[EDITORS’ NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.]
[EDITORS’ NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.]
The Plan is premised on the total enterprise value of $387.5 million calculated by Lazard Freres Co., LLC (“Lazard”) and a midpoint value for the unencumbered assets of $33.1 million.[2]
Under the Plan, holders of Hawaiian Telcom’s senior unsecured fixed rate and floating rate notes (collectively, the “SeniorNotes” and the holders thereof, the “Senior Noteholders”) stand to receive
warrants with a value of $12.3 million and holders of general trade claims will receive cash distributions in an aggregate amount not to exceed $500,000.
The official committee of unsecured creditors (the “Committee”) does not support the Plan and at the confirmation trial argued four primary issues: (i) the total enterprise value of Hawaiian Telcom, (ii) the value of the Debtors’ unencumbered
assets, (iii) the value and utility of warrants provided to the Senior Noteholders, and (iv) the allocation of value between the Secured Parties and the unsecured creditors. In its objection to confirmation, the Committee also argued the Debtors did not propose the Plan in good faith.
Between November 9, 2009 and November 13, 2009, this Court held a trial to determine whether the Plan satisfies the requirements of section 1129 of title 11 of the United States Code (the “Bankruptcy Code”) and, therefore, is confirmable. Hawaiian Telcom called 10 witnesses, each of whom testified in support of the Plan. The Committee cross-examined seven of those witnesses. The Secured Lenders called two witnesses in support of the Plan. The Committee cross-examined both of these witnesses. The Committee called three expert witnesses to oppose the confirmation of the Plan. Hawaiian Telcom and the Secured Lenders cross examined each of the Committee’s witnesses.
At the end of closing arguments on November 13, 2009, the parties submitted the matter to the Court and the Court stated that the Plan will be
confirmed and requested findings of fact and conclusions of law from the Debtors. Post-trial negotiations among the participants at the confirmation hearing resulted in proposed findings and a proposed confirmation order acceptable to all parties, including the committee. The proposed documents were received by the court on December 28, 2009. Because these documents are consensual, only minimal changes have been made by the court.
I. HAWAIIAN TELCOM BACKGROUND
A. History And Background.
1. Hawaiian Telcom has been operating for more than 125 years and is the
incumbent local exchange carrier (“ILEC”) for the State of Hawaii.[3]
2. Hawaiian Telcom is the largest telecommunications provider in Hawaii and
offers a wide range of communications services throughout the State of
Page 4
Hawaii, including local exchange, long distance, network access, data and
internet services, as well as wireless.[4]
3. Hawaiian Telcom is regulated by both the Hawaii Public Utilities
Commission (the “HPUC”) and the Federal Communications Commission
(the “FCC”).[5]
B. Events Leading To The Chapter 11 Cases.
4. In May 2005, The Carlyle Group acquired Hawaiian Telcom
from Verizon Communications (“Verizon”) in a
$1.6 billion leveraged buy-out.[6] The
Secured Lenders financed that transaction and, in exchange,
obtained liens on substantially
West Page 571
all of Hawaiian Telcom’s assets, as further discussed
below.[7]
5. After the acquisition, Hawaiian Telcom faced significant short and long-
term challenges, including keeping pace with quickly-evolving
telecommunications technologies and overcoming difficulties with the
Page 5
transition of certain back-office functions from Verizon.[8]
6. Hawaiian Telcom also realized it would have difficulty satisfying its capital
expenditure needs while meeting its debt servicing requirements.[9] Indeed,
as of December 1, 2008 (the “Petition Date”), Hawaiian Telcom’s liabilities
included: (a) $589.5 million (plus accrued interest) in connection with the
senior secured credit facility and certain secured swap agreements; (b) $350
million (plus accrued interest) on account of the Senior Notes; (c) $150
million (plus accrued interest) on account of 12.5% subordinated notes; and
(d) approximately $45 million of trade obligations and other general
unsecured claims.[10]
7. The overleveraged capital structure made it difficult for Hawaiian Telcom to
compete effectively with Oceanic Time Warner, its primary competitor.[11]
C. Hawaiian Telcom’s Restructuring Efforts.
8. In 2008, Hawaiian Telcom hired a new management team in an effort to
explore all strategic opportunities and to improve operating results.[12] As
Page 6
part of the management efforts to explore all available opportunities,
Hawaiian Telcom retained Zolfo Cooper LLC (“Zolfo Cooper”) and Lazard
as advisors.[13]
1. Hawaiian Telcom’s Strategic
Business Plan and Next Generation Television.
9. The new management team developed a revised strategic business plan that
will allow Hawaiian Telcom to compete and succeed in the rapidly changing
and competitive telecommunications industry.[14] The business plan focuses
on introducing new products, simplifying existing product offerings,
improving customer service, leveraging network infrastructure, improving
processes and systems and rebuilding customer confidence.[15]
10. One key component of Hawaiian Telcom’s business plan is to become a
leading provider of Next Generation Television (“NGTV”).[16] NGTV is a
critical product for Hawaiian Telcom to be able to effectively compete with
Oceanic Time Warner in offering bundled services.[17]
West Page 572
Page 7
11. Hawaiian Telcom’s financial projections show positive growth in NGTV in
2011.[18] Without a successful launch of NGTV, Hawaiian Telcom is less
likely to reach positive net income in 2011 as projected.
12. Hawaiian Telcom’s main competitor, Oceanic Time Warner, currently offers
a bundled “triple play” product where customers receive telephone services,
broadband internet and digital television through one company.[19]
13. While NGTV is an important part of the business plan, Hawaiian Telcom’s
launch of NGTV faces many technical and logistical hurdles, including (a)
the need to obtain certain regulatory approvals for NGTV and to ensure that
NGTV’s launch will be able to comply, economically, with all regulatory
requirements; (b) the need to design, implement, deploy, integrate and/or test
of significant network equipment and IT systems related to the provision of
NGTV; (c) the need to design, develop and/or enhance the Company’s
provisioning, billing, accounting, business intelligence and reporting
systems to incorporate and support NGTV and bundled products, as well as
Page 8
marketing and sales promotions, packages and special offers; (d) the need to
train sales, customer support, technical support, field support and network
support staff; and (e) the need to complete a trial deployment of
approximately 200 premise installations.[20] Hawaiian Telcom’s NGTV
product offering will also face serious competitive challenges from Oceanic
Time Warner, one of the most entrenched incumbent cable providers in the
entire United States.[21]
14. The Committee did not challenge Hawaiian Telcom’s business plan or future
growth strategy during the trial. It did not contend that Hawaiian Telcom’s
Page 9
business plan is unreasonable, was not properly developed or did not
account for the potential growth or certain challenges associated with new
technologies.[22]
West Page 573
2. Out-Of-Court Efforts To Delever The Capital Structure.
15. Under the direction of the new management team, and with Lazard’s
assistance, Hawaiian Telcom also undertook substantial out-of-court efforts
in 2008 to effectuate a balance sheet restructuring.[23] Hawaiian Telcom
contacted the Senior Noteholders, the Secured Lenders and The Carlyle
Group, among others.
16. In October 2008, Hawaiian Telcom’s management and advisors approached
the Senior Noteholders with a proposal that would have provided the Senior
Noteholders an opportunity to invest in the company at an implied value of
approximately $500 million. The Senior Noteholders declined.[24] At the
same time, Lazard began soliciting third party interest in a potential
Page 10
financing and/or strategic investment transaction.[25]
17. Ultimately, the Debtors were unable to consummate an out-of-court
restructuring.[26]
D. The Chapter 11 Cases.
18. On the Petition Date, December 1, 2008, the Debtors filed voluntary
petitions for relief under chapter 11 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.[27]
1. The Cash Collateral Order.
19. Hawaiian Telcom has financed the chapter 11 cases using cash on hand,
which constitutes the cash collateral of the Secured Parties under section 363
of the Bankruptcy Code. After resolving the Committee’s objections to the
use of cash collateral and related adequate protection consensually, the
Debtors, the Secured Parties and the Committee agreed upon the terms of the
final cash collateral order, dated January 16, 2009, as amended and
Page 11
supplemented.[28]
20. Pursuant to the Cash Collateral Order as modified by the
first order extending the Cash Collateral Order entered on
February 27, 2009, [Docket No. 478], Hawaiian Telcom has made
and must continue to make, inter alia, adequate
protection payments to the Secured Parties in cash in an
amount equal to postpetition interest at the non-default rate
on $300 million of prepetition secured claims.[29]
Adequate protection payments equal to interest on the Secured
Parties’ claims in excess of $300 million, to the extent
allowed, have been paid in kind and added to the Secured
Parties’ prepetition claims, without prejudice to the Secured
Parties’ claim for interest at the default
rate.[30] Pursuant to the Cash Collateral Order,
West Page 574
Hawaiian Telcom has also made and must continue to make
adequate protection payments in an amount equal to all fees
and expenses due under the Prepetition Financing Documents
(as defined in the Cash Collateral Order), including the fees
and expenses of the Secured Parties’ legal counsel
Page 12
and other professionals.[31]
21. Moreover, “[d]uring the period the Debtors use cash collateral . . . no
administrative claims . . . shall be charged or assessed against or recovered
from the Collateral or attributed to the Prepetition Secured Parties with
respect to their interests in the Collateral pursuant to the provisions of
section 506(c).”[32]
22. Section 9 of the Cash Collateral Order is clear that the Secured Parties were
entitled to adequate protection for any and all diminution in the value of the
Collateral, and provides, in relevant part:
The [Secured Parties] are entitled, under section 363(e)
of the Bankruptcy Code, to adequate protection with
respect to their interest in the [collateral], for and equal in
amount to the aggregate diminution in value of the
[Secured Parties’] interests in the [collateral], including
any such diminution resulting from (a) the use of Cash
Collateral, (b) the sale, lease, or use by the Debtors (or
other decline in value) of the [collateral], and (c) the
imposition of the automatic stay under section 362 of the
Bankruptcy Code.[33]
23. Pursuant to the terms of the Cash Collateral Order, “[a]dequate Protection
Payments shall be subject to any parties’ rights to seek recharacterization . . .
Page 13
of such payments as payments in satisfaction of principal amounts due under
the Prepetition Financing Documents.”[34]
2. Operations During Chapter 11.
24. Throughout the chapter 11 cases, Hawaiian Telcom has continued to operate
and improve its network, through capital expenditures (“capex”) aimed at
enhancing existing products, developing new products, improving back-
office and IT systems, and necessary maintenance and repair of the
network.[35]
3. Development Of The Plan.
25. After the Petition Date, Lazard continued to market Hawaiian Telcom to
potential purchasers. From September 2008 through the confirmation
proceeding, Lazard contacted approximately 38 institutions, including 13
strategic investors and 25 financial investors. Several potential investors,
including strategic purchasers, submitted formal indications of interest to
acquire Hawaiian Telcom for approximately $300 to $400 million. No deal
was completed.[36]
Page 14
26. Prior to engaging the Secured Lenders in Plan negotiations, Hawaiian
Telcom conducted an independent review of the Secured Parties’ liens.
Hawaiian Telcom concluded that the Secured Parties have liens on and
security interests in substantially all of the assets of the Debtors’ businesses,
including substantially all of the Debtors’ cash and all equipment, fixtures,
accounts receivable, all intangibles (including brand names, intellectual
property, customer lists and relationships, and goodwill) and major
buildings.[37]
West Page 575
27. The outcome of the Debtors’ lien analysis is consistent with the Court’s
August 20, 2009 ruling that the Secured Parties have perfected liens in the
Debtors’ “personal property” that “is described in Section 4.01 of the
Page 15
Amended and Restated Collateral and Guarantee Agreement,” dated as of
June 1, 2007 and as supplemented by Supplement No. 1, dated as of October
24, 2008, except for the Debtors’ motor vehicles; the Debtors’ “Encumbered
Real Property described in The Amended and Restated Mortgage,” dated as
of June 29, 2007; the Debtors’ “fixtures located on the Encumbered Real
Property”; and the Debtors’ “fixtures that are not attached to the
Encumbered Real Property.”[38] The Court found that there was a genuine
issue of material fact as to the perfection of the Secured Parties’ lien on the
funds in Hawaiian Telcom’s deposit accounts at First Hawaiian Bank and
the Bank of Hawaii.[39] The Court assumed for the purpose of the
confirmation hearing that the Secured Parties’ liens on such funds are valid
and perfected.[40]
28. Based on its analysis of the Secured Parties’ liens and security interests and
their senior position in the capital structure, Hawaiian Telcom identified the
Page 16
Secured Parties as the key economic stakeholders in Reorganized Hawaiian
Telcom with which to negotiate a plan of reorganization.[41]
29. In March 2009, Hawaiian Telcom and the Secured Lenders, with their
respective advisors, began the negotiations that led to the Plan. The Plan is
the product of good faith arm’s length negotiations between, among other
entities, Hawaiian Telcom and the Secured Lenders.[42]
30. The negotiations were time consuming, but resulted in a Plan that
accomplishes the goals Hawaiian Telcom detailed at the outset of these
cases. The Plan maximizes value for all creditors, significantly deleverages
the capital structure, will enable Hawaiian Telcom to implement its business
plan and is worthy of the required regulatory approvals from the FCC and
the HPUC.[43]
West Page 576
31. Hawaiian Telcom developed the Plan with the goal of maximizing value for
all creditors. As a result of Hawaiian Telcom’s efforts, the Secured Parties
agreed to waive their deficiency claim.[44] In addition, the Secured Parties
waived their right to any recovery from the successful pursuit of avoiding
Page 17
power and other claims of Hawaiian Telcom’s estates arising under chapter
5 of the Bankruptcy Code. Doing so allowed Hawaiian Telcom to provide a
greater recovery to the unsecured creditors under the Plan.[45]
32. Throughout these chapter 11 cases Hawaiian Telcom provided for an open
and transparent process. While negotiating with the Secured Lenders,
Hawaiian Telcom’s management team and advisors maintained open
dialogues with other key constituents, including the Committee, the HPUC
and the International Brotherhood of Electrical Workers, Local 1357
(“IBEW”).[46]
33. Hawaiian Telcom’s negotiation of the Plan was in good faith and resulted in
a Plan that is fair and equitable to all creditors.[47]
II. THE PRIMARY CONTESTED ISSUES AT CONFIRMATION.
34. The Debtors’ Plan is based upon the range of enterprise values determined
by Lazard.[48] Recoveries under the Plan are based upon the Debtors’
Page 18
prepetition capital structure as supplemented by the Debtors’ negotiations
with the Secured Lenders.
35. The Committee objected to the Debtors’ Plan on four primary grounds: (a)
the Debtors’ total enterprise value of Hawaiian Telcom, (b) the value of the
Debtors’ unencumbered assets, (c) the value and utility of warrants provided
to the Senior Noteholders, and (d) the allocation of value between the
Secured Parties and the unsecured creditors. Each area is addressed herein.
Additionally, the Committee argued in its objection to confirmation that the
Debtors did not propose the Plan in good faith, which is addressed in section
I, supra, and section II.E, infra.
A. The Debtors’ Enterprise Value.
36. Each of the Debtors, the Secured Lenders, and the Committee retained an
expert witness to determine the total enterprise value (“TEV”) of Hawaiian
Telcom’s businesses. Specifically, Lazard determined Hawaiian Telcom’s
TEV on behalf of the Debtors, Houlihan on behalf of the Secured Lenders,
and Mr. Schaeffer of FTI on behalf of the Committee.
37. While all three parties’ experts used the same valuation methodologies, the
Committee’s expert’s valuation was higher than both (a) the valuations
Page 19
reached by both the Debtors’ and the Secured Lenders’ experts, and (b)
several market-based indicators of value. For the reasons set forth in this
section, the Court accepts Lazard’s total enterprise valuation.
West Page 577
1. The Debtors’ Range of Enterprise Value Is Reasonable.
(a) The Debtors’ Range Of Enterprise
Value Is Between $350 And $425 Million.
38. The Debtors’ TEV is $387.5 million. The Debtors’ Total Distributable
Value (“TDV”) is $460 million.[49] TDV is calculated by adding to TEV $52
million of cash on hand after administrative expenses and $20 million of
non-core assets.[50] All three valuation experts employed the three commonly
accepted valuation methodologies, namely (a) the comparable company
analysis, (b) the precedent transaction analysis, and (c) the discounted cash
flow (“DCF”) analysis.[51]
39. The lower end of the Lazard TEV range reflects the “market’s likely . . .
skepticism toward future prospects of the company . . . that’s the $350
million range.” The high end of the range, the $425 million range, reflects
Page 20
“an appreciation . . . for management’s execution of [its] turnaround
strategy.”[52]
(b) The Lazard Enterprise Value Range Is
Consistent With Houlihan’s Analysis.
40. Lazard’s TEV opinion is supported by the Secured Lenders’ valuation
expert, Houlihan, which determined that Hawaiian Telcom’s TEV was $400
million and TDV was $420 million.[53]
(c) The Enterprise Value Range Is Consistent
With The Market’s View of Hawaiian Telcom.
41. Lazard marketed Hawaiian Telcom to 38 potential investors during
Hawaiian Telcom’s restructuring efforts. From those efforts, “nobody
submitted an indication of interest in excess of Lazard’s enterprise valuation.
Rather, potential investors, including strategic purchasers, submitted formal
indications of interest to acquire Hawaiian Telcom for approximately $300
to $400 million.”[54] Houlihan also considered this range of indications of
Page 21
interest to be indicative of the true market value of Hawaiian Telcom’s
TEV.[55]
42. Lazard’s marketing effort provides “an interesting data point” in determining
whether the ultimate valuation makes “sense.”[56]
43. It is appropriate to examine market indications of interest in the context of
current market environments to the extent they are available in determining
the reasonableness of a valuation.
44. The market valuation of Hawaiian Telcom based on the trading prices of its
debt, at $385.9 million, is also less than Lazard’s enterprise valuation.[57]
This fact further corroborates the multitude of evidence demonstrating that
Hawaiian Telcom’s TEV does not exceed the Plan’s assumed TEV.
West Page 578
2. All Valuation Experts Utilized
Common Enterprise Valuation Methodologies.
45. The comparable company analysis values Hawaiian Telcom based on the
valuation of comparable publicly traded companies.[58] This analysis
estimates how “the stock market would value this company.”[59]
Page 22
46. The precedent transaction analysis is based on what other companies have
been willing to pay for similar companies in a market transaction.[60] This
analysis estimates the value of Hawaiian Telcom in a mergers and
acquisitions context.[61]
47. The DCF analysis is based on Hawaiian Telcom’s financial projections and
the net present value of the projected future cash flows.[62] “The discounted
cash flow analysis is reflective of the management’s plan.”[63] The DCF
methodology uses Hawaiian Telcom’s management’s projections and
discounts the cash flows to present value.
3. Lazard Exercised Appropriate Judgment
In Evaluating The Debtors’ Enterprise Value.
(a) Lazard Properly Accounted For Hawaiian
Telcom’s Performance Relative To Peer Companies.
48. Hawaiian Telcom’s financial and operational performance are important
factors to analyze to determine enterprise value.[64] When the financial and
Page 23
operational metrics are properly considered, Hawaiian Telcom should be
valued on the low end of its peer group.[65]
49. Hawaiian Telcom’s management’s financial projections are lower than the
financial projections for peer companies in the following categories: (a)
2009 expected EBITDA Margin; (b) 2009 expected free cash flow margin;
(c) 2009 expected EBITDA growth; and (d) monthly EBITDA per access
line.[66]
50. Hawaiian Telcom also performs below its peers in certain operating metrics.
Hawaiian Telcom is below many of its peer companies in the following
categories: (a) access lines per square mile — Hawaiian Telcom has more
than many peer companies, indicating the density of the population served;
(b) receipt of Universal Service Fund (“USF”) subsidies — Hawaiian Telcom
receives none; (c) cable overlap — Hawaiian Telcom, unlike most peer
companies, has competition from cable for phone service in 100% of its
service area; and (d) digital subscriber line (“DSL”) penetration — only 20%
of Hawaiian Telcom’s access lines subscribe to its DSL service. Hawaiian
Telcom’s low rate of DSL penetration is of concern because in deploying
Page 24
NGTV, Hawaiian Telcom will need to leverage its DSL base to “push that
product through.”[67]
51. Based on Hawaiian Telcom’s financial and operating
performance compared
West Page 579
to its peers, it is appropriate to value Hawaiian Telcom at
the low end of the range indicated by comparable company and
precedent transaction multiples. “[T]he bottom of the range
reflects, frankly, the under- performance of the company
relative to its peers, particularly on a free-cash- flow
generation basis, as well as a number of other metrics that we
examined.”[68]
(b) Lazard’s Valuation Is Supported By Hawaiian
Telcom’s Free Cash Flow Performance Metric.
52. Free cash flow is a particularly relevant financial metric for Hawaiian
Telcom and Hawaiian Telcom’s free cash flow generation is lower than
many of its peers.[69]
Page 25
53. All three valuation experts measured free cash flow as EBITDA minus
capex.[70] “EBITDA is revenue minus your cash operating expenses for the
company. And then you take out your capital expenditures. That’s the
amount of cash the company is producing.”[71]
54. Hawaiian Telcom has relatively low EBITDA margins and relatively high
capex, resulting in lower free cash flow margins than many comparable
companies.[72] Hawaiian Telcom’s EBITDA margins are lower than those of
comparable companies for several reasons, including: (a) Hawaiian Telcom
does not receive federal subsidies; (b) Hawaiian Telcom’s revenue per
access line is below that of its peers, reflecting Hawaiian Telcom’s
challenging competitive market; and (c) Hawaiian Telcom has relatively
high labor costs.[73]
55. Hawaiian Telcom’s capital expenditures are relatively higher than those of
its peers because, among other things: (a) the salt water environment
Page 26
corrodes its plant, property and equipment; (b) Hawaiian Telcom has more
central offices per access line; (c) it is more difficult to maintain a network
because Hawaii is comprised of multiple islands; and (d) Hawaiian Telcom’s
predecessor owners, GTE and Verizon, deployed less modern equipment in
Hawaii.[74]
56. Given that Hawaiian Telcom’s cash flow generation ability
is “much lower than its peers,” the EBITDA multiple has to be
West Page 580
informed by the free cash flow multiple.[75]
(c) Lazard’s DCF Analysis Accounted For Hawaiian Telcom’s
Management’s Projections Without Ignoring Market Risks.
57. The upper end of Lazard’s TEV range accounts for Hawaiian Telcom’s
management’s business projections.[76] This “reflects the possibility that the
market will begin to appreciate the company’s execution of . . . its
strategy.”[77]
Page 27
58. Lazard’s TEV range is not the same as its DCF range.[78] This is justified in
part because Hawaiian Telcom faces both implementation and market
challenges in implementing its business plan.[79] The ultimate TEV range
captures “the possibility that the strategy is successful, despite all the
risks.”[80]
59. The Court finds that Mr. Melton’s methodology, opinions and conclusions
are persuasive and Mr. Melton was a credible expert. In addition to Mr.
Melton’s written direct testimony, Mr. Melton appeared in Court and was
cross examined by counsel for the Committee. Many of Mr. Melton’s
assumptions and conclusions were corroborated by the testimony of the
Secured Lenders’ expert, Mr. Wilson. Mr. Melton’s testimony on cross
examination was credible.
B. The Debtors Properly Valued The Unencumbered Assets.
60. Under the Plan, the unsecured creditors’ recovery is a function of the value
of the unencumbered assets. Hawaiian Telcom analyzed the value of the
motor vehicle fleet, the unencumbered real property, and certain of
Hawaiian Telcom’s easements and determined that the value of those
Page 28
unencumbered assets was $33.1 million.[81] The Committee disagreed and
argued for a higher value. At the confirmation trial, the values of the
unencumbered real property and easements were contested, with three
parties submitting different values.
1. The Debtors’ Value For The Motor
Vehicles Is Appropriate And Unchallenged.
61. The value of Hawaiian Telcom’s motor vehicle fleet was not contested. The
Debtors initially valued their motor vehicles at approximately $1.4 million,
based on their book value.[82]
62. The Debtors later reviewed this valuation and determined that, based on
Kelly Blue Book value or other similar market indicators, the motor vehicles
may have a value of $3.3 million.[83]
63. Using either the book value or the Kelly Blue Book value
for the motor vehicles provides a reasonable basis for
determining
West Page 581
their fair market value. The difference between their book
and Kelly Blue Book values is not material under the Debtors’
allocation of value and waterfall analysis.[84]
2. The Debtors’ Range Of Value For
Page 29
Unencumbered Real Property Held In Fee Is Reasonable.
64. The Debtors determined the value of the unencumbered real property held in
fee to be $31.7 million.
(a) The Debtors Reasonably Valued
The Unencumbered Real Property At $31.7 Million.
65. The Debtors’ determination used the tax-assessed values of the
unencumbered real properties as a proxy for their value. The tax assessed
values were determined by matching the parcels of unencumbered property
held in fee with their tax-assessed values from the county tax assessors’ web
sites.[85]
66. The reasonableness from the perspective of unsecured creditors of the $31.7
million value the Plan ascribed to the unencumbered real property was
confirmed by the independent $19.1 million valuation reached by the
Secured Lenders’ appraisal expert, James E. Hallstrom, Jr., who appraised
the fair market value of the unencumbered properties using a sales
comparison approach.[86] In fact, the difference between the tax assessed
Page 30
value of the properties under the Plan and the actual fair market value of the
properties under Mr. Hallstrom’s valuation demonstrates that the unsecured
creditors are receiving more under the Plan than they would be receiving
under a traditional waterfall. The excess consideration the unsecured
creditors are receiving results from an agreement by the Secured Parties to
provide excess value to the unsecured creditors.
(b) The Debtors’ And Secured Lenders Experts’
Testimony On Easements Establish That They
Have No Market Value.
67. The Debtors, Secured Lenders and the Committee’s experts agreed that the
proper method for valuing the Debtors’ unencumbered easements was to
determine their market value.[87] The three primary methods to determine
market value are the sales comparison approach, the income approach, and
the cost approach.[88]
68. The most common method for valuing easements is the sales comparison
approach. The Debtors’ appraisal expert, Robert C. Hastings, Jr., MAI,
Page 31
SRPA, and the Secured Lenders’ expert, Mr. Hallstrom, agreed that the
Debtors’ easements have no market value.[89]
West Page 582
69. Mr. Hastings and Mr. Hallstrom applied recognized market valuation
methodologies in valuing the easements. Mr. Hastings used the recognized
sales comparison approach to value the easements.[90] Similarly, Mr.
Hallstrom considered whether a market exists for the easements.[91]
70. In his 40 years working in real estate valuation in Hawaii, having seen
“20,000 to 40,000” easements, Mr. Hastings is unaware of a market for
restricted-use easements.[92]
71. Further, because almost all easements are granted for nominal consideration,
usually $1 or $10, the nominal price also suggests that landowners place
virtually no value on the easements.[93]
72. Similarly, in his “38 years of appraising in the Islands [Mr. Hallstrom] ha[s]
never come[] across a buyer or seller of an existing easement.”[94]
Page 32
73. Mr. Hastings also conducted additional research specific to this case to
determine if such a market existed.[95] He “[l]ooked in the Bureau of
Conveyances . . . talked to [his] partners [and] associates” and looked at a
real estate marketplace web site.[96]
74. “[U]nder the circumstances, after analyzing all of the data, there were no
sales, there were no buyers, there was no market . . . [a]nd that is what led to
a value of $0 for each of the easements.”[97]
75. In addition, other utility companies, such as Oceanic Time Warner, use the
Debtors’ easements without securing their own easements.[98] Accordingly,
Oceanic Time Warner would not be interested in buying the Debtors’
easements because “they have the right to pull through the conduit or they
Page 33
have the right to attach to poles throughout the entire system that Hawaiian
Telcom operates, along with the power companies.”[99]
76. Both Mr. Hastings and Mr. Hallstrom were cross-examined on their
valuation conclusions. Both Mr. Hallstrom and Mr. Hastings relied on
appropriate methodologies and their opinions and testimony are credible.[100]
West Page 583
77. Hawaiian Telcom’s easements do not form a corridor. A corridor is a long,
narrow strip of property rights for which the highest and best use is to
provide an economic or social benefit by connecting the end points.[101]
Hawaiian Telcom’s easements do not form a corridor by themselves because
“these easements connect up end to end with public rights-of-way.”[102]
They may form a corridor in combination with other parts of the Debtors’
network, but the easements themselves do not have connectivity because
“they don’t always connect through Hawaiian Telcom property.”[103]
Page 34
78. In addition, a review of SEC filings or other possible disclosures from
telecommunications companies demonstrates that easements are not valued
independently of the network.[104] The same is true for Wall Street analyst
reports.[105]
79. There is no buyer for these easements apart from a potential buyer of the
Debtors’ entire enterprise. During Lazard’s efforts to market the Debtors’
business, Lazard did not receive any inquiries regarding a transaction
involving just the easements.[106]
80. Also, Hawaiian Telcom does not separately account for its easements or
carry them as an asset on its books.[107] While the Debtors capitalize costs
associated with acquiring easements, this does not reflect that the easements
have an independent value.[108] Those costs are necessary for placing a
Page 35
portion of the Debtors’ network in use, but they are not attributable to any
value for the easements.[109]
81. The asset that appears in the Debtors’ 10-K for 2007 titled “franchise for
street right of way” is not related to the value of easements or rights of way
but “represents the capitalization of tax avoidance resulting from the
Debtors’ franchise street right of way.”[110] “It relates to the avoidance that
[Hawaiian Telcom’s] franchise provides to avoid a . . . 2-1/2% utility tax.”[111]
82. Moreover, when The Carlyle Group acquired the company in 2005, it did
not attribute any value to the easements.[112]
West Page 584
(c) The Debtors Would Not Need
To Move Off The Unencumbered Property.
83. Even if there were any basis to assume the Debtors might need to replace the
easements, the Debtors have the power of eminent domain and could
reacquire any unencumbered property or easements if needed.[113]
Page 36
84. Using eminent domain, the Debtors would not have to pay any more than the
properties’ “fair market value.” That value is determined by what the open
and competitive market would pay. As discussed above, because of the
highly specialized nature of the unencumbered property, the market either
does not exist (for the easements) or would only support the cost of the land
without the specialized structures thereon.[114]
85. And because 95% of the Debtors’ easements are jointly owned with local
power utilities, Hawaiian Telcom could continue to use the poles and
conduits without moving any equipment.[115] This means that if the Debtors
lost their rights to the easements, the easements would exist through the
power company.[116] They would not need to reacquire the easements but
“would be able to reattach [to] the poles, and [the] lines are there.”[117] Even
if the Debtors lost their easements, they would still own or have rights to use
the poles and conduits that support the lines.
Page 37
86. Hawaiian Telcom would not have to pay more than fair market value, if
anything, to reacquire any land interests in easements or the unencumbered
property because of its statutory rights of eminent domain and rights
regarding shared telecommunication poles and conduits
3. The Evidence Of The Value Of The Encumbered
Assets Is Not Necessary To The Court’s Analysis
Of The Debtors’ Plan.
87. In addition to the value of the unencumbered assets, the Committee also
presented evidence regarding the value of the assets encumbered by the
Secured Parties’ liens. The Committee’s evidence, while received by the
Court, is not necessary to this Court’s determination. Given the extent of the
Secured Parties’ liens as well as the proper enterprise valuation, there is no
need to determine the exact value of the encumbered assets.
C. Warrants Are An Appropriate Recovery Under The Plan.
88. The third primary contested area focused on whether warrants are an
appropriate form of recovery for these chapter 11 cases and whether the
Debtors properly valued the warrants. Hawaiian Telcom proved that
warrants are an appropriate form of recovery and that the warrants have a
value of $12.3 million. Additionally, Hawaiian Telcom established it is
protecting substantial tax benefits by using warrants instead of common
stock under the Plan.
West Page 585
Page 38
1. Warrants Are An Appropriate Form
Of Recovery For The Class 5 Claimants.
89. Under the Plan, the holders of Class 5 Claims, the senior noteholders, will
receive in the money warrants with a value of $12.3 million.[118] The holders
of these warrants can exercise these warrants without any out-of-pocket
costs, through an optional cashless exercise feature.
(a) The Bankruptcy Code Requires
Value, The Plan’s Warrants Have Value.
90. A warrant is a security that gives the holder the right, but not the obligation,
to acquire the underlying common stock of the company that issued the
warrant at a specified price (the “exercise price”) within a set period of time
(the “term”).[119]
91. The value of a warrant is comprised of (a) its intrinsic value and (b) the
option premium. Intrinsic value is the amount by which a company’s stock
price exceeds the exercise price of the warrant. Warrants with intrinsic value
are described as “in-the-money,” while warrants without intrinsic value are
described as “out-of-the-money.” A warrant would be “at-the-money” or
Page 39
out-of-the-money when the stock price is equal to or less than the exercise
price, respectively.[120]
92. There is no evidence that the option premium should be ignored.[121] Indeed,
the Secured Lenders’ expert testified that because the common stock of
reorganized Hawaiian Telcom will be publicly traded post-emergence, there
will be a liquid market for the warrants in which holders of the warrants may
realize the entire value of the warrants (intrinsic and option) by selling them
to willing buyers at a minimal discount.[122]
93. The Committee’s expert recognized that if the Committee’s calculation of
Hawaiian Telcom’s TDV were correct, (a) the value of the Warrants would
be substantially greater and (b) the subscription rights that were distributed
to the Senior Noteholders under the Plan, which are currently valued at par
under the Plan’s assumed TDV, could also have significant value.[123]
(b) Warrants Are Frequently
Used in Chapter 11 Proceedings.
Page 40
94. Warrants are commonly used as consideration in bankruptcy proceedings
and have been used to provide value to various stakeholders in several recent
chapter 11 cases.[124]
95. Hawaiian Telcom provided evidence of both in- and out-of-the money
warrants used in 11 different chapter 11 cases.[125] The Committee did not
demonstrate that warrants are an inappropriate form of recovery in a
contested plan and did not present evidence to contradict the Debtors’
evidence on the use of warrants.[126]
96. The Committee’s expert recognized that warrants are used
in chapter 11 cases
West Page 586
and testified that that he had “seen them in restructuring
plans.”[127]
2. The Debtors Preserve Substantial Tax Benefits
From The Use Of Warrants Instead Of Common Stock.
97. By providing warrants instead of stock to the Senior Noteholders, Hawaiian
Telcom will likely save in the range of $13 million to $31 million in federal
income taxes between 2010 and 2013.[128]
Page 41
3. The Debtors Properly Valued The Warrants.
(a) The Black-Scholes Model Is The
Proper Method To Value The Warrants.
98. The warrants provide $12.3 million in value to the holders of Class 5 Claims
when properly valued utilizing the Black-Scholes formula.[129] The Black-
Scholes formula is a widely adopted tool to estimate the value of options,
warrants, and other similar derivative instruments. Advisors to all three
parties used the Black-Scholes formula to determine the value of the
warrants under the Plan.[130] In addition, the evidence demonstrated that,
because the Plan contemplates that the New Common Stock will be publicly
traded post-emergence, there will be a liquid market where holders can
freely sell their warrants to willing buyers with minimal discount.
(b) Lazard Utilized A Reasonable Time
Period To Determine The Value Of The Warrants.
Page 42
99. The Black-Scholes model uses the following inputs to assess the value of
warrants: (a) stock price; (b) exercise price; (c) volatility of the common
stock; (d) term; and (e) risk-free rate.[131]
100. Lazard used appropriate measures for each of the inputs, including an
appropriate volatility measure. Lazard utilized a rolling 100-day average
over a six month period to determine volatility based on a group of Hawaiian
Telcom’s peers.[132]
D. The Debtors Properly Allocated Value To The Constituents.
101. The fourth primary contested issue is whether the Debtors
properly allocated value between the Secured Parties and the
unsecured creditors. The Debtors allocated value consistent
with guidance from case law and the extent of the Secured
Parties’ liens. Based on the Debtors’ allocation, the
unsecured creditors will obtain a greater recovery under the
Plan than under a traditional waterfall. Hawaiian Telcom also
confirmed that the Plan was reasonable by checking the
results of a traditional waterfall under an alternative
allocation methodology. Under both approaches,
West Page 587
the unsecured creditors will receive more under the Debtors’
Plan.
Page 43
102. The Plan provides for a recovery of $12.3 million of value in warrants to
holders of Class 5 Claims as well as up to $500,000 in cash to holders of
other general unsecured claims.[133] Under a traditional waterfall, recoveries
to unsecured creditors would be less than $10.6 million.[134] The Plan
provides a recovery of $12.8 million for the unsecured creditors, which is
greater than the amount the unsecured creditors would receive under a
traditional waterfall plan.[135]
1. Under The Debtors’ Allocation Of Value,
The Senior Noteholders Receive A Greater
Recovery Than Required By The Bankruptcy Code.
103. Hawaiian Telcom’s analysis properly accounted for the scope of the Secured
Parties’ liens and the extent of recovery for the unsecured creditors.[136]
Hawaiian Telcom allocated the going concern value of the encumbered
assets, including intangibles, to the Secured Parties and allocated the going
concern value of the unencumbered assets to the unsecured creditors.[137]
Page 44
104. In order to allocate the value properly between the Secured Parties and the
unsecured creditors, the Debtors first determined the scope of the liens held
by the Secured Parties and determined that they had liens on substantially all
of the Debtors’ assets, except for certain categories of unencumbered
assets.[138]
105. Under the Debtors’ allocation of value, Lazard first calculated the total
distributable value before emergence and then deducted $33.1 million for
unencumbered assets based on the Debtors’ and their advisors’ valuation of
the unencumbered assets.[139]
106. Mr. Mandava testified that under a traditional waterfall, after determining
the distributable value and subtracting the value of the unencumbered assets,
the Secured Lenders would have an unsecured deficiency claim of $154.5
million and the unsecured creditors would only recover $10.6 million.[140]
Mr. Schaeffer conceded, however, that the recovery due to unsecured
creditors under a waterfall analysis would be even less, because the Secured
Page 45
Lenders are entitled, on account of their deficiency claim, to recover their
pro rata share of the recovery of the Subordinated Noteholders pursuant to a
subordination provision in the applicable indenture.[141]
(a) The Declining Value Of The Collateral.
107. The adequate protection payments the Debtors paid to the
Secured Parties were warranted because the evidence
demonstrates that the collateral securing the Secured
Parties’ claims has suffered and will continue to suffer
diminution in value
West Page 588
since the Petition Date.[142] The Committee did not
provide evidence to effectively dispute this fact; rather,
the Committee’s expert conceded that the value of certain of
Hawaiian Telcom’s equipment has deteriorated since the
Petition Date and that Hawaiian Telcom’s investments in its
network have not been sufficient to outweigh this
deterioration.[143]
108. Furthermore, the evidence shows that relevant measures of the enterprise
value of Hawaiian Telcom demonstrate a decline in Hawaiian Telcom’s
Page 46
enterprise value since the Petition Date.[144] Specifically, Mr. Wilson
testified that projected declines in certain relevant measures of Hawaiian
Telcom’s financial and operational performance from the Petition Date
through the projected emergence date include (a) a decrease in number of
access lines since the Petition Date, (b) a decrease in cash balance, (c) a
decrease in last twelve months revenue, (d) a decrease in last twelve months
EBITDA; and (e) a decrease in free cash flow.[145]
2. Under The Alternative Methodology,
The Senior Noteholders Receive A Greater
Recovery Than Required By The Bankruptcy Code.
109. Alternatively, Lazard conducted a separate analysis, whereby Hawaiian
Telcom allocated the total distributable value (before emergence costs)
between encumbered and unencumbered assets, based on the ratio of forced
going concern sale values.[146]
110. This analysis also used the $33.1 million midpoint of the unencumbered
asset value range and Lazard’s determination of enterprise value. Lazard
discounted the going concern value of all assets based on a forced sale
(except for cash which would not have a discounted value) under the
Page 47
scenario that all assets were sold as a going concern.[147] Lazard applied the
same forced going concern sale discount to the unencumbered assets, which
would also be sold in a force sale scenario.[148]
111. Based on the alternative approach, the maximum value allocable to the
unencumbered assets is $32.2 million, which provides a total recovery of
only $10 million to the unsecured creditors. The Plan provides a total
recovery to the unsecured creditors of $12.8 million.[149]
3. The General Unsecured
Creditors’ Recovery Is Appropriate.
112. Under the Plan, the holders of unsecured claims that are not Class 5 or Class
6 claims will receive a recovery of between 1% and 2% on their claims.
They will receive those payments in the form of cash distributions.
113. The presence of the $500,000 cap ensures that the Debtors will have
sufficient liquidity to fund distributions under the Plan and continue
operations on the Effective Date.[150]
114. The unsecured creditors should be provided with cash
pursuant to the Plan rather than warrants because these
creditors would not receive any meaningful
West Page 589
distribution through warrants
Page 48
based on the size of their
claims (Classes 7, 8, 11, 12, 13, and 14 having no expected
allowable claims; Class 9 having expected allowable claims of
approximately $35 to $45 million; and Class 10 having
expected allowable claims of approximately $5 million); and
these trade creditors, who are situated differently than
investors in the Debtors, would likely prefer a cash
distribution instead of a distribution through warrants
because warrants would require them to become investors in
Reorganized Hawaiian Telcom.[151]
115. Moreover, the Classes that will receive cash distributions voted in favor of
the Plan.[152]
E. The Compensation Programs Were
Developed And Proposed In Good Faith.
116. In its Objection to the Plan, the Committee argued that the Debtors’
management equity incentive program, which is part of the Plan (the
“Management Equity Incentive Plan”), was proposed in bad faith.
Page 49
However, there were no objections or challenges to the 2009 incentive
compensation program (the “2009 Incentive Program”) at the confirmation
trial.
1. The Reserve of New Common Stock for the
Management Equity Incentive Program Is Appropriate.
117. The Plan provides that 10% of the New Common Stock shall be reserved for
a Management Equity Incentive Program (as defined in the Plan), which will
be implemented by the board of directors of Reorganized Hawaiian
Telcom.[153]
118. Reservation of 10% of the New Common Stock for the Management Equity
Incentive Plan is reasonable.
2. The 2009 Incentive Program Is Appropriate.
119. The 2009 Incentive Program is a reasonable and necessary program for the
Debtors. The 2009 Incentive Program covers all of Hawaiian Telcom’s non-
sales workers, including Hawaiian Telcom’s union members and is
necessary to incentivize Hawaiian Telcom’s non-commissioned
workforce.[154]
Page 50
120. Under the 2009 Incentive Program, there are no guaranteed payments and
the company must meet its target metrics before there is any payment. The
financial performance relating to the 2009 Incentive Program has not yet
been determined and any payments thereunder will not be made until
2010.[155]
121. The payments to senior management under the 2009
Incentive Program are necessary and appropriate. As part of
the process to develop the 2009 Incentive Program, Towers
Perrin reviewed the performance compensation provisions and
analyzed the senior management’s total compensation. Towers
Perrin benchmarked the compensation against peers and with
West Page 590
Towers’ Perrin input, Hawaiian Telcom determined that senior
management’s compensation is at or below average. The 2009
Incentive Program is reasonable.[156]
122. Hawaiian Telcom presented the 2009 Incentive Program to the Court in the
Spring of 2008 as part of its incentive compensation program and the 2009
Incentive Program was part of the Plan filed in the summer. While the
Secured Lenders filed a “reservation of rights” before the confirmation trial,
no party objected to the 2009 Incentive Program at the confirmation trial and
Page 51
the Debtors’ evidence on the 2009 Incentive Program stands unrebutted.
The Secured Lenders submitted their case at the close of the confirmation
trial without raising any argument or contradicting any evidence on this
topic.
III. THE PLAN COMPLIES WITH ALL
NECESSARY STATUTORY PROVISIONS.
123. No party has contested the Plan’s compliance with most of the provisions of
section 1129 and the Debtors’ evidence stands unrebutted and unchallenged.
In those instances where the Committee challenged the statutory
requirements, its evidence and arguments were unpersuasive.
124. The Committee’s primary arguments may overlap with certain of the
statutory requirements under section 1129 of the Bankruptcy Code detailed
above. To the extent there is overlap, the evidence set forth supra is
incorporated herein.[157]
125. Based upon these Findings of Fact and Conclusions of Law, the Plan
satisfies the requirements for confirmation set forth in section 1129 of the
Bankruptcy Code.
A. The Court Has Jurisdiction And
The Debtors Are Eligible For Relief.
Page 52
126. The Court has jurisdiction over these chapter 11 cases pursuant to 28 U.S.C.
§§ 157 and 1334. Venue is proper pursuant to 28 U.S.C. §§ 1408 and 1409.
Confirmation is a core proceeding pursuant to 28 U.S.C. § 157(b) and this
Court has exclusive jurisdiction to determine whether the Plan complies with
the applicable provisions of the Bankruptcy Code and should be confirmed.
127. The Debtors were and are entities eligible for relief under section 109 of the
Bankruptcy Code.
128. The Court takes judicial notice of the docket of the chapter 11 cases
maintained by the Clerk of the Court, including, without limitation, all
pleadings and other documents filed and orders entered thereon. The Court
also takes judicial notice of all evidence proffered or adduced and all
arguments made at the hearings held before the Court during the pendency
of the chapter 11 cases.
B. The Debtors’ Plan Complies With
Section 1129(a)(1) of the Bankruptcy Code.
129. The Plan complies with all applicable provisions of the Bankruptcy Code as
required by section 1129(a)(1) of the Bankruptcy Code, including, without
limitation, sections 1122 and 1123 of the Bankruptcy Code.
1. Proper Classification (11 U.S.C. §§ 1122 And 1123(a)(1)).
130. The classification of Claims and Interests under the Plan
is proper under the Bankruptcy Code. Pursuant to sections
1122(a) and 1123(a)(1)
West Page 591
of the
Page 53
Bankruptcy Code, Article III of the Plan provides for
the separate classification of Claims and Interests into 18
Classes, based on differences in the legal nature or priority
of such Claims and Interests (other than Administrative
Expense Claims and Priority Tax Claims, which are addressed
in Article II of the Plan, and which are required not to be
designated as separate Classes pursuant to section 1123(a)(1)
of the Bankruptcy Code).
131. The Plan’s classification scheme follows the Debtors’ capital structure.[158]
Secured Claims are classified separately from General Unsecured
Claims.[159] The Plan further divides the Debtors’ prepetition unsecured debt
into separate Classes.[160] Unsecured debt is classified separately for each
Debtor, General Unsecured Claims are classified separately from Senior
Notes Claims and General Unsecured Claims are classified separately from
Equity Interests. In each instance of separate classification, the Plan
classifies Claims based upon their different rights and attributes.[161]
Page 54
132. Valid business, factual and legal reasons exist for separately classifying the
various Claims and Interests under the Plan.[162] Additionally, each of the
Claims or Interests in each particular Class is substantially similar to the
other Claims or Interests in such Class.[163]
133. The Debtors classified the Senior Notes arising under the Senior Notes
Indenture and the Subordinated Notes arising under the Subordinated Notes
Indenture (“Subordinated Notes”) separately because they are not
“substantially similar” claims.[164] Specifically, pursuant to Section 10.02 of
the Subordinated Notes Indenture, upon a chapter 11 filing of Hawaiian
Telcom, the holders of the Senior Notes Claims (Class 5) are entitled to
receive payment in full in cash before the holders of the Subordinated Notes
Claims (Class 6) are entitled to receive or retain payment or distribution of
any kind or character.[165]
134. Moreover, Senior Notes Claims (Class 5) and General Unsecured Claims
(Classes 7-14) are not substantially similar Claims.[166] General Unsecured
Page 55
Claims are not subordinated to payment in full of the Senior Notes
Claims.[167]
135. The classifications were not done for any improper purpose, and the creation
of such Classes does not unfairly discriminate between or among Holders of
Claims or Interests.[168] Each Class of Claims and Interests contains only
Claims or Interests that are substantially similar to the other Claims or
Interests within that Class.[169]
2. Specified Unimpaired Classes (11 U.S.C. § 1123(a)(2)).
136. Article III of the Plan specifies that Claims and Equity
Interests in Classes 1, 2, 4, 15 and 16 are Unimpaired.
Additionally, Article II of the Plan specifies that
Administrative Expense Claims and Priority Tax Claims are
Unimpaired,
West Page 592
although these Claims are not classified under the Plan.
3. Specified Impaired Classes (11 U.S.C. § 1123(a)(3)).
137. Article III of the Plan specifies the treatment of each Impaired Class under
the Plan, including Classes 3, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 17 and 18.
4. No Discrimination (11 U.S.C. § 1123(a)(4)).
Page 56
138. Article III of the Plan provides the same treatment for each Claim or Equity
Interest within a particular Class unless the Holder of a particular Claim or
Equity Interest has agreed to a less favorable treatment with respect to such
Claim or Equity Interest.
5. Implementation Of The Plan (11 U.S.C. § 1123(a)(5)).
139. On October 26, 2009, the Debtors filed the Plan Supplement. On October
28, 2009, November 9, 2009, and December 28, 2009, the Debtors filed
certain amendments to the Plan Supplement. The Plan Supplement complies
with the terms of the Plan, and the filing and notice of such documents was
good and proper in accordance with the Bankruptcy Code, the Bankruptcy
Rules, and the Disclosure Statement Order, and no other or further notice is
or shall be required. The Debtors are authorized to modify the Plan
Supplement following entry of the Confirmation Order in accordance with
the terms of the Plan.
140. The Plan Supplement provides adequate and proper means for the Plan’s
implementation, including, without limitation: (a) the continued corporate
existence of the Debtors; (b) the consummation of the Restructuring
Transactions; (c) generally allowing for all corporate action necessary to
effectuate the Plan, including the assumption of agreements with existing
management, appointment of the directors and officers of the Reorganized
Page 57
Debtors, the distribution of the New Common Stock and issuance of any
securities required to be issued pursuant to the Plan; (d) the adoption and
filing of the Certificates of Incorporation and the By-Laws; (e) cancellation
of existing securities and agreements and surrender of existing securities; (f)
identification of sources of consideration from which the Debtors will make
distributions under the Plan; (g) assumption of the collective bargaining
agreement with the IBEW, Local 1357, dated September 13, 2008; (h) the
effectuation of the New Term Loan; (i) the effectuation of the Warrant
Agreement; (j) the effectuation of the Litigation Trust Agreement; (k) the
effectuation and consummation of the Rights Offering; and (1) preservation
of certain of the Debtors’ Causes of Action.
141. The Secured Parties did not object to the Plan or any of the Plan Supplement
documents. The Secured Lenders filed a “reservation of rights” to the Plan
Supplement on November 6, 2009, but subsequently released their
reservation of rights and agreed on the record that the matter was
submitted.[170] At that time, the Court stated that the Plan will be confirmed,
subject to the Court’s receipt of proposed findings of fact and conclusions of
Page 58
law consistent with the evidence adduced and the arguments made at the
confirmation trial.[171]
6. Non-Voting Equity Securities (11 U.S.C. § 1123(a)(6)).
142. Section 4.07 of the New Certificate of Incorporation for
Hawaiian Telcom Holdco, Inc., attached as Exhibit B to
the Plan Supplement, prohibits the issuance of
West Page 593
non-voting equity securities to the extent prohibited by
section 1123(a)(6) of the Bankruptcy Code.
7. Designation Of Directors And
Officers (11 U.S.C. § 1123(a)(7)).
143. Article V.K of the Plan identifies the directors and officers of the
Reorganized Debtors to the extent known and, together with the
representations made by the Debtors prior to and at the confirmation trial,
adequately describes the manner of selection of the remaining directors and
officers to be appointed.
144. Hawaiian Telcom Holdco, Inc.’s officers immediately prior to the Effective
Date shall serve as the initial officers of Reorganized Hawaiian Telcom on
and after the Effective Date. In addition, Article V.K states that Hawaiian
Telcom’s current President and Chief Executive Officer, Eric K. Yeaman
will be appointed to the board of directors of Reorganized Hawaiian Telcom.
Page 59
145. The Senior Secured Agent, as the representative for the Secured Lenders,
has engaged Spencer Stuart, a world renowned provider of senior-level
executive search and leadership consulting services, to assist the Debtors in
selecting additional members of the board of directors for Reorganized
Hawaiian Telcom.[172] The manner of selecting the officers and directors of
Reorganized Hawaiian Telcom is consistent with Hawaii corporate law, the
Bankruptcy Code, the interests of creditors and equity security holders and
public policy.[173] Therefore, the Plan satisfies the requirements of section
1123(a)(7) of the Bankruptcy Code.
8. Discretionary Contents Of The Plan (11 U.S.C. § 1123(b)).
146. The other provisions of the Plan are appropriate and consistent with the
applicable provisions of the Bankruptcy Code.
(a) The Plan’s Release, Injunction And
Exculpation Provisions Are Appropriate.
147. The releases by the Debtors are limited solely to Claims or Causes of Action
that belong to the Debtors. The releases are consensual and only those
parties who choose to execute and deliver releases to the Debtors pursuant to
Article XI.B.2 of the Plan will be bound by the release provision. The
Page 60
Debtors’ release of Claims and Causes of Action is a component of the
consensual Plan process.[174]
148. The Debtors’ releases were not challenged by any party in the proceeding.
The U.S. Trustee challenged the injunction and exculpation provisions, but
that dispute was settled during the confirmation trial. As amended, the
injunction and exculpation provisions were not contested by any party.
149. The Plan’s injunction is necessary to effectuate the Plan Releases and to
protect the Reorganized Debtors from any potential litigation from
prepetition creditors as they implement the provisions of the Plan after the
Effective Date. Any such litigation would hinder the efforts of the
Reorganized Debtors to effectively fulfill their responsibilities as
contemplated in the Plan and thereby maximize value for all holders of
Claims and Interests.[175]
150. The scope of the exculpation provision contained in
Article X.C of the Plan
West Page 594
is appropriately limited to the Exculpated Parties’
participation in these chapter 11 cases, has no effect on
liability that results from gross negligence
Page 61
or willful
misconduct, and does not apply to any acts or omissions
expressly set forth in and preserved by the
Plan.[176]
151. The Plan would not have materialized if the negotiating parties had not
known they would be protected from liability, other than for willful
misconduct or gross negligence, in connection therewith.[177]
(b) Section 1145 Waiver (11 U.S.C. § 1145).
152. The Plan provides that the offering, issuance, and distribution of the New
Common Stock, the New Warrants and the New Common Stock deliverable
upon exercise of the New Warrants, and any subsequent sales, resales or
transfers, or other distributions of any such securities, are exempt from any
federal or state securities laws registration requirements to the fullest extent
permitted by section 1145 of the Bankruptcy Code.
153. The Plan meets all three of the requirements for section 1145 of the
Bankruptcy Code: (a) the securities are being offered pursuant to the Plan;
(b) the recipients of any securities pursuant to the Plan (i.e., the Secured
Parties and the Senior Noteholders) hold a claim against the Debtors; and (c)
the recipients of the securities are receiving the securities in exchange for
their Claims against the Debtors.
Page 62
C. The Debtors Are Proper Debtors (11 U.S.C. § 1129(a)(2)).
154. The Debtors: (a) are proper debtors under section 109 of the Bankruptcy
Code; (b) have complied with all applicable provisions of the Bankruptcy
Code except as otherwise provided or permitted by order of the Bankruptcy
Court; and (c) have complied with the applicable provisions of the
Bankruptcy Code, the Bankruptcy Rules, the Local Bankruptcy Rules and
the Disclosure Statement Order in transmitting the Solicitation Materials and
in tabulating the votes with respect to the Plan.
D. The Debtors Proposed The Plan
In Good Faith (11 U.S.C. § 1129(a)(3)).
155. The Debtors proposed the Plan in good faith, with the legitimate and honest
purpose of reorganizing Hawaiian Telcom’s ongoing business while
maximizing the value of each of the Debtors and the recovery to creditors
and other stakeholders.
156. The negotiations that culminated in the Plan, as well as the Plan itself,
provide further evidence of the Debtors’ good faith, as the Plan assures the
fair treatment of Holders of Claims and Interests.[178]
157. The Plan is the product of arm’s length negotiations
between, among other entities, the Debtors and the Secured
Parties.[179] The negotiations were time
Page 63
consuming,
but resulted in a plan that accomplishes the goals Hawaiian
Telcom laid out at the outset of these cases.[180]
The negotiations led to a distribution of value according to
the Secured Parties’ liens and the
West Page 595
value of the unencumbered assets.[181]
158. Consistent with the overriding purpose of chapter 11, these chapter 11 cases
were filed, and the Plan was proposed, with the legitimate purpose of
allowing the Debtors to reorganize and emerge from bankruptcy with a
capital structure that will allow them to satisfy their obligations with
sufficient liquidity and capital resources.[182]
159. In addition to the extensive negotiations with the Secured Parties, the
Debtors’ management team maintained open dialogues with other key
constituents.[183] The Debtors worked with the State of Hawaii to keep the
HPUC informed about the restructuring process.[184] Further, the Debtors
maintained an open dialogue with the Committee.[185]
Page 64
160. The Debtors also worked diligently to bridge the gap between the
Committee and the Secured Parties.[186] Among other things, the Debtors
participated actively in the October 26-29, 2009 mediation in this matter and
other continuing settlement discussions.[187]
161. No one has introduced any evidence that would suggest that the Plan was not
proposed in good faith.
E. Payment For Services Or
Costs And Expenses (11 U.S.C. § 1129(a)(4)).
162. Pursuant to Article II of the Plan, all payments made or to be made by the
Debtors for services or for costs and expenses in or in connection with the
chapter 11 cases, or in connection with the Plan and incident to the chapter
11 cases, have been approved by, or are subject to the approval of, the
Bankruptcy Court as reasonable.
F. Directors, Officers And Insiders (11 U.S.C. § 1129(a)(5)).
163. The identity and affiliations of the persons proposed to serve as the initial
directors and officers of the Reorganized Debtors have been fully disclosed
to the extent known.[188] Hawaiian Telcom Holdco, Inc.’s officers
immediately prior to the Effective Date shall serve as the initial officers of
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Reorganized Hawaiian Telcom on and after the Effective Date.[189] The
Debtors have already disclosed the compensation they will receive.[190] In
addition, Article V.K states that Hawaiian Telcom’s current President and
Chief Executive Officer, Eric K. Yeaman will be appointed to the board of
directors of Reorganized Hawaiian Telcom.[191]
164. As noted in paragraph 145, above, the Senior Secured
Agent, as the representative for the Secured Lenders, has
engaged Spencer Stuart, a world renowned provider of
senior-level executive search and leadership consulting
services, to assist the Debtors in selecting additional
West Page 596
members of the board of directors for Reorganized Hawaiian
Telcom.[192] The Debtors will file a notice
identifying any additional members to be appointed to the
board of directors.
165. The manner of appointment or continuance of the proposed directors and
officers is consistent with Hawaii corporate law, the Bankruptcy Code, the
interests of creditors and equity security holders and with public policy.[193]
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The directors and officers of Reorganized Hawaiian Telcom who have been
identified to date and the process by which the remaining directors and
officers will be selected will insure that: (a) Reorganized Hawaii Telcom’s
directors and officers will have relevant and solid experience in Reorganized
Hawaiian Telcom’s business and industry and experience in financial and
management matters; (b) their appointment does not perpetuate
incompetence, lack of discretion, inexperience, or affiliations with groups
inimical to the best interests of the debtor; and (c) the control of Reorganized
Hawaiian Telcom by the proposed individuals will be beneficial.[194] The
proposed directors and officers are competent and will give Reorganized
Hawaiian Telcom both continuity and fresh insights into running the
business.[195]
G. No Rate Changes (11 U.S.C. § 1129(a)(6)).
166. The Plan does not contain any rate changes subject to the jurisdiction of any
governmental regulatory commission.
H. Best Interests Of Creditors (11 U.S.C. § 1129(a)(7)).
167. Each Holder of an Impaired Claim or Equity Interest either has accepted the
Plan or will receive or retain under the Plan, on account of such Claim or
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Equity Interest, property of a value, as of the Effective Date, that is not less
than the amount that such Holder would receive or retain if the Debtors were
liquidated under chapter 7 of the Bankruptcy Code on such date.
168. Holder of Claims in Classes 3, 7, 8, 9, 10, 11, 12, 13 and 14 are Impaired
and have voted to accept the Plan.[196] Classes 15-18 are also Impaired and
were deemed to reject the Plan.
169. Class 5 is Impaired and voted against the Plan.[197]
170. As set forth in the Disclosure Statement, Zolfo Cooper prepared a
liquidation analysis reflecting the expected recoveries in a hypothetical
chapter 7 liquidation as well as an estimate of the differences in claims and
expenses associated with a liquidation under chapter 7 of the Bankruptcy
Code.[198] Zolfo Cooper relied on members of Hawaiian Telcom as well as
Lazard in developing the liquidation analysis.[199]
West Page 597
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171. In preparing the liquidation analysis, Hawaiian Telcom assumed there would
be a forced going-concern sale of Hawaiian Telcom, instead of a piece-by-
piece liquidation of Hawaiian Telcom’s assets because liquidation and wind
down is not a possibility for Hawaiian Telcom.[200] Because the hypothetical
chapter 7 liquidation would be pursuant to a forced going-concern sale,
Zolfo Cooper applied a discount range from 15% to 30% off the midpoint of
the enterprise value plus non-core assets.[201]
172. As shown in the liquidation analysis, holders of Class 5 Senior Notes Claims
will recover as much or more value as a result of confirmation of the Plan
than through a hypothetical chapter 7 liquidation.[202] The Senior
Noteholders, the only class that voted against the Plan, will receive
approximately 2.1% recovery under the Plan instead of 0-0.9% recovery
under a chapter 7 liquidation.[203]
173. Classes 15-18 will also receive more under the Plan than they would in a
chapter 7 liquidation.[204]
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174. No party contested the best interests of creditors standard and there is no
evidence that Hawaiian Telcom’s liquidation analysis is not reasonable or
appropriate.
I. Acceptance By Certain Classes (11 U.S.C. § 1129(a)(8)).
175. Section 1129(a)(8) of the Bankruptcy Code requires that each class of claims
or interests must either accept a plan or be unimpaired under a plan. Classes
1, 2, 4 and 15 are Unimpaired Classes of Claims and Class 16 is a Class of
Unimpaired Intercompany Interests, each of which is conclusively deemed
to have accepted the Plan in accordance with section 1126(f) of the
Bankruptcy Code. Classes 3, 7, 8, 9, 10, 11, 12, 13 and 14, are Impaired
Classes and have voted to accept the Plan.[205]
176. Class 5, an Impaired Class, has voted to reject the Plan.[206] Classes 6, 17
and 18 are not receiving any distributions under the Plan and are deemed to
reject the Plan pursuant to section 1126(g) of the Bankruptcy Code.
177. The Plan does not satisfy section 1129(a)(8) of the Bankruptcy Code.
J. Treatment Of Claims Entitled To Priority Pursuant To
Section 507(a) Of The Bankruptcy Code (11 U.S.C. § 1129(a)(9)).
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178. The treatment of Administrative Claims and Priority Tax Claims as set forth
in Article II of the Plan is in accordance with the requirements of
section 1129(a)(9) of the Bankruptcy Code.
K. Acceptance By At Least One
Impaired Class (11 U.S.C. § 1129(a)(10)).
179. As set forth in the Voting Report, Classes 3, 7, 8, 9, 10, 11, 12, 13 and 14,
all of which are impaired, voted to accept the Plan.[207]
West Page 598
L. The Plan Is Feasible (11 U.S.C. § 1129(a)(11)).
180. The information in the Disclosure Statement and the evidence proffered or
adduced at or prior to the confirmation trial and in the Supporting
Declarations: (a) is persuasive and credible, (b) has not been controverted
by other evidence and (c) establishes that the Plan is feasible and
confirmation is not likely to be followed by the liquidation or the need for
further financial reorganization of Reorganized Hawaiian Telcom.
181. The Debtors sought chapter 11 protection primarily because their large debt
service obligations limited their ability to respond to the changing
competitive landscape.[208] As such, the Plan substantially reduces leverage
and debt service and allows Reorganized Hawaiian Telcom to pursue the
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strategic initiatives already underway, invest in new products and services
and improve operational results.[209]
182. Hawaiian Telcom’s business projections, strategic plan and initiatives going
forward are evidence that confirmation of a plan of reorganization is not
likely to be followed by the liquidation of Reorganized Hawaiian Telcom, or
the need for further financial reorganization.[210] The Debtors’ financial
projections — which show positive net income starting in 2011 — and their
projected debt service obligations — which are greatly reduced from
prepetition levels — demonstrate the Debtors’ ability to meet their obligations
under the Plan.[211]
183. Hawaiian Telcom thoroughly analyzed its ability to meet its obligations
under the Plan.[212] Once the Plan becomes effective, Hawaiian Telcom’s
debt obligations will be reduced by approximately $790 million.[213]
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184. Based on the projections, the Debtors’ revised strategic business plan and a
significantly deleveraged capital structure, the Debtors will be well-
positioned to compete in their industry going forward.[214]
185. No party contested the feasibility of the Plan and Hawaiian Telcom’s
evidence stands unrebutted and unchallenged.[215]
M. Payment Of Bankruptcy Fees (11 U.S.C. § 1129(a)(12)).
186. Article XIV.H of the Plan provides for the payment of all fees payable by
the Debtors under 28 U.S.C. § 1930(a).
N. Retiree Benefits (11 U.S.C. § 1129(a)(13)).
187. Article V.N of the Plan provides that on or after the Effective Date of the
Plan, the payment of all retiree benefits, as defined in section 1114 of the
Bankruptcy Code, will continue in accordance with applicable law.[216]
O. Non-Applicability Of Certain
Sections (11 U.S.C. §§ 1129(a)(14), (15) and (16)).
188. The Debtors do not owe any domestic support obligations,
are not individuals and are not nonprofit corporations.
West Page 599
Therefore, sections 1129(a)(14), 1129(a)(15) and 1129(a)(16)
of the Bankruptcy Code do not apply to these chapter 11 cases.
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P. The Debtors Complied With
Section 1129(b) of the Bankruptcy Code.
189. Hawaiian Telcom has satisfied the “cram down” requirements of sections
1129(b)(1) and (b)(2) with respect to the Impaired Classes that did not vote
to accept the Plan. The Plan is “fair and equitable” and does not
discriminate unfairly against any impaired class of claims or equity interests.
1. The Plan Is “Fair and Equitable.”
190. The Plan’s waterfall structure is premised on the satisfaction of the absolute
priority rule. Specifically, with respect to each objecting Class, no junior
Class is receiving a distribution under the Plan unless the claimants in the
higher priority objecting Class receive the full value of their claims.[217] In
addition, no Class senior to any objecting Class will receive, under the Plan,
an amount equal to more than the aggregate amount of its constituents’
allowed claims.
191. The Plan’s treatment of claims is proper because the Plan distributes value to
the Senior Noteholders and other unsecured creditors in an amount greater,
in the aggregate, than the value of the unencumbered assets.[218]
2. There Is No Unfair Discrimination Under The Plan.
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192. Based on the Debtors’ own valuation of their encumbered and
unencumbered assets, it is clear that the claims and the legal rights of: (a)
the Secured Parties, (b) the Senior Noteholders, and (c) the general
unsecured creditors are clearly different.[219] The Plan’s classifications and
allocation of value between these different classes is based on this
independent valuation. There is no unfair discrimination between these
classes.[220]
193. Hawaiian Telcom considered, among other factors, that the Senior
Noteholders typically are institutional investors.[221] Given the relatively
large claims of the Senior Noteholders, the Debtors determined that they
could distribute warrants with significant value to the Senior
Noteholders.[222] The typical claimants in the General Unsecured Claim
Classes, however, are neither institutional investors nor holders of large
claims (in comparison to Senior Noteholders), and thus, it would be
administratively inconvenient to distribute to them what would amount to de
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minimis amounts of warrants.[223] Moreover, given Reorganized Hawaiian
Telcom’s liquidity needs post-emergence, it is not feasible and would be
damaging to the Debtors to provide cash distributions to the Senior
Noteholders in the amount that they seek.[224]
194. Moreover as discussed above, issuing warrants to the Senior Noteholders
rather than common stock will save Hawaiian Telcom between $13 and $31
million in tax costs.[225]
Q. Only One Plan (11 U.S.C. § 1129(c)).
195. Other than the Plan (including previous versions
thereof), no other plan
West Page 600
has been filed for the Debtors in the chapter 11 cases.
R. Principal Purpose Of The Plan (11 U.S.C. § 1129(d)).
196. The principal purpose of the Plan is not the avoidance of taxes or the
avoidance of the application of Section 5 of the Securities Act, 15 U.S.C.
§ 77e.
S. The Debtors’ Plan Complies
With Section 1127 Of The Bankruptcy Code.
197. The Debtors have made certain non-material modifications to the Plan (the
“Plan Modifications”), which are reflected in the version of the Plan
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attached hereto. None of the modifications made since the commencement
of solicitation adversely affects the treatment of any Claim or Equity Interest
under the Plan. Prior notice regarding the substance of the modifications,
together with the filing with the Court of the Plan as modified by the Plan
Modifications and the disclosure of the Plan Modifications on the record at
the Confirmation Hearing, constitute due and sufficient notice thereof.
Accordingly, pursuant to section 1127(a) of the Bankruptcy Code and
Bankruptcy Rule 3019, none of these modifications require additional
disclosure under section 1125 of the Bankruptcy Code or resolicitation of
votes under section 1126 of the Bankruptcy Code (especially in light of
previously provided disclosures), nor do they require that Holders of Claims
or Equity Interests be afforded an opportunity to change previously cast
acceptances or rejections of the Plan. The Plan as modified and attached
hereto shall constitute the Plan submitted for confirmation by the Court. All
documents necessary to implement the Plan, including, without limitation,
those contained in the Plan Supplement, and all other relevant and necessary
documents have been negotiated in good faith and at arms’ length and shall,
upon completion of documentation and execution, be valid, binding and
enforceable agreements and not be in conflict with any federal or state law.
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198. In accordance with section 1127 of the Bankruptcy Code and Bankruptcy
Rule 3019, all Holders of Claims and Equity Interests who voted to accept
the Plan or who are conclusively presumed to have accepted the Plan are
deemed to have accepted the Plan as modified by the Plan Modifications.
No Holder of a Claim or Equity Interest shall be permitted to change its vote
as a consequence of the Plan Modifications.
199. The requirements of section 1127 of the Bankruptcy Code have been
satisfied.
T. The Debtors’ Plan Complies
With Section 1125 Of The Bankruptcy Code.
200. On August 28, 2009, the Bankruptcy Court entered the
Disclosure Statement Order [Docket No. 1131], which, among
other things: (a) approved the Disclosure Statement as
containing adequate information within the meaning of section
1125 of the Bankruptcy Code and Bankruptcy Rule
3017; (b) fixed August 14, 2009 as the Voting Record Date;
(c) fixed October 7, 2009 at 9:30 a.m. Hawaii
Standard Time as the date and time for commencement of the
confirmation trial; (d) fixed September 30, 2009 at
1:00 p.m. Hawaii Standard Time as the deadline
for objecting to the Plan; (e) fixed the date by which the
Solicitation Package (as defined in the Disclosure Statement
Order) must be distributed to holders of Claims entitled to
vote to accept or reject the Plan as within five business
days of entry of the Disclosure
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Statement Order (the
“Solicitation Deadline”); (f) approved the procedures
for soliciting, receiving and
West Page 601
tabulating votes on the Plan and for filing objections to the
Plan; (g) established the holders of Claims in Classes 3, 5,
7, 8, 9, 10, 11, 12, 13 and 14 as the only creditors entitled
to vote to accept or reject the plan; (h) approved the
Solicitation Procedures and the Solicitation Package (as
defined in the Disclosure Statement Order); (i) approved the
form and method of notice of the confirmation trial; (j)
approved the procedures associated with the Rights Offering,
including the approval of the Subscription Form; and (k)
authorized the Debtors to retain Financial Balloting Group
LLC as the securities voting agent and the subscription agent
in connection with the Rights Offering.
201. On September 22, 2009 the Bankruptcy Court approved the adjournment of
the confirmation trial to November 9, 2009 at 9:30 a.m. Hawaii Standard
Time. In connection with the adjournment of the confirmation trial, the
court fixed November 2, 2009 at 1:00 p.m. Hawaii Standard Time as the
amended deadline for voting to accept or reject the Plan (the “Amended
Voting Deadline”) and fixed November 2, 2009 at 1:00 p.m. Hawaii
Standard Time as the amended deadline for objecting to the Plan (the
“Amended Objection Deadline”).
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202. All parties required to be provided notice have been provided due, proper,
timely and adequate notice in compliance with the Disclosure Statement
Order, Bankruptcy Rules 2002(b), 3017 and 3020(b) and Local Bankruptcy
Rule 3017-1. Affidavit of Service of Jane Sullivan re: Financial Balloting
Group LLC’s Service of Solicitation Packages and Related Documents on
Holders of Publicly Held Notes and Certain Other Parties [Docket No.
1221]; Affidavit of Service of Adam L. Simpson re: Solicitation Packages
for the Joint Chapter 11 Plan of Reorganization of Hawaiian Telcom
Communications, Inc. and Its Debtor Affiliates [Docket No. 1151];
Certificate of Service of Adam L. Simpson re: Notice of Adjournment of
Hearing to Consider Confirmation of the Chapter 11 Plan Filed by the
Debtors and Extension of Related Voting and Objection Deadlines [Docket
Nos. 1178 and 1179]; Certificate of Service of Adam L. Simpson re: Plan
Supplement for Proposed Joint Chapter 11 Plan of Reorganization of
Hawaiian Telcom Communications, Inc. and Its Debtor Affiliates Exhibits
“A”-“K” [Docket No. 1298].
203. Adequate and sufficient notice of the confirmation trial and any applicable
bar dates and hearings described in the Disclosure Statement Order were
given in compliance with the Bankruptcy Rules and the Disclosure
Statement Order and no other or further notice is or shall be required.
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Affidavit of Service of Jane Sullivan re: Financial Balloting Group LLC’s
Service of Solicitation Packages and Related Documents on Holders of
Publicly Held Notes and Certain Other Parties [Docket No. 1221]; Affidavit
of Service of Adam L. Simpson re: Solicitation Packages for the Joint
Chapter 11 Plan of Reorganization of Hawaiian Telcom Communications,
Inc. and Its Debtor Affiliates [Docket No. 1151]; Certificate of Service of
Adam L. Simpson re: Notice of Adjournment of Hearing to Consider
Confirmation of the Chapter 11 Plan Filed by the Debtors and Extension of
Related Voting and Objection Deadlines [Docket Nos. 1178 and 1179];
Certificate of Service of Adam L. Simpson re: Plan Supplement for
Proposed Joint Chapter 11 Plan of Reorganization of Hawaiian Telcom
Communications, Inc. and Its Debtor Affiliates Exhibits “A” — “K” [Docket
No. 1298].
204. In accordance with the Disclosure Statement Order and
Bankruptcy Rule 2002(1), on September 4, 2009, the Debtors
published the notice of the confirmation trial in The
Honolulu Advertiser, The
West Page 602
Honolulu-Star Bulletin and the national edition of the
Wall Street Journal. Affidavits of Publication of
Notice of Hearing to Consider Confirmation of the Chapter 11
Plan Filed By the Debtors and Related Voting Objection
Deadlines; Exhibits “A”-“C” [Docket No. 1275].
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205. Based on the record in the chapter 11 cases: (a) the Debtors are deemed to
have solicited acceptances of the Plan in good faith and in compliance with
the applicable provisions of the Bankruptcy Code, including, without
limitation, sections 1125(a) and (e) of the Bankruptcy Code and any
applicable non-bankruptcy law, rule or regulation governing the adequacy of
disclosure in connection with such solicitation and (b) the Debtors, the
Secured Parties and the Committee and all of their respective current or
former subsidiaries, affiliates, managed accounts or funds, officers,
directors, principals, employees, agents, financial advisors, attorneys,
accountants, investment bankers, consultants, representatives and other
Professionals have acted in “good faith” within the meaning of section
1125(e) of the Bankruptcy Code in compliance with the applicable
provisions of the Bankruptcy Code and Bankruptcy Rules in connection with
all their respective activities relating to the Plan, including, but not limited
to, any action or inaction in connection with their participation in the
activities described in section 1125 of the Bankruptcy Code and are entitled
to the protections afforded by section 1125(e) of the Bankruptcy Code.