purchase a promissory
note then held by Northbrook and made by AHI, which note by AHI constitutes
a part of the Northbrook Senior Claims as described above. The Second FHT
Note accrues interest at the rate of 10.9% per annum, also matures on
February 17, 2007 and may be prepaid without penalty.
AFI is now the owner of both the First FHT Note and the
Second FHT Note and, as such, is the Holder of the AFI Claims. After giving
effect to all payments made by FHTC, the aggregate outstanding principal
and interest on the First FHT Note and the Second FHT Note as of the
Petition Date was approximately $203 million.
Except for the AFI Claims, FHTC does not believe that it
has significant indebtedness.
C. Events Leading to Chapter 11 Filing
FHTC's largest asset is the Senior Indebtedness owed to
it by the AHI Debtors. The inability of the AHI Debtors to repay that
indebtedness has, in turn, created financial problems for FHTC. As a
result, FHTC also needs to restructure its indebtnedness and has filed its
Chapter 11 Case to do so.
VI. INFORMATION CONCERNING NORTHBROOK CORPORATION
A. Business and History
Northbrook was formed in 1978 as a holding company to
facilitate the purchase of a number of businesses. These businesses
generally related to short-line railroads, rail car leasing and light
manufacturing. Over 90% of the stock of Northbrook was purchased by persons
and entities affiliated with JMB Realty Corporation through a series of
stock purchases in 1987 and 1988. One of Northbrook's subsidiaries (since
merged into Northbrook) purchased the stock of Amfac Inc., in 1988,
pursuant to a public tender offer. Thus, each of Amfac's then existing
subsidiaries, including AHI, became an indirect subsidiary of Northbrook at
such time. As a consequence of the merger of Amfac, Inc. into Northbrook in
1995, AHI, FHTC and Amfac's other direct subsidiaries became direct
34
subsidiaries of Northbrook. These subsidiaries included Amfac's resorts,
foods, retail and distribution businesses that conducted operations both in
Hawaii and on the U.S. mainland, and interests in various entities that
owned real property investments on the mainland. In 2000, the remaining
shareholders of Northbrook contributed their shares to Amfac Holdco, LLC
(renamed Pacific Trail Holdings, LLC in January 2002). In 2001, Northbrook
distributed its resorts businesses to Pacific Holdings. Though it continues
to own certain inactive subsidiaries (other than those owned directly or
indirectly by AHI) relating to its former foods, retail, rail,
manufacturing and distribution businesses, Northbrook's only current
subsidiaries with value are (i) the newly-formed subsidiary that purchased
the Waikele Golf Course in December 2001, and (ii) its limited partnership
interest in AFLP (which owns substantially all of AFI, the owner of the
Olympic Interest, certain litigation Claims and a substantial portion of
the Northbrook Senior Debt Claims). Of the inactive subsidiaries, the
Debtors believe that only two subsidiaries have any significant contingent
liabilities. Certain members of Northbrook's or its affiliates' management
are also members of the management of various of the AHI Debtors, including
the President of AHI.
B. Financial Information
The audited financial statements for the year ended
December 31, 2001 of Northbrook are attached hereto as Exhibit F.
C. Significant Assets and Liabilities
The Mergers will result in the following assets and
liabilities becoming part of the Reorganized Debtors:
Assets
The Northbrook assets that will become available to
Kaanapali Land after giving effect to the Mergers include (i) the Waikele
Golf Course, which is owned by a subsidiary of Northbrook; (ii)
Northbrook's interest in over funded pension plan reversions; (iii) the
Olympic Interest or the proceeds of the transfer of the Olympic Interest
(described in Section III.A. of the Disclosure Statement); and (iv)
available cash, which is currently forecast to be approximately $17.0
million as of an assumed Effective Date of June 30, 2002.
Liabilities
The Northbrook liabilities are set forth on the audited
financial statements for the year ended December 31, 2001 which are
attached hereto as Exhibit F.
VII. THE CHAPTER 11 CASES
As a consequence of the Debtors' commencement of the
Chapter 11 Cases, all actions and proceedings against the Debtors and all
acts to obtain property from the Debtors were stayed under section 362 of
the Bankruptcy Code. The Debtors have continued to operate their businesses
and manage their properties as debtors-in-possession pursuant to sections
1107(a) and 1108 of the Bankruptcy Code.
35
A. First Day Motions Filed
In an effort to minimize the impact of the commencement
of the Chapter 11 Cases on the Debtors' operations and to facilitate the
administration of the Chapter 11 Cases, the Debtors filed various motions
and applications on the first day of these cases. These so-called "first
day motions" requested relief that is typical for similarly situated
chapter 11 debtors including, among other things: (i) joint administration
of the Chapter 11 Cases, (ii) authority to continue to use the Debtors'
existing cash management system, (iii) authorization to pay certain
prepetition compensation and benefits owed to the Debtors' employees, and
(iv) entry of an order restraining utilities from shutting off their
services to the Debtors. The first-day motions were heard and approved by
the Bankruptcy Court on the Petition Date.
The Debtors also filed applications requesting approval
by the Bankruptcy Court of the Debtors' retention of various professional
firms they will be utilizing throughout these bankruptcy proceedings,
including the retention of (i) Jones, Day, Reavis & Pogue as bankruptcy
counsel and (ii) Mayer, Brown, Rowe & Maw as special counsel for FHTC,
relating to the Northbrook Senior Claims against the AHI Debtors held by
FHTC.
B. Motion for Authority to Pay Critical Vendors
The Debtors believe that their business operations and,
ultimately, their enterprise value would be enhanced by preserving their
relationships with certain critical service providers to their land
development operations and that preservation of those relationships
required the Debtors to make payments of the prepetition Claims owed to
these creditors. As such, with the support of the Indenture Trustee, the
Debtors filed a motion with the Bankruptcy Court requesting the authority
(but not the obligation) to pay these prepetition Claims. The Debtors'
motion was approved by the Bankruptcy Court on February 27, 2002.
C. Other Significant Events Since Commencement of Chapter 11 Cases
On February 27, 2002, the Bankruptcy Court entered an
interim order authorizing the Debtors to use the cash collateral of the
Northbrook Senior Creditors. The interim order became a final order on
April 2, 2002 and allows the Debtors to use cash collateral through
confirmation of the Plan, thus ensuring, absent a termination event under
the order, availability of cash to fund the Debtors' Chapter 11 Cases. On
June 6, 2002, the Bankruptcy Court entered an order approving a claims bar
date, which bar date has been set for August 30, 2002.
VIII. THE PLAN OF REORGANIZATION
The primary objectives of the Plan are to (a) restructure
the Debtors' debt and capital structures to permit the Debtors to emerge
from the Chapter 11 Cases with a capital structure that, among other
things, contains significantly less leverage and provides the Debtors with
greater financial flexibility in operating their business; (b) maximize the
value of the ultimate recoveries to all creditor groups on a fair and
equitable basis given the value of the Debtors and the priorities
established by the Bankruptcy Code and applicable law; and (c) settle,
compromise or otherwise dispose of certain Claims and Interests on terms
that the Debtors believe to be fair and reasonable and in the best
interests of their respective estates and creditors.
36
The Debtors believe that the Plan provides all creditors
with a substantially greater recovery than the recovery they would receive
without approval of the Plan, and that the Plan will afford the Debtors the
opportunity and ability to continue its business as a viable going concern.
The statements contained in this Disclosure Statement
include summaries of the provisions contained in the Plan and in documents
referred to therein. The statements contained in this Disclosure Statement
do not purport to be precise or complete statements of all the terms and
provisions of the Plan or documents referred to therein, and reference is
made to the Plan and to such documents for the full and complete statements
of such terms and provisions.
The Plan itself and the documents referred to therein
control the actual treatment of Claims against and interests in the Debtors
under the Plan and will, upon the Effective Date, be binding upon all
Holders of Claims against and interests in the Debtors and their Estates,
the Reorganized Debtors and other parties-in-interest. In the event of any
conflict between this Disclosure Statement, on the one hand, and the Plan
or any other operative document, on the other hand, the terms of the Plan
and such other operative document are controlling.
A. Overview of Chapter 11
Chapter 11 is the principal business reorganization
chapter of the Bankruptcy Code. Under chapter 11, a debtor is authorized to
reorganize its business for the benefit of itself, its creditors and
interest holders. Another goal of chapter 11 is to promote equality of
treatment for similarly situated creditors and similarly situated interest
holders with respect to the distribution of a debtor's assets.
The commencement of a chapter 11 case creates an estate
that is comprised of all of the legal and equitable interests of the debtor
as of the filing date. The Bankruptcy Code contemplates that the debtor
through its pre-bankruptcy management, will continue to operate its
business in the ordinary course and remain in possession of its property
during the case and while it seeks to negotiate and implement a
reorganization plan. Any activities that are not within the ordinary course
of the debtor's business must be approved by the bankruptcy court before
they are undertaken.
The consummation of a plan of reorganization is the
principal objective of a chapter 11 case. A plan of reorganization sets
forth the means for satisfying claims against and interests in a debtor.
Confirmation of a plan of reorganization by the bankruptcy court makes the
plan binding upon the debtor, any issuer of securities under the plan, any
person or entity acquiring property under the plan and any creditor of or
equity security holder in the debtor, whether or not such creditor or
equity security holder (i) is impaired under or has accepted the plan or
(ii) receives or retains any property under the plan. Subject to certain
limited exceptions and other than as provided in the plan itself or the
confirmation order, the confirmation order discharges the debtor from any
debt that arose prior to the effective date of the plan, substitutes
therefor the obligations specified under the confirmed plan and terminates
all rights and interests of equity security holders.
37
B. Overall Structure of the Plan
The Debtors believe that the Plan provides the best and
most prompt possible recovery to the Debtors' Claim Holders. Under the
Plan, Claims against and Interests in the Debtors are divided into
different classes. If the Plan is confirmed by the Bankruptcy Court and
consummated, on the Effective Date of the Plan, and at certain times
thereafter as Claims and Interests are resolved, liquidated or otherwise
allowed, the Debtors will make distributions in respect of certain Classes
of Claims and Interests as provided for in the Plan. The Classes of Claims
against and Interests in the Debtors created under the Plan, the treatment
of those Classes under the Plan and distributions to be made under the Plan
are described below and in the Summary Table set forth above in Section
II.B. of this Disclosure Statement.
C. Classification and Treatment of Claims and Interests
The Plan classifies Claims and Interests separately and
provides different treatment for different Classes of Claims and Interests
in accordance with the Bankruptcy Code. A Claim or Interest is placed in a
particular Class only to the extent that the Claim or Interest falls within
the description of that Class and is classified in other Classes to the
extent that any portion of the Claim or Interest falls within the
description of such other Classes. A Claim or Interest is also placed in a
particular Class for the purpose of receiving distributions pursuant to the
Plan only to the extent that such Claim or Interest is an Allowed Claim or
Interest in that Class and such Claim or Interest has not been paid,
released or otherwise settled prior to the Effective Date. A description of
each class of Claims and Interests established by the Plan and the
treatment afforded each such class is contained in the Summary Table set
forth above in Section II.B. of this Disclosure Statement.
In accordance with section 1123(a)(1) of the Bankruptcy
Code, Administrative Expense Claims (including Fee Claims, as defined in
Section VIII.D.) and Priority Tax Claims have not been classified.
Nonetheless, the treatment afforded these Claims is specified in the Plan
and is summarized below.
Class 1 and Class 1A - Priority Claims
Priority Claims are Claims, other than Administrative
Expense Claims or Priority Tax Claims, that are entitled to priority in
payment pursuant to section 507(a) of the Bankruptcy Code. Priority Claims
include (a) Claims for accrued employee compensation earned within ninety
(90) days prior to the Petition Date to the extent of $4,650 per employee
and (b) contributions to employee benefit plans arising from services
rendered within one hundred eighty (180) days prior to the Petition Date,
but only for each such plan to the extent of (i) the number of employees
covered by such plan multiplied by $4,650, less (ii) the aggregate amount
paid to such employees from the estates of prepetition priority wages,
salaries or commissions. The Debtors sought and obtained an order of the
Bankruptcy Court on February 27, 2002, which paid Priority Claims for wages
and other benefits.
The legal and equitable rights of the Holders of Priority
Claims against both the AHI Debtors and FHTC are unaltered by the Plan. On,
or as soon as reasonably practicable after (i) the Effective Date if such
Priority Claim is an Allowed Priority Claim as of the Effective Date or
38
(ii) the date on which such Priority Claim becomes an Allowed Priority
Claim, each Holder of an Allowed Priority Claim shall receive in full
satisfaction, settlement and release of and in exchange for such Allowed
Priority Claim at the election of the Debtors: (A) cash equal to the amount
of such Allowed Priority Claim; (B) such other treatment as to which the
Debtors or the Reorganized Debtors and the Holder of such Allowed Priority
Claim have agreed upon in writing; or (C) such Claim will be otherwise
treated in any other manner such that it will not be impaired pursuant to
section 1124 of the Bankruptcy Code; provided, however, any Allowed
Priority Claim not due and owing on the Effective Date will be paid in
accordance with Article VII of the Plan when such Claim becomes due and
owing.
Class 2 - Northbrook Senior Claims
Northbrook Senior Claims are Secured Claims and Unsecured
Claims against the AHI Debtors held by (i) FHTC (approximately $100
million); (ii) AFI (approximately $57 million); and (iii) Northbrook
(approximately $31 million) on account of and pursuant to Northbrook Senior
Debt Instruments. The Northbrook Senior Claims have priority over the COLA
Note Claims pursuant to the terms of the Indenture.
On the Effective Date, the Northbrook Senior Claims shall
be deemed to be Allowed Claims, and each Holder of a Northbrook Senior
Claim will receive in full satisfaction, settlement of and in exchange for
such Claim (i) its pro rata share of 1,270,203 Class B Shares; and (ii) a
release from the Debtors. The portion of the Class B Shares of Kaanapali
Land distributed to FHTC pursuant to the foregoing provision shall,
pursuant to the Plan, be reallocated to AFI, and the Class B Shares of
Kaanapali Land so distributed to Northbrook shall be returned to Kaanapali
Land and shall no longer be issued and outstanding Class B Shares.
Class 3 and Class 2A - Other Secured Claims
Other Secured Claims are Claims (other than an
Administrative Expense Claim or a Northbrook Senior Claim) that are secured
by a lien on property in which a Debtor's Estate has an interest or that is
subject to setoff under section 553 of the Bankruptcy Code, to the extent
of the value of the Claim Holder's interest in the applicable Estate's
interest in such property or to the extent of the amount subject to setoff,
as applicable, as determined pursuant to section 506(a) of the Bankruptcy
Code or, in the case of the setoff, pursuant to section 553 of the
Bankruptcy Code.
The legal, equitable and contractual rights of the
Holders of Allowed Other Secured Claims are unaltered by the Plan. On, or
as soon as reasonably practicable after (i) the Effective Date if such
Other Secured Claim is an Allowed Other Secured Claim on the Effective Date
or (ii) the date on which such Other Secured Claim becomes an Allowed Other
Secured Claim, each Holder of an Allowed Other Secured Claim shall receive
at the election of the Debtors in full satisfaction, settlement and release
of, and in exchange for, such Allowed Other Secured Claim (A) cash equal to
the amount of such Allowed Other Secured Claim; (B) such other treatment as
to which the Debtors or Reorganized Debtors have agreed upon in writing or
(C) such other treatment that will not impair the Holder of such Claim
pursuant to section 1124 of the Bankruptcy Code.
39
Class 4 - COLA Note Claims
COLA Note Claims are the Claims of the COLA Holders based
on the COLA Notes.
On the Effective Date, the COLA Note Claims shall be
deemed to be Allowed Claims in the aggregate amount of approximately
$142,185,345, which includes principal and accrued and unpaid interest
through the Petition Date. Each Holder of a COLA Note Claim will receive
the following alternative treatments, in full satisfaction of and in
exchange for such COLA Note Claim:
(i) Holders of COLA Note Claims (excluding AFI) may elect to receive
payment in cash from Kaanapali Land in an amount equal to $35 per Class A
or Class B COLA Note (consisting of $500 in principal amount plus accrued
interest thereon), with payment to be made as promptly as practicable after
the Effective Date. However, Kaanapali Land shall not be required to make
payments on account of this option in excess of $5,172,000. If the
aggregate cash payments that Kaanapali Land would be required to make to
COLA Holders that make the cash election exceeds $5,172,000, then each
electing COLA Holder shall receive (x) cash equal to its Pro Rata share of
$5,172,000, plus (y) Class A Shares of Kaanapali Land on the same basis as
provided in clause (ii) below on account of the balance of its COLA Note
Claim (calculated after giving credit, on a proportional basis, for the
portion of the Claim that has been satisfied by the cash distribution); or
(ii) Alternatively, each COLA Holder who does not elect the cash
treatment set forth above, shall receive one Class A Share of Kaanapali
Land for each $500 in principal of COLA Note Claims (together with the
interest accrued on such principal amount). COLA Note Claims held by AFI
shall not be eligible for cash treatment and shall receive Class B Shares
on the same basis as Class A Shares otherwise issuable to other Holders of
COLA Note Claims. In addition, on or immediately following the Effective
Date, Kaanapali Land shall enter into the Kaanapali Land Company Agreement
which shall contain certain corporate governance provisions for the benefit
of the Holders of the Class A Shares. Those provisions shall include the
appointment of a Class A Representative. For a description of the Kaanapali
Land Company Agreement, see Section VIII.H. of this Disclosure Statement.
If a COLA Holder fails to make a timely election to
receive the cash treatment in accordance with the procedures set forth in
the Ballot, such COLA Holder shall be deemed to have elected to receive
Class A Shares.
Class 5 - General Unsecured Claims against the AHI Debtors
Class 5 General Unsecured Claim means any General
Unsecured Claim against an AHI Debtor other than a COLA Note Claim, an
Intercompany Claim or the AFI Claim.
Each Holder of an Allowed General Unsecured Claim shall
receive, in full satisfaction of and in exchange for its Allowed Claim, one
of the following alternative treatments, at the election of the Holder of
such Claim: (a) payment in cash from Kaanapali Land in an amount equal to
15% of the amount of the Allowed General Unsecured Claim, payable, without
interest, on or as soon as practicable after the six month anniversary of
the Effective Date. If the aggregate cash payments that Kaanapali Land
40
would be required to make to Holders of Class 5 Claims that make the cash
election exceeds $500,000, then each electing Creditor shall receive (x)
its Pro Rata share of $500,000, plus (y) Class A Shares on the same basis
as provided in clause (ii) below on account of the balance of its Claim
(calculated after giving credit, on a proportional basis, for the portion
of the Claim that has been satisfied by the cash distribution); or (b)
alternatively, if a Holder of a Class 5 Allowed Claim does not elect and
receive the cash treatment set forth above, each Holder of an Allowed Class
5 Claim shall receive Class A Shares on an equivalent basis per dollar of
Claim as COLA Holders that receive Class A Shares. Holders of Class 5
Allowed Claims that are Affiliates of the Debtors shall receive Class B
Shares on the same basis as other Holders of Class 5 Allowed Claims
receiving Class A Shares, and shall not be eligible to elect the cash
treatment set forth in clause (a). In addition, on or immediately following
the Effective Date, Kaanapali Land shall enter into the Kaanapali Land
Company Agreement which shall contain certain corporate governance
provisions for the benefit of the Holders of the Class A Shares. Those
provisions shall include the appointment of a Class A Representative. For a
description of the Kaanapali Land Company Agreement, see Section VIII.H. of
this Disclosure Statement.
If the Holder of a Class 5 Claim fails to make a timely
election to receive the cash treatment in accordance with the procedures
set forth in the Ballot, such Holder shall be deemed to have elected to
receive Class A Shares.
Class 5.1 - Convenience Claims
Convenience Claims are unsecured, nonpriority Claims
(other than COLA Note Claims) as of the Petition Date in the amount of $500
or less. If the Holder of an unsecured, nonpriority Claim (other than a
COLA Note Claim) in an amount greater than $500 makes an election to reduce
such Claim to $500, such Claim shall be treated as a Convenience Claim for
all purposes. On the Effective Date, each Holder of an Allowed Convenience
Claim shall be entitled to receive from Kaanapali Land in full satisfaction
of and in exchange for such Claim, payment in full, in cash. The procedures
for the election to reduce a Claim to $500 and to receive treatment as a
Convenience Claim are set forth on the Ballot.
Class 6 - Intercompany Claims
Intercompany Claims are amounts owing for money borrowed
or for goods and services rendered as reflected on the books and records of
any AHI Debtor as of the Petition Date by any AHI Debtor to another AHI
Debtor.
On the Effective Date, the Intercompany Claims shall be
discharged and extinguished and the Holders of the Intercompany Claims
shall not receive any distribution or retain any rights on account of such
Claims.
Class 7 - Subsidiary Stock Interests
Subsidiary Stock Interests are the equity interests held
by AHI in the AHI Subsidiaries and by any AHI Subsidiary in any other AHI
Subsidiary. The legal, equitable and contractual rights of the Holders of
the Subsidiary Stock Interests will be unaltered by the Plan or the Merger
Agreements. After the Mergers, AHI and the AHI Subsidiaries will become
direct and indirect subsidiaries of Kaanapali Land.
41
Class 8 - AHI Interests
The AHI Interests are Northbrook's equity interest in
AHI. After giving effect to the Northbrook Merger, upon or immediately
following the Effective Date, the Interests of Northbrook in AHI shall
become the Interests of Kaanapali Land in AHI.
Class 3A - AFI Claims
The AFI Claims are all Claims held by AFI against FHTC in
the approximate amount of $203 million, whether evidenced by promissory
note, intercompany account or otherwise. On the Effective Date, the AFI
Claims shall be deemed to be Allowed Claims, and AFI shall receive on the
Effective Date in full satisfaction of and in exchange for such Allowed
Claim, the portion of the Class B Shares that are distributed to FHTC
pursuant to the Plan.
Class 4A - General Unsecured Claims
Class 4A General Unsecured Claims are any General
Unsecured Claims against FHTC. The legal, equitable and contractual rights
of the Holders of General Unsecured Claims against FHTC are unaltered by
the Plan. On or as soon as reasonably practicable after (i) the Effective
Date if such General Unsecured Claim is an Allowed General Unsecured Claim
as of the Effective Date or (ii) the date on which such General Unsecured
Claim becomes an Allowed General Unsecured Claim, each Holder of an Allowed
General Unsecured Claim shall receive in full satisfaction, settlement and
release of and in exchange for such General Unsecured Claim (a) cash equal
to the amount of such General Unsecured Claim; or (b) such Claim will be
otherwise treated in any other manner such that it will not be impaired
pursuant to section 1124 of the Bankruptcy Code.
Class 5A - Old Stock Interests
Old Stock Interests are the equity interests of
Northbrook in FHTC. On the Effective Date, Northbrook will be merged into
FHTC pursuant to the Northbrook Merger Agreement and the Old Stock
Interests will be cancelled pursuant to the Northbrook Merger Agreement.
D. Unclassified Claims
Fee Claims
Fee Claims are Administrative Expense Claims under
sections 330(a), 331, 503, or 1103 of the Bankruptcy Code for compensation
of Professionals or other entities for professional services rendered or
expenses incurred in the Chapter 11 Cases on or prior to the Effective
Date. All payments to Professionals for Fee Claims will be made in
accordance with the procedures established by the Bankruptcy Code, the
Bankruptcy Rules and the Bankruptcy Court relating to the payment of
interim and final compensation for services rendered and reimbursement of
expenses. The Bankruptcy Court will review and determine all applications
for compensation for services rendered and reimbursement of expenses.
42
Other Administrative Expense Claims
Administrative Expense Claims include Claims for costs
and expenses of administration of the Cases Allowed under section 503(b),
507(b) or 1114(e)(2) of the Bankruptcy Code. Such Claims include (a) any
actual and necessary costs and expenses incurred after the Petition Date of
preserving the Debtors' Estates and operating the businesses of the Debtors
(such as wages, salaries, commissions for services and payments for
inventories, leased equipment and premises), and Claims of governmental
units for taxes (including tax audit Claims related to tax years commencing
after the Petition Date, but excluding Claims relating to tax periods, or
portions thereof, ending on or before the Petition Date); and (b) all fees
and charges assessed against the Debtors' Estates under section 1930,
chapter 123 of title 28, United States Code.
Each Administrative Expense Claim (other than Fee Claims)
will be paid by the Debtors, at their election, (a) in full, in cash, in
such amounts as are incurred in the ordinary course of business by the
Debtors, or in such amounts as the Bankruptcy Court may allow upon the
later of the Effective Date or the date upon which there is a Final Order
allowing such Administrative Claim, (b) upon such other terms as may exist
in the ordinary course of such Debtor's business or (c) upon such other
terms as may be agreed upon between the Holder of such Administrative Claim
and the Debtors.
Promptly upon the Effective Date, the Indenture Trustee
Fees and Expenses (net and after application of any funds held by the
Indenture Trustee for such purpose) shall be paid by the Reorganized
Debtors as Administrative Expense Claims. Distributions received by COLA
Holders will not be reduced on account of the Indenture Trustee's
Administrative Expense Claims, but will remain subject to the charging lien
and right of setoff that the Indenture Trustee has under the COLA Indenture
until the Indenture Trustee has received cash (and any disputed amounts
have been reserved) equal to the Administrative Expense Claim of the
Indenture Trustee for the Indenture Trustee Fees and Expenses.
Notwithstanding the foregoing, in the event the Debtors dispute the
reasonableness or enforceability of any Indenture Trustee Fees and
Expenses, such dispute, after payment in full of all undisputed amounts,
shall be submitted to the Bankruptcy Court for resolution and such disputed
Indenture Trustee Fees and Expenses will be approved unless found not
reasonable within the meaning of the COLA Indenture. The Indenture
Trustee's Fees and Expenses will not be subject to any additional standards
contained in section 503(b)(3)(D) of the Bankruptcy Code. Promptly upon
determination by the Bankruptcy Court, the Reorganized Debtors shall pay
the Indenture Trustee (i) the disputed portion of the Indenture Trustee
Fees and Expenses allowed by the Bankruptcy Court and (ii) the amount
necessary to cover the fees and expenses incurred by the Indenture Trustee
in defending the objection to its fees and expenses unless the Bankruptcy
Court determines that the fees and expenses incurred in such defense were
unreasonably incurred.
43
Priority Tax Claims
Priority Tax Claims are Claims for taxes entitled to
priority in payment under sections 502(i) and 507(a)(8) of the Bankruptcy
Code.
The legal and equitable rights of the Holders of Priority
Tax Claims are unaltered by the Plan. The Debtors and the Holder of such
Priority Tax Claim may also agree to other treatment.
E. No Waiver of Defenses Regarding Unimpaired Claims
Except as otherwise provided in the Plan, the treatment
of a Claim as unimpaired under the Plan is not intended to, and does not,
affect the Debtors' or Reorganized Debtors' rights with respect to any
Unimpaired Claims, including, but not limited to, all rights with respect
to legal and equitable defenses to or setoffs or recoupments against
Unimpaired Claims.
F. Method of Distribution Under the Plan
Sources of Cash for Plan Distribution
Except as otherwise provided in the Plan or the
Confirmation Order, all cash necessary for Reorganized Debtors to make
payments pursuant to the Plan shall be obtained from existing cash
balances, the operations of the Debtors and the Reorganized Debtors or the
sale of assets of the Reorganized Debtors. The Reorganized Debtors may also
make such payments using cash received from their subsidiaries through the
Reorganized Debtors' consolidated cash management systems.
Distributions for Claims or Interests Allowed as of the Effective Date
Except as otherwise provided in the Plan or as ordered by
the Bankruptcy Court, distributions to be made on account of Claims or
Interests that are Allowed Claims as of the Effective Date shall be made on
the Effective Date or as soon thereafter as is practicable. Any payment or
distribution required to be made under the Plan on a day other than a
Business Day shall be made on the next succeeding Business Day.
Distributions on account of Claims or Interests that first become Allowed
Claims or Interests after the Effective Date shall be made pursuant to
Articles III, VII and VIII of the Plan.
Interest on Claims
Unless otherwise specifically provided for in the Plan or
Confirmation Order, or required by applicable bankruptcy law, postpetition
interest shall not accrue or be paid on any Claims and no Holder of a Claim
shall be entitled to interest accruing on or after the Petition Date on any
Claim.
44
Distributions by the Reorganized Debtors
All distributions to be made pursuant to the Plan to
Holders of Allowed COLA Note Claims, Northbrook Senior Claims and Old
Northbrook Stock shall be made by the Reorganized Debtors to the Disbursing
Agent, which shall deliver those distributions to individual Holders of
such Claims and Interests. All other distributions under the Plan will be
made by the Reorganized Debtors or the Disbursing Agent. The Reorganized
Debtors may employ or contract with other entities to assist in or make the
distributions required by the Plan. Notwithstanding the foregoing,
distributions to Holders of Allowed Other Claims shall be subject to such
rights of set off as the Debtors or Reorganized Debtors may assert against
such Holders at any time prior to such distribution, as further provided in
Article VII.F of the Plan.
Delivery of Distributions and Undeliverable or Unclaimed Distributions
a. Delivery of Distributions in General. Distributions to
Holders of Allowed Claims and Allowed Interests shall be
made at the latest mailing address filed with the
Bankruptcy Court by the party entitled to the
distribution, whether in a proof of Claim or other filed
notice. If no such mailing address has been filed with
the Bankruptcy Court, distribution shall be made at the
address reflected in the Debtors' Schedules or, in the
case of the Holders of Allowed COLA Note Claims, to the
latest mailing address maintained of record by the
Debtors' transfer agent.
b. Undeliverable and Unclaimed Distributions.
i. Holding and Investment of Undeliverable and
Unclaimed Distributions. If the distribution
to any Holder of an Allowed Claim or Interest
is returned as undeliverable or is otherwise
unclaimed, no further distributions shall be
made to such Holder unless and until
the Disbursing Agent is notified in writing of
such Holder's then current address.
Undeliverable distributions made by Kaanapali
Land shall be returnable to Kaanapali Land and
shall remain in Kaanapali Land's possession
until such time, if any, that a distribution
becomes deliverable. Undeliverable distributions
shall not be entitled to any interest, dividends
or other accruals of any kind.
ii. After Distributions Become Deliverable.
The Reorganized Debtors or the Disbursing Agent
shall make all distributions that have become
deliverable or have been claimed since the
Effective Date as soon as practicable after
such distribution has become deliverable.
iii. Failure to Claim Undeliverable Distributions.
Any Holder of an Allowed Claim or Allowed
Interest that does not assert a Claim or
Interest pursuant to the Plan for an
undeliverable or unclaimed distribution
within one (1) year after the Effective Date
shall be deemed to have forfeited its Claim
for such undeliverable or unclaimed
distribution and shall be forever barred and
enjoined from asserting any such Claim against
the Reorganized Debtors, their Estates or
their property. In such cases, (i) any
cash distribution on account on such
45
Claims for undeliverable or unclaimed
distributions shall become the property of
the Reorganized Debtors free of any
restrictions thereon and (ii) any Kaanapali
Land common stock held for distribution on
account of such Claim or Interest shall be
canceled and of no further force or effect.
Nothing contained in the Plan shall require any
Reorganized Debtors, the Disbursing Agent,
Debtors' transfer agent or the Indenture
Trustee to attempt to locate any Holder of an
Allowed Claim or Interest.
Record Date for Distributions
As of the close of business on the Distribution Record
Date, the respective transfer books and records for the COLA Notes and the
Old Northbrook Stock, as maintained by AHI's transfer agent or the
Indenture Trustee (in the case of a COLA Note) or Northbrook (in the case
of Old Northbrook Stock) or their respective agents, shall be closed and
the transfer of a COLA Note or Old Northbrook Stock or any interest thereon
prohibited. The Reorganized Debtors and their respective agents will have
no obligation to recognize the transfer of, or the sale of any
participation in, any COLA Note, Senior Debt Instrument or Old Northbrook
Stock occurring after the Distribution Record Date, and will be entitled
for all purposes herein to recognize and deal only with those Holders of
record as of the close of business on the Distribution Record Date.
Method of Cash Payment
Payments of cash made pursuant to the Plan shall be in
U.S. dollars and shall be made, at the option and in the sole discretion of
the Reorganized Debtors, by (a) checks drawn on or (b) wire transfer from a
domestic bank selected by the Reorganized Debtors. Cash payments to foreign
creditors may be made, at the option of the Reorganized Debtors, in such
funds and by such means as are necessary or customary in a particular
foreign jurisdiction. Payments will be made as and when required by the
Plan.
Withholding and Reporting Requirements
In connection with the Plan, to the extent applicable,
the Reorganized Debtors shall comply with all tax withholding and reporting
requirements imposed on them by any federal, state, local or foreign taxing
authority, and all distributions under the Plan shall be subject to any
such withholding and reporting requirements. The Reorganized Debtors will
be authorized to take any and all actions that may be necessary or
appropriate to comply with such withholding and reporting requirements and
all Entities holding Claims or Interests shall be required to provide any
information necessary to effect the withholding of such taxes.
Notwithstanding any other provision of the Plan, each Holder of an Allowed
Claim or Interest that receives a distribution under the Plan shall have
sole and exclusive responsibility for the satisfaction and payment of any
tax obligations imposed by any governmental unit, including income,
withholding and other tax obligations, on account of such distribution.
46
Setoffs
The Reorganized Debtors may, pursuant to section 553 of
the Bankruptcy Code or applicable nonbankruptcy laws, but shall not be
required to, set off against any Claim and the distributions to be made
pursuant to the Plan in respect of such Claim (before any distribution is
made on account of such Claim), Claims of any nature whatsoever that the
Debtors or the Reorganized Debtors may have against the Holder of such
Claim; provided, however, that neither the failure to setoff nor the
allowance of any Claim hereunder shall constitute a waiver or release by
the Reorganized Debtors of any such Claim that the Debtors or the
Reorganized Debtors may have against such Holder.
Fractional Shares
Shares of Kaanapali Land to be distributed under the Plan
will be issued in whole or fractional shares.
Surrender of Cancelled Securities
As soon as practicable after the Effective Date,
Kaanapali Land shall cause the Disbursing Agent to send a letter of
transmittal to each Holder of an Allowed COLA Note Claim or other Creditor
advising such Holder of the effectiveness of the Mergers and the Plan and
the instructions for delivering to the Disbursing Agent any COLA Notes or
other evidence of indebtedness in exchange for the Kaanapali Land Shares to
be issued or distributed pursuant to the Plan. Such letter of transmittal
shall specify that delivery of any COLA Notes or other evidence of
indebtedness will be effected, and that risk of loss and title thereto
shall pass, only upon delivery of such COLA Notes or other evidence of
indebtedness to the Disbursing Agent in accordance with the terms and
conditions of such letter of transmittal, such letter of transmittal to be
in such form and have such other provisions as the Reorganized Debtors may
reasonably agree.
Failure to Surrender Cancelled Instruments. Any Holder of
a COLA Note Claim or other evidence of indebtedness that fails to surrender
any applicable COLA Note or other evidence of indebtedness required to be
delivered hereunder, or fails to comply with the provisions of Article
VII.B.1(d) of the Plan, within two (2) years after the Effective Date,
shall have its Claim or Interest for a distribution pursuant to the Plan on
account of such COLA Note or Old Northbrook Stock or Northbrook Senior Debt
Instrument discharged and shall be forever barred from asserting any such
Claim or Interest against or in the Reorganized Debtors or their respective
property and, in such case, any Kaanapali Land Shares held for distribution
on account of such Claim or Interest shall be disposed of pursuant to the
provisions of Section VIII.H.7. below. Kaanapali Land may, in its sole
discretion, waive this requirement for distribution.
Lost, Stolen, Mutilated or Destroyed Debt Securities
In addition to any requirements under the COLA Indenture,
or any applicable agreement, in the event any COLA Notes or other evidence
of indebtedness shall have been lost, stolen or destroyed, then in lieu of
delivery such COLA Note or other evidence of indebtedness, such Holder
shall deliver to the Reorganized Debtors: (i) evidence reasonably
satisfactory to the Reorganized Debtors of the loss, theft or destruction;
and (ii) such security or indemnity as may be required by the Reorganized
Debtors to hold the Reorganized Debtors harmless from any damages,
47
liabilities or costs incurred in treating such individual as a Holder of an
Allowed Claim or Interest. Upon the Effective Date all COLA Notes or other
evidence of indebtedness shall be deemed canceled and the Holders of the
COLA Notes or other evidence of indebtedness shall, for all purposes under
the Plan, be deemed to have surrendered such Note.
G. Resolution of Disputed, Contingent and Unliquidated Claims
No Distributions Pending Allowance
The Debtors will be required to File any objections they
may have to the allowance of a Claim prior to a deadline to be established
by the Bankruptcy Court. The Reorganized Debtors shall have the exclusive
authority to File objections to, settle, compromise, withdraw or litigate
to judgment objections to Claims. Any Claim or Interest to which no
objection is filed by the applicable deadline is deemed to be allowed.
No distributions will be made on account of any disputed
Claim or Interest unless and until the dispute is resolved either through
agreement of the parties or by a final order of the Bankruptcy Court (or
other court of appropriate jurisdiction). Pending the resolution of such
dispute, the distribution which would be made with respect to a disputed
Claim or Interest if such Claim or Interest were allowed in full shall be
made into a disputed Claim or Interest reserve, as the case may be, to be
established pursuant to the Plan. Such distribution shall be released to
the Holder of the disputed Claim or Interest as, when and to the extent
such Claim or Interest becomes an Allowed Claim. The Plan does not provide
for interest to accrue or to be paid with respect to disputed Claims that
are ultimately allowed in whole or in part. No payment or distribution will
be made with respect to all or any portion of a disputed Claim or Interest
unless and until all objections to such Claim or Interest are withdrawn or
have been allowed pursuant to a final order.
The provisions of the Plan in respect of the resolution
and payment of disputed Claims and Interests are set forth in Article VIII
of the Plan.
H. Means for Implementation of the Plan
Consummation of the Northbrook Merger and Kaanapali Land Merger
On or prior to the Effective Date, and as a condition
precedent to the other transactions that are to take place under the Plan
on the Effective Date, Northbrook shall merge with and into FHTC, with FHTC
being the surviving corporation, and the separate corporate existence of
Northbrook shall cease (the "Northbrook Merger"). In connection with the
Northbrook Merger, the Articles of Incorporation of FHTC will be amended to
authorize the issuance of two classes of shares of common stock, Class A
Shares and Class B Shares. No stock certificates will be issued by FHTC,
with such ownership in FHTC to be reflected on the records of FHTC. In the
Northbrook Merger, 1,466,573 Class B Shares of FHTC shall be issued to
Pacific Holdings, the sole shareholder of Northbrook, in exchange for all
of the issued and outstanding Northbrook stock. On the Effective Date,
pursuant to the terms of the Plan, Class B Shares will be issued to the
Holders of the Northbrook Senior Claims in Class 2, to the Holders of the
AFI COLA Note Claims in Class 4, and to Class 5 Claimants that are
Affiliates of the Debtors. Class A Shares will be issued to the COLA
Holders (other than to AFI) and additional Class A Shares may be issued to
Class 5 non-affiliated Claimants which elect (or are deemed to have
elected) to receive Class A Shares pursuant to the Plan.
48
On or immediately following the Effective Date, and
following the issuance of the Class A Shares and Class B Shares by FHTC
pursuant to the Plan and the Northbrook Merger Agreement, FHTC will merge
with and into Kaanapali Land LLC, with Kaanapali Land being the surviving
entity as a Delaware limited liability company, and with the separate
corporate existence of FHTC ceasing. Kaanapali Land will elect to be taxed
as a corporation and Holders of the Class A Shares and Class B Shares will
be treated as stockholders of a taxable corporation for federal income tax
purposes. Pursuant to the terms of the Kaanapali Land Merger Agreement,
Pacific Holdings shall continue as the manager of Kaanapali Land, each
outstanding Class A Share as issued by FHTC shall be converted without
further action into the right to receive one Class A Share as issued by
Kaanapali Land, and each outstanding Class B Share as issued by FHTC shall
be converted without further action into the right to receive one Class B
Share as issued by Kaanapali Land. Class A Shares as issued by Kaanapali
Land shall be identical in all respects to Class B Shares as issued by
Kaanapali Land (including with respect to voting and distributions) except
for certain corporate governance provisions contained in the Kaanapali Land
Company Agreement for the benefit of Class A Shares.
Reorganized Debtors shall execute and deliver such other
agreements, documents and instruments as are required to be executed
pursuant to the terms of the Plan or the Merger Agreements.
Kaanapali Land Company Agreement
On or immediately following the Effective Date and
pursuant to the Kaanapali Land Merger Agreement, the Kaanapali Land Company
Agreement, as revised, shall be adopted which, among other things, shall
provide certain corporate governance provisions for the benefit of the
Holders of the Class A Shares and will provide for the appointment of the
Class A Representative. While the following paragraphs set forth a summary
of certain of the salient provisions of the Kaanapali Land Company
Agreement, the terms of the Kaanapali Land Company Agreement will control
in all respects.
Management of Kaanapali Land. Pacific Holdings will be
the manager of Kaanapali Land and will have the exclusive power and
authority under the Kaanapali Land Company Agreement to manage and conduct
the business of Kaanapali Land, subject to those rights and covenants
relating to the Class A Representative described below. Pacific Holdings
will not be entitled to receive any compensation for serving as manager of
Kaanapali Land, but Kaanapali Land shall bear all of its operating and
administrative expenses, including reimbursements to the manager for such
expenses incurred by the manager and its affiliates in performing its
services (including a share of salary and employment related expenses of
the individuals providing these services).
Class A Representative. Under the terms of the Kaanapali
Land Company Agreement, Bank One Trust Company, N.A., or another
institution reasonably acceptable to both Kaanapali Land and Bank One, will
be appointed as the Class A Representative. Kaanapali Land will deliver to
the Class A Representative copies of all reports filed by Kaanapali Land
with the Securities and Exchange Commission (including, without limitation,
its annual and quarterly financial reports). The Class A Representative
will be entitled to reasonable access to the books and records of Kaanapali
Land and to an annual meeting with the manager of Kaanapali Land and its
49
executive team to review the operations of Kaanapali Land. The position of
the Class A Representative will terminate on the earlier of the fifth
anniversary of the Effective Date or at such time as the number of
outstanding Class A Shares represents less than 5% of the total number of
outstanding shares of Kaanapali Land as of the Effective Date. All
reasonable fees and expenses of the Class A Representative will be paid by
Kaanapali Land.
Covenants Relating to Class A Representative. Without the
consent of the Class A Representative, Kaanapali Land will not incur any
indebtedness from the Class B shareholders or their affiliates if,
immediately after giving effect to the incurrence of such indebtedness and
the application of the proceeds thereof, there would be in excess of $25
million in aggregate principal indebtedness from the Class B shareholders
or their affiliates, if and so long as there is a Class A Representative.
Any such indebtedness will bear interest at the "prime rate" as announced
from time to time by Bank One and may be secured by property of Kaanapali
Land and its subsidiaries. Kaanapali Land will deliver a certificate to the
Class A Representative, in connection with the delivery of the annual
report, to the effect that all transactions entered into between Kaanapali
Land and any of the Class B shareholders or their affiliates after the
Effective Date and during that fiscal year are described in the annual
report in all material respects and, except as otherwise provided in the
Kaanapali Land Company Agreement or as provided in any contract or
agreement existing prior to the date of the Kaanapali Land Company
Agreement which is assumed by Kaanapali Land pursuant to the Plan, are on
terms no less favorable, at the time of the transaction, than those
available from unaffiliated third parties for similar transactions in the
same geographic area.
Authorized Capital. The Kaanapali Land Company Agreement
will provide for the issuance of an unlimited number of membership
interests in Kaanapali Land which may be denominated as shares. So long as
there is a Class A Representative, any common shares issued to or acquired
by Pacific Holdings or its affiliates will be issued as Class B Shares.
Kaanapali Land may issue additional membership interests in one or more
classes, or one or more series of any such class, with such designations,
preferences and relative, participating, optional or other special rights,
powers and duties, including rights, powers and duties which may be senior
to the Class A Shares and Class B Shares, all as shall be determined by the
Manager, including without limitation, with respect to (i) the rights of
each class or series of shares to participate in distributions and (ii) the
rights of each class or series of shares upon dissolution and liquidation
of Kaanapali Land.
Class A Shares and Class B Shares will be identical in
all respects (including with respect to voting and distributions) except
for certain corporate governance provisions in the Kaanapali Land Company
Agreement for the benefit of the Class A Shares, as described above. After
the termination of the position of the Class A Representative, Class A
Shares and Class B Shares shall become one class.
50
No shareholder will be entitled to any preemptive,
preferential or other similar right with respect to additional capital
contributions or loans to Kaanapali Land or issuance of any membership
interests in Kaanapali Land, except as otherwise specified in the Kaanapali
Land Company Agreement. No shareholder will be entitled to resign as a
member or withdraw its capital from Kaanapali Land. The foregoing is not
intended to limit the right of members to transfer their shares under
applicable law.
Transferability of Shares of Kaanapali Land. Class A
Shares will be freely transferable. Each recipient of Class A Shares will
receive appropriate evidence of ownership of its interest in Kaanapali
Land, and such ownership shall be reflected on the shareholder register of
Kaanapali Land as maintained by its registered transfer agent. Kaanapali
Land will be under no obligation to cause the Class A Shares to be listed
for trading on any securities exchange or quoted on any automated quotation
system. Although Kaanapali Land does not expect to cause its shares to be
listed for trading on any securities exchange, the COLA Notes have from
time to time traded through certain secondary trading mechanisms, including
publicly maintained bulletin boards such as DCC Securities Corp. Kaanapali
Land expects to take reasonable steps to facilitate trading, if requested
to do so.
Under the terms of the Kaanapali Land Company Agreement,
the Class B shareholders may not sell or transfer any of their shares in
Kaanapali Land, other than to their affiliates, unless such transaction
provides for the sale and transfer of all Class A Shares on the same terms
and conditions. In such event, the Class A shareholders will be required to
sell their Class A Shares in such transaction.
Indemnification of Manager and its Affiliates. The
Kaanapali Land Company Agreement will provide that each of the manager and
its affiliates and the Class A Representative will be indemnified and held
harmless by Kaanapali Land for any act performed for, or on behalf of,
Kaanapali Land, or in furtherance of Kaanapali Land's business unless it is
established (i) by final judgment adverse to such person that the actions,
or failure to act, was material to the matter giving rise to the proceeding
and was the result of active and deliberate dishonesty; (ii) Kaanapali Land
actually received an improper personal benefit in money, property or
services; or (iii) in the case of any criminal proceeding, that such person
had reasonable cause to believe that the act or omission was unlawful. Any
indemnification so made shall be made only out of the assets of Kaanapali
Land, including errors and omissions insurance incidental for such purpose.
In addition, each of the manager and the Class A Representative will be
exculpated from liability to Kaanapali Land and its members, if among other
things, it has acted in the best interests of Kaanapali Land or its
members.
Limited Liability of Kaanapali Land Shareholders. Under
Delaware law and the Kaanapali Land Company Agreement, no shareholder of
Kaanapali Land will be obligated personally for any debt, obligation or
liability of Kaanapali Land solely by reason of being a member of Kaanapali
Land.
Amendments. The Kaanapali Land Company Agreement may be
amended only upon the majority of members holding a majority of the total
of the Class A Shares and Class B Shares.
51
Corporate Governance, Management, and Corporate Action
a. Kaanapali Land Company Agreement
On the Effective Date, upon consummation of the Kaanapali
Land Merger, the Kaanapali Land Company Agreement, as amended and restated
in its entirety as required by the Kaanapali Land Merger Agreement, shall
be the limited liability company agreement of Kaanapali Land.
Notwithstanding any other provision of the Plan, the certificates of
incorporation and other organizational documents of the Reorganized Debtors
will, among other things, prohibit the issuance of nonvoting equity
securities to the extent required by section 1123(a) of the Bankruptcy
Code. On or before the Effective Date, each of the Reorganized Debtors
shall amend its certificate of incorporation, bylaws or other
organizational documents to the extent required to comply with the
requirements of the Bankruptcy Code and the terms of this Plan. After the
Effective Date, the Reorganized Debtors may amend and restate their
certificates of incorporation and bylaws as provided therein or by
applicable law.
b. Manager of Kaanapali Land
Subject to any requirement of Bankruptcy Court approval
pursuant to section 1129(a)(5) of the Bankruptcy Code, on the Effective
Date, upon consummation of the Kaanapali Land Merger, Kaanapali Land will
be managed by Pacific Holdings, pursuant to the Kaanapali Land Company
Agreement. The directors and officers of each Reorganized Debtor other than
Kaanapali Land will be the same individuals serving as officers and
directors of each respective Reorganized Debtor prior to the Effective
Date. Pursuant to section 1129(a)(5) of the Bankruptcy Code, the Debtors
will disclose, on or prior to the Confirmation Date, the identity and
affiliations of any other Person proposed to serve on the initial board of
directors of the Reorganized Debtors, as an initial officer of the
Reorganized Debtors, or as manager of Kaanapali Land and, to the extent
such Person is an Insider, the nature of any compensation for such Person.
The classification and composition of the board of directors will be
consistent with the certificates of incorporation. Each such director and
officer will serve from and after the Effective Date pursuant to the terms
of certificates of incorporation and bylaws of the Reorganized Debtors and
applicable law.
c. Corporate Action
On or immediately following the Effective Date, as
provided in the Plan and the Merger Agreements, all actions contemplated by
the Plan and the Merger Agreements will be deemed, without further action
of any kind or nature, to be authorized and approved in all respects
(subject to the provisions of the Plan). All matters provided for in the
Plan and the Merger Agreements involving the corporate structure of the
Debtors or the Reorganized Debtors, and any corporate action required by
the Debtors or the Reorganized Debtors in connection with the Plan and the
Merger Agreements, shall be deemed to have occurred and shall be in effect,
without any requirement of further action by the security Holders or
directors of the Debtors or the Reorganized Debtors. On the Effective Date,
the appropriate officers or manager of the Reorganized Debtors and members
of the boards of directors of the Reorganized Debtors are authorized and
directed to issue, execute and deliver the agreements, documents,
securities and instruments contemplated by the Plan or the Merger
Agreements in the name of and on behalf of the Reorganized Debtors.
52
Continued Entity Existence and Vesting of Assets in Reorganized Debtors
Except as otherwise provided in the Plan or the
Confirmation Order, the Debtors shall, as Reorganized Debtors, continue to
exist after the Effective Date as separate legal entities in accordance
with applicable laws in the respective jurisdictions in which they are
incorporated or organized and pursuant to their respective certificates of
incorporation and by-laws or other organizational documents as they may be
amended or amended and restated pursuant to the Plan and without prejudice
to any right to alter or terminate such existence (whether by merger or
otherwise) under such applicable state law. On and after the Effective
Date, the Reorganized Debtors may operate their businesses and may use,
acquire and dispose of their property and compromise or settle any Claims
without supervision of or approval by the Bankruptcy Court and free and
clear of any restrictions of the Bankruptcy Code or the Bankruptcy Rules,
other than restrictions expressly imposed by the Plan or the Confirmation
Order. Notwithstanding anything to the contrary in the Plan, including the
provisions providing for limited substantive consolidation, the Unimpaired
Claims against a particular Debtor or Reorganized Debtor shall remain the
obligations solely of such Debtor or Reorganized Debtor and shall not
become obligations of any other Debtor or Reorganized Debtor by virtue of
the Plan, the Chapter 11 Cases or otherwise.
Limited Substantive Consolidation of AHI Debtors
The Plan contemplates and is predicated upon entry of an
order substantively consolidating the AHI Debtors solely for the purposes
of voting, confirmation and distribution of each of Class 2, 4, 5 and 5.1
Claims under the Plan. The Plan does not contemplate the substantive
consolidation of the Debtors or their Estates with respect to the other
Classes of Claims or Interests set forth in the Plan or for any other
purpose except as specifically provided for in the Plan. On the Effective
Date, (i) any obligation of any Debtor and all guarantees with respect to
Class 2, 4, 5 or 5.1 Claims thereof executed by one (1) or more of the
other Debtors shall be treated as a single obligation and any obligation of
two or more Debtors, and all multiple Impaired Claims against such entities
on account of such joint obligations shall be treated and Allowed only as a
single Impaired Claim against the consolidated Debtors, and (ii) each Class
2, 4, 5 or 5.1 Claim filed or to be filed against any Debtor shall be
deemed filed against the consolidated Debtors and shall be deemed a single
Class 2, 4, 5 or 5.1 Claim against and a single obligation of the
consolidated Debtors. On the Confirmation Date, and in accordance with the
terms of the Plan and the consolidation of the assets and liabilities of
the Debtors, all Class 2, 4, 5 or 5.1 Claims based upon guarantees of
collection, payment or performance made by the Debtors as to the
obligations of another Debtor shall be released and of no further force and
effect. Except as set forth in Article V.I. of the Plan, such substantive
consolidation shall not (other than for purposes related to the Plan) (i)
affect the legal and corporate structures of the Reorganized Debtors, (ii)
cause any Debtor to be liable for any Impaired Claim or Unimpaired Claim
under the Plan for which it otherwise is not liable, and the liability for
any such Claim shall not be affected by such substantive consolidation, and
(iii) affect Interests in AHI Subsidiaries. On the Effective Date, except
as otherwise expressly provided for in the Plan, the Interests in the AHI
Subsidiaries shall remain outstanding.
53
Unless the Bankruptcy Court has approved the substantive
consolidation of the Estates by a prior order, the Plan shall serve as, and
shall be deemed to be, a motion for entry of an order substantively
consolidating the Debtors as provided in Article V.I. of the Plan. If no
objection to substantive consolidation is timely filed and served by any
Holder of an Impaired Claim affected by the Plan as provided herein on or
before the deadline for objection to confirmation of the Plan, the order
approving the substantive consolidation (which may be the Confirmation
Order) may be entered by the Bankruptcy Court. If any such objections are
timely filed and served, a hearing with respect to the substantive
consolidation of the Estates and the objections thereto shall be scheduled
by the Bankruptcy Court, which hearing may, but is not required to,
coincide with the Confirmation Hearing.
Issuance of Secured Note
On or promptly after the Effective Date, AHI shall issue
a promissory note to Kaanapali Land as additional consideration of the
Plan's conversion of the Claims of Holders of Senior Debt, the Claims of
the COLA Holders and the Claims of Holders of certain electing General
Unsecured Claims into equity of Kaanapali Land. The amount of the note will
be determined by Kaanapali Land in its reasonable discretion on or prior to
the Effective Date. Repayment of the Note shall be secured by mortgages on
the principal assets of AHI and the AHI Debtors, as determined from time to
time by Kaanapali Land. The note shall accrue interest at a rate per annum
equal to the long term Average Federal Rate as of the date two business
days prior to the Effective Date as quoted in the Wall Street Journal. No
payments shall be due under the note until its maturity on the tenth
anniversary of the Effective Date at which time all principal and accrued
interest shall be due and payable. However, AHI at its option will be
entitled to make prepayments in whole or in part on the note without
penalty. Kaanapali Land shall be entitled to transfer all or any portion of
the note for value, contribute all or any portion of the note to the equity
of AHI, or otherwise deal with the note from time to time as it deems
appropriate.
Cancellation of Instruments and Securities as to Debtors Only
On the Effective Date, except to the extent provided
otherwise in the Plan, the COLA Notes, the Old Northbrook Stock, the Old
Stock Interests and the Northbrook Senior Debt Instruments, together with
all related notes, certificates, security agreements, mortgages, pledges,
indemnities, collateral assignments, undertakings, guaranties and other
instruments and documents, shall no longer be outstanding, shall be deemed
to be canceled, retired and terminated, and shall cease to exist as against
the Debtors. On the Effective Date, except to the extent provided otherwise
in the Plan, any indenture relating to any of the foregoing, including
without limitation, the COLA Indenture, shall be deemed to be canceled as
against the Debtors, as permitted by section 1123(a)(5)(F) of the
Bankruptcy Code. To the extent that any of the foregoing obligations also
constitute obligations of any Non-Debtor Subsidiaries, they shall not be
deemed canceled, retired or terminated as against such Non-Debtor
Subsidiaries and shall continue to be enforceable against such Non-Debtor
Subsidiaries to the extent of any deficiency remaining thereon. All rights
to enforce any such obligations, however, will be assigned to Kaanapali
Land pursuant to the Plan.
54
AFI Distribution
Following the Effective Date, AFI, AFLP and Kaanapali
Land will cause the following transactions to take place (collectively, the
"AFI Distribution"): (i) the Class B Shares to which AFI is entitled (x)
pursuant to Class 2 and Class 3A of the Plan and (y) pursuant to Class 4 of
the Plan on account of the AFI COLA Note Claims will be transferred to
AFI's members in accordance with their membership interests, and then the
shares so transferred by AFI to AFLP will be transferred to AFLP's
partners, which will include Kaanapali Land, in accordance with their
partnership interests, and (ii) the Class B Shares thereby transferred to
Kaanapali Land shall be retired and shall no longer be issued and
outstanding Class B Shares.
Other Corporate Restructurings
The Reorganized Debtors will be authorized by the Plan to
enter into and consummate such mergers, consolidations and asset transfers
among themselves and with Non-Debtor Subsidiaries and other subsidiaries of
Kaanapali Land as they deem appropriate to rationalize or simplify the
corporate structure and organization of the Reorganized Debtors.
I. Treatment of Executory Contracts and Unexpired Leases
Assumption of Executory Contracts and Unexpired Leases
On the Effective Date, all executory contracts, including
all Compensation and Benefit Plans, and unexpired leases of the Reorganized
Debtors will be deemed rejected in accordance with the provisions and
requirements of sections 365 and 1123 of the Bankruptcy Code except those
executory contracts and unexpired leases that (1) have previously been
assumed by order of the Bankruptcy Court, (2) are the subject of a motion
to assume pending on the Effective Date, (3) are identified on a list of
executory contracts and unexpired leases to be assumed, which will be filed
by the Debtors with the Bankruptcy Court ten days prior to the hearing to
consider confirmation of the Plan, or (4) are assumed pursuant to the terms
of the Plan. Entry of the Confirmation Order by the Bankruptcy Court shall
constitute (i) approval of such assumptions and rejections pursuant to
sections 365(a) and 1123 of the Bankruptcy Code and (ii) the consent of any
non-Debtor party to any executory contract or unexpired lease that may
otherwise be required, under the terms of such executory contract or
unexpired lease, to the consummation of the Mergers provided for under the
Merger Agreements and the Plan. Each executory contract and unexpired lease
assumed pursuant to Article VI of the Plan shall revest in and be fully
enforceable by the respective Reorganized Debtor in accordance with its
terms, except as modified by the provisions of the Plan, or any order of
the Bankruptcy Court authorizing and providing for its assumption or
applicable federal law.
Claims Based on Rejection of Executory Contracts or Unexpired Leases
All proofs of claim with respect to Claims arising from
the rejection of executory contracts or unexpired leases, if any, must be
filed with the Bankruptcy Court within thirty (30) days after the date of
entry of an order of the Bankruptcy Court approving such rejection. Any
Allowed Claims arising from the rejection of executory contracts or
unexpired leases that become Allowed Claims are classified and shall be
treated as Class 5 or 4A General Unsecured Claims, as the case may be. Any
Claims arising from the rejection of an executory contract or unexpired
55
lease not filed within such time will be forever barred from assertion
against the Debtors or the Reorganized Debtors, their Estates and property
unless otherwise ordered by the Bankruptcy Court or provided in this Plan.
All such Claims for which proofs of Claim are required to be filed will be,
and will be treated as, General Unsecured Claims subject to the provisions
of Article III of the Plan, subject to any limitation on allowance of such
Claims under section 502(b) of the Bankruptcy Code or otherwise.
Cure of Defaults of Assumed Executory Contracts and Unexpired Leases
Any monetary amounts by which each executory contract and
unexpired lease to be assumed pursuant to the Plan is in default shall be
satisfied, pursuant to section 365(b)(1) of the Bankruptcy Code, by payment
of the default amount in cash on the Effective Date or on such other terms
as the parties to such executory contracts or unexpired leases may
otherwise agree. In the event of a dispute regarding: (1) the amount of any
cure payments; (2) the ability of the Reorganized Debtors or any assignee
to provide "adequate assurance of future performance" (within the meaning
of section 365 of the Bankruptcy Code) under the contract or lease to be
assumed; or (3) any other matter pertaining to assumption, the cure
payments required by section 365(b)(1) of the Bankruptcy Code shall be made
following the entry of a Final Order resolving the dispute and approving
the assumption.
Indemnification of Directors, Officers, Managers and Employees
The obligations of each of the Debtors to indemnify any
Person or Entity serving at any time on or prior to the Effective Date as
one of its directors, officers, managers or employees by reason of such
Person's or Entity's service in such capacity, or as a director, officer,
manager or employee of any other corporation or legal entity, to the extent
provided in the Debtors' constituent documents or by a written agreement
with the Debtors or the applicable general corporation law, each as
applicable, shall be deemed and treated as executory contracts that are
assumed by the Debtors pursuant to the Plan and section 365 of the
Bankruptcy Code as of the Effective Date. Any such indemnification
obligations shall survive unimpaired and unaffected by entry of the
Confirmation Order, irrespective of whether such indemnification is owed
for an act or event occurring before or after the Petition Date.
Compensation, Benefit Programs and Insurance Policies
Each Debtor providing retiree medical benefits and
retiree life insurance pursuant to a memorandum of understanding or other
contract or agreement, shall be deemed to have assumed such agreement to
provide retiree medical and life insurance benefits. Each Reorganized
Debtor shall continue to perform its retiree medical obligations through
2004, when those benefits expire by the terms of the applicable union
agreements concerning bargaining union employees. With respect to other
employees that are eligible for such benefits, each Reorganized Debtor
shall continue to provide retiree medical benefits through 2004, in keeping
with its past practice of making similar retiree medical coverage available
to union and non-union employees, or such later time as such Reorganized
Debtor may determine in its sole discretion. Each Reorganized Debtor will
continue to perform its retiree life insurance obligations in accordance
with its current program, as such program may be amended from time to time
56
by such Reorganized Debtor in its sole discretion. In addition, each
Reorganized Debtor shall assume and continue to perform all obligations
under its self-insured workers' compensation programs in effect as of the
Petition Date.
J. Confirmation and Effectiveness of the Plan
Article IX of the Plan sets forth certain conditions to
the occurrence of the Effective Date under the Plan. The Debtors believe
that all such conditions will be satisfied and, provided that the
Bankruptcy Court finds that the Plan meets the requirements of the
Bankruptcy Code and confirms the Plan, the Plan will be implemented in
accordance with its terms. The Plan further provides that certain of the
conditions to the Effective Date of the Plan may be waived by the Debtors
with the consent of the Indenture Trustee and without further notice or a
hearing.
K. Effect of Vacation of Confirmation Order
If the Confirmation Order is vacated, (a) the Plan shall
be null and void in all respects and nothing contained in the Plan or the
Disclosure Statement shall: (1) constitute a waiver, release or settlement
of any Claims by or against, or any Interests in, the Debtors; (2)
prejudice in any manner the rights of the Debtors; or (3) constitute an
admission, acknowledgement, offer or undertaking by the Debtors in any
respect, and (b) the time within which the Debtors may assume and assign or
reject all executory contracts and unexpired leases shall be extended for a
period of sixty (60) days after the date the Confirmation Order is vacated,
subject to such further extension as the Bankruptcy Court may order.
L. Effect of Plan Confirmation
Preservation of Rights of Action
Except as otherwise provided in the Plan or in any
contract, instrument, release, indenture or other agreement entered into in
connection with the Plan, in accordance with section 1123(b) of the
Bankruptcy Code, the Reorganized Debtors shall retain and may exclusively
enforce any Avoidance Actions or other Causes of Action or other rights to
payment of Claims, that the Debtors or the Estates may hold against any
Person or Entity; provided, however, as between Reorganized Debtors, such
Avoidance Actions and Causes of Action are deemed released. The Reorganized
Debtors may pursue such retained Avoidance Actions, other Causes of Action
and rights to payment of Claims, as appropriate, in the exercise of their
sole discretion. The Reorganized Debtors shall retain and may enforce all
defenses, counterclaims and rights against all Claims and Interests
asserted against the Debtors, the Reorganized Debtors or their Estates.
Releases
As of the Effective Date, and except as otherwise
specifically provided in the Plan or the Confirmation Order, (i) the
Indenture Trustee, (ii) the Holders of the Northbrook Senior Claims,
Pacific Holdings and Affiliates of the foregoing that have provided
management services to any of the Debtors or assessed charges to pay for
overhead or other out-of-pocket costs in connection with the operations of
the Debtors and (iii) the respective officers, directors, shareholders,
members, managers, employees, agents and representatives of the foregoing,
in such capacity, are released by the Debtors, the Reorganized Debtors and
their respective Estates from any and all Claims, obligations, rights,
suits, damages, Causes of Action, Avoidance Actions, remedies and
57
liabilities whatsoever, whether known or unknown, foreseen or unforeseen,
existing or hereafter arising, in law, equity or otherwise, that the
Debtors would have been legally entitled to assert in their own right
(whether individually or collectively) or on behalf of the Holder of any
Claim or Interest or other Person or Entity, based in whole or in part upon
any act or omission, transaction, agreement, event or other occurrence
taking place on or before the Effective Date; provided, however, that the
foregoing provisions of this Section VIII shall have no effect on the
liability of any Person or Entity with respect to liabilities created by
the Plan or the Plan Documents. The Confirmation Order will permanently
enjoin the commencement or prosecution by any Entity, whether directly,
derivatively or otherwise, of any Claims, obligations, suits, judgments,
damages, demands, debts, rights, causes of action or liabilities released
pursuant to the Plan, including but not limited to the Claims, obligations,
suits, judgments, damages, demands, debts, rights, causes of action or
liabilities released pursuant to Article X.B. of the Plan.
As of the Effective Date, and except as otherwise
specifically provided in the Plan or the Confirmation Order, each COLA
Holder (i) that votes in favor of the Plan and (ii) to the fullest extent
permissible under applicable law, as such law may be extended or
interpreted subsequent to the Effective Date, that does not vote on the
Plan or votes against the Plan will be deemed to forever release, waive and
discharge all claims, demands, rights, causes of action and liabilities,
whether liquidated or unliquidated, fixed or contingent, matured or
unmatured, known or unknown, foreseen or unforeseen, then existing or
thereafter arising in law, equity or otherwise, that are based in whole or
in part on any act, omission, transaction or other occurrence taking place
on or prior to the Effective Date in any way relating to the Debtor, the
Plan or the COLA Note Claims that such COLA Holder has or may have against
the Indenture Trustee, and its respective present or former directors,
officers, employees, attorneys, accountants, financial advisors and agents,
acting in such capacity.
Discharge of Claims and Termination of Interests
Except as otherwise provided in the Plan or in the
Confirmation Order, all consideration distributed under the Plan shall be
in exchange for, and in complete satisfaction, settlement, discharge and
release of, all Claims of any nature whatsoever against the Debtors or any
of their assets or properties, and regardless of whether any property shall
have been distributed or retained pursuant to the Plan on account of such
Claims. Upon the Effective Date, the Debtors, and each of them, shall be
deemed discharged and released under section 1141(d)(1)(A) of the
Bankruptcy Code from any and all Claims (other than Claims that are not
Impaired), including, but not limited to, demands and liabilities that
arose before the Effective Date, and all debts of the kind specified in
section 502(g), 502(h) or 502(i) of the Bankruptcy Code, Old Common Stock
and Other Old Equity Interests shall be terminated.
Exculpation
The Debtors, the Reorganized Debtors, the Disbursing
Agent, the Indenture Trustee, the Northbrook Senior Creditors, the Class A
Representative, and their respective members, officers, directors,
58
employees, agents and Professionals (acting in such capacity) shall neither
have nor incur any liability to any Person or Entity for any act taken or
omitted to be taken in connection with or related to the formulation,
preparation, dissemination, implementation, administration, Confirmation or
Consummation of the Plan, the Disclosure Statement or any contract,
instrument, release or other agreement or document created or entered into
in connection with the Plan, including the Merger Agreements, or any other
act taken or omitted to be taken in connection with the Chapter 11 Cases;
provided, however, that the foregoing provisions of this Section VIII.L.
shall have no effect on the liability of (i) any Person or Entity to the
extent such liability is created by the Plan or the Plan Documents or (ii)
any Person or Entity that results from any such act or omission that
constitutes fraud, gross negligence or willful misconduct.
Injunction
Except as otherwise provided in the Plan, the
Confirmation Order shall provide, among other things, that from and after
the Confirmation Date all Persons who have held, hold or may hold Claims
against or Interests in the Debtors are (i) permanently enjoined from
taking any of the following actions against the Estate(s), or any of their
property on account of any such Claims or Interests and (ii) permanently
enjoined from taking any of the following actions against any of the
Debtors, the Reorganized Debtors or their property on account of such
Claims or Interests: (A) commencing or continuing, in any manner or in any
place, any action or other proceeding; (B) enforcing, attaching, collecting
or recovering in any manner any judgment, award, decree or order; (C)
creating, perfecting or enforcing any lien or encumbrance; (D) asserting a
setoff, right of subrogation or recoupment of any kind against any debt,
liability or obligation due to the Debtors; and (E) commencing or
continuing, in any manner or in any place, any action that does not comply
with or is inconsistent with the provisions of the Plan; provided, however,
that nothing contained herein shall preclude such persons from exercising
their rights pursuant to and consistent with the terms of the Plan, the
Merger Agreements and any documents executed in connection with the Plan or
the Merger Agreements.
Termination of Subordination Rights and Settlement of Related Claims
The classification and manner of satisfying all Claims
and Interests and the respective distributions and treatments under the
Plan take into account and/or conform to the relative priority and rights
of the Claims and Interests in each Class in connection with any
contractual, legal and equitable subordination rights relating thereto
whether arising under general principles of equitable subordination,
section 510(b) of the Bankruptcy Code or otherwise, and any and all such
rights are settled, compromised and released pursuant to the Plan. The
Confirmation Order shall permanently enjoin, effective as of the Effective
Date, all Persons and Entities from enforcing or attempting to enforce any
such contractual, legal and equitable subordination rights satisfied,
compromised and settled pursuant to the Plan. Accordingly, distributions
pursuant to the Plan to Holders of Allowed Claims or Allowed Interests will
not be subject to payment to a beneficiary of such terminated subordination
rights, or to levy, garnishment, attachment or other legal process by a
beneficiary of such terminated subordination rights.
All Northbrook Senior Claims and all rights and claims
between or among the Holders of such Northbrook Senior Claims and the COLA
Holders, relating in any manner whatsoever to claimed subordination rights,
59
"make whole" rights, rights to postpetition or default interest or similar
rights (collectively, "Subordination-Related Rights"), shall be deemed
satisfied solely with respect to Claims against the Debtors by the
distributions under, described in, contemplated by and/or implemented by
this Plan to Holders of such Claims, such rights shall be deemed waived,
released, discharged and terminated as of the Effective Date and all
actions related to the enforcement of such Subordination-Related Rights
shall be permanently enjoined. Distributions under, described in,
contemplated by and/or implemented by this Plan shall not be subject to
levy, garnishment, attachment or like legal process by any Holder of a
Claim, by reason of any claimed Subordination-Related Rights or otherwise,
so that each Holder of a Claim shall have and receive the benefit of the
distributions in the manner set forth and described in the Plan.
Subordination-Related Rights with respect to Non-Debtor Subsidiaries are
hereby expressly preserved.
Pursuant to Bankruptcy Rule 9019 and in consideration of
the distributions and other benefits provided under the Plan, the
provisions of the Plan will constitute a good faith compromise and
settlement of all claims or controversies relating to the subordination
rights that a Holder of a Claim (including but not limited to a Northbrook
Senior Claim or a COLA Note Claim), may have or any distribution to be made
pursuant to the Plan on account of such Claim. Entry of the Confirmation
Order will constitute the Bankruptcy Court's approval, as of the Effective
Date, of the compromise or settlement of all such claims or controversies
and the Bankruptcy Court's finding that such compromise or settlement is in
the best interests of the Debtors, the Reorganized Debtors and their
respective properties and Holders of Claims and Interests, and is fair,
equitable and reasonable.
Reservation of Claims Against Non-Debtor Subsidiaries
and Assignment of Rights
Nothing in the Plan shall affect the claims of any Entity
against the Non-Debtor Subsidiaries including, without limitation, the
Holders of the Northbrook Senior Claims, the Claims of the Indenture
Trustee or the COLA Note Claims; provided, however, upon the Effective
Date, the rights of the Holders of the Northbrook Senior Claims and the
Indenture Trustee or the COLA Holders against the Non-Debtor Subsidiaries
shall be deemed, as of the Effective Date, to have been assigned to
Kaanapali Land, and Kaanapali Land shall thereupon have full power and
authority to enforce such Claims against the Non-Debtor Subsidiaries as
Kaanapali Land shall deem appropriate in its sole discretion. Any
recoveries against the Non-Debtor Subsidiaries on account of such assigned
Claims shall be retained by Kaanapali Land. The Indenture Trustee shall
have no duties or obligations under the Indenture with respect to the
rights so assigned to Kaanapali Land.
In addition, as the holder of such assigned Claims,
Kaanapali Land shall be entitled to exercise any rights of set off it has
against any distributions payable pursuant to the Plan to any Non-Debtor
Subsidiaries or with respect to any Claims asserted by any Non-Debtor
Subsidiary; and the Reorganized Debtors shall be entitled to withhold
distributions otherwise payable under the Plan to a Non-Debtor Subsidiary
until such rights of set off are established by a Final Order.
60
M. Summary of Other Provisions of the Plan
The following paragraphs summarize certain other
significant provisions of the Plan. The Plan should be referred to for the
complete text of these and other provisions of the Plan.
Exemption from Certain Transfer Taxes
Pursuant to section 1146(c) of the Bankruptcy Code, any
transfers from the Debtors to Reorganized Debtors or otherwise pursuant to
the Plan shall not be subject to any document recording tax, stamp tax,
conveyance fee, intangibles or similar tax, mortgage tax, stamp act, real
estate transfer tax, mortgage recording tax or other similar tax or
governmental assessment, and the Confirmation Order shall direct the
appropriate state or local governmental officials or agents to forgo the
collection of any such tax or governmental assessment and to accept for
filing and recordation any of the foregoing instruments or other documents
without the payment of any such tax or governmental assessment.
Effectuating Documents, Further Transactions and Corporate Action
Each of the Debtors or the Reorganized Debtors is
authorized to execute, deliver, file or record such contracts, instruments,
releases and other agreements or documents and take such actions as may be
necessary or appropriate to effectuate, implement and further evidence the
terms and conditions of the Plan and any notes or securities issued
pursuant to the Plan.
Prior to, on or after the Effective Date (as
appropriate), all matters provided for under the Plan that would otherwise
require approval of the stockholders or directors of one (1) or more of the
Debtors or the Reorganized Debtors shall be deemed to have occurred and
shall be in effect prior to, on or after the Effective Date (as
appropriate) pursuant to the applicable general corporation law of the
states in which the Debtors or the Reorganized Debtors are incorporated
without any requirement of further action by the stockholders or directors
of the Debtors or the Reorganized Debtors.
Bar Date for Administrative Claims
At the request of the Debtors, the Confirmation Order
will establish a bar date for filing Administrative Expense Claims. Holders
of asserted Administrative Expense Claims that are subject to such bar date
shall submit requests for payment on or before such bar date or forever be
barred from doing so.
Interpretation of Plan Provisions
If, prior to the Confirmation Date, any term or provision
of the Plan is determined by the Bankruptcy Court to be invalid, void or
unenforceable, the Bankruptcy Court, at the request of the Debtors, will
have the power to alter and interpret such term or provision to make it
valid or enforceable to the maximum extent practicable, consistent with the
original purpose of the term or provision held to be invalid, void or
unenforceable, and such term or provision will then be applicable as
altered or interpreted. The Confirmation Order will constitute a judicial
determination and will provide that each term and provision of the Plan, as
it may have been altered or interpreted in accordance with the foregoing,
is valid and enforceable pursuant to its terms.
61
Revocation, Withdrawal or Non-Consummation
The Debtors reserve the right to revoke or withdraw the
Plan as to any or all of the Debtors prior to the Confirmation Date and to
file subsequent plans of reorganization. If the Debtors revoke or withdraw
the Plan as to any or all of the Debtors, or if Confirmation or
Consummation as to any or all of the Debtors does not occur, then, with
respect to such Debtors, (a) the Plan shall be null and void in all
respects, (b) any settlement or compromise embodied in the Plan (including
the fixing or limiting of any Claim or Interest or Class of Claims or
Interests to an amount certain), assumption or rejection of executory
contracts or leases affected by the Plan, and any document or agreement
executed pursuant to the Plan, shall be deemed null and void, and (c)
nothing contained in the Plan or the Disclosure Statement shall (i)
constitute a waiver or release of any Claims by or against, or any
Interests in, such Debtors or any other Person, (ii) prejudice in any
manner the rights of such Debtors or any other Person, or (iii) constitute
an admission of any sort by the Debtors or any other Person.
Amendment or Modification of the Plan
Subject to the limitations contained herein and the
Merger Agreements, (1) the Debtors reserve the right, in accordance with
the Bankruptcy Code and the Bankruptcy Rules, to amend or modify the Plan
prior to the entry of the Confirmation Order and (2) after the entry of the
Confirmation Order, the Debtors or the Reorganized Debtors, as the case may
be, may upon order of the Bankruptcy Court amend or modify the Plan in
accordance with section 1127(b) of the Bankruptcy Code, or remedy any
defect or omission or reconcile any inconsistency in the Plan in such
manner as may be necessary to carry out the purpose and intent of the Plan.
IX. CONFIRMATION AND CONSUMMATION PROCEDURE
The Bankruptcy Court may confirm the Plan only if it
determines that the Plan complies with the requirements of chapter 11,
including, among other things, that (a) the Plan has properly classified
Claims and Interests, (b) the Plan complies with applicable provisions of
the Bankruptcy Code, (c) the Debtors have complied with applicable
provisions of the Bankruptcy Code, (d) the Debtors have proposed the Plan
in good faith and not by any means forbidden by law, (e) the Plan has been
accepted by the requisite votes of all classes of creditors (except to the
extent that "cramdown" is available under section 1129(b) of the Bankruptcy
Code), (f) the Plan is in the "best interests" of all Holders of Claims or
Interests in an Impaired Class, (g) the Plan is "feasible" in that
confirmation of the Plan is not likely to be followed by the liquidation or
need for further restructuring of the Debtors, and (h) all fees and
expenses payable under 28 U.S.C. ss. 1930, as determined by the Bankruptcy
Court at the Confirmation Hearing, have been paid or the Plan provides for
the payment of such fees on the Effective Date.
62
Under the Bankruptcy Code, the following steps must be
taken to confirm the Plan:
A. Solicitation of Votes Generally
Under the Bankruptcy Code, only Classes of Claims and
Interests that are "impaired" under the Plan are entitled to vote to accept
or reject the Plan. A Class is impaired if the legal, equitable or
contractual rights to which the Holders of Claims or Interests are entitled
are modified, other than by curing defaults and reinstating the debt.
Pursuant to sections 1126(f) and (g) of the Bankruptcy Code, Classes of
Claims and Interests that are not impaired are conclusively presumed to
have accepted the Plan and are not entitled to vote on the Plan, and
Classes of Claims and Interests whose Holders will receive or retain no
property under the Plan are deemed to have rejected the Plan and are not
entitled to vote on the Plan. Creditors holding disputed Claims are not
entitled to vote to accept or reject the Plan unless, upon motion of the
creditors, their Claims are Allowed by the Bankruptcy Court for purposes of
voting.
Under the Plan, the Holders of Claims in Classes 2, 4, 5,
6, 8, 3A and 5A are entitled to vote to accept or reject the Plan. All
other Classes of Claims or Interests (Classes 1, 3, 5.1, 7, 1A, 2A and 4A)
are deemed under the Bankruptcy Code to have accepted the Plan.
This Disclosure Statement and an appropriate Ballot are
being distributed to all Holders of Claims who are entitled to vote on the
Plan. Because of the difficulty associated with reaching beneficial owners
of publicly traded notes, many of which hold their notes in brokerage
accounts or through similar Nominees, the Debtors are distributing a Ballot
(i) to each Holder of record of the COLA Notes and (ii) to each Nominee (or
the agent therefor) identified to the Balloting Agent, as an entity through
which beneficial owners hold the COLA Notes. The Nominees are instructed to
forward to each beneficial owner of COLA Notes a Ballot for voting, along
with a return envelope provided by and addressed to the Nominee, so that
the beneficial owner may return the completed beneficial owner ballot to
that entity. The Nominee is then instructed to tabulate the individual
votes of its respective beneficial owners from their individual beneficial
owner ballot on a master ballot and to return such master ballot to Logan &
Company, Inc. This procedure will enable the Debtors to transmit materials
to the Holders of their publicly traded securities and affords beneficial
owners of the COLA Notes a fair and reasonable opportunity to vote. All
Ballots and master ballots received from the Debtors must be returned to
Logan & Company, Inc. by the Voting Deadline as indicated on the Ballots.
Under the Bankruptcy Code, a class of Claims accepts a
plan if holders of at least two-thirds in dollar amount and more than
one-half in number of the claims properly voted in that class, vote to
accept the plan.
A vote may be disregarded if the Bankruptcy Court
determines, after notice and a hearing, that acceptance or rejection was
not solicited or procured in good faith or in accordance with the
provisions of the Bankruptcy Code.
63
Whenever a creditor casts more than one Ballot voting the
same Claim before the Voting Deadline, the last Ballot received before the
Voting Deadline is deemed to reflect the voter's intent and thus to
supersede any prior Ballots. Creditors must vote all of their Claims within
a particular Class under the Plan either to accept or reject the Plan and
may not split their vote, and thus a Ballot that partially accepts and
partially rejects the Plan will not be counted.
The following types of Ballots will not be counted in
determining whether the Plan has been accepted or rejected:
a. any Ballot received after the Voting Deadline unless the
Debtors have granted an extension of the Voting Deadline with
respect to such Ballot;
b. any Ballot that is illegible or contains insufficient
information to permit the identification of the Creditor or
Interest Holder;
c. any Ballot cast by a person or entity that does not hold a
Claim in a Class that is entitled to vote to accept or reject
the Plan;
d. any Ballot in which both the acceptance and rejection boxes, or
neither of them, are checked; and
e. any unsigned Ballot.
B. The Confirmation Hearing
The Confirmation Hearing is scheduled for July 29, 2002
at 1:30 p.m. before the Bankruptcy Court in Chicago, Illinois. At that
hearing, the Bankruptcy Court will consider whether the Plan satisfies the
various requirements of section 1129 of the Bankruptcy Code. At that time,
the Debtors will submit a report to the Bankruptcy Court reflecting the
votes received with respect to the acceptance or rejection of the Plan by
the parties entitled to vote thereon.
Section 1128(b) of the Bankruptcy Code provides that any
party in interest may object to confirmation of the Plan. Any objection to
confirmation of the Plan must be made in writing and filed with the
Bankruptcy Court and served so that it is received by all required parties
specified in the Confirmation Notice on or before July 18, 2002, in
accordance with the requirements specified by the Bankruptcy Court. Unless
an objection to confirmation is served and filed, it may not be considered
by the Bankruptcy Court.
C. Confirmation
At the Confirmation Hearing, the Bankruptcy Court will
confirm the Plan only if all of the applicable requirements of section 1129
of the Bankruptcy Code are met. Among the requirements for confirmation of
a plan are that the plan (a) has been accepted by all impaired classes of
claims and equity interests or, if rejected by an impaired class, that the
plan "does not discriminate unfairly" and is "fair and equitable" as to
such class, (b) is feasible and (c) is in the "best interests" of creditors
and stockholders that are impaired under, and that vote to reject, or are
deemed to reject, the plan.
64
Unfair Discrimination and Fair and Equitable Tests
To obtain confirmation of a plan over the objection of a
class of claims or interests that rejects the plan, the plan proponent must
demonstrate that the plan "does not discriminate unfairly" and is "fair and
equitable" with respect to each such impaired, non-accepting class. In
order for a plan to be found to be "fair and equitable" and thus capable of
being confirmed by "cramdown" under section 1129(b) of the Bankruptcy Code,
the Debtors must demonstrate:
a. For a Class of Secured Creditors: That either (i) each
impaired secured creditor retains its liens securing its
secured claim and receives on account of its secured
claim deferred cash payments having a present value equal
to the amount of its allowed secured claim, (ii) each
impaired secured creditor realizes the "indubitable
equivalent" of its allowed secured claim, or (iii) the
property securing the claim is sold free and clear of
liens, with such liens to attach to the proceeds of the
sale and the treatment of such liens on proceeds to be as
provided in clause (i) or (ii) of this subparagraph.
b. For a Class of Unsecured Creditors: That either (i)
each impaired unsecured creditor receives or retains,
under the plan, property of a value equal to the amount
of its allowed claim or (ii) the holders of claims and
interests that are junior to the claims of the dissenting
class will not receive or retain any property under the
plan.
c. For a Class of Equity Interests: That either (i) each
holder of an equity interest will receive or retain,
under the plan, property of a value equal to the greatest
of the fixed liquidation preference to which such holder
is entitled, the fixed redemption price to which such
holder is entitled or the value of the interest or (ii)
the holder of an interest that is junior to the
non-accepting class will not receive or retain any
property under the plan.
Best Interests Test
With respect to each impaired class of claims and
interests, confirmation of a plan requires that each holder of a claim or
interest either (a) accept the plan or (b) receive or retain under the plan
property of a value, as of the effective date, that is not less than the
value such holder would receive or retain if the debtor were liquidated
under chapter 7 of the Bankruptcy Code. The Debtors believe that Holders of
Impaired Claims and Interests in each Impaired Class under the Plan would
receive significantly less under a chapter 7 liquidation than under the
Plan. The liquidation analysis attached hereto as Exhibit D (the
"Liquidation Analysis") is an estimate of the proceeds that may be
generated as a result of a hypothetical chapter 7 liquidation. The
Liquidation Analysis is based on a number of significant assumptions that
may not be realized in an actual liquidation.
65
To calculate the probable distribution to holders of each
impaired class of claims and interests if the debtor were liquidated under
chapter 7, a bankruptcy court must first determine the aggregate dollar
amount that would be generated from such debtor's assets in a chapter 7
case under the Bankruptcy Code. This "liquidation value" would consist
primarily of the proceeds from a forced sale of the debtor's assets by a
chapter 7 trustee.
The amount of liquidation value available to unsecured
creditors would be reduced by, first, the claims of secured creditors to
the extent of the value of their collateral, and, second, by the costs and
expenses of liquidation, as well as by other administrative expenses and
costs of the bankruptcy case. Costs of liquidation under chapter 7 of the
Bankruptcy Code would include the compensation of a trustee, as well as of
that counsel and other professionals retained by the trustee, asset
disposition expenses and all unpaid expenses incurred until the liquidation
is completed. The liquidation would also prompt the rejection of a number
of executory contracts and unexpired leases and thereby create a larger
amount of unsecured claims than would be asserted if the plan were
confirmed.
The Debtors believe that the Plan meets the "best
interests of creditors" test of section 1129(a)(7) of the Bankruptcy Code.
The Debtors believe that their creditors will receive greater value under
the Plan than they would in a liquidation. Based on the Liquidation
Analysis, the Plan meets the "best interests" test.
The Liquidation Analysis including a description of the
underlying assumptions, is attached as Exhibit D to the Disclosure
Statement.
Feasibility
The Bankruptcy Code requires that the bankruptcy court
determine that confirmation of a plan is not likely to be followed by
liquidation or the need for further financial reorganization of a debtor.
For purposes of showing that this Plan meets this feasibility standard, the
AHI Debtors have analyzed the ability of the Reorganized Debtors to meet
their obligations under the Plan and retain sufficient liquidity and
capital resources to conduct their businesses.
The Debtors believe that with a significantly deleveraged
capital structure their business will be able to return to viability. The
decrease in the amount of debt on the Debtors' balance sheet will
substantially improve the Debtors' cash flow and reduce their interest
expense.
To assess and demonstrate the feasibility of the Plan,
the Debtors have prepared the Projections which are attached to the
Disclosure Statement as Exhibit E.
The Projections indicate that the Reorganized Debtors
should have sufficient cash flow to fund their operations. Accordingly, the
Debtors believe that the Plan complies with the financial feasibility
standard of section 1129(a)(11) of the Bankruptcy Code.
66
The Projections were not prepared with a view toward
compliance with the published guidelines of the American Institute of
Certified Public Accountants or any other regulatory or professional agency
or body or generally accepted accounting principles. Furthermore, the
Debtors' independent certified public accountants have not compiled or
examined the Projections and accordingly do not express any opinion or any
other form of assurance with respect thereto and assume no responsibility
for the Projections.
The Projections assume that (i) the Plan will be
confirmed and consummated in accordance with its terms, (ii) there will be
no material change in legislation or regulations, or the administration
thereof, including environmental legislation or regulations, that will have
an unexpected effect on the operations of the Reorganized Debtors, (iii)
there will be no change in United States generally accepted accounting
principles that will have a material effect on the reported financial
results of the Reorganized Debtors and (iv) there will be no material
contingent or unliquidated litigation or indemnity Claims applicable to the
Reorganized Debtors. To the extent that the assumptions inherent in the
Projections are based upon future business decisions and objectives, they
are subject to change. In addition, although they are presented with
numerical specificity and considered reasonable by the Debtors when taken
as a whole, the assumptions and estimates underlying the Projections are
subject to significant business, economic and competitive uncertainties and
contingencies, many of which will be beyond the control of the Reorganized
Debtors. Accordingly, the Projections are only estimates that are
necessarily speculative in nature. It can be expected that some or all of
the assumptions in the Projections will not be realized and that actual
results will vary from the Projections, which variation may be material and
are likely to increase over time. The Projections should therefore not be
regarded as a representation by the Debtors or any other person that the
results set forth in the Projections will be achieved. In light of the
foregoing, readers are cautioned not to place undue reliance on the
Projections. The Projections should be read together with the information
in Section X of this Disclosure Statement entitled "Risk Factors to be
Considered", which sets forth important factors that could cause actual
results to differ from those in the Projections.
The AHI Debtors are subject to the informational
requirements of the Securities Exchange Act of 1934, as amended, and in
accordance therewith file periodic reports and other information with the
SEC relating to their business, financial statements and other matters.
Such filings will not include projected financial information. The Debtors
do not intend to update or otherwise revise the Projections, including any
revisions to reflect events or circumstances arising after the date of this
Disclosure Statement or to reflect the occurrence of unanticipated events,
even if any or all of the underlying assumptions do not come to fruition.
Furthermore, the Debtors do not intend to update or revise the Projections
to reflect changes in general economic or industry conditions.
X. RISK FACTORS TO BE CONSIDERED
Holders of Claims against and Interests in the Debtors
should read and consider carefully the information set forth below, as well
as the other information set forth in this Disclosure Statement (and the
documents delivered together herewith and/or incorporated by reference),
prior to voting to accept or reject the Plan. This information, however,
should not be regarded as necessarily setting forth the only potential
risks involved in connection with the Plan and its implementation.
67
A. Certain Bankruptcy Considerations
Failure to Satisfy Vote Requirement
In the event that sufficient votes accepting the Plan are
not received and, as a result, the Debtors are unable to confirm the Plan
as proposed, the Debtors have been advised by the Northbrook Senior
Creditors that they intend to seek to lift the automatic stay imposed by
the Bankruptcy Code and foreclose on the assets securing their debt.
Theoretical alternatives of the Debtors include (i) seeking to restructure
their capitalization and their obligations to creditors and equity Holders
under an alternative plan of reorganization, (ii) a liquidation under
chapter 11 of the Bankruptcy Code or (iii) a conversion of these cases to a
chapter 7 liquidation proceeding. The inability to promptly confirm the
Plan will delay the Debtors' emergence from bankruptcy and could have a
material adverse affect on the value of the Debtors' business and assets.
There is substantial risk that any alternative restructuring or a
liquidation will result in less favorable treatment of Claims and interests
than that provided by the Plan.
Non-Consensual Confirmation
In the event any impaired Class of Claims does not accept
the Plan, a Bankruptcy Court may nevertheless confirm the Plan at the
Debtors' request if at least one Impaired Class of Claims has accepted the
Plan (with such acceptances being determined without including the vote of
any "insider" in such class), and, as to each Impaired Class that has not
accepted the Plan, the Bankruptcy Court determines that the Plan "does not
discriminate unfairly" and is "fair and equitable" with respect to the
dissenting Impaired Classes. The Debtors believe that the Plan satisfies
these requirements, although there can be no assurances that the Bankruptcy
Court will make the findings necessary to reach this result.
Risk of Non-Occurrence of the Effective Date
Although the Debtors believe that if the Plan is
confirmed, the Effective Date will occur soon after the Confirmation Date,
there can be no assurance that all conditions to the occurrence of the
Effective Date will occur. In the event the Effective Date does not occur,
the Debtors will assess the alternatives available to them at that time as
to such timing. In the event the Debtors are unable to confirm the Plan as
proposed, the Northbrook Senior Creditors have indicated they intend to
seek to lift the automatic stay imposed by the Bankruptcy Code and attempt
to foreclose on the assets securing their debt, which may lead to
protracted litigation regarding this action. There is substantial risk that
any alternative restructuring or a liquidation or foreclosure will result
in less favorable treatment of Claims and Interests than that provided by
the Plan.
General Effect of Debtors' Chapter 11 Filings on Their Business
The filing of bankruptcy petitions by the Debtors, and
the publicity attendant thereto, will adversely affect the Debtors'
business. The Debtors believe that any such adverse effects may worsen
during the pendency of protracted bankruptcy cases if the Plan is not
confirmed as expected.
68
Classification and Treatment of Claims and Equity Interests
Section 1122 of the Bankruptcy Code requires that the
Plan classify Claims against, and Interests in, the Debtors. The Bankruptcy
Code also provides that, except for certain Claims classified for
administrative convenience, the Plan may place a Claim or Interest in a
particular Class only if such Claim or Interest is substantially similar to
the other Claims or Interests of such Class. The Debtors believe that all
Claims and Interests have been appropriately classified in the Plan.
The Bankruptcy Code also requires that the Plan provide
the same treatment for each Claim or Interest of a particular Class unless
the Holder of a particular Claim or Interest agrees to a less favorable
treatment of its Claim or Interest. The Debtors believe that they have
complied with the requirement of equal treatment.
To the extent that the Bankruptcy Court finds that the
Plan does not satisfy these requirements, the Bankruptcy Court could deny
confirmation of the Plan. Issues or disputes relating to classification
and/or treatment could result in a delay in the Confirmation and
Consummation of the Plan and could increase the risk that the Plan will not
be consummated.
Risk of Limit on Cash Payments to Holders of General Unsecured Claims
Under the Plan, each Holder of an Allowed General
Unsecured Claim (which does not include any Convenience Claim or the claims
of any Affiliates of the Debtors holding Allowed General Unsecured Claims)
may elect to receive, in full satisfaction of and in exchange for its
Allowed Claim (Class 5 Claim), either (a) payment in cash equal to 15% of
the amount of the Allowed General Unsecured Claim (payable in one
installment, without interest, on or as soon as practicable after the
six-month anniversary of the Effective Date) or (b) one Class A Share in
Kaanapali Land for each $510 of Allowed General Unsecured Claim. However,
Kaanapali Land will not pay more than $500,000 in cash in the aggregate to
Holders of Allowed General Unsecured Claims, and if the aggregate of
elections for cash payments by such Creditors exceeds $500,000 (i.e.,
$3,333,333 in Allowed General Unsecured Claims), each such electing Holder
will receive a pro rata share of $500,000 and will receive Class A Shares
equal to one Class A Share for each $510 of the balance of its Allowed
Claim. As a result, the cash portion and value of distributions to be made
to General Unsecured Claims will be diluted to the extent that Allowed
General Unsecured Claims not electing Class 5.1 Convenience Class treatment
exceeds $3,333,333.
B. Factors Affecting the Value of the Securities to Be Issued Under
the Plan
Variances from Projections
The fundamental premise of the Plan is the deleveraging
of the Debtors and the implementation and realization of the Debtors'
business plan, as reflected in the Projections contained in this Disclosure
Statement. The Projections reflect numerous assumptions concerning the
anticipated future performance of the Reorganized Debtors, some of which
may not materialize. Such assumptions include, among other items,
assumptions concerning the general economy, property values, the ability to
sell land to raise cash, adequate reserves or other financial provisions
for contingent liabilities and the ability to control future operating
expenses. The Debtors believe that the assumptions underlying the
69
Projections are reasonable. However, unanticipated events and circumstances
occurring subsequent to the preparation of the Projections may affect the
actual financial results of the Reorganized Debtors. Therefore, the actual
results achieved throughout the periods covered by the Projections
necessarily will vary from the projected results, and such variations may
be material and adverse.
Moreover, the estimated percentage recovery by Holders of
Senior Debt, COLA Notes and General Unsecured Claims who elect to receive
Kaanapali Land Shares are based upon the Debtors' estimate of the value of
the Kaanapali Land Shares on the Effective Date. Because the market and
economic conditions upon which such values are based are beyond the control
of the Debtors, the actual value of the recovery necessarily will vary from
the estimate. Such variations may be material and adverse. As set forth in
the Projections, it is not contemplated that Kaanapali Land will make any
distributions to its shareholders through the end of the year 2005.
Lack of Trading Market
There can be no assurance regarding the future
development of a trading market for the Class A Shares in Kaanapali Land,
the ability of Holders thereof to sell their Class A Shares or the price
for which such Holders may be able to sell their Class A Shares. Kaanapali
Land is under no obligation to cause its shares to be listed on any
securities exchange or quoted for trading on any automated quotation
system. If a market were to develop, the trading prices of the Class A
Shares will depend on many factors, including factors beyond the
Reorganized Debtors' control. Unless Kaanapali Land issues additional
shares over time to third parties, the expected market capitalization and
public float of the Class A Shares may be too limited for an adequate
trading market to develop. Furthermore, the liquidity of, and trading
market for, the Class A Shares may be adversely affected by price declines
and volatility in the market for similar securities, as well as by any
changes in the Reorganized Debtors' financial condition or results of
operations.
C. Risks Relating to the Reorganized Debtors
Risks Related to Entitlement Process
AHI's developable lands are located on the west side of
the Island of Maui. The majority of the developable lands are located in
the Kaanapali resort area. There are an additional 235 acres in the
Lahaina, Maui area, known as Wainee Land, that may be developable. The
Kaanapali development lands have been the subject of a community-based
planning process that commenced in 1999 for the Kaanapali 2020 Development
Plan. The Kaanapali 2020 Development Plan includes a mix of resort
residential units and some commercial and recreational development sites,
as well as affordable housing. Any development plan for any of the Debtors'
land, including the Kaanapali 2020 Development Plan and the Wainee Land
development, will be subject to approval and regulation by various state
and county agencies and governing entities, especially insofar as the
nature and extent of zoning, improvements, building, transportation, water
management, environment and health are concerned. In Hawaii, governmental
entities have the right to impose limits or controls on growth in their
communities through restrictive zoning, density reduction, impact fees and
development requirements, which may materially affect utilization of the
land and the costs associated with developing the land. There can be no
assurance that Kaanapali Land will be successful in obtaining the necessary
zoning and related entitlements for development of the Maui lands.
70
At the state level, all land in Hawaii is divided into
four land use classifications: urban, rural, agricultural and conservation.
The majority of the Kaanapali 2020 Development Plan land is classified as
either agricultural or conservation. In addition, there are approximately
84 acres of oceanfront land that are classified as urban. The Wainee Land
is classified as agricultural. AHI believes that it will generally be able
to develop that portion of its land for which it can obtain classification
as an urban district from the State Land Use Commission. Conservation land
is that land which is necessary for preserving natural conditions and
cannot be developed. Agricultural and rural districts are not permitted to
have concentrated development. Pursuant to the Kaanapali 2020 Development
Plan, AHI intends to apply to the State Land Use Commission for
reclassification of a portion of the agricultural lands to urban, but does
not intend to apply for reclassification of the conservation lands.
Development of the Kaanapali 2020 lands in accordance
with the Development Plan will require, in addition to reclassification to
urban, appropriate designation under the County of Maui general, community
and/or development plans and the appropriate County zoning designation. The
oceanfront lands have State of Hawaii urban classification and County of
Maui hotel zoning. Oceanfront land in Hawaii is also subject to special
regulatory scrutiny, and, prior to development, Kaanapali Land or any
developer of the oceanfront lands will need to obtain a Special Management
Area permit from the County of Maui Planning Commission. Obtaining any and
all of these approvals can involve a substantial amount of time and
expense, and approvals may need to be resubmitted if there is any
subsequent, material deviation in current approved plans.
In connection with seeking approvals from regulatory
authorities of the Kaanapali 2020 Development Plan, AHI may be required to
make significant improvements in public facilities (such as roads), to
dedicate property for public use, to provide employee/affordable housing
units and to make other concessions, monetary or otherwise. The ability of
Kaanapali Land to perform its development activities may also be adversely
affected by restrictions that may be imposed by government agencies and the
surrounding communities because of inadequate public facilities, such as
roads, water management areas and sewer facilities, and by local opposition
to continued growth. However, as part of the Kaanapali 2020 Development
Plan, AHI has included a large number of community members and local
government officials in the development planning process. AHI hopes that
this process will result in substantial support from local government and
the community for the development plans.
Risks Related to Hawaiian Real Estate and Development Markets
The Kaanapali 2020 Development Plan and the development
of the Wainee Land are subject to the risks generally incident to the
ownership and development of real property. These include the possibility
that cash generated from sales will not be sufficient to meet Kaanapali
Land's continuing obligations. This could result from inadequate pricing or
pace of sales of properties or changes in costs of construction or
development; adverse changes in Hawaiian economic conditions, such as
increased costs of labor, marketing and production, restricted availability
of financing, and adverse changes in local economic conditions and adverse
changes in national and international economic conditions (including
adverse changes in exchange rates of foreign currencies for U.S. dollars)
or in international political situations such as additional terrorist
activity in the U.S. or abroad which lessen travel, tourism and investment
in Hawaii; the need for unanticipated improvements or unanticipated
71
expenditures in connection with environmental matters; changes in real
estate tax rates and other expenses; delays in obtaining permits or
approvals for construction or development and adverse changes in laws,
governmental rules and fiscal policies; acts of God, including earthquakes,
volcanic eruptions, floods and hurricanes; and other factors which are
beyond the control of Kaanapali Land. Real estate ownership and development
is subject to unexpected increases in costs.
Kaanapali Land intends, from time to time and to the
extent economically advantageous, to sell rezoned, undeveloped or partially
developed parcels of the Kaanapali 2020 Development Plan lands and/or the
Wainee Land and to develop the balance of the land for residential, resort,
affordable housing and some commercial and recreational purposes. Any
increase in interest rates or downturn in the international, national or
Hawaiian economy could affect Kaanapali Land's profitability and sales. The
downturn in the Asian economy, particularly the Japanese economy, has had a
profound effect on the Hawaiian real estate market. However, the Kaanapali
resort area has historically enjoyed a significant mainland tourist market,
which has resulted, beginning in the late 1990s, in a strong market for
resort housing in the area. The September 11 attacks did have a material
effect on tourism in the Kaanapali area immediately following the attacks,
but as travel increases in the U.S., it is expected that the mainland
tourism market in Kaanapali will recover.
The current regulatory approval process for a development
project can take three to five years or more and involves substantial
expense. There is no assurance that all necessary approvals and permits
will be obtained with respect to the current projects of the Debtors and
future projects of Kaanapali Land. Generally, entitlements are extremely
difficult to obtain in Hawaii. There is often significant opposition to
proposed developments from numerous groups including native Hawaiians,
environmental organizations, various community and civic groups,
condominium associations and politicians advocating no-growth policies,
among others.
Other factors that could affect Kaanapali Land's business
include the availability of construction materials and labor and changes in
the cost thereof (including transportation costs) and any delays caused by
resistance to development by environmentalists and Maui residents. The
success of Kaanapali Land will be affected by competition from other
projects of a similar nature on the island of Maui, and particularly on the
west side of Maui.
Kaanapali Land's real estate activities may be adversely
affected by possible changes in the tax laws, including changes which may
have an adverse effect on resort and residential real estate development.
High rates of inflation adversely affect real estate development generally
because of their impact on interest rates. High interest rates not only
increase the cost of borrowed funds to developers, but also have a
significant effect on the affordability of permanent mortgage financing to
prospective purchasers. High rates of inflation may permit Kaanapali Land
to increase the prices that it charges in connection with land sales,
subject to economic conditions in the real estate industry generally and
local market factors. There can be no assurance that Hawaiian real estate
values will rise, or that, if such values do rise, Kaanapali Land's
properties will benefit.
72
Risks Related to Hawaiian Golf Market
Kaanapali Land will indirectly own the Waikele Golf
Course on Oahu. The performance of golf courses in Hawaii depends heavily
on the strength of the tourism industry in Hawaii. Thus, Kaanapali Land
will be subject to the risks generally associated with operating
tourism-related businesses. These include adverse changes in national and
international economic conditions (including adverse changes in exchange
rates of foreign currencies for U.S. dollars) and in national and
international political situations which lessen travel, tourism and
investment in Hawaii. The performance of golf courses in Hawaii is also
affected by competition from comparable courses in the surrounding areas.
The Waikele Golf Course is not affiliated with an existing resort, but is
located in a high-density residential area. Until the late 1990s, the
Waikele Golf Course historically had a significant amount of Japanese
tourist play as well as a high level of Hawaii resident play from the
surrounding residential areas.
During the 1980s and into the mid-1990s, Japanese
visitors comprised as much as half of the total rounds played at certain
courses in Hawaii. With the downturn in the Asian economy, there has been a
significant drop in Japanese visitors and this has had a material effect on
Hawaiian golf course rounds. The mainland tourism market was very strong,
particularly on the neighboring islands, prior to the terrorist attacks of
September 11, but this had little direct impact on the Waikele Golf Course.
Since September 11, the Japanese visitor levels in Hawaii dropped
precipitously and golf course rounds have dropped as much as fifty percent
at some Hawaii golf courses.
Since the initial reduction in the Japanese visitor
levels in the mid-1990s, many courses have attempted to offset some of the
loss from the tourism market by attracting local Hawaiian resident play.
The Waikele Golf Course has been successful at increasing the Hawaii
resident rounds at the course. Typically, Hawaii residents receive a
significant discount on fees at most courses, known as "Kamaiina rates", so
that it is difficult to maintain the revenue levels achieved with a greater
number of tourist rounds than resident rounds. Additionally, a new golf
course opened recently, the Coral Creek Golf Course, which is within a few
miles of the Waikele Golf Course and competes heavily for the resident and
tourist rounds. While the Debtors are not aware of any new golf courses
planned, there can be no assurance that additional courses will not be
developed, which will compete with the Waikele Golf Course.
Risks Relating to Hawaiian, U.S. and World Economies Generally
Kaanapali Land's businesses will be subject to risks
generally confronting the Hawaiian, U.S. and world economies. All of
Kaanapali Land's tangible property will be located in Hawaii (with the
possible exception of the minority interest in the Seattle Olympic Hotel
discussed above in Section III.A.). As a result, Kaanapali Land's revenues
will be exposed to the risks of investment in Hawaii and to the economic
conditions prevalent in the Hawaiian real estate market. While the Hawaiian
real estate market is subject to economic cycles that impact tourism and
investment (particularly in the United States and Japan and other Pacific
Rim countries), it is also influenced by the level of economic development
in Hawaii generally and by external and internal political forces.
73
The attacks of September 11 on the World Trade Center and
the Pentagon have had an adverse impact on the U.S., world and Hawaiian
economies, which in turn have reduced discretionary income available for
travel or the purchase of retirement or vacation homes. These events also
negatively impacted the desire of people to travel, particularly by air;
the number of international visitors to the United States, particularly
from Japan upon which Hawaii relies most heavily, decreased as the United
States became perceived to be a higher risk destination. In addition, a
perception developed that because the United States was now at war, it no
longer sought leisure travelers from abroad. Though these attitudes have
abated somewhat in the past few months, there is no assurance that future
events will not occur that would further dampen the inflow of money to
Hawaii. Thus, it is clear that Hawaii is subject to higher risks than other
portions of the United States due to its disproportionate reliance on air
travel and tourism. The visitor industry is Hawaii's most important source
of economic activity, accounting for more than a quarter of Gross State
Product. The state is now in the midst of a sharp downturn in
tourism-related activities, which started even before the September 11
events but was made worse by them. Though the national economy has shown
signs of emerging from the current recession, it is not clear whether, or
when, the rebound will translate to a significant improvement in the
markets in which Kaanapali Land will participate.
Because of the foregoing considerations, the risks
associated with the large reliance of Hawaii on a visitor base from foreign
countries has exacerbated Hawaii's economic problems. The greatest loss of
visitor business to the state has been from the international market. The
international visitor count was down 44% in September from a year before
and down 50% in October. Japan, which comprises approximately 90 percent of
international passenger count, has been mired in a sharper recession and
longer decline than the U.S., dating back more than a decade. Japan is now
experiencing its second recession in three years. There can be no assurance
that the visitor count will return to pre-September 11 levels or that the
Japanese economy (or those of other countries supplying significant tourism
dollars to Hawaii) will recover sufficiently to return international
visitation to historical norms.
In Hawaii, real estate values generally have decreased
significantly from levels experienced during the late 1980s and early
1990s, in large part because of the considerations expressed above. This is
particularly true for land that is not entitled for commercial, resort or
residential development. Though it is expected that Kaanapali Land's
efforts to obtain necessary entitlements will add value to its assets,
there can be no assurance that the general level of Hawaiian real estate
values will rise, or that if such values do rise, Kaanapali Land's
properties will benefit sufficiently to achieve significant returns on its
current asset values. There is also no assurance that market factors will
not cause further declines in such valuations.
Environmental Risks and Environmental Regulation
Under various federal, state and local laws, ordinances
and regulations, a current or previous owner, developer or operator of real
estate may be liable for the costs of removal or remediation of certain
hazardous toxic substances at, on, under or in its property. The costs of
such removal or remediation of such substances could be substantial. Such
laws often impose such liability without regard to whether the owner or
operator knew of, or was responsible for, the release or presence of such
hazardous or toxic substances. The presence of such substances may
adversely affect the owner's ability to sell or rent such real estate or to
borrow using such real estate as collateral. Persons who arrange for the
disposal or treatment of hazardous or toxic substances also may be liable
for the costs of removal or remediation of such substances at the disposal
or treatment facility, whether or not such facility is owned or operated by
such person. Certain environmental laws impose liability for the release of
asbestos-containing material into the air, pursuant to which third parties
may seek recovery from owners or operators of real properties for personal
injuries associated with such materials, and prescribe specific methods for
the removal and disposal of such materials.
74
The AHI Debtors are currently engaged in, or are on
notice of, a number of environmental matters.
There is an ongoing cleanup arising out of the discovery
of diesel found in the soil and groundwater at the Pioneer Mill Site.
Pioneer Mill reported the release to the Hawaii Department of Health
("HDOH"). Pioneer Mill is in the process of excavating the
petroleum-contaminated soil from the site. The extent, if any, of
groundwater contamination is not known at this time. Also, with respect to
Pioneer Mill, on April 4, 2001, the HDOH wrote a letter to Pioneer Mill
requesting information relating to possible soil and/or water contamination
at the mill and a response to the letter was provided. This letter suggests
that the HDOH or some other governmental agencies may show an interest in
the environmental conditions relating to or arising out of the former
operations of Pioneer Mill. Finally, although most of the asbestos has been
removed from the mill and equipment, there are some asbestos containing
materials remaining that may impose remediation costs on the Debtors, at
such time as the equipment is sold or the materials are disturbed if the
mill is demolished or redeveloped.
With respect to operations arising out of or in
connection with Lihue Plantation, two releases of diesel oil occurred at
the unloading transfer pump station at the Lihue Plantation mill. In both
cases, emergency response measures were initiated. A work plan has been
filed with the HDOH and recovery and monitoring wells have been installed
at the site. On February 23, 2001, the HDOH issued a high priority site
letter to the Lihue Plantation. The letter listed a number of areas of
potential environmental concern and a response was provided. This letter
may indicate that the HDOH or some other governmental agencies may be
interested in future cleanups at the property. The Lihue mill and the
remaining equipment thereon contain asbestos-containing materials and the
HDOH may impose remediation costs on the Debtors, at such time as the
equipment is sold or the materials are disturbed if the mill is demolished
or redeveloped. Visionary LLC, a private party, has indicated that it may
require additional cleanup of an herbicide mixing plant located on land it
purchased from Lihue Plantation. Finally, the State of Hawaii, Department
of Hawaiian Home Lands has demanded that Lihue Plantation perform
significant cleanup of land leased on Kauai known as Anahola.
The Non-Debtor Subsidiaries are engaged in, or are on
notice of, a number of environmental issues, as described below.
As a result of an administrative order issued to Oahu
Sugar by the HDOH, 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 Waipio Peninsula. Sampling and
investigation is underway.
On or about January 27, 1998, Oahu Sugar received an
administrative order for response action from the State of Hawaii,
Department of Health, CH 98-002, requiring Oahu Sugar to do a site
assessment and engage in an appropriate response action at a site in Ewa,
Hawaii. The matter is dormant for now.
75
Oahu Sugar has received a notice of potential
responsibility from the Bank of Hawaii in connection with the alleged
contamination of certain lots in the Aiea industrial area that await
conveyance to the City of Honolulu for use as a community center. The bank
apparently acquired this land in a foreclosure and allegedly has discovered
some lead and petroleum contamination. Based on a preliminary review of the
facts, it appears that Oahu Sugar may have owned a sugar mill on the site
for a short period of time, perhaps less than four months in 1947. In any
event, Oahu Sugar is in the preliminary stages of its investigation.
On February 23, 2001, the State of Hawaii, Department of
Health, issued a high priority site letter to Kekaha Sugar Company, Limited
("KSCo"). The letter listed a number of areas of potential environmental
concern. A response was provided. This letter may indicate that the
Department of Health or some other governmental agencies may be interested
in future cleanups at the property. The KSCo mill and the remaining
equipment thereon contain asbestos-containing materials that may impose
remediation costs on KSCo and potentially on one of the Debtors, The Lihue
Plantation Company, Limited, at such time as the equipment is sold or the
materials are disturbed if the mill is demolished or redeveloped. On May
10, 2001, KSCo notified the HDOH of a release of used oil from an
above-ground storage tank at the former Kekaha Sugar mill. Additional
response activities may be required.
APDC has discovered chlorinated solvents in the
groundwater at the former Oahu Sugar Waipahu Mill site. The contamination
does not appear in high concentrations. APDC is unable to identify with
certainty the treatment options, if any, that the state authorities may
require or approve for the site, or the costs of same.
Amfac Land Company Limited, which is a Debtor, has
received a notice of some alleged environmental issues relating to algae
growth and the alleged improper abandonment of a wastewater treatment plant
owned by Amfac Property Investment Corp., a non-Debtor, in Lahaina, Maui.
See the Form 10-K of the Company attached hereto as
Exhibit B for a further discussion of material litigation and other claims
related to environmental issues impacting AHI and its subsidiaries,
including those that are Non-Debtor Subsidiaries.
Neither the AHI Debtors nor the Non-Debtor Subsidiaries
can give assurances that they are aware of all potential environmental
liabilities that may exist relating to their properties. To the extent that
the AHI Debtors are able to predict the financial impact of its
environmental issues during the period for which projections are provided
hereunder, they have taken such impact into account in such projections.
However, because such predictions are subject to numerous risks and
contingencies, there can be no assurance that the amounts so used (nor the
timing thereof) are accurate, nor that the actual amounts when known will
not be materially different.
Risks Related to Northbrook Business Operations and Taxes Arising
from Audit Adjustments
Following the consummation of the Plan and the Mergers,
Kaanapali Land will succeed to the liabilities of Northbrook as well as
liabilities of FHTC which are left unimpaired by the Plan. Northbrook and
FHTC have conducted various other businesses in the past and, while
management of the Reorganized Debtors does not believe that these
liabilities would have a material adverse effect on the Reorganized
Debtors, there can be no guarantees that there will be no such effect.
76
In addition, Northbrook, FHTC, the Debtor and Non-Debtor
Subsidiaries and other subsidiaries of Northbrook (the "Northbrook Group")
have filed consolidated federal income tax returns. As such, each member of
the Northbrook Group is severally liable for the federal income tax
liabilities of all of the members of the Northbrook Group. The Plan leaves
the rights and Claims of taxing authorities in respect of the Debtors
unaffected and unimpaired. Accordingly, the Reorganized Debtors may be
liable for taxes owing by reason of adjustments to taxes of current or
former members of the Northbrook Group which may be successfully asserted
upon future audit by the Internal Revenue Service ("IRS") or other taxing
authorities. The IRS has previously proposed substantial adjustments to the
federal income taxes of the Northbrook Group upon audit of various tax
years prior to 1998. All such audits have been settled for amounts which
were not material to Northbrook. While management of the Reorganized
Debtors believes that the tax returns of Northbrook and its subsidiaries
are correct as filed, there can be no assurance that IRS audits for 1998
and subsequent years or audits by other taxing authorities, which have not
yet been completed, will not result in additional tax liability which,
prior audit settlements notwithstanding, could be substantial.
In addition, a subsidiary of Northbrook is a defendant in
approximately 75 lawsuits alleging damages based on exposure to asbestos,
allegedly based on such subsidiary's prior business operations. Other
asbestos Claims have been settled by such subsidiary in the past from
insurance or with loans from Northbrook. Certain insurance was provided to
such subsidiary by an affiliate of Northbrook formerly engaged in insurance
and reinsurance. The policy was commuted in 2002, in return for a lump sum
payment from such affiliate. The subsidiary has other insurance above its
self-insured retention limits, but its availability to pay existing or
future Claims is uncertain. Accordingly, there can be no certainty that
such subsidiary will be able to satisfy all of its liabilities. Northbrook
does not believe that it has liability, directly or indirectly, for such
subsidiary's obligations.
Although Kaanapali Land has reserves for tax and other
potential liabilities, reflected in the Projected Balance Sheet attached
hereto as Exhibit C, which management of the Reorganized Debtors believe to
be adequate, it is possible that the Reorganized Debtors could incur tax or
other liabilities which could materially exceed these reserve amounts or
which could have a material adverse effect on Kaanapali Land.
Inability to Utilize Pension Plan Assets; Taxes Relative to
Distribution of Plan Assets
Northbrook maintains the Pension Plan for Bargaining Unit
Employees of Amfac Plantations (the "Pension Plan") which currently has
assets in excess of projected benefit obligations of approximately $37
million as reflected on its December 31, 2001 balance sheet attached as
Exhibit F. The Northbrook Merger will enable Kaanapali Land to seek to use
the excess assets of the Pension Plan to provide liquidity to complete its
land development business plan. However, in order for the excess assets to
be available for use, Kaanapali Land must terminate the Pension Plan. Upon
Pension Plan termination, all participants must be fully vested in their
accrued benefits under the Pension Plan, and annuity contracts must be
purchased to provide for the required payment of benefits to participants
and beneficiaries. Because the cost of currently purchasing annuity
77
contracts for fully vested benefits on Pension Plan termination may likely
be greater than the cost of benefits as calculated for the Pension Plan on
an ongoing basis, the excess assets actually available upon Pension Plan
termination may be less than the amount reflected above. In addition, if
the excess assets are distributed to Kaanapali Land, Kaanapali Land must
pay an excise tax of up to 50% of the amount it receives as well as income
tax on the amount of gain recognized by Kaanapali Land on such
distribution.
Lack of Cash Flow from Primary Business
The ability to generate any return on an investment in
Kaanapali Land will depend on Kaanapali Land being able to execute its
business plan. As disclosed in the Projections, the successful execution of
this business plan will require the sale of certain assets to be held by
Kaanapali Land. Without such asset sales, there can be no assurance that
AHI will be able to make any distributions on its membership interests and,
even if it is able to sell such assets, because of the various risks
described in this Disclosure Statement, there can be no assurance of the
price at which the assets may be sold or whether such sales would be
sufficient to generate a return to members.
Tax Risks of the Plan to the Reorganized Debtors
The tax consequences of the Plan to the Reorganized
Debtors are not certain, and could result in material tax liabilities to
the Reorganized Debtors. (See discussion under the heading "Certain Federal
Income Tax Consequences to the Reorganized Debtors" in Section XII.B.
below.)
Competition
Competition is intense in the real estate development
business generally and in Hawaii in particular. Competition in land
development is based primarily on location, land use, designation,
availability of capital, timing of development and price. In addition, a
substantial number of real estate investment partnerships and other
entities are presently managed or advised by or through affiliates which
may be in competition under some circumstances with Kaanapali Land for real
property investments. Affiliates also invest in real estate for their own
accounts. Other than in connection with Kaanapali Land, JMB Realty
Corporation and its affiliates do not currently have any interest in real
estate in Hawaii. However, JMB Realty Corporation and its affiliates are
not restricted from acquiring, owning or developing real property in
Hawaii, either for their own accounts, jointly with others through
partnerships or other investment vehicles or for third parties. There is no
obligation that affiliates present to Kaanapali Land any particular
investment or development opportunity that comes to its or their attention.
Affiliates may acquire and develop properties located nearby or adjacent to
Kaanapali Land properties.
Significant Influence of Principal Member
Upon exiting from bankruptcy proceedings, Pacific
Holdings and its affiliates will own not less than 85% of the outstanding
membership interests in Kaanapali Land (before taking into account any
shares received by holders of Allowed General Unsecured Claims), and more
if a significant percentage of COLA Holders elect the cash option under the
Plan. In addition, Pacific Holdings will manage Kaanapali Land. Through its
ownership position, it is expected that Pacific Holdings and its affiliates
will control all matters that will be submitted to a vote of the members.
78
The Rights of Holders of Indebtedness of the Debtors Will Differ
as Holders of Membership Interests in Kaanapali Land
Delaware law applicable to limited liability companies
and the operating agreement will govern the rights of members of Kaanapali
Land. These rights will be significantly different from the rights of a
Holder of outstanding indebtedness of the Debtors. As an equity Holder in
Kaanapali Land, the interests of the prior Holders of indebtedness will be
subordinate to all debt of Kaanapali Land.
D. Special Note Regarding Forward-Looking Statements
This Disclosure Statement contains forward-looking
statements, including statements concerning possible or assumed future
results of operations of the Debtors. The words may, will, should, could,
expects, plans, anticipates, believes, estimates, predicts, potential, or
continue or the negative of such terms and other comparable terminology
identify these forward-looking statements. These forward-looking statements
are subject to a number of risks, uncertainties and assumptions, including
those described above under the caption "Risk Factors To Be Considered."
You should understand that the factors described below, in addition to
those discussed elsewhere in this Disclosure Statement, could affect the
reorganized Debtors' future results and could cause those results to differ
materially from those expressed in such forward-looking statements. These
factors include, 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.
NO PROJECTIONS OR OTHER FORWARD-LOOKING ANALYSES
CONTAINED HEREIN WERE PREPARED WITH A VIEW TO COMPLYING WITH THE GUIDELINES
FOR PROSPECTIVE FINANCIAL STATEMENTS PUBLISHED BY THE AMERICAN INSTITUTE OF
CERTIFIED PUBLIC ACCOUNTANTS. THE DEBTORS' INDEPENDENT ACCOUNTANTS HAVE
NEITHER COMPILED NOR EXAMINED THE ACCOMPANYING PROSPECTIVE FINANCIAL
INFORMATION TO DETERMINE THE REASONABLENESS THEREOF AND, ACCORDINGLY, HAVE
NOT EXPRESSED AN OPINION OR ANY OTHER FORM OF ASSURANCE WITH RESPECT
THERETO. FOR ADDITIONAL INFORMATION ABOUT THE DEBTORS AND THEIR OPERATING
AND FINANCIAL CONDITIONS, PLEASE SEE THE AHI DEBTORS' ANNUAL REPORT ON FORM
10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001 FILED WITH THE SEC AND
ATTACHED TO THIS DISCLOSURE STATEMENT AS EXHIBIT B.
79
XI. CERTAIN OTHER LEGAL CONSIDERATIONS
A. Section 1145 of the Bankruptcy Code
The Reorganized Debtors intend to rely on section 1145(a)
of the Bankruptcy Code to exempt from registration under the Securities Act
of 1933, as amended (the "Securities Act"), and any applicable state
securities laws, the issuance of any Kaanapali Land Shares pursuant to the
Plan to Holders of Claims and Interests in exchange for their Claims or
Interests. Generally, section 1145(a)(1) of the Bankruptcy Code exempts the
offer and sale of securities from the registration requirements of the
Securities Act if the following conditions are satisfied: (i) the
securities are issued by a debtor (or its affiliate or successor) under a
plan of reorganization; (ii) the recipients of the securities hold a claim
against, and interest in, or a claim for administrative expense or interest
in the debtor; and (iii) the securities are issued entirely in exchange for
the recipient's claim against or interest in the debtor, or principally in
such an exchange for cash or property. The Debtors believe that, as the
issuers of the security and debtors under the Plan, they are entitled to
the exemption from registration under section 1145(a) of the Bankruptcy
Code.
The Kaanapali Land Shares, subject to the exemption from
registration under Bankruptcy Code section 1145(a) may be resold by the
Holders thereof without restriction, except for any such Holder that is
deemed to be an "underwriter" as defined in section 1145(b) of the
Bankruptcy Code. An "underwriter" is defined as any person who (i)
purchases a Claim against, or an interest in, a debtor with a view toward
distribution of any security issued pursuant to a plan of reorganization
for the Holders of such securities, (ii) offers to sell securities issued
pursuant to a plan of reorganization for the Holders of such securities,
(iii) offers to buy securities, if the offer to buy is made with a view
toward distribution of such securities or (iv) is an issuer within the
meaning of section 2(11) of the Securities Act. Section 2(11) of the
Securities Act provides that the term "issuer" includes all persons who,
directly or indirectly, through one or more intermediaries, control, are
controlled by or are under common control with an issuer of securities.
Under Rule 405 of Regulation C under the Securities Act, the term "control"
means the possession, direct or indirect, of the power to direct or cause
the direction of the policies of a person, whether through the ownership of
voting securities, by contract or otherwise. Moreover, the legislative
history of section 1145 of the Bankruptcy Code suggests that a creditor who
owns at least 10% of the voting securities of a reorganized debtor may be
presumed to be a control person.
B. Registration and Rule 144
Holders of securities who are deemed to be "underwriters"
within the meaning of section 1145(b)(1) of the Bankruptcy Code or who may
otherwise be deemed to be "affiliates" of, or to exercise "control" over,
the Debtors within the meaning of Rule 405 of Regulation C under the
Securities Act may, under certain circumstances, be able to sell their
securities pursuant to the more limited safe harbor resale provisions of
Rule 144 under the Securities Act. Generally, Rule 144 provides that, if
certain conditions are met (e.g., one-year holding period with respect to
"restricted securities," volume limitations, manner of sale, availability
of current information about the issuer, etc.), (a) any person who resells
"restricted securities" and (b) any "affiliate" of the issuer of the
80
securities sought to be resold will not be deemed to be an "underwriter" as
defined in section 2(11) of the Securities Act. Under paragraph (k) of Rule
144, the aforementioned conditions to resale will no longer apply to
restricted securities sold for the account of a Holder who is not an
affiliate of the Debtors at the time of such resale and who has not been
such during the three-month period next preceding such resale, so long as a
period of at least two years has elapsed since the later of (i) the
Effective Date and (ii) the date on which such Holder acquired his or its
securities from an affiliate of the Debtors.
XII. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
A. General
THE FOLLOWING DISCUSSION SUMMARIZES CERTAIN ANTICIPATED
U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE TRANSACTIONS PROPOSED IN THE
PLAN FOR HOLDERS OF CLASS 4 COLA NOTE CLAIMS, HOLDERS OF CLASS 5 GENERAL
UNSECURED CLAIMS, AND TO THE REORGANIZED DEBTORS. THE SUMMARY IS PROVIDED
FOR INFORMATIONAL PURPOSES ONLY AND IS BASED ON THE INTERNAL REVENUE CODE
OF 1986, AS AMENDED (THE "IRC"), THE TREASURY REGULATIONS PROMULGATED
THEREUNDER, JUDICIAL AUTHORITY, AND CURRENT ADMINISTRATIVE RULINGS AND
PRACTICE, ALL AS IN EFFECT AS OF THE DATE HEREOF AND ALL OF WHICH ARE
SUBJECT TO CHANGE, POSSIBLY WITH RETROACTIVE EFFECTS THAT COULD ADVERSELY
AFFECT THE FEDERAL INCOME TAX CONSEQUENCES DESCRIBED BELOW.
THE SUMMARY DOES NOT ADDRESS ALL ASPECTS OF FEDERAL
INCOME TAXATION THAT MAY BE RELEVANT TO A PARTICULAR HOLDER OF A CLAIM IN
LIGHT OF ITS PARTICULAR FACTS AND CIRCUMSTANCES. THE SUMMARY DOES NOT
ADDRESS ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO CERTAIN
TYPES OF HOLDERS OF CLAIMS SUBJECT TO SPECIAL TREATMENT UNDER THE IRC (FOR
EXAMPLE, NON-U.S. TAXPAYERS, FINANCIAL INSTITUTIONS, BROKER-DEALERS, LIFE
INSURANCE COMPANIES, AND TAX-EXEMPT ORGANIZATIONS). THE SUMMARY ASSUMES
THAT HOLDERS OF COLA NOTE CLAIMS HOLD THEIR COLA NOTES AS "CAPITAL ASSETS"
WITHIN THE MEANING OF SECTION 1221 OF THE IRC. THE SUMMARY DOES NOT DISCUSS
ANY ASPECTS OF STATE, LOCAL, OR FOREIGN TAX CONSEQUENCES.
EVENTS SUBSEQUENT TO THE DATE OF THIS DISCLOSURE
STATEMENT, SUCH AS ADDITIONAL TAX LEGISLATION, COURT DECISIONS OR
ADMINISTRATIVE CHANGES, COULD AFFECT THE FEDERAL INCOME TAX CONSEQUENCES OF
THE PLAN AND THE TRANSACTIONS CONTEMPLATED THEREUNDER.
NO RULING WILL BE SOUGHT FROM THE IRS WITH RESPECT TO ANY
OF THE TAX ASPECTS OF THE PLAN AND NO OPINION OF COUNSEL HAS BEEN OBTAINED
BY THE DEBTORS WITH RESPECT THERETO. ACCORDINGLY, EACH HOLDER OF A CLAIM OR
INTEREST IS STRONGLY URGED TO CONSULT WITH ITS OWN TAX ADVISOR REGARDING
THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE PLAN.
81
B. Certain U.S. Federal Income Tax Consequences to the Reorganized Debtors
No judicial or administrative authority addresses certain
features of the Plan. For this reason, the tax consequences of the Plan to
the Reorganized Debtors are uncertain. The IRS could conclude that the tax
consequences to the Reorganized Debtors differ from the consequences
described below, in which event the Reorganized Debtors could have material
tax liabilities.
Merger of Northbrook into FHTC; Merger of FHTC into Kaanapali Land
The Northbrook Merger and the Kaanapali Land Merger are
each expected to qualify as a tax-free reorganization. Accordingly, none of
Northbrook, FHTC or Kaanapali Land should recognize gain or loss upon the
Northbrook Merger or the Kaanapali Land Merger.
Cancellation of Debt on Exchange of Claims for Kaanapali Land
Stock or Cash
The Plan provides for the exchange of Northbrook Senior
Claims, COLA Holder Claims, AFI Claims and Class 5 General Unsecured Claims
for stock of Kaanapali Land (or in the case of COLA Holder Claims or Class
5 General Unsecured Claims, cash to the extent a cash payment may be
elected by the Holder). As a result of these exchanges, the Debtors'
aggregate outstanding indebtedness will be substantially reduced. In
general, absent an exception, a debtor will realize and recognize
cancellation of indebtedness income ("COD Income") upon satisfaction of its
outstanding indebtedness for an amount less than its adjusted issue price.
The amount of COD Income, in general, is the excess of (i) the adjusted
issue price of the indebtedness satisfied over (ii) the amount of cash paid
plus the fair market value of any other consideration (including stock of
the debtor) given in satisfaction of the indebtedness at the time of the
exchange. The Debtors expect the amount of COD Income resulting from the
Plan to exceed $300 million, as determined for federal income tax purposes.
A debtor will not, however, be required to include COD
Income in gross income if the debtor is under the jurisdiction of a court
in a Title 11 bankruptcy proceeding and the discharge of the debt occurs
pursuant to that proceeding. Because each of AHI and FHTC will be party to
a Title 11 bankruptcy proceeding at the time of the discharge and the
discharge will occur pursuant to that proceeding, this exception should
apply. This conclusion assumes in the alternative (i) that Northbrook may
be viewed, when applying the bankruptcy exception, as being under the
jurisdiction of the bankruptcy court (because AHI, for federal income tax
purposes, is disregarded and treated as a division of Northbrook), (ii)
that AHI would be regarded as the taxpayer for purposes of applying the
bankruptcy exception, or (iii) that the discharge of debt occurs after the
Northbrook Merger (as the Plan provides). The Reorganized Debtors do not
believe that the IRS would challenge these assumptions and contend that the
bankruptcy exception does not apply, and that in any event one or more of
the assumptions should withstand any challenge. However, in the absence of
authority there can be no assurance in this regard. In the event it were
determined that the bankruptcy exception did not apply, the Reorganized
Debtors would incur a substantial tax liability (although COD Income
inclusion would be limited by a separate IRC exception).
82
A debtor in a chapter 11 case that is not required to
include the amount of COD Income in gross income must instead (as of the
first day of the next taxable year) reduce its tax attributes by the amount
of excluded COD Income. In general, tax attributes will be reduced in the
following order: (i) net operating losses for the year of the discharge and
any net operating loss carryforwards, (ii) tax credit carryforwards, (iii)
net capital loss for the year of the discharge and any capital loss
carryforwards, and (iv) tax basis in assets (within limitations). The
Debtors expect that, following the implementation of the Plan and after
giving effect to other transactions expected to occur during the current
taxable year, no significant amount of net operating loss or tax credit
carryforwards will be available to Kaanapali Land for use in future taxable
years.
The AFI Distribution
The Reorganized Debtors could be required to recognize
gain on the AFI Distribution. Under proposed Treasury Regulations, the gain
recognized would equal the amount, if any, by which the fair market value
of the Kaanapali Land Shares distributed to Kaanapali Land exceeded the tax
basis of Kaanapali Land in its partnership interest in AFLP at the time of
the distribution. Based on the estimated value of the Kaanapali Land
Shares, determined as described in Section III.F. above, management of the
Reorganized Debtors believes that, if the proposed regulations were
applicable, Kaanapali Land's basis in its AFLP partnership interest would
exceed the value of the Kaanapali Land stock distributed and no taxable
gain would be recognized. However, it is possible that the IRS would
ascribe a higher value to the distribution to Kaanapali Land. Accordingly,
there can be no assurance that the AFI Distribution will not result in a
taxable gain to Kaanapali Land.
C. Federal Income Tax Consequences to Holders of Claims
Tax Consequences of an Exchange of a COLA Note for COLA Shares
or COLA Shares plus Cash
The federal income tax consequences to a Holder who
exchanges a COLA Note for COLA Shares (including an exchange of a COLA Note
for COLA Shares plus cash) will depend upon whether the exchange qualifies
as a "reorganization" under section 368 of the IRC. Whether the foregoing
exchanges will qualify as a reorganization will depend in part on whether
COLA Notes are treated as "securities" within the meaning of the IRC
provisions governing reorganization transactions. Whether a debt instrument
constitutes a "security" is determined based upon all the facts and
circumstances including the terms of the debt instrument, the security for
payment, the creditworthiness of the obligor, the subordination or lack
thereof to other creditors, the right to vote or otherwise participate in
the management of the obligor, convertibility of the instrument into an
equity interest of the obligor, whether payments are fixed, variable or
contingent, and whether such payments are made on a current basis or
accrued. Although no one factor is determinative, most authorities have
held that the length of the term of a debt instrument is an important
factor in determining whether such instrument is a security for federal
income tax purposes. Such authorities have indicated that a term of less
than five years is evidence that the instrument is not a security whereas a
term of ten years or more is evidence that the instrument is a security.
83
The COLA Notes have an original maturity of approximately
18 years. Based upon the original maturity and other relevant factors, the
COLA Notes should be treated as securities for purposes of the
reorganization provisions of the IRC. Accordingly, an exchange of a COLA
Note for COLA Shares (or COLA Shares plus cash) should qualify as a
"reorganization" under section 368 of the IRC. The following discussion
assumes qualification of the exchange as a reorganization.
A Holder of a COLA Note who exchanges a COLA Note solely
for COLA Shares should not recognize any loss or gain on the exchange
except that a Holder of a COLA Note should recognize ordinary income to the
extent that COLA Shares received in the exchange are treated as received in
satisfaction of accrued Mandatory Base Interest that was not previously
included in the gross income of the Holder at the time of the exchange.
(See "Accrued Mandatory Base Interest" below.) Certain Holders who exchange
COLA Notes solely for COLA Shares may be affected by the market discount
provisions of the Code. (See "Accrued Market Discount" below.)
A Holder who exchanges a COLA Note solely for COLA Shares
should obtain a tax basis in those COLA Shares equal to the tax basis of
the COLA Note surrendered and the holding period for those COLA Shares
should include the holding period of the COLA Note surrendered; provided
that the tax basis of any COLA Shares treated as received in satisfaction
of accrued Mandatory Base Interest (regardless of whether the interest was
included in the gross income of the Holder at the time of the exchange)
should equal the amount of the accrued interest and the holding period for
the COLA Shares should not include the holding period of the COLA Note.
A Holder who exchanges a COLA Note for COLA Shares plus
cash should not recognize any loss and should recognize capital gain
(subject to the "market discount" rules described below) to the extent of
the lesser of (i) the amount of any gain realized on the exchange, and (ii)
the amount of the cash received in the exchange. Based on the estimated
value of the COLA Shares discussed above, Holders should note that it is
unlikely that a gain would be realized unless the Holder's tax basis in the
COLA Note is less than approximately 6 to 8% of the principal amount of the
COLA Note. Gain realized on the exchange will equal the excess (if any) of
(i) the fair market value (as of the Effective Date) of COLA Shares plus
the cash received for a COLA Note (except to the extent that any amount is
allocable to accrued Mandatory Base Interest (regardless of whether the
interest was included in the gross income of the Holder at the time of the
exchange) over (ii) the Holder's tax basis in the COLA Note. Any gain
should (subject to the "market discount" rules described below) be
long-term capital gain if the COLA Note was held for a period of more than
one year and short-term capital gain if held for a period of one year or
less. A Holder of a COLA Note should also recognize ordinary income to the
extent that COLA Shares and/or cash received in the exchange is treated as
received in satisfaction of Mandatory Base Interest and such interest was
not previously included in the gross income of the Holder at the time of
the exchange. (See "Accrued Mandatory Base Interest" below.) As indicated
above, certain Holders who exchange a COLA Note for COLA Shares plus cash
may be affected by the market discount provisions of the IRC. (See "Accrued
Market Discount" below.)
84
A Holder who exchanges a COLA Note for COLA Shares plus
cash should obtain a tax basis in those COLA Shares equal to the tax basis
of the COLA Note surrendered (increased by any gain recognized as
determined above and decreased by the amount of cash received) and the
holding period for COLA Shares should include the holding period of the
COLA Note surrendered; provided that the tax basis of any COLA Shares
treated as received in satisfaction of accrued Mandatory Base Interest
(regardless of whether the interest was included in the gross income of the
Holder at the time of the exchange) should equal the amount of the accrued
Mandatory Base Interest and the holding period for the COLA Shares should
not include the holding period of the COLA Note.
Holders of COLA Notes should generally recognize loss or
gain on a pre-Effective Date disposition of a COLA Note, or on a
post-Effective Date disposition of any COLA Shares received in exchange for
a COLA Note (including COLA Shares received in addition to cash in the
event of a proration). See Section VIII.H. of this Disclosure Statement
"Kaanapali Land Company Agreement: Transferability of Shares of Kaanapali
Land". Losses would be subject to the IRC's wash sale rules. Also, the IRC
limits the deduction of capital losses.
Tax Consequences of an Exchange of a COLA Note Solely for Cash
The exchange of a COLA Note solely for cash should be
treated as a taxable exchange under Section 1001 of the IRC. In this case,
a Holder of a COLA Note should recognize capital gain (subject to the
"market discount" rules described below) or capital loss equal to the
difference between (i) the amount of cash received in the exchange (except
to the extent that the cash is allocable to accrued Mandatory Base Interest
(regardless of whether the interest was included in the gross income of the
Holder at the time of the exchange), and (ii) the Holder's tax basis in the
COLA Note surrendered. The gain (subject to the "market discount" rules
described below) or loss should be long-term capital gain or loss if the
COLA Note was held for a period of more than one year and short-term
capital gain or loss if held for a period of one year or less. A Holder who
exchanges a COLA Note solely for cash should also recognize ordinary income
to the extent that cash is received in satisfaction of accrued Mandatory
Base Interest and such interest was not already included in the gross
income of the Holder at the time of the exchange. (See "Accrued Mandatory
Base Interest" below.)
Accrued Mandatory Base Interest
To the extent that COLA Shares and/or cash received in an
exchange of a COLA Note is treated as received in satisfaction of accrued
Mandatory Base Interest, a Holder of the COLA Note should recognize
ordinary interest income equal to the fair market value (as of the
Effective Date) of the COLA Shares and/or the amount of cash received, but
only to the extent that the accrued interest was not already included in
the gross income of the Holder at the time of the exchange. Holders of a
COLA Note who previously included accrued unpaid Mandatory Base Interest in
their gross income may be able to recognize a deductible loss to the extent
the interest is not satisfied under the Plan.
The extent to which COLA Shares and/or cash received in
the exchange is properly attributable to accrued Mandatory Base Interest is
unclear under existing authority. The Debtors intend to apply the COLA
Shares and/or cash received by Holders of COLA Notes first to accrued and
85
unpaid Mandatory Base Interest on COLA Notes and then to COLA Note
principal. Under this allocation, approximately one-third of the COLA
Shares and cash distributed to Holders of COLA Notes will be treated as
payment of Mandatory Base Interest. In its information filing to the
Holders of COLA Notes and the IRS, the Debtors intend to report Mandatory
Base Interest income consistent with the above allocation.
Accrued Market Discount
Certain Holders of COLA Notes may be affected by the
"market discount" provisions of IRC sections 1276 through 1278. Under these
rules, some or all of the gain realized by a Holder may be treated as
ordinary income instead of capital gain, to the extent of the amount of
market discount on the COLA Note.
In general, in the case of a note issued without original
issue discount, market discount generally equals the excess of the stated
redemption price of the note over the basis of the instrument in the hands
of the Holder immediately after its acquisition by the holder. Market
discount will accrue on a straight-line basis, unless the holder of the
note elects to accrue such discount on a constant yield-to-maturity basis.
Unless the holder of the note elects to include market discount in income
currently as it accrues, accrued market discount will not be included in
income until maturity of the note (or in certain circumstances, its earlier
disposition).
If a COLA Note was acquired with market discount, any
gain recognized by a Holder (determined as described above) should be
treated as ordinary income to the extent of the market discount that
accrued thereon (unless the Holder previously elected to include market
discount in income as it accrued) while the COLA Note was owned by the
Holder. In the case of a Holder who exchanges a COLA Note for COLA Shares
(or COLA Shares plus cash), any remaining accrued market discount (that was
not recognized previously or, if cash was received, on the exchange) should
carry over to the COLA Shares received for the note and any gain recognized
on the subsequent sale, exchange, redemption or other disposition of the
COLA Shares should be treated as ordinary income to the extent of the
accrued market discount. Although the Debtors believe the foregoing
treatment is likely, there is no exact precedent governing the carryover of
market discount under the Plan. A Holder of a COLA Note with market
discount should consult its tax advisor concerning the effect of the market
discount provisions.
D. Federal Income Tax Consequences to Holders of Class 5
General Unsecured Claims
In general, a Holder of a Class 5 General Unsecured Claim
should recognize taxable gain or loss for federal income tax purposes to
the extent that a Class 5 General Unsecured Claim is surrendered in
exchange for cash and/or Kaanapali Land Shares. The amount of taxable gain
or loss would be based on the difference between the Holder's tax basis in
the obligation from which the Class 5 General Unsecured Claim arose and the
fair market value (as of the Effective Date) of any Kaanapali Land Shares
plus any cash received by the Holder.
86
The federal income tax treatment of any gain or loss
recognized by a Holder of a Class 5 General Unsecured Claim (as long-term
or short-term capital gain or loss or as ordinary income or loss) will
depend upon a number of factors, including (a) the U.S. tax status of the
Holder, (b) the Holder's method of accounting, (c) whether the obligation
from which the Class 5 General Unsecured Claim arose constitutes a capital
asset of the Holder, and if so, whether it has been held for more than one
year, (d) whether the obligation from which the Class 5 General Unsecured
Claim arose was purchased at a discount, and (e) whether and to what extent
the Holder has previously claimed a bad debt deduction in respect of the
obligation. In addition, the Holder's tax treatment may be affected if the
Holder receives distributions with respect to the Class 5 General Unsecured
Claim in more than one taxable year of the Holder. Holders of Class 5
General Unsecured Claims should consult with their own tax advisors to
determine the tax consequences of the distributions to them in light of
their own specific circumstances.
A Holder who receives Kaanapali Land Shares in exchange
for a Class 5 General Unsecured Claim should obtain a tax basis in that
stock equal to the fair market value of the Kaanapali Land Shares as of the
Effective Date, and the holding period for the Kaanapali Land Shares should
begin on the day following the Effective Date. Such a Holder would be
required, to the extent gain is recognized on a subsequent disposition of
the Kaanapali Land Shares, to "recapture" as ordinary income any bad debt
deduction taken by the Holder with respect to the obligation from which the
Class 5 General Unsecured Claim arose and any ordinary loss taken by the
Holder upon the receipt of the Kaanapali Land Shares in satisfaction of the
obligation.
E. Tax Consequences of Ownership of Kaanapali Land Shares
As explained above, Kaanapali Land, although formed as a
limited liability company, will elect to be taxed as a corporation for
federal income tax purposes. Holders of Kaanapali Land Shares will be
subject to the same federal income tax treatment as the Holders of shares
in any domestic corporation. Accordingly, there will be no "pass through"
of the income, deductions or other tax items of Kaanapali Land to the
holders of its shares.
F. Information Reporting and Backup Withholding
Payments of Claims pursuant to the Plan are generally
subject to information reported by the payor (the Debtors) to the IRS.
Reportable payments are subject to backup withholding under certain
circumstances. Under the Code's backup withholding rules, a Holder of a
Claim may be subject to backup withholding at a rate of thirty percent
(30%) with respect to distributions or payments made pursuant to the Plan,
unless the Holder: (a) comes within certain exempt categories (which
generally include corporations) and, when required, demonstrates this fact;
or (b) provides a correct taxpayer identification number and certifies
under penalty of perjury that the taxpayer identification number is correct
and that the taxpayer is not subject to backup withholding because of a
failure to report all dividend and interest income.
G. Importance of Obtaining Professional Tax Assistance
THE FOREGOING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN AND IS NOT A SUBSTITUTE
FOR CAREFUL TAX PLANNING WITH A TAX PROFESSIONAL. THE ABOVE DISCUSSION IS
FOR INFORMATIONAL PURPOSES ONLY AND IS NOT TAX ADVICE. THE TAX CONSEQUENCES
ARE IN MANY CASES UNCERTAIN AND MAY VARY DEPENDING ON A HOLDER'S INDIVIDUAL
CIRCUMSTANCES. ACCORDINGLY, HOLDERS ARE URGED TO CONSULT WITH THEIR TAX
ADVISORS ABOUT THE FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX
CONSEQUENCES OF THE PLAN.
87
XIII. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN
The Debtors believe that the Plan affords Holders of
Claims and Interests as a group the potential for the greatest recovery
and, therefore, is in the best interests of such Holders. In fact, the
Debtors believe that, except for distributions in accordance with the Plan,
it is doubtful that COLA Holders would receive any distribution and it is
also doubtful that General Unsecured Creditors would receive more than a de
minimis distribution, if any, in a liquidation. The Plan as presented is
the result of considerable negotiations among the Debtors, the Northbrook
Senior Creditors and the Indenture Trustee.
If, however, the requisite acceptances are not received,
or the Plan is not confirmed and consummated, the Debtors expect that the
Northbrook Senior Creditors will seek to lift the automatic stay and
attempt to foreclose on the assets securing their debt, which may lead to
protracted litigation regarding such action. Other theoretical alternatives
include: (a) the formulation of an alternative plan of reorganization by
the Debtors or another interested party or (b) the liquidation of the
Debtors under chapter 7 or 11 of the Bankruptcy Code. It is impossible to
predict how creditors would be treated under any alternative to the Plan.
XIV. CONCLUSION AND RECOMMENDATION
The Debtors believe that confirmation and implementation
of the Plan is preferable to any of the alternatives described above
because it will result in the greatest recoveries to Holders of Claims and
Interests. Consequently, the Debtors strongly urge acceptance of the Plan.
For the reasons discussed in the accompanying letter from the Indenture
Trustee, the Indenture Trustee fully supports confirmation of the Plan. The
Indenture Trustee encourages COLA Holders to favorably consider voting for
the Plan.
(Remainder of page left intentionally blank.)
88
Dated: June ___, 2002
AMFAC HAWAII, LLC
(for itself and on behalf of the
other AHI Debtors)
By:____________________________________
Name: Gary Nickele
Title: President
FHT CORPORATION
By:____________________________________
Name: Gary Nickele
Title: President
COUNSEL:
Brad B. Erens (IL 6206864)
JONES, DAY, REAVIS & POGUE
77 West Wacker Drive
Chicago, Illinois 60601
(312) 782-3939
Richard M. Cieri (OH
0032464)
Joseph M. Witalec
(OH 0063701)
JONES, DAY, REAVIS &
POGUE
North Point
901 Lakeside Avenue
Cleveland, Ohio 44114
(216) 586-3939
ATTORNEYS FOR DEBTORS AND
ATTORNEYS FOR DEBTORS AND DEBTORS
IN POSSESSION
David S. Curry
(IL 6184327)
Richard G. Ziegler
(IL 6209241)
MAYER, BROWN, ROWE & MAW
190 South LaSalle Street
Chicago, Illinois 60603
(312) 782-0600
SPECIAL COUNSEL FOR FHT CORPORATION