shl Doc 2067 Filed 02/22/13 Entered 02/22/13 11:34:57 Main Document Pg 1 of 259

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1 Pg 1 of 259 James H.M. Sprayregen, P.C. Paul M. Basta Chad J. Husnick KIRKLAND & ELLIS LLP 601 Lexington Avenue New York, New York Telephone: (212) Facsimile: (212) Counsel to the Debtors and Debtors in Possession UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK ) In re: ) Chapter 11 ) MSR RESORT GOLF COURSE LLC, et al., 1 ) Case No (SHL) ) Debtors. ) Jointly Administered ) NOTICE OF FILING OF DEBTORS REVISED FINDINGS OF FACT, CONCLUSIONS OF LAW, AND ORDER CONFIRMING THE SECOND AMENDED JOINT PLAN OF REORGANIZATION OF MSR RESORT GOLF COURSE LLC, ET AL., PURSUANT TO CHAPTER 11 OF THE BANKRUPTCY CODE 1 The debtors in these chapter 11 cases, along with the last four digits of each debtor s federal tax identification number include: MSR Resort Golf Course LLC (7388); MSR Biltmore Resort, LP (5736); MSR Claremont Resort, LP (5787); MSR Desert Resort, LP (5850); MSR Grand Wailea Resort, LP (5708); MSR Resort Ancillary Tenant, LLC (9698); MSR Resort Biltmore Real Estate, Inc. (8464); MSR Resort Desert Real Estate, Inc. (9265); MSR Resort Hotel, LP (5558); MSR Resort Intermediate Mezz GP, LLC (3864); MSR Resort Intermediate Mezz LLC (7342); MSR Resort Intermediate Mezz, LP (3865); MSR Resort Intermediate MREP, LLC (9703); MSR Resort Lodging Tenant, LLC (9699); MSR Resort REP, LLC (9708); MSR Resort Senior Mezz GP, LLC (9969); MSR Resort Senior Mezz LLC (7348); MSR Resort Senior Mezz, LP (9971); MSR Resort Senior MREP, LLC (9707); MSR Resort Silver Properties, LP (5674); MSR Resort SPE GP II LLC (5611); MSR Resort SPE GP LLC (7349); MSR Resort Sub Intermediate Mezz GP, LLC (1186); MSR Resort Sub Intermediate Mezz LLC (7341); MSR Resort Sub Intermediate Mezz, LP (1187); MSR Resort Sub Intermediate MREP, LLC (9701); MSR Resort Sub Senior Mezz GP, LLC (9966); MSR Resort Sub Senior Mezz LLC (7347); MSR Resort Sub Senior Mezz, LP (9968); and MSR Resort Sub Senior MREP, LLC (9705). The location of the debtors service address is: c/o CNL-AB LLC, 1251 Avenue of the Americas, New York, New York K&E

2 Pg 2 of 259 PLEASE TAKE NOTICE that on February 21, 2013, the above-captioned debtors and debtors in possession (collectively, the Debtors ) filed the proposed Findings of Fact, Conclusions of Law, and Order Confirming the Second Amended Joint Plan of Reorganization of MSR Resort Golf Course LLC, et al., Pursuant to Chapter 11 of the Bankruptcy Code [Docket No. 2057] (the Confirmation Order ). PLEASE TAKE FURTHER NOTICE that on February 20, 2013, the Court issued a bench ruling confirming the Plan 2 and overruling any and all objections to the Plan and Confirmation and all statements and reservations of rights not consensually resolved or withdrawn unless otherwise indicated. PLEASE TAKE FURTHER NOTICE that the Debtors hereby file a revised version of the proposed Findings of Fact, Conclusions of Law, and Order Confirming the Second Amended Joint Plan of Reorganization of MSR Resort Golf Course LLC, et al., Pursuant to Chapter 11 of the Bankruptcy Code (the Revised Confirmation Order ), attached hereto as Exhibit 1. PLEASE TAKE FURTHER NOTICE that a blackline highlighting the differences between the Revised Confirmation Order and the Confirmation Order is attached hereto as Exhibit 2. PLEASE TAKE FURTHER NOTICE THAT the Revised Confirmation Order may be obtained by contacting Kurtzman Carson Consultants LLC, the Notice and Claims Agent retained by the Debtors in these chapter 11 cases (the Notice and Claims Agent ), by: (a) calling the Debtors restructuring hotline at (888) ; (b) visiting the Debtors restructuring website at: and/or (c) writing to MSR Resort Ballot 2 Capitalized terms not otherwise defined herein shall have the meaning set forth in the Revised Confirmation Order (as defined herein). K&E

3 Pg 3 of 259 Processing Center, c/o Kurtzman Carson Consultants, 2335 Alaska Avenue, El Segundo, California You may also obtain copies of any pleadings filed in these chapter 11 cases for a fee via PACER at: Dated: February 22, 2013 New York, New York /s/ Paul M. Basta James H.M. Sprayregen, P.C. Paul M. Basta Chad J. Husnick KIRKLAND & ELLIS LLP 601 Lexington Avenue New York, New York Telephone: (212) Facsimile: (212) Counsel to the Debtors and Debtors in Possession 3 K&E

4 Pg 4 of 259 EXHIBIT 1 Revised Confirmation Order K&E

5 Pg 5 of 259 UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK ) In re: ) Chapter 11 ) MSR RESORT GOLF COURSE LLC, et al., 1 ) Case No (SHL) ) Debtors. ) Jointly Administered ) FINDINGS OF FACT, CONCLUSIONS OF LAW, AND ORDER CONFIRMING THE SECOND AMENDED JOINT PLAN OF REORGANIZATION OF MSR RESORT GOLF COURSE LLC, ET AL., PURSUANT TO CHAPTER 11 OF THE BANKRUPTCY CODE MSR Resort Golf Course LLC and certain of its affiliates, as debtors and debtors in possession (collectively, the Debtors ), having: 2 a. commenced these chapter 11 cases (collectively, the Chapter 11 Cases ) by filing voluntary petitions for relief under chapter 11 of title 11 of the United States Code (the Bankruptcy Code ); b. continued to operate their businesses and manage their properties as debtors in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code; 1 The debtors in these chapter 11 cases, along with the last four digits of each debtor s federal tax identification number include: MSR Resort Golf Course LLC (7388); MSR Biltmore Resort, LP (5736); MSR Claremont Resort, LP (5787); MSR Desert Resort, LP (5850); MSR Grand Wailea Resort, LP (5708); MSR Resort Ancillary Tenant, LLC (9698); MSR Resort Biltmore Real Estate, Inc. (8464); MSR Resort Desert Real Estate, Inc. (9265); MSR Resort Hotel, LP (5558); MSR Resort Intermediate Mezz GP, LLC (3864); MSR Resort Intermediate Mezz LLC (7342); MSR Resort Intermediate Mezz, LP (3865); MSR Resort Intermediate MREP, LLC (9703); MSR Resort Lodging Tenant, LLC (9699); MSR Resort REP, LLC (9708); MSR Resort Senior Mezz GP, LLC (9969); MSR Resort Senior Mezz LLC (7348); MSR Resort Senior Mezz, LP (9971); MSR Resort Senior MREP, LLC (9707); MSR Resort Silver Properties, LP (5674); MSR Resort SPE GP II LLC (5611); MSR Resort SPE GP LLC (7349); MSR Resort Sub Intermediate Mezz GP, LLC (1186); MSR Resort Sub Intermediate Mezz LLC (7341); MSR Resort Sub Intermediate Mezz, LP (1187); MSR Resort Sub Intermediate MREP, LLC (9701); MSR Resort Sub Senior Mezz GP, LLC (9966); MSR Resort Sub Senior Mezz LLC (7347); MSR Resort Sub Senior Mezz, LP (9968); and MSR Resort Sub Senior MREP, LLC (9705). The location of the debtors service address is: c/o CNL-AB LLC, 1251 Avenue of the Americas, New York, New York Unless otherwise noted, capitalized terms used but not defined herein shall have the meanings ascribed to them in the Debtors Second Amended Joint Plan of Reorganization of MSR Resort Golf Course LLC, et al., Pursuant to Chapter 11 of the Bankruptcy Code, dated February 21, 2013 [Docket No. 2061] (as the same may have been subsequently modified, supplemented, and amended, the Plan ). The rules of interpretation set forth in Article I.B of the Plan shall apply to this order (the Confirmation Order ). 1

6 Pg 6 of 259 c. filed, on August 1, 2012, the Joint Plan of Reorganization of MSR Resort Golf Course LLC, et al., Pursuant to Chapter 11 of the Bankruptcy Code [Docket No. 1356] and the Disclosure Statement for the Joint Plan of Reorganization of MSR Resort Golf Course LLC, et al., Pursuant to Chapter 11 of the Bankruptcy Code [Docket No. 1357], which documents were subsequently amended as set forth herein; d. filed, on August 17, 2012, the Motion of MSR Resort Golf Course LLC, et al., for Entry of an Order (A) Approving and Authorizing the Debtors to Enter Into and Perform Under the Stalking Horse Commitment Letter, (B) Approving Bidding Procedures, (C) Approving Bid Protections, (D) Scheduling Bid Deadlines and an Auction, and (E) Approving the Form and Manner of Notice Thereof [Docket No. 1417] (the Sale Motion ), and filed, on August 20, 2012, a declaration by Saul Burian of Houlihan Lokey Capital Inc. in support of the Sale Motion [Docket No. 1418]; e. filed, on September 25, 2012, the First Amended Joint Plan of Reorganization of MSR Resort Golf Course LLC, et al., Pursuant to Chapter 11 of the Bankruptcy Code [Docket No. 1576] and the Disclosure Statement for the First Amended Joint Plan of Reorganization of MSR Resort Golf Course LLC, et al., Pursuant to Chapter 11 of the Bankruptcy Code [Docket No. 1577], which documents were subsequently amended as set forth herein; f. filed, on September 26, 2012, the Motion of MSR Resort Golf Course LLC, et al., for Entry of an Order (A) Approving the Adequacy of the Disclosure Statement, (B) Approving the Solicitation and Notice Procedures with Respect to Confirmation of the Plan, (C) Approving the Form of Various Ballots and Notices in Connection Therewith, (D) Approving the Scheduling of Certain Dates in Connection with Confirmation of the Plan, and (E) Granting Related Relief [Docket No. 1584]; g. filed, on December 5, 2012, the Notice of Cancellation of Auction and Selection of Successful Bidder [Docket No. 1820]; h. filed, on December 11, 2012, the Second Amended Joint Plan of Reorganization of MSR Resort Golf Course LLC, et al., Pursuant to Chapter 11 of the Bankruptcy Code [Docket No. 1841], the Disclosure Statement for the Second Amended Joint Plan of Reorganization of MSR Resort Golf Course LLC, et al., Pursuant to Chapter 11 of the Bankruptcy Code [Docket No. 1842], and the Revised Proposed Order (A) Approving the Adequacy of the Disclosure Statement, (B) Approving the Solicitation and Notice Procedures with Respect to Confirmation of the Plan, (C) Approving the Form of Various Ballots and Notices in Connection Therewith, (D) Approving the Scheduling of Certain Dates in Connection with Confirmation of the Plan, and (E) Granting Related Relief [Docket No. 1840], which documents were subsequently amended as set forth herein; 2

7 Pg 7 of 259 i. filed, on December 13, 2012, the Second Amended Joint Plan of Reorganization of MSR Resort Golf Course LLC, et al., Pursuant to Chapter 11 of the Bankruptcy Code [Docket No. 1848] and the Disclosure Statement for the Second Amended Joint Plan of Reorganization of MSR Resort Golf Course LLC, et al., Pursuant to Chapter 11 of the Bankruptcy Code [Docket No. 1849] (the Disclosure Statement ), which documents were subsequently amended as set forth herein; j. distributed solicitation materials, on or before December 17, 2012, to Holders of Claims entitled to vote on the Plan, contract and lease counterparties, and parties in interest, consistent with the Bankruptcy Code, the Federal Rules of Bankruptcy Procedure (the Bankruptcy Rules ), and the Order (A) Approving the Adequacy of the Disclosure Statement, (B) Approving the Solicitation and Notice Procedures with Respect to Confirmation of the Plan, (C) Approving the Form of Various Ballots and Notices in Connection Therewith, (D) Approving the Scheduling of Certain Dates in Connection with Confirmation of the Plan, and (E) Granting Related Relief, entered on December 14, 2012 [Docket No. 1851] (the Disclosure Statement Order ), which Disclosure Statement Order also approved, among other things, solicitation procedures and related notices, forms, and ballots (collectively, the Solicitation Packages ), as evidenced by the Affidavit of Service of Robert D. Tomasch re: Documents Served on December 14, 2012, filed December 18, 2012 [Docket No. 1867] (the Solicitation Affidavit ); k. published, on December 17, 2012, notice of the Confirmation Hearing (the Confirmation Hearing Notice ) in The Wall Street Journal (National Edition) to provide notice to creditors who are unknown or not reasonably ascertainable by the Debtors and creditors whose identities are known but whose addresses are unknown by the Debtors, as evidenced by the Affidavit of Publication of the Confirmation Hearing Notice in The Wall Street Journal (National Edition), filed December 19, 2012 [Docket No. 1872] (the Publication Affidavit ); l. filed, on December 31, 2012, January 8, 2013, February 4, 2013, February 13, 2013, and February 21, 2013, the Plan Supplement for the Second Amended Joint Plan of Reorganization of MSR Resort Golf Course LLC, et al., Pursuant to Chapter 11 of the Bankruptcy Code [Docket Nos. 1900, 1920, 2018, 2039, and 2066], which includes the following documents: (i) the form of the Purchase Agreement; (ii) the List of Assumed Executory Contracts and Unexpired Leases; (iii) the List of Rejected Executory Contracts and Unexpired Leases; (iv) the Retained Causes of Action; (v) the form of the Liquidator Agreement; (vi) the form of Amended Hilton Management Agreements; and (vii) the form of Amended Claremont Management Agreement (as the same may have been subsequently modified, supplemented, or otherwise amended from time to time, the Plan Supplement ), and with the following supplements and amendments to the Plan Supplement having been filed thereafter; 3

8 Pg 8 of 259 m. filed, on January 8, 2013, the Notice of Filing of Exhibit to the Plan Supplement for the Second Amended Joint Plan of Reorganization of MSR Resort Golf Course LLC, et al., Pursuant to Chapter 11 of the Bankruptcy Code [Docket No. 1920]; n. filed, on January 10, 2013, the Declaration of Evan Gershbein on Behalf of Kurtzman Carson Consultants, LLC Pursuant to Local Bankruptcy Rule (A) Regarding Voting and Tabulation of Ballots Cast on the Proposed Second Amended Joint Plan of Reorganization of MSR Resort Golf Course LLC, et al., Pursuant to Chapter 11 of the Bankruptcy Code [Docket No. 1933] (the Voting Certification ); o. filed, on January 31, 2013, the Second Amended Joint Plan of Reorganization of MSR Resort Golf Course LLC, et al., Pursuant to Chapter 11 of the Bankruptcy Code [Docket No. 2001], which document was subsequently amended as set forth herein; p. filed, on January 31, 2013, (i) the Memorandum of Law of MSR Resort Golf Course LLC, et al. in Support of Confirmation of the Proposed Second Amended Joint Plan of Reorganization of MSR Resort Golf Course LLC, et al., Pursuant to Chapter 11 of the Bankruptcy Code [Docket No. 2002] (the Plan Confirmation Brief ), (ii) the Reply in Support of Confirmation of the Proposed Second Amended Joint Plan of Reorganization of MSR Resort Golf Course LLC, et al., Pursuant to Chapter 11 of the Bankruptcy Code [Docket No. 2004], (iii) the Declaration of Saul Burian in Support of (A) Confirmation of the Proposed Second Amended Joint Plan of Reorganization of MSR Resort Golf Course LLC, et al., Pursuant to Chapter 11 of the Bankruptcy Code and (B) the Debtors Reply in Support of Confirmation of the Proposed Second Amended Joint Plan of Reorganization of MSR Resort Golf Course LLC, et al., Pursuant to Chapter 11 of the Bankruptcy Code [Docket No. 2006]; and (iv) the Declaration of Mohsin Y. Meghji in Support of Confirmation of the Proposed Second Amended Joint Plan of Reorganization of MSR Resort Golf Course LLC, et al., Pursuant to chapter 11 of the Bankruptcy Code [Docket No. 2003] (the Meghji Declaration ); q. filed on February 2, 2013, Amended Declaration of Saul Burian in Support of (A) Confirmation of the Proposed Second Amended Joint Plan of Reorganization of MSR Resort Golf Course LLC, et al., Pursuant to Chapter 11 of the Bankruptcy Code and (B) the Debtors' Reply in Support of Confirmation of the Proposed Second Amended Joint Plan of Reorganization of MSR Resort Golf Course LLC, et al., Pursuant to Chapter 11 of the Bankruptcy Code [Docket No. 2013] (the Burian Declaration ); r. filed on February 4, 2013, Notice of Filing of Key Terms of Liquidator Agreement [Docket No. 2023]; s. filed, on February 12, 2013, the Motion of MSR Resort Golf Course LLC, et al., For Entry of an Order Approving Immaterial Modifications to the Second Amended Joint Plan of Reorganization of MSR Resort Golf Course LLC, et al., 4

9 Pg 9 of 259 Pursuant to Chapter 11 of the Bankruptcy Code Without the Need For Further Solicitation of Votes [Docket No. 2029] (the Motion to Amend ); t. filed, on February 12, 2013, the Supplemental Declaration of Saul Burian in Support of Confirmation of the Proposed Second Amended Joint Plan of Reorganization of MSR Resort Golf Course LLC, et al., Pursuant to Chapter 11 of the Bankruptcy Code [Docket No. 2030]; u. filed, on February 12, 2013, the Second Amended Joint Plan of Reorganization of MSR Resort Golf Course LLC, et al., Pursuant to Chapter 11 of the Bankruptcy Code [Docket No. 2032], which document was subsequently amended as set forth herein; and v. filed, on February 21, 2013, the Second Amended Joint Plan of Reorganization of MSR Resort Golf Course LLC, et al., Pursuant to Chapter 11 of the Bankruptcy Code [Docket No. 2061]. The United States Bankruptcy Court for the Southern District of New York (the Bankruptcy Court ) having: a. entered the Order (A) Approving and Authorizing the Debtors to Enter Into and Perform Under the Stalking Horse Commitment Letter, (B) Approving Bidding Procedures, (C) Approving Bid Protections, (D) Scheduling Bid Deadlines and an Auction, and (E) Approving the Form and Manner of Notice Thereof [Docket No. 1567] (the Original Bid Procedures Order ) on September 24, 2012, and the Supplemental Order (A) Approving and Authorizing the Debtors to Enter into and Perform Under the Stalking Horse Commitment Letter, (B) Approving Bidding Procedures, (C) Approving Bid Protections, (D) Scheduling Bid Deadlines and an Auction, and (E) Approving the Form and Manner of Notice Thereof [Docket No. 1740] (the Supplemental Bid Procedures Order, together with the Original Bid Procedures Order, the Bid Procedures Order ) on November 7, 2012; b. entered the Disclosure Statement Order on December 14, 2012; c. set February 4, 2013, at 10:00 a.m., prevailing Eastern Time, as the date and time for the commencement of the Confirmation Hearing pursuant to Bankruptcy Rules 3017 and 3018 and sections 1126, 1128, and 1129 of the Bankruptcy Code; d. set February 4, 2013, at 10:00 a.m., prevailing Eastern Time, as the date and time for the hearing on the Motion of 450 Lex Private Limited and C Hotel Mezz Private Limited to Enforce the GIC RE Order and Strike the Objection of Five Mile Capital Partners LLC to Confirmation of the Second Amended Joint Plan of Reorganization of MSR Resort Golf Course LLC, et al. [Docket No. 1959] (the Motion to Strike ); 5

10 Pg 10 of 259 e. reviewed the Plan, Disclosure Statement, the Plan Supplement, the Bid Procedures Order, the Plan Confirmation Brief, the Burian Declaration, the Voting Certification, and all other filed pleadings, exhibits, statements, affidavits, declarations, and comments regarding Confirmation of the Plan, including all objections, statements, and reservations of rights made with respect thereto; f. reviewed the Notice of Filing of Certain Agreements Between NA RE (XIV) Private Limited and KSL Capital Partners LLC and its Affiliate [Docket No. 1737] and the Notice of Filing of Amendment to Agreement Between NA RE (XIV) Private Limited and ZZZ Investment, Ltd. [Docket No. 2005] (together, the NA RE KSL Agreements ); g. held hearings to: (i) approve the Original Bid Procedures Order on September 10, 2012; (ii) find whether GIC RE is entitled to protection as a good faith purchaser under section 363(m) and (n) of the Bankruptcy Code on October 15, 2012, and thereafter approve the Supplemental Bid Procedures Order on November 7, 2012; and (iii) approve the Disclosure Statement and Solicitation Procedures, among other things, on December 13, 2012; h. heard the statements, arguments, and objections made by counsel in respect of Confirmation of the Plan; i. considered all oral representations, testimony, documents, filings, and other evidence regarding Confirmation of the Plan; j. for the reasons stated in the Bankruptcy Court s bench ruling on February 20, 2013 (the Bench Ruling ), which Bench Ruling is hereby incorporated in its entirety in this Order by reference, as though fully set forth in this Order, overruled any and all objections to the Plan and Confirmation thereof and all statements and reservations of rights not consensually resolved or withdrawn unless otherwise indicated; and k. taken judicial notice of the papers and pleadings filed in the Chapter 11 Cases. NOW, THEREFORE, it appearing to the Bankruptcy Court that notice of the Confirmation Hearing and the opportunity for any party in interest to object to Confirmation have been adequate and appropriate as to all Entities affected or to be affected by the Plan and the transactions contemplated thereby, and the legal and factual bases set forth in the documents filed in support of Confirmation and presented at the Confirmation Hearing establish just cause for the relief granted herein; and after due deliberation thereon and good cause appearing therefore: 6

11 Pg 11 of 259 I. FINDINGS OF FACT AND CONCLUSIONS OF LAW IT IS HEREBY DETERMINED, FOUND, ADJUDGED, DECREED, AND ORDERED THAT: A. Eligibility for Relief. 1. The Debtors were and are Entities eligible for relief under section 109 of the Bankruptcy Code. B. Jurisdiction; Venue; Core Proceeding. 2. The Bankruptcy Court has jurisdiction over the Chapter 11 Cases pursuant to 28 U.S.C. 157 and Venue is proper pursuant to 28 U.S.C and Confirmation is a core proceeding pursuant to 28 U.S.C. 157(b). The Bankruptcy Court has exclusive jurisdiction to determine whether the Plan complies with the applicable provisions of the Bankruptcy Code and should be confirmed. C. Judicial Notice. 3. The Bankruptcy Court takes judicial notice of (and deems admitted into evidence for Confirmation) the docket of the Chapter 11 Cases and all related adversary proceedings and appeals maintained by the clerk of the applicable court or its duly appointed agent, including all pleadings and other documents on file, all orders entered, all hearing transcripts, and all evidence and arguments made, proffered, or adduced at the hearings held before the applicable court during the pendency of the Chapter 11 Cases. Any resolutions of objections to Confirmation explained on the record at the Confirmation Hearing are hereby incorporated by reference and any unresolved objections, statements, and reservations of rights are hereby overruled on the merits. 7

12 Pg 12 of 259 D. Commencement and Joint Administration of the Chapter 11 Cases. 4. On the Petition Date, each Debtor commenced a case by filing a voluntary petition for relief under chapter 11 of the Bankruptcy Code. The Bankruptcy Court entered an order consolidating for procedural purposes only and jointly administering the Chapter 11 Cases pursuant to Bankruptcy Rule 1015 [Docket No. 19]. The Debtors have operated their businesses and managed their properties as debtors in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. No trustee or examiner has been appointed in the Chapter 11 Cases. 5. The Debtors corporate organization is typical for the ownership and operation of properties by a real estate investment trust, and the Debtors capital structure is typical of entities that have utilized commercial mortgage-backed securities ( CMBS ) and multi-tranche mezzanine financing structures. The Debtors structural organization during the Chapter 11 Cases has not changed from its structure during the prepetition period. The Owner Entities own the land, buildings, and improvements on the Resorts. Certain other Debtors, the so-called Tenant Entities, lease the Resorts from, and pay rent to, the Owner Entities in accordance with certain lease agreements. During the term of each lease, the Tenant Entities are obligated to pay (a) the greater of a fixed annual base rent or percentage rent and (b) certain other additional charges to the Owner Entities. The Tenant Entities and certain other Debtors engage the Resort Managers to operate the Resorts pursuant to resort and brand management agreements. The Resort Managers, acting on behalf of the Debtors, pay all property-level expenses of the Resorts (including payroll), contract with service providers, and purchase all goods and materials utilized in the operation of the business, among other things. Generally, the Resort Managers fund the Resort operating expenses out of the Tenant Entities respective cash accounts for each Resort, over which the Resort Managers have signing authority. In certain cases, the Resort Managers 8

13 Pg 13 of 259 fund expenses out of its own accounts in such instances, the appropriate Tenant Entity reimburses the relevant Resort Manager. In exchange for these services, the Resort Managers receive management fees under the Management Agreements. 6. The Owner Entities are the borrowers under the Mortgage Loan, which encumbers, among other things, each of the Resorts. The Mortgage Loan is secured by cross-collateralized and cross-defaulted first priority mortgages on all or substantially all of the Debtors assets, including the Resorts and the products and proceeds thereof. The First Mezzanine Borrowers, the Second Mezzanine Borrowers, the Third Mezzanine Borrowers, and the Fourth Mezzanine Borrowers, each of which are structurally-subordinated Debtors, are borrowers under the First Mezzanine Loan, the Second Mezzanine Loan, the Third Mezzanine Loan, and the Fourth Mezzanine Loan, respectively. Each Mezzanine Borrower pledged, as security for the Mezzanine Loans, the equity of the entity that each Mezzanine Borrower owns directly to the respective Mezzanine Lenders, and each Mezzanine Borrower is only liable to repay the amount outstanding for its Mezzanine Loan. The Mezzanine Borrowers are organized as limited liability companies or limited partnerships. None of the Mezzanine Borrowers, other than the most senior Mezzanine Borrower, has assets other than the equity of the Mezzanine Borrower owned directly by each such Mezzanine Borrower. The most senior Mezzanine Borrower owns the equity of the Owner Entities. There are three Mezzanine Borrowers for each level of mezzanine debt. 7. The Debtors also own the Brokerage Entities, which operate as brokerage companies for the sale and leasing of property at or around La Quinta and Arizona Biltmore and enter into rental management and rental pool arrangements, respectively, with various 9

14 Pg 14 of 259 condominium and villa owners pursuant to which the condominium or villa units are booked through La Quinta s or Arizona Biltmore s reservations systems, respectively. E. The Debtors Corporate Separateness. 8. Although the Debtors constitute a unified business enterprise that owns and operates the Resorts, each Debtor and non-debtor Affiliate was separately formed. Specifically, the Debtors are comprised of two corporations, eighteen limited liability companies, and ten limited partnerships. Each Debtor was established as a separate entity as required by law: (a) each corporation was established pursuant to its own separate articles of incorporation and bylaws; (b) each limited liability company was established pursuant to a separate limited liability company operating agreement; and (c) each limited partnership was established pursuant to a separate limited partnership operating agreement. Each of these entities formation agreements requires that each Debtor maintain its separate legal identity. Each Debtor and MSR Resorts has remained in good corporate standing with the relevant authorities and has timely filed annual reports, where applicable. 9. In compliance with the formation documents, the Debtors have conducted twenty meetings of the boards of directors or managers (for each Debtor, the Board, and collectively, the Boards ), as applicable, during the Chapter 11 Cases. At these meetings, the Boards: (a) received updates on the Chapter 11 Cases, including on the status of the Debtors restructuring initiatives and marketing process; (b) asked questions of and gave high-level direction to the Debtors professionals and officers; and (c) made specific decisions regarding significant matters, including, without limitation, the sale of significant assets (e.g., the Doral), the extension of credit (e.g., the Debtors DIP Financing), and seeking the extension of the exclusive periods for the Debtors to file and solicit votes on a chapter 11 plan. The Boards recorded the minutes 10

15 Pg 15 of 259 for each of these meetings and have approved such minutes except for the Boards most recent meetings in January Pursuant to a resolution by each Board, the Boards appointed a special committee of independent directors or managers, as applicable, for each Debtor (for each Debtor, the Special Committee, and collectively, the Special Committees ), to consider transactions related to the sale of the Debtors assets and a related chapter 11 plan of reorganization. The Special Committees have held six meetings with the Debtors legal and financial advisors to consider the sale process, the GIC RE Commitment Letter, the outcome of the auction, and the Plan based on the GIC RE Sale Transaction. The Special Committees recorded and approved minutes for each of these meetings. 10. The Debtors capital and corporate structure is typical for a capital structure below a real estate investment trust parent where such capital structure is based on CMBS and mezzanine financing. Each Mezzanine Lender is party to a loan with three Debtor borrowers corresponding to each level of debt and secured by those borrowers equity interests in their respective subsidiaries. The Owner Entities, who are the borrowers on the Mortgage Loan, lease the Resorts to the Tenant Entities pursuant to the Operating Leases. The Tenant Entities are parties to the Debtors significant operating contracts, including their agreements with the Resort Managers, with the exception of contracts relating to capital improvements or investments in fixtures, furniture, and equipment at the Resorts, for which the Owner Entities are typically the contracting Debtors. In addition, the Brokerage Entities, which like the Tenant Entities lie outside of the fee ownership silos, operate as brokerage companies for the sale and leasing of property at or around La Quinta and Arizona Biltmore. 11. The Debtors utilize a cash management system that is required by the various loan agreements, including the Fourth Mezzanine Loan Agreement with Five Mile, and was 11

16 Pg 16 of 259 previously approved by the Bankruptcy Court. Specifically, the Resorts generate revenues related to hotel rooms, food and beverages, spas, golf memberships and fees, destination services, parking, store rentals and concessions, resort charges, and other miscellaneous income (collectively, Revenue ). As noted above, the Tenant Entities lease the Resort properties from the Mortgage Borrowers, pay rent to the Mortgage Borrowers in accordance with the terms of various lease agreements, and rely on the Resort Managers to operate the Resorts. The Resort Managers collect and deposit the Revenue at each Resort into certain accounts, including various depository accounts and disbursement/operating accounts (the Operating Accounts ) held by the Tenant Entities. By way of example, the Claremont Manager at the Claremont, Marriott at the Doral (prior to the Doral Sale), and Hilton at the Arizona Biltmore, La Quinta, and Grand Wailea each deposit the Revenue from the relevant Resort into the respective Operating Account for that particular Resort. The Operating Accounts fund the majority of each Resort s operating costs. Each of the Resorts put a portion of the Revenue from the Operating Accounts into a furniture, fixtures, and equipment account, and such amounts are deducted from rent due under their operating leases. Lastly, the Brokerage Entities each have their own bank accounts, which are held in their own names. 12. After funds are deducted, as applicable, from the various Operating Accounts to pay for operations of each of the Resorts and working capital is retained, the remaining Revenue is distributed, on a monthly basis, into a single cash management holding account (the Cash Management Account ) at PNC Bank, National Association ( PNC Bank ) in the name of the Mortgage Borrowers. Under the Mortgage Loan Agreement, PNC Bank allocates the funds in the Cash Management Account to separate sub-accounts (or directly to lender-controlled lockboxes at the written direction of the respective lenders) for the Mortgage 12

17 Pg 17 of 259 and Mezzanine Loans (the Waterfall ). Disbursements to the Waterfall prior to the Petition Date covered debt service on the Mortgage Loan and the Mezzanine Loans as well as certain fees and expenses, among other things, in the requisite payment priority. Since the Petition Date, the Cash Management Account has only been used to pay the fees, expenses, and debt obligations of the Mortgage Lender. Since the Petition Date, the Debtors have used an account in the name of MSR Resort Golf Course, LLC, the lead Debtor and an Owner Entity, which is funded with the proceeds of the Debtors DIP Financing and certain Revenue in excess of debt service on the Mortgage Loan, to fund the costs of the Asset Management Agreement and the payment of fees and expenses to the Debtors professionals in the Chapter 11 Cases. 13. In accordance with the Cash Management System, each Debtor maintains separate books and records, with certain unremarkable exceptions. 3 Each Debtor adheres to corporate formalities, including documenting any transfer of assets between entities and avoiding the commingling of funds. Although the Debtors prepare and file with the Bankruptcy Court monthly operating reports on a consolidated basis, they are able on request to prepare separate financial statements. Indeed, the Debtors rely on this financial information during the annual audits of their non-debtor Affiliates. Each Debtor also has its own separate tax identification number. F. The Debtors Real Estate Investment Trust Structure. 14. MSR Resorts owns certain Debtors and non-debtor Affiliates. Businesses organized as real estate investment trusts, such as MSR Resorts, are required under certain 3 These exceptions are MSR Resort Intermediate Mezz GP, LLC; MSR Resort Intermediate MREP, LLC; MSR Resort REP, LLC; MSR Resort Senior Mezz GP, LLC; MSR Resort Senior MREP, LLC; MSR Resort Silver Properties, LP; MSR Resort SPE GP II LLC; MSR Resort SPE GP LLC; MSR Resort Sub Intermediate Mezz GP, LLC; MSR Resort Sub Intermediate MREP, LLC; MSR Resort Sub Senior Mezz GP, LLC; and MSR Resort Sub Senior MREP, LLC. These entities are either (a) outside of the Debtors fee owner stack or (b) do not have any significant assets, liabilities, or operations. 13

18 Pg 18 of 259 regulations and the Internal Revenue Code to respect the corporate separateness among their affiliates to qualify for certain preferential treatment. The Debtors treat themselves as disregarded entities for tax purposes and, therefore, their income is reflected on the tax returns of certain of their non-debtor affiliates, including MSR Resorts. 15. In addition to its interests in certain Debtors and non-debtor Affiliates, the Debtors represented that MSR Resorts is the owner of record for certain registered and unregistered trademarks, service marks, trade names, and logos and various copyrights for promotional and operational materials and other works relating to the Grand Wailea, La Quinta, and Arizona Biltmore that the Debtors use in the ordinary course of business. These assets are subject to a security interest of the Mortgage Lender on account of the Mortgage Loan under that certain Trademark Security Agreement, dated January 9, 2006, among certain of the Debtors, MSR Resorts, and the Mortgage Lender, and that certain Joinder to and Modification of Trademark Security Agreement, dated May 30, 2008, among certain of the Debtors, MSR Resorts, MS Resort Purchaser LLC ( Resort Purchaser ), and the Mortgage Lender (as such agreements have been amended from time to time). 16. The Debtors represented that Resort Purchaser is the owner of record for certain registered and unregistered trademarks, service marks, trade names, and logos and various copyrights for promotional and operational materials and other works relating to the Claremont and the White Course. These assets are subject to a security interest of the Mortgage Lender on account of the Mortgage Loan under that certain Trademark Security Agreement, dated January 9, 2006, among certain of the Debtors, MSR Resorts, and the Mortgage Lender, and that certain Joinder to and Modification of Trademark Security Agreement, dated May 30, 2008, among 14

19 Pg 19 of 259 certain of the Debtors, MSR Resorts, Resort Purchaser, and the Mortgage Lender (as such agreements have been amended from time to time). G. The Debtors Compliance with Loan Agreements. 17. The Debtors and their non-debtor Affiliates, such as MSR Resorts, are required to respect their corporate separateness under, among other things, the Mortgage Loan, each Mezzanine Loan Agreement (including the Fourth Mezzanine Loan Agreement), and other financing agreements to which the Debtors are parties. For example, Five Mile s loan agreement, the Fourth Mezzanine Loan Agreement, specifically requires certain of the corporate structure s special purpose entities including the Mezzanine Borrower to which Five Mile loaned money to take numerous steps to ensure that a Court would not view the structure as a single economic entity. 4 To that end, the Fourth Mezzanine Loan Agreement requires that the Fourth Mezzanine Borrowers: maintain accurate and separate books, records, and accounts ( 5.1.4(b), (f), (g)); fairly allocate the salaries and expenses among entities that may share the same officers or employees ( 5.1.4(c)); fairly allocate the costs incurred if multiple entities agree to jointly do business with vendors or service providers, or share overhead costs ( 5.1.4(d)); strictly conduct their affairs in accordance with their organizational documents, hold regular board meetings, and observe all organizational formalities ( 5.1.4(f), (g)); obtain the required consent before authorizing any action ( 5.1.4(f)); maintain assets in a manner where it is easy to segregate, identify, and ascertain such assets ( 5.1.4(g)); hold itself out as a legal entity, separate and distinct from any other entity, including conducting business in its own name and using separate stationery, invoices, and checks ( 5.1.4(g)); 4 A copy of the Fourth Mezzanine Loan Agreement is attached to the Burian Declaration as Exhibit A. 15

20 Pg 20 of 259 prepare separate tax returns and financial statement or, if consolidated, then each entity must be listed as a separate member of the group ( 5.1.4(g)); transact business between its parent or any affiliate on an arm s-length basis and pursuant to enforceable agreements (5.1.4(g), Exhibit C I.D(h)); not commingle assets or funds with other entities ( 5.1.4(g), 5.2.6); include at least two independent directors on the organization s board (Exhibit C I.D(c)); and maintain adequate capital in light of its contemplated business operations (Exhibit C I.D(i)). 18. The Fourth Mezzanine Loan Agreement provides model language for the Fourth Mezzanine Borrower s organizational documents to evidence such entities existence as special purpose entities, including a section titled Separateness Covenants that contains requirements similar to the list above to make evident the special purpose entity s separateness from its affiliates. The Fourth Mezzanine Loan Agreement required that the Debtors obtain a Non-Consolidation Opinion. This opinion found that the various entities affairs were segregated and readily distinguishable, noted the existence of prejudice associated with consolidation to creditors who reasonably relied on the separate assets and existence, and concluded that it would be unlikely for a court to consolidate the entities in bankruptcy The Debtors formation documents further establish certain anti-stacking requirements that prohibit the overlap of certain independent directors and managers (a) between the General Partners of the Owner Entities and the Mezzanine Borrowers, Brokerage Entities, or MSR Resorts and (b) between the Mezzanine Borrowers and their Parent Entities. 20. Five Mile has not alleged any breach of the separateness covenants or the anti-stacking provisions. 5 See Letter from Lowndes Drosdick Doster Kantor & Reed, P.A. to The Persons Listed on Schedule I, at (January 9, 2006), attached to the Burian Declaration as Exhibit B. 16

21 Pg 21 of The Debtors have respected each Debtor s corporate separateness at all times during the Chapter 11 Cases, including, without limitation, as part of: (a) entry into the DIP Facility (including the entry of the DIP Orders) with the Debtors DIP Lenders, including Five Mile; (b) negotiating and seeking approval of the Marriott Settlement; and (c) in connection with the Hilton Adversary Proceeding. The Debtors creditors, in particular the Debtors secured lenders, have specifically relied on the corporate separateness of the various entities in analyzing their strategic options and in making their investments, both before and during the Chapter 11 Cases. Indeed, investors routinely rely on this corporate separateness when investing in entities similar to the Debtors. Likewise, the Debtors have sought to conduct themselves with sensitivity toward the separateness of these entities and structured the Plan to account for the rights and remedies of the creditors of each Debtor. H. Restructuring Initiatives. 22. Starting over two years ago, the Debtors and their stakeholders in particular their most junior stakeholders, Five Mile and equity holders began a process to use the tools of chapter 11 to maximize the value of the Debtors iconic, irreplaceable Resort assets for the benefit of all stakeholders. The Debtors resisted early pressure to sell all of their assets to GIC RE and, one by one, convinced the other parties in interest including GIC RE, MetLife, and the Creditors Committee to support their proposed restructuring process and provide the Debtors junior stakeholders with every opportunity to make a committed restructuring proposal. Thus, in their efforts to maximize value during the course of the Chapter 11 Cases, the Debtors entered into various stipulations with their stakeholders to allow the Debtors to partake in value maximizing restructuring initiatives. 17

22 Pg 22 of Due to these stipulations, the Debtors, along with their professionals, were able to successfully pursue their three value-maximizing restructuring initiatives. First, the Debtors won approval of a settlement that, among other things, restructured the La Quinta golf membership deposit liabilities, thereby stabilizing future cash flows and reducing the present value of approximately $185 million in contingent membership obligations by nearly 50 percent. Second, the Debtors sold the Doral (not including the White Course) free and clear of the Marriott Agreements and used the proceeds to reduce mortgage indebtedness by approximately $150 million with a minimal effect on the Debtors net operating income. Third, the Debtors addressed the Hilton Management Agreements by obtaining an order estimating damages liability for potentially rejecting the Hilton Management Agreements at approximately $124 million, which is slightly more than one-third of the $334 million of potential damages Hilton asserted, thereby permitting the Debtors, their stakeholders, and other parties interested in acquiring the Resorts, including existing stakeholders, to evaluate a purchase of the Resorts free and clear of the Hilton Management Agreements or to use the right to terminate such agreements to renegotiate the terms of the Hilton Management Agreements with Hilton. The Purchaser and Hilton successfully negotiated the terms of the Amended Hilton Management Agreements. I. GIC RE Settlement. 24. On September 19, 2011, after arm s-length, good faith negotiations between the parties, the Debtors, certain of their indirect equity holders, GIC RE, and Five Mile entered into the GIC RE Settlement, which provided the Debtors with the additional time they needed to implement their restructuring initiatives while providing certain guarantees for GIC RE. Under the GIC RE Settlement, among other things, the Debtors, certain of their indirect equity holders, and Five Mile agreed, upon the occurrence of a termination event (such as the failure to make a 18

23 Pg 23 of 259 payment of interest or expenses when due to GIC RE), or the occurrence of the outside date, for the Debtors to commence an auction process in an effort to sell the Debtors Resorts to the highest or otherwise best bid, and the parties also agreed to seek confirmation of a plan of reorganization implementing the sale resulting from such auction process by December 15, The Debtors, certain of their indirect equity holders, and Five Mile also agreed that GIC RE could credit bid of the amounts due on the Second Mezzanine Loan and Third Mezzanine Loan and act as stalking horse and receive a reasonable break-up fee as the stalking horse unless the Debtors received a higher or otherwise better bid. Five Mile was a party to the GIC RE Settlement. The GIC RE Settlement was approved and so ordered by this Court on November 16, 2012 [Docket No. 865] (the GIC RE Order ). The GIC RE Order provided that the parties to the GIC RE Settlement, including Five Mile, shall not directly or indirectly seek and shall not support others in seeking (a) any modification, vacateur, amendment or stay of the milestones contained in the Stipulation... or (b) any order, injunction or other relief that would affect the milestones... or otherwise interfere with the auction of the Debtors assets, without the express written consent of each party to the Stipulation. GIC RE Order 11. J. MetLife Settlement. 25. On November 4, 2011, after arm s-length, good faith negotiations between the parties, the Debtors, certain of their indirect equity holders, and MetLife entered into the MetLife Settlement, which, among other things, provided that MetLife would support the extension of the Debtors exclusive periods to file and solicit acceptances of a chapter 11 plan up to September 1, 2012, and would compromise default interest through such date, reducing MetLife s claim for default interest by nearly $5.8 million. By providing that MetLife would support the Debtors exclusive periods, the MetLife Settlement helped provide the Debtors with 19

24 Pg 24 of 259 valuable additional time to both implement their restructuring initiatives and to market the Debtors assets in a robust manner K. The Committee Settlement. 26. On June 25, 2012, the Debtors and the Creditors Committee entered into the Committee Settlement pursuant to which the Creditors Committee generally agreed to support the extension of the Debtors exclusive periods to file and solicit acceptance of a chapter 11 plan as well as any plan proposed by the Debtors that satisfied certain criteria. The Committee Settlement helped provide the Debtors with additional time to market the Debtors assets to maximize the value of the Estates. L. Marketing Efforts During the Chapter 11 Cases. 27. Over the course of the Chapter 11 Cases, the Debtors explored a variety of plan structures with the goal of maximizing the value of the Estates. As explained in detail below, the Debtors Boards and Special Committees, as applicable, remained apprised of the Debtors efforts to maximize value at all times and used their business judgment to make decisions on the final structure of the deal and related plan of reorganization. 28. The Debtors preference, from the beginning, was to structure their restructuring as a reorganization or equity sale to present the best recovery to all stakeholders. As a result, the Debtors worked with potential plan sponsors to finalize the terms of a potential new money investment as part of a reorganization or equity sale and, in consultation with their financial advisor, engaged in discussions with dozens of potential new money investors, including the Debtors current indirect equity owners and Five Mile. As part of this process, the Debtors professional advisors established a dataroom, distributed marketing materials to potential investors, and facilitated on-site tours of the Resorts, among other things. The Debtors also marketed the Resorts on an individual basis, including focused efforts on the Arizona Biltmore 20

25 Pg 25 of 259 and the Claremont. At this same time, the Debtors current indirect equity owners and Five Mile were also out to market in an effort to locate additional equity investors. On August 1, 2012, the Debtors filed a plan of reorganization and disclosure statement contemplating a potential equity sponsor or auction plan. 29. In conjunction with their efforts to identify a potential equity investor or asset purchaser, the Debtors reengaged GIC RE to obtain a bid to serve as a stalking horse purchaser of the Resorts. Through July 2012, MSR Resorts made all payments contemplated by the GIC RE Settlement and MetLife Settlement. The Debtors, however, eventually recognized that MSR Resorts would not pay GIC RE in full in cash by September 1, 2012, as required under the GIC RE Settlement. In addition, Five Mile and the Debtors existing equity holders did not fund the interest payments due under the GIC RE Settlement, and MSR Resorts was subsequently unable to make the August 1, 2012 payment to GIC RE. As a result, the Debtors were required to develop an auction process consistent with their obligations under the GIC RE Settlement, which was consented to by the Debtors key stakeholders, including Five Mile. These discussions were productive and led to the Debtors and GIC RE agreeing to the terms of the GIC RE Commitment Letter. 30. As part of the negotiation of the GIC RE Commitment Letter, the Debtors sought to structure the transaction as a reorganization or equity sale. Unfortunately, the Debtors were unable to obtain GIC RE s (or anyone else s) agreement to enter into a reorganization or equity sale transaction. The Debtors, consistent with their fiduciary duties and, as set forth more fully below, recognizing that a chapter 7 liquidation or out-of-court foreclosure would yield no better results, agreed to proceed with the transaction as an asset sale. Thus, on August 16, 2012, after several rounds of negotiations between the Debtors and GIC RE, the Debtors and GIC RE 21