In re POMARE, LTD., dba Hilo Hattie, Chapter 11, Debtor and Debtor-in-possession.
United States Bankruptcy Court, D. Hawaii.
June 1, 2015.
WAGNER CHOI & VERBRUGGE, Attorneys at Law, JAMES A. WAGNER, CHUCK C. CHOI, ALLISON A. ITO, Honolulu, Hawaii, Email: [email protected]; [email protected]; [email protected], Attorneys for Debtor and Debtor-in-Possession.
FINDINGS OF FACT AND CONCLUSIONS OF LAW IN SUPPORT OF ORDER (1) APPROVING THE ASSUMPTION AND ASSIGNMENT OF THE NIMITZ LEASE; (2) APPROVING CERTAIN BIDDING PROCEDURES RELATING TO THE SALE OF THE NIMITZ LEASE AND FORM OF CONFIDENTIALITY AGREEMENT; (3) APPROVING BUYER AS STALKING HORSE BIDDER AND APPROVING PAYMENT OF BREAK-UP FEE; AND (4) SCHEDULING AUCTION AND HEARING ON PROPOSED SALE; EXHIBITS 1-2
LLOYD KING, Bankruptcy Judge.
The Debtor’s Motion Requesting Entry Of An Order (1) Approving The Assumption And Assignment Of The Nimitz Lease; (2) Approving Certain Bidding Procedures Relating To The Sale Of The Nimitz Lease And Form Of Confidentiality Agreement; (3) Approving Buyer As Stalking Horse Bidder And Approving Payment Of Break-Up Fee; And (4) Scheduling Auction And Hearing On Proposed Sale (“Motion”) filed herein on April 20, 2015 as Docket #140, came on for hearing on May 18, 2015.
James A. Wagner and Allison A. Ito appeared on behalf of Pomare, Ltd. dba Hilo Hattie (the “Debtor”); Ted Pettit appeared on behalf of Donald Kang; Susan Tius and Nathaniel Higa appeared on behalf of the Unsecured Creditors Committee (“Committee”); Cynthia Johiro appeared on behalf of the Hawaii State Tax Department (“Tax Department”); Jerrold Guben appeared on behalf of RPC Piilani, LLC and Kona Coast Investment Company; Curtis Ching appeared on behalf of the Office of the U. S. Trustee; Jesse Schiel appeared on behalf of Fleet Financing Resources, LLC; and Thomas H. Yee appeared on behalf of First Hawaiian Bank. No other appearances were made.
This Court, having reviewed and considered (i) the Motion, the Declaration of Richard A. Williams, II filed in support thereof, (ii) the record in the case; (iii) the Objections and Statements filed in response to the Motion; (iv) the representations of counsel made at the hearing, and it appearing that the relief requested in the Motion is in the best interest of the Debtor, its estate, and creditors and other parties in interest; and upon the record of the hearing; and after due deliberation thereon, adequate notice having been given and good cause appearing therefore, the Court hereby makes the following Findings of Fact and Conclusions of Law:
1. The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and 1334, and this matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2). Venue of these claims and the Motion in this district is proper under 28 U.S.C. §§ 1408 and 1409.
2. The statutory predicates for the relief sought in the Motion include sections 105, 363, and 365 of the United States Bankruptcy Code, 11 U.S.C. §§ 101 et seq., as amended (“Bankruptcy Code”) and Fed.R.Bankr. P. 2002, 6004, 6006, and Local Bankruptcy Rules 6004-1 and 6006-1.
3. Proper, timely, adequate and sufficient notice of the Motion and the hearing on the Motion has been provided in accordance with 11 U.S.C. § 102(1), Rules 2002 and 6004 of the Federal Rules of Bankruptcy Procedure, and LBR 6004-1.
4. Interested parties have had a reasonable opportunity to object or be heard with respect to the Motion and the relief requested therein has been afforded to all interested persons and entities.
5. On February 19, 2015 (the “Petition Date”), the Debtor filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court for the District of Hawaii (the “Court”).
6. The Debtor is the successor-in-interest lessee under that certain Lease, by and between James Stewart Romig, as Lessee, and Honolulu, Limited, as Lessor, dated August 24, 1982, covering the Debtor’s property located at 700 North Nimitz Highway, Honolulu, Hawaii 96817, as amended through the Sixth Amendment to Lease and the Assignment of Lease to Pomare dated July 11, 2004, together with the Seventh Amendment to Lease are hereinafter referred to collectively as the “Nimitz Lease” or the “Property.”
7. Attached to the Motion as Exhibit A is a true and correct copy of a Preliminary Title Report for the Property dated March 26, 2015 (the “PTR”). A copy of the Lease, together with copies of all amendments through the Sixth Amendment to Lease and the Assignment of Lease to Pomare, is attached to the Motion as Exhibit B.
8. Even though the Property is the most significant asset held by the Debtor, the Property also constitutes a substantial drag on the Debtor’s business. The Property originally held the Debtor’s manufacturing facility, but the Debtor no longer manufactures its inventory and the old manufacturing space is no longer needed. The Debtor has determined that the highest and best use of the Property for the Debtor’s future is to sell the Property to the highest bidder.
9. The following three liens against the Debtor (collectively, the “Alleged Liens”) were recorded prior to the Petition Date and may constitute liens against the Property:
• Tax Department’s lien recorded in the Bureau of Conveyance of the State of Hawaii (the “Bureau”) on October 15, 2014 as Document No. A-54010952 in the amount of $129,794.81
• Judgment in favor of Kona Coast Investment Company lien recorded in the Bureau on February 12, 2015 as Document No. A-55210782 in the amount of $120,400.49
• Judgment in favor of RPC Piilani, LLC recorded in the Bureau on February 12, 2015 as Document No. A-55210781 in the amount of $336,406.63
The Property is Land Court property and none of the above instruments are recorded on the Transfer Certificate of Title for the Property. Additionally, the two Judgments were recorded just before the Petition Date. The recordings of the two Judgments are within the preference period.
10. The Property is also encumbered by unpaid real property taxes in the amount of $434,304, as of April 30, 2015. The real property taxes will be paid in full at closing of the sale/assumption and assignment of the Nimitz Lease to Buyer (or such other successful bidder determined pursuant to the Bid Procedures, hereinafter the “Successful Bidder”).
11. First Hawaiian Bank (“FHB”) holds a blanket lien on the Debtor’s inventory, receivables and other personal property assets. FHB is owed approximately $850,000, however, FHB does not have a mortgage on the Nimitz Lease.
12. Honolulu Limited, the Lessor, under the Nimitz Lease, was owed approximately $2,500,000, in back rent as of the Petition Date, however, the Debtor and the Lessor have entered into a Letter Agreement, dated April 14, 2015 (the “Letter Agreement”). Pursuant to the Letter Agreement, the Lessor has agreed to accept $1,000,000 as a cure payment based on the Purchase Price set forth in the Letter of Intent, dated March 25, 2015 between the Debtor and Buyer, and in the event there is overbidding, to accept $1,000,000, plus fifty percent (50%) of all excess Net Proceeds  in full satisfaction of the pre-petition rent arrears, provided that post-petition rent is paid in full through the closing date of the assignment of the Nimitz Lease to Successful Bidder. Honolulu Limited has also agreed to a 20-year extension to the Nimitz Lease on the same terms and conditions as set forth in the Nimitz Lease, excluding reconstruction requirements set forth in paragraph 15 of the Nimitz Lease. A copy of the agreed-upon Seventh Amendment to Lease is attached as Exhibit A to the Letter Agreement, which Letter Agreement is attached to the Motion as Exhibit C.
13. For more than 12 months prior to the Petition Date, the Debtor marketed the Property and the Buyer’s offer was the highest and best received by Debtor to date. Under the circumstances, the Debtor has sufficiently marketed the Nimitz Lease in good faith under the circumstances to secure the highest and best offer therefor.
14. The terms and conditions set forth in the Purchase Agreement, and the transactions contemplated thereby, represent fair and reasonable terms and conditions, including the amount and the form of payment of the purchase price for the Property in the amount of Four Million Eight Hundred Thousand and no/100 dollars ($4,800,000.00) in United States legal tender (the “Purchase Price”), and currently constitute the highest and best offer obtainable for the Property to date and are fair and adequate. A copy of the Purchase Agreement is attached hereto as Exhibit 1.
15. The consideration provided by Buyer for the Nimitz Lease pursuant to the Purchase Agreement: (i) will provide a greater recovery for the Debtor’s creditors than would be provided by any other practical available alternative, and (ii) constitutes reasonably equivalent value and fair consideration with respect to the Debtor in light of the financial condition of the estate and the facts and circumstances that surround the sale.
16. The transaction contemplated by the Purchase Agreement is not subject to any financing contingencies.
17. The Purchase Agreement was negotiated, proposed and entered into by Debtor and Buyer without collusion, in good faith, and from arm’s-length bargaining positions. There has been no fraud or collusion between Debtor and any other party with regard to this transaction. The Purchase Agreement and the sale process are not attempts by Buyer to take unfair advantage of other bidders, or possible bidders who might also seek to purchase the Nimitz Lease which are part of the sale under the Purchase Agreement.
18. Neither the Debtor nor Buyer has engaged in any conduct that would cause or permit the Agreement or the sale to be avoided under 11 U.S.C. § 363(n).
19. The Debtor has reasonably exercised its business judgment in determining (1) to enter into the Purchase Agreement for the sale of the Nimitz Lease to the Buyer; and (2) to select Buyer as the “stalking horse” bidder. The relief requested in the Motion is in the best interests of the Debtor’s estate.
20. The sale price under the Purchase Agreement ($4,800,000.00) exceeds the total amount of the Alleged Liens.
21. The Alleged Liens are in bona fide dispute.
22. The Alleged Liens can be satisfied by the payment of money.
23. The Alleged Liens will attach to the sales proceeds from the Sale/Assignment of the Nimitz Lease unless and until resolved.
24. The transactions contemplated by the Purchase Agreement satisfy 11 U.S.C. § 363(f)(3), (4), and (5).
25. The objection filed by the Tax Department on May 6, 2015 is hereby overruled.
26. The terms and conditions of the Letter Agreement and the Seventh Amendment to Lease are fair and reasonable. A copy of the Letter Agreement is attached to the Motion as Exhibit F, and a copy of the Seventh Amendment to Lease is attached as Exhibit A to the Letter Agreement.
27. The Debtor has reasonably executed its business judgment in negotiating and entering into the Letter Agreement and the Seventh Amendment.
28. The Letter Agreement satisfies Section 365(b)(1)(A)’s requirement that the Debtor cure any existing default under the Nimitz Lease for the Debtor’s assumption and assignment of the Nimitz Lease.
29. The proposed Sale/Assignment of the Nimitz Lease to the Buyer provides adequate assurance of future performance to the landlord under the Nimitz Lease.
30. The Debtor has articulated good and sufficient reasons for this Court to: (i) approve those certain bid procedures (“Bid Procedures”) relating to the sale of the Property; (ii) set a schedule for due diligence and bidding, and a hearing on the assumption and assignment of the Nimitz Lease; and (iii) grant certain bid protections as provided in the Purchase Agreement and in this Order.
31. A copy of the Bid Procedures is attached hereto as Exhibit 2.
32. The Bid Procedures allow sufficient time for potential bidders to perform due diligence and present informed bids.
33. The Bid Procedures are fair and reasonable, and allow and encourage qualified parties to submit overbids, thus maximizing the value that the estate will receive for the Nimitz Lease.
34. Approval of the Bid Procedures is in the best interest of the Debtor, its creditors, its estate, and other parties in interest.
35. The break-up fee (“Break-Up Fee”) in the amount of $250,000.00, if earned, shall be paid in accordance with the Purchase Agreement. The Break-Up Fee (1) is of substantial benefit to the Debtor’s estate; (2) is fair and reasonable, in light of the size and nature of the proposed transaction, the lack of other bid protection devices, the risk the Buyer is taking in pursuing the acquisition of the Nimitz Lease as a “stalking horse” bidder, and the efforts that have been or will be expended by the Buyer notwithstanding that the proposed transaction is subject to higher and better offers for the Nimitz Lease, (3) was negotiated in good faith and at arm’s length; and (4) is necessary to ensure that the Buyer will continue to pursue its proposed acquisition of the Nimitz Lease.
36. The Limited Objection filed herein by the Official Committee of Unsecured Creditors on May 4, 2015, is hereby overruled.
37. The form of the confidentiality agreement (“CA”) is fair and reasonable under the circumstances. A copy of the CA is attached to the Motion as Exhibit E.
38. The CA provides adequate provisions to thwart any activities that have the appearance of collusive bidding.
 “Net Proceeds” shall mean the gross bid amount confirmed by the Court, less (i) Buyer’s broker commission, if any (commissions on the current offer by Buyer of $4,800,000.00 would be $192,000), (ii) real property taxes paid at closing (approximately $500,000), (iii) normal escrow closing and conveyance tax amounts paid by the Debtor, and (iv) the break-up fee, if any.
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