-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TKe/6khW67yVPIM3t0vEjs+FWSwXeuvzdwUIYn0ZgC1ugY+6/toFhliQsZltEcov L69jYvvKmjIYpCoXlrOQQw== 0000063330-97-000017.txt : 19970327 0000063330-97-000017.hdr.sgml : 19970327 ACCESSION NUMBER: 0000063330-97-000017 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970326 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MAUI LAND & PINEAPPLE CO INC CENTRAL INDEX KEY: 0000063330 STANDARD INDUSTRIAL CLASSIFICATION: CANNED, FRUITS, VEG & PRESERVES, JAMS & JELLIES [2033] IRS NUMBER: 990107542 STATE OF INCORPORATION: HI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-06510 FILM NUMBER: 97563475 BUSINESS ADDRESS: STREET 1: PO BOX 187 STREET 2: 120 KANE ST CITY: KAHULUI MAUI STATE: HI ZIP: 96732 BUSINESS PHONE: 8088773351 MAIL ADDRESS: STREET 1: PO BOX 187 CITY: KAHULUI STATE: HI ZIP: 96732 10-K405 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended December 31, 1996 Commission file number 0-6510 MAUI LAND & PINEAPPLE COMPANY, INC. (Exact name of registrant as specified in its charter) HAWAII 99-0107542 (State or other jurisdiction (IRS Employer Identification of incorporation or organization) number) P.O. Box 187 120 Kane Street KAHULUI, MAUI, HAWAII 96733-6687 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (808)877-3351 Securities registered pursuant to Section 12(g) of the Act: Common Stock, without Par Value (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value, as of February 3, 1997, of the voting stock held by nonaffiliates of the registrant: $43,408,000. Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at February 3, 1997 Common Stock, without Par Value 1,797,125 Shares Documents incorporated by reference: Parts I, II and IV -- Portions of the 1996 Annual Report. Part III -- Portions of the Proxy Statement, dated March 28, 1997. Exhibit Index--pages 20-23. PART I Item 1. Business (a) General Maui Land & Pineapple Company, Inc. is a Hawaii corporation, the successor to a business organized in 1909. The Company consists of a land-holding and operating parent company as well as its principal wholly-owned subsidiaries, Maui Pineapple Company, Ltd., Kapalua Land Company, Ltd., Kapalua Investment Corp., Kapalua Waste Treatment Company, Ltd., Kapalua Water Company, Ltd. and Honolua Plantation Land Company, Inc. The major operating subsidiaries are Maui Pineapple Company, Ltd. and Kapalua Land Company, Ltd. The Company, as used herein, refers to the parent and all of its subsidiaries. The Company also participates in joint ventures which are accounted for by the equity method. The most significant of these ventures are Kaahumanu Center Associates, owner and operator of a regional shopping center, and Plantation Club Associates, developer of residential lots. The industry segments of the Company are as follows: (1) Pineapple - includes growing pineapple, canning pineapple in tinplated steel containers fabricated by the Company, and marketing canned pineapple products and fresh whole and cut pineapple. (2) Resort - includes the development and sale of resort real estate, property management and the operation of recreational and retail facilities and utility companies at Kapalua, Maui. It also includes the Company's investment in Plantation Club Associates and (through 1995) Kaptel Associates. (3) Commercial & Property - includes Kaahumanu Center (investment in Kaahumanu Center Associates, effective May 1, 1995), the Napili Plaza shopping center, and non-resort rentals and land sales. It also includes the Company's land entitlement and management activities. (b) Financial Information About Industry Segments The information set forth under Note 15 to Consolidated - Financial Statements on page 18 of the Maui Land & Pineapple Company, Inc. 1996 Annual Report is incorporated herein by reference. (c) Narrative Description of Business (1) Pineapple Maui Pineapple Company, Ltd. is the operating subsidiary for the Company's Pineapple segment. It owns and operates fully-integrated facilities for the production of pineapple products. Pineapple is cultivated on two company-operated plantations on Maui which provided approximately 80% of the fruit processed in 1996. The balance of fruit processed was purchased from independent Maui growers. Two pineapple crops are normally harvested from each new planting. The first, or plant crop, is harvested approximately 18 to 23 months after planting, and the second, or ratoon crop, is harvested 12 to 14 months later. Harvested pineapple is processed at the Company's cannery in Kahului, Maui, where a full line of canned pineapple products is produced, including solid pineapple in various grades and styles, juice, and juice concentrates. The cannery operates most of the year; however, over 50% of production volume takes place during June, July and August. The metal containers used in canning pineapple are produced in the Company-owned can plant on Maui. The metal is imported from manufacturers in Japan. A warehouse is maintained at the cannery site for inventory purposes. The Company sells canned pineapple products as store- brand pineapple with 100% HAWAIIAN U.S.A.TM stamped on the can lid. Its products are sold principally to large grocery chains, other food processors, wholesale grocers, and to organizations offering a complete buyers' brand program to affiliated chains and wholesalers serving both retail and food service outlets. A substantial volume of its pineapple products is marketed through food brokers. The Company also sells fresh whole pineapple to retail and wholesale grocers in Hawaii and the continental United States. In 1996 the Company sold fresh cut pineapple to customers in Hawaii and plans to expand this market to other areas in the United States. In 1996, approximately 20 domestic customers accounted for about 49% of pineapple sales. Export sales, primarily to Japan, Canada and Western Europe, amounted to approximately 5.7%, 7.1% and 6.2% of total pineapple sales in 1996, 1995 and 1994, respectively. Sales to the U.S. government amounted to approximately 12.5%, 13.1% and 11.8% of total pineapple sales in 1996, 1995 and 1994, respectively. The Company's pineapple sales office is in Concord, California. As a service to its customers, the Company maintains inventories of its products in public warehouses in the continental United States. The balance of its products are shipped directly from Hawaii to its customers. The Company's canned pineapple products are shipped from Hawaii by ocean transportation. They are then taken by truck or rail to customers or to public warehouses. Fresh pineapple is shipped by air. The Company sells its products in competition with both foreign and U.S. companies. Its principal competitors are two U.S. companies, Dole Food Company, Inc. and Del Monte Food Co., which produce substantial quantities of pineapple products, a significant portion of which is produced in the Philippines. Producers of pineapple products in other foreign countries (particularly Thailand) are also a major source of competition. Foreign production has the advantage of lower labor costs. The Company's principal marketing advantage is the high quality of its products. Other canned fruits and fruit juices are also a source of competition. Generally, the price of the Company's products is influenced by supply and demand of pineapple and other fruits and juices. See also Part I, Item 3. (A) of this report. See also Management's Discussion and Analysis of Results of Operations and Financial Condition. (2) Resort Kapalua resort is a master-planned golf resort community on Maui's northwest coast. The property encompasses 1,650 acres bordering the ocean with three white sand beaches, and includes two hotels, 528 condominium units, seven residential subdivisions, three championship golf courses, two ten-court tennis facilities, a 22,000 square foot commercial shopping center and over ten restaurants. Water and waste transmission utilities are also included in the development. Kapalua Land Company, Ltd. is the primary developing and operating subsidiary of the Company's resort segment. Approximately 766 acres are available for further development within the Kapalua Resort. The Company, through subsidiaries and joint ventures, developed the Kapalua resort, which opened in 1975 with the Bay Course. The Company continues its ownership of three golf courses (The Bay, The Village and The Plantation Courses), one tennis facility (The Tennis Garden), the shopping center (Kapalua Shops), the land under both hotels (The Ritz-Carlton Kapalua Hotel and The Kapalua Bay Hotel), as well as various on-site administrative and maintenance facilities. The Company operates the golf and tennis facilities, the commercial shopping center, nine retail shops, a short-term rental program (The Kapalua Villas), and certain services to the resort including shuttle, security and maintenance of common areas. Kapalua Land Company receives rental income from the lease of the land under the hotels, restaurants, and certain other properties. The Kapalua Club, a membership program for the resort's property owners, is managed by the Company. The following additional wholly-owned subsidiaries of the Company are included in the Resort segment: Kapalua Water Company, Ltd. and Kapalua Waste Treatment Company, Ltd., public utilities providing water and waste transmission services for the Kapalua resort; Kapalua Advertising Company, Ltd., an in-house advertising agency; Kapalua Investment Corp., an investment holding company; and Kapalua Realty Company, Ltd. (wholly-owned by Kapalua Land Company, Ltd.) a general brokerage real estate company located within the resort. Joint ventures have enabled Kapalua to proceed with some development projects. Plantation Club Associates is an unincorporated joint venture between Kapalua Land Company, Ltd. and Rolfing Partners. It was formed in 1988 to finance and develop The Plantation at Kapalua, comprised of an 18-hole golf course (The Plantation Course) and two residential development projects (Plantation Estates Phase I and II). Three lots in Plantation Estates Phase I and allocated planning and off-site costs related to Plantation Estates Phase II remain in inventory as of December 31, 1996. See Note 3 to Consolidated Financial Statements. Kapalua Investment Corp. (KIC) was a general partner in Kaptel Associates, the partnership that owned The Ritz-Carlton Kapalua Hotel. In October of 1995, KIC transferred its 25% interest in Kaptel to the major general partner, NI Hawaii Resorts, Inc. See Note 3 to Consolidated Financial Statements. The Kapalua resort faces substantial competition from alternative visitor destinations throughout the world. Kapalua's total room inventory accounts for approximately 11% of the units available in West Maui, and approximately 6% of the total inventory on Maui. Kapalua's marketing strategies continue to target upscale visitors with a focus on golf. Major marketing promotions concentrate on positioning Kapalua prominently in the market place, most significantly through the nationally televised PGA TOUR post-season event, the Lincoln-Mercury Kapalua International. Lincoln-Mercury has agreed to continue sponsorship of this event through 1998. Advertising placements in key publications are also designed to promote Kapalua through the travel trade, consumer, golf and real estate media. See Management's Discussion and Analysis of Results of Operations and Financial Condition. (3) Commercial & Property Kaahumanu Center is the largest retail center on Maui with a gross leasable area (GLA) of approximately 573,000 square feet. On December 31, 1996, 95% of the available GLA was occupied by 120 tenants. Kaahumanu Center faces substantial competition from other retail centers in Kahului and in other areas of Maui. The Kahului area has approximately 1.6 million square feet of retail space in use or under construction. The Center's primary competitor is the Maui Mall which is located within one mile of Kaahumanu Center. Additional competition can be expected from a shopping center presently under construction. In June of 1993 Kaahumanu Center Associates (KCA) was formed to finance the expansion and renovation of and to own and operate the Kaahumanu Center. The expansion and renovation, which was completed in November of 1994, expanded the Center from approximately 315,000 to 573,000 square feet of GLA. KCA is a partnership between the Company, as general partner, and the Employees' Retirement System of the State of Hawaii (ERS), as a limited partner. Effective April 30, 1995, the Company and ERS each have a 50% ownership interest in KCA. Prior to that, the ownership interests were 99% for the Company and 1% for ERS. Napili Plaza is a 44,000 square foot retail and commercial office center located in West Maui. As of December 31, 1996, 80% of the GLA was occupied by 19 tenants. Napili Plaza faces competition from several other retail locations in the Napili area which have approximately 201,000 total square feet of retail area. The Company's land entitlement and management activities are included in the Commercial & Property segment. Land entitlement is a process of obtaining the required county, state and federal approvals to proceed with the planned development and use of a parcel of land. It requires meeting all of the conditions and restrictions which are mandated prior to such governmental approvals. The Company actively works with regulatory agencies and legislative bodies at all levels of government to obtain the necessary land zoning classifications. See Management's Discussion and Analysis of Results of Operations and Financial Condition. (4) Employees In 1996 the Company employed approximately 2,160 employees. Pineapple operations employed approximately 600 full-time and 1,040 seasonal or intermittent employees, of which approximately 47% were covered by collective bargaining agreements. Resort operations employed approximately 400 employees. Approximately 12% are part-time employees and approximately 24% were covered by collective bargaining agreements. The Company's Commercial & Property operations employed approximately 80 employees, and the balance of the employees were engaged in administrative activities. (5) Other Information The Company engages in continuous research to develop techniques to reduce costs through crop production and processing innovations and to develop and perfect new products. Improved production systems have resulted in increased productivity by the labor force. Research and development expenses approximated $489,000 in 1996, $410,000 in 1995 and $375,000 in 1994. The Company has reviewed its compliance with Federal, State and local provisions which regulate the discharge of materials into the environment or otherwise relating to the protection of the environment. With regard to prior operations, the Company does not expect any material future financial impact as a result of compliance with these laws. The Company's method of disposing of pineapple processing waste water utilizes underground injection wells. The Company's capital expenditure budget for 1997 includes $1.7 million for the completion of a system which will replace the existing system and comply with current Federal and State environmental laws. As of December 31, 1996, the Company had incurred approximately $900,000 on this project, which is expected to be completed by May of 1997. (d) Financial Information About Foreign and Domestic Operations and Export Sales. Export sales only arise in the pineapple company. Export sales of pineapple products are primarily to Japan, Western Europe and Canada. For the last three years these sales did not exceed 10% of total consolidated revenues. See Note 15 to Consolidated Financial Statements. Item 2. PROPERTIES The Company owns approximately 28,600 acres of land on Maui. Approximately 8,100 acres are used directly or indirectly in the Company's operations, and the remaining land is primarily in pasture or forest reserve. This land, most of which was acquired from 1911 to 1932, is carried on the Company's balance sheet at cost. The Company believes it has clear and unencumbered marketable title to all of the preceding property except for the following: (1) a mortgage on the fee and leasehold interest in the 36- acre Ritz-Carlton Kapalua Hotel site, which secures a loan to the ground lessee for up to $65 million (See Note 3 to Consolidated Financial Statements); (2) a perpetual conservation easement granted to the State of Hawaii on a 13-acre parcel at Kapalua; (3) certain easements and rights-of-way that do not materially affect the Company's use of such property; (4) a mortgage on the three golf courses at Kapalua, which secures the Company's $15 million revolving credit arrangement; (5) a permanent conservation easement granted to The Nature Conservancy of Hawaii, a non-profit corporation, covering approximately 8,600 acres of forest reserve land; (6) a $5,000,000 mortgage on the fee interest in Napili Plaza shopping center; and (7) a small percentage of the Company's land in various locations on which multiple claims exist and for which the Company has initiated quiet title actions. Approximately 22,400 acres of the Company's land are located in West Maui, approximately 6,200 acres are located at its Haliimaile plantation in central Maui, and approximately 28 acres are located in Kahului, Maui. The 22,400 acres in West Maui comprise a largely contiguous parcel which extends from the sea to an elevation of approximately 5,700 feet and includes nine miles of ocean frontage with approximately 3,300 lineal feet along sandy beaches, as well as agricultural and grazing lands, gulches and heavily forested areas. The Haliimaile property is situated at elevations between 1,000 and 3,000 feet above sea level on the slopes of Haleakala. Approximately 6,400 acres of Company-owned land are used directly or indirectly in the pineapple operations and approximately 1,650 acres are designated for the Kapalua resort. The Kahului acreage includes offices, a can manufacturing plant and pineapple processing cannery with interconnected warehouses at the cannery site where finished product is stored. Approximately 3,000 acres of leased land are used in the Company's pineapple operations. A major operating lease covers approximately 1,500 acres of land and expires on December 31, 1999. The balance of the leased property is covered by eleven leases expiring variously through 2012. The aggregate land rental for these leases was $415,000 in 1996. Item 3. LEGAL PROCEEDINGS A. Antidumping Petition. In June of 1994, Maui Pineapple Company, Ltd. and the International Longshoremen's and Warehousemen's Union filed an antidumping petition with the U. S. International Trade Commission and the U.S. Department of Commerce. The petition alleged that Thai producers of canned pineapple were violating U.S. and international trade laws by selling their products in the United States at less than fair value, and that such sales were causing injury to the U.S. industry producing canned pineapple. On May 30, 1995, the U.S. Department of Commerce completed its portion of the investigation, concluding that imports of canned pineapple from Thailand were being sold in the United States at less than fair value. Thai producers investigated included Dole Thailand, Ltd., The Thai Pineapple Public Co., Ltd., Siam Agro Industry Pineapple and Others Co., Ltd., and Malee Sampran Factory Public Co., Ltd. On June 30, 1995, the U.S. International Trade Commission announced its unanimous determination that the domestic industry producing canned pineapple was materially injured by reason of the unfair imports of canned pineapple from Thailand. As a result of the affirmative findings of both the U.S. Department of Commerce and U. S. International Trade Commission, antidumping duties were imposed on all imports of canned pineapple fruit from Thailand into the United States, with cash duty deposits ranging from 2% to 51%. The Thai respondents appealed the dumping calculations of the Department of Commerce to the U.S. Court of International Trade. Maui Pineapple filed a cross appeal concerning one element of the Department's determination. On November 8, 1996, the United States Court of International Trade announced its decision regarding appeals filed by the Thai respondents. The Court remanded certain issues back to the Department of Commerce for recalculation. In one of the issues, the Court ruled that the Department of Commerce's reliance on the Thai pineapple companies' normal accounting records (their allocation ratio between juice and solid pack) was inconsistent with a higher court's previous ruling. The Company strongly disagrees with the Court's decision on this issue, which could substantially reduce the duties being imposed, and is preparing to appeal the case to the Court of Appeals for the Federal Circuit. The appeal process is expected to take between 12 to 18 months. During this time, duties at the rates originally determined by the Commerce Department will continue to be imposed on canned pineapple imported into the United States from Thailand. B. Arosi Litigation. On July 10, 1996, Arosi Hawaii, Inc. ("Arosi") filed a complaint against Maui Land & Pineapple Company, Inc. ("MLP") and two of its officers, Don Young and Paul J. Meyer, entitled Arosi Hawaii, Inc. v. Maui Land & Pineapple Company, Inc., et al., Civil No. 96-0871(1) (Circuit Court of the Second Circuit, State of Hawaii). The complaint alleges that MLP's exercise of a contractual first refusal right tortiously interfered with Arosi's attempt to purchase the Kapalua Bay Hotel and Villas. Arosi had entered into an agreement to purchase the hotel from KBH Operations Limited Partnership ("KBH"). That agreement expressly acknowledged MLP's preexisting first refusal right and provided that the proposed purchase was subject to such right. The agreement also provided that Arosi could either hold the purchase in suspense or terminate the agreement and receive its escrow deposit back in the event that MLP exercised its first refusal right. MLP exercised its contractual first refusal right. Arosi then voluntarily terminated its agreement with KBH and recovered its escrow deposit. Thereafter, KBH filed a Chapter 11 bankruptcy proceeding, during which KBH explained that it filed for bankruptcy to permit the sale of the hotel without further dispute with MLP concerning its exercise of the first refusal right. The hotel was sold to a third party pursuant to a bankruptcy court order and stipulations among KBH, MLP and other parties. After closing the sale of the hotel, KBH dismissed the bankruptcy case. Arosi filed the complaint against MLP and two of its officers shortly after agreement was reached on the sale of the hotel and the related stipulations. Arosi did not assert a right to purchase the hotel during the bankruptcy proceeding. Management believes that Arosi's complaint is without merit and intends to defend the lawsuit vigorously. The litigation is still in its preliminary stages. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDER MATTERS The information set forth under the caption "Common Stock" on page 19 of the Maui Land & Pineapple Company, Inc. 1996 Annual Report is incorporated herein by reference. Item 6. SELECTED FINANCIAL DATA The information set forth under the caption "Selected Financial Data" on page 20 of the Maui Land & Pineapple Company, Inc. 1996 Annual Report is incorporated herein by reference. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION "Management's Discussion and Analysis of Results of Operations and Financial Condition" on pages 21 through 23 of the Maui Land & Pineapple Company, Inc. 1996 Annual Report is incorporated herein by reference. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The "Independent Auditors' Report," "Consolidated Financial Statements" and "Notes to Consolidated Financial Statements" on pages 7 through 18 of the Maui Land & Pineapple Company, Inc. 1996 Annual Report are incorporated herein by reference. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information set forth under the captions "Section 16(a) Beneficial Ownership Reporting Compliance" and "Election of Directors" on pages 6 through 8 of the Maui Land & Pineapple Company, Inc. Proxy Statement, dated March 28, 1997, is incorporated herein by reference. Below is a list of the names and ages of the Company's executive officers, indicating their position with the Company and their principal occupation during the last five years. The current term of the executive officers expires in May of 1997 or at such time as their successors are elected. Gary L. Gifford (49), President and Chief Executive Officer since 1995; Executive Vice President/Resort from 1987 to 1995. Paul J. Meyer (49), Executive Vice President/Finance since 1984. Douglas R. Schenk (44), Executive Vice President/Pineapple since 1995; Vice President/Pineapple from 1993 to 1995; Cannery Manager of Maui Pineapple Company, Ltd. from 1989 to 1993. Donald A. Young (49), Executive Vice President/Resort since 1995; Executive Vice President/Operations of Kapalua Land Company, Ltd. from 1992 to 1995; Vice President/Operations of Kapalua Land Company, ltd. from 1985 to 1992. Scott A. Crockford (41), Vice President/Retail Property since 1995; General Manager of Kaahumanu Center from 1989 to 1995. Warren A. Suzuki (44), Vice President/Land Management since October 1995; Vice President/Construction & Planning of Kapalua Land Company, Ltd. from May 1995 to October 1995; Director of Project Coordination of Kapalua Land Company, Ltd. from 1988 to 1995. Item 11. EXECUTIVE COMPENSATION The information set forth under the caption "Executive Compensation" on pages 9 through 13 and under the subcaption "Directors' Meetings and Committees" on pages 8 to 9 of the Maui Land & Pineapple Company, Inc. Proxy Statement, dated March 28, 1997, is incorporated herein by reference. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information set forth under the caption "Security Ownership of Certain Beneficial Owners and Management" on pages 4 through 6 of the Maui Land & Pineapple Company, Inc. Proxy Statement, dated March 28, 1997, is incorporated herein by reference. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information set forth under the caption "Compensation Committee Interlocks and Insider Participation" on page 13 of the Maui Land & Pineapple Company, Inc. Proxy Statement, dated March 28, 1997, is incorporated herein by reference. PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. Financial Statements The following Financial Statements and Supplementary Data of Maui Land & Pineapple Company, Inc. and subsidiaries and the Independent Auditors' Report are included in Item 8 of this report: Consolidated Balance Sheets, December 31, 1996 and 1995 Consolidated Statements of Operations and Retained Earnings for the Years Ended December 31, 1996, 1995 and 1994 Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994 Notes to Consolidated Financial Statements (a) 2. Financial Statement Schedules The following Financial Statement Schedule of Maui Land & Pineapple Company, Inc. and subsidiaries and the Independent Auditors' Report are filed herewith: II. Valuation and Qualifying Accounts. The Financial Statements of Kaahumanu Center Associates for the Years Ended December 31, 1996, 1995 and 1994 are filed as exhibits. The Financial Statements of Kaptel Associates for the Year Ended December 31, 1994 are filed as exhibits. a) (3) Exhibits Exhibits are listed in the "Index to Exhibits" found on pages 20 to 23 of this Form 10-K. (b) (3) Reports on Form 8-K A report on Form 8-K dated November 8, 1996 and filed on November 19, 1996, included Item 5, Other Information, and no financial statements. INDEPENDENT AUDITOR'S REPORT To the Stockholders and Directors of Maui Land & Pineapple Company, Inc.: We have audited the consolidated financial statements of Maui Land & Pineapple Company, Inc. and its subsidiaries as of December 31, 1996 and 1995 and for each of the three years in the period ended December 31, 1996, and have issued our report thereon dated February 7, 1997; such consolidated financial statements and report are included in your 1996 Annual Report and are incorporated herein by reference. Our audits also included the financial statement schedule of Maui Land & Pineapple Company, Inc. listed in Item 14. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /S/ DELOITTE & TOUCHE LLP Honolulu, Hawaii February 7, 1997 SCHEDULE II MAUI LAND & PINEAPPLE COMPANY, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
ADDITIONS ADDITIONS CHARGED BALANCE AT CHARGED TO TO OTHER BALANCE BEGINNING COSTS AND ACCOUNTS DEDUCTIONS AT END DESCRIPTION OF PERIOD EXPENSES describe describe (b) OF PERIOD (Dollars in Thousands) Allowance for Doubtful Accounts 1996 $573 $440 $ -- $(315) $698 1995 422 385 (101)(a) (133) 573 1994 $261 $171 $ -- $ (10) $422 (a) adjustment as of 4/30/95 for the exclusion of formerly consolidated amounts resulting from the conversion to the equity method of accounting for Kaahumanu Center Associates. See Note 3 to Consolidated Financial Statements. (b) write off of uncollectible accounts.
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MAUI LAND & PINEAPPLE COMPANY, INC. March 26, 1997 By /S/ GARY L. GIFFORD Gary L. Gifford President & Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. By /S/ MARY C. SANFORD Date March 26, 1997 Mary C. Sanford Chairman of the Board By /S/ RICHARD H. CAMERON Date March 26, 1997 Richard H. Cameron Vice Chairman of the Board By /S/ PAUL J. MEYER Date March 26, 1997 Paul J. Meyer Executive Vice President/Finance (Principal Financial Officer) By /S/ TED PROCTOR Date March 26, 1997 Ted Proctor Controller & Assistant Treasurer (Principal Accounting Officer) By /S/ PETER D. BALDWIN Date March 26, 1997 Peter D. Baldwin Director By /S/ SAMUEL K. HIMMELRICH, SR. Date March 26, 1997 Samuel K. Himmelrich, Sr. Director By /S/ RANDOLPH G. MOORE Date March 26, 1997 Randolph G. Moore Director By /S/ FRED E. TROTTER III Date March 26, 1997 Fred E. Trotter III Director INDEX TO EXHIBITS The exhibits designated by an asterisk (*) are filed herein. The exhibits not so designated are incorporated by reference to the indicated filing. All previous exhibits were filed with the Securities and Exchange Commission in Washington D. C. under file number 0-6510. 3. Articles of Incorporation and By-laws 3 (i) Articles of Incorporation (Amended as of 4/19/79). Exhibit 3 to Form 10-K for the year ended December 31, 1980. 3 (ii) By Laws (Amended as of 2/26/88). Exhibit (3ii) to Form 10-Q for the quarter ended September 30, 1994. 10. Material Contracts 10.1(i)* Amended and Restated Revolving Credit and Term Loan Agreement, dated as of December 4, 1996. 10.2(i) Limited Partnership Agreement of Kaahumanu Center Associates, dated June 18, 1993. Exhibit (10)A to Form 10- Q for the quarter ended June 30, 1993. (ii) Cost Overrun Guaranty Agreement, dated June 28, 1993. Exhibit (10)B of Form 10-Q for the quarter ended June 30, 1993. (iii) Environmental Indemnity Agreement, dated June 28, 1993. Exhibit (10)C to Form 10-Q for the quarter ended June 30, 1993. (iv) Indemnity Agreement, dated June 28, 1993. Exhibit (10)D to Form 10-Q for the quarter ended June 30, 1993. (v) Direct Liability Agreement, dated June 28, 1993. Exhibit (10)E to Form 10-Q for the quarter ended June 30, 1993. (vi) Amendment No. 1 to Limited Partnership Agreement of Kaahumanu Center Associates. Exhibit (10)B to Form 8-K, dated as of April 30, 1995. (vii) Conversion Agreement, dated April 27, 1995. Exhibit (10)C to Form 8-K, dated as of April 30, 1995. (viii) Indemnity Agreement, dated April 27, 1995. Exhibit (10)D to Form 8-K, dated as of April 30, 1995. 10.3(i) Note Purchase Agreement between John Hancock Mutual Life Insurance Company and Maui Land & Pineapple Company, Inc., dated September 9, 1993. Exhibit (10)A to Form 10-Q for the quarter ended September 30, 1993. (ii) First Amendment to Note Purchase Agreement dated as of March 30, 1994. Exhibit (10)A to Form 10-Q for the quarter ended March 31, 1994. (iii) Second Amendment to Note Purchase Agreement, dated as of November 13, 1995. Exhibit 10.3(iii) to Form 10-K for the year ended December 31, 1995. (iv)* Waiver To Note Purchase Agreement, dated as of December 31, 1996. 10.4(i) The following relate to the Ritz-Carlton Kapalua Hotel: Partnership Agreement; Development Agreement; Operating Agreement; Hotel Ground Lease; Supplemental Agreement; Construction Loan Agreement; Promissory Note; Real Property Mortgage; Leasehold Mortgage. Exhibit (10)A-I to Form 10-Q for the quarter ended September 30, 1990. (ii) Dissolution Agreement, dated October 31, 1995. Exhibit (10)A to Form 10-Q for the quarter ended September 30, 1995. (iii) First Mortgage, Security Agreement, Financing Statement and Assignment of Rentals covering the fee simple interest and the leasehold interest, securing a loan of $65,000,000, dated February 24, 1996. Exhibit 10.4(iii) to Form 10-K for the year ended December 31, 1995. (iv) Subordination, Nondisturbance and Attornment Agreement (Ground Lessor), dated February 24, 1996. Exhibit 10.4(iv) to Form 10-K for the year ended December 31, 1995. (v) Hotel Ground Lease by and between Maui Land & Pineapple Company, Inc. (Lessor) and NI Hawaii Resort, Inc. (Lessee), effective January 1, 1996. Exhibit 10.4(v) to Form 10-K for the year ended December 31, 1995. (vi) Amendment Relating to Off-Site Loan, dated January 9, 1996 and Effective January 1, 1995. Exhibit 10.4(vi) to Form 10-K for the year ended December 31, 1995. (vii) Letter Agreement, dated January 1, 1996, Re: Nonrecourse Open Account For Off-Site Improvements. Exhibit 10.4(vii) to Form 10-K for the year ended December 31, 1995. (viii) Agreement with NI Hawaii Resort, Inc. (Ground Lease), dated January 9, 1996. Exhibit 10.4(viii) to Form 10-K for the year ended December 31, 1995. (ix) Amendment and Restatement of Tennis Operating Agreement by and between Kapalua Land Company, Ltd. (Operator) and NI Hawaii Resort, Inc. (Owner), dated January 9, 1996. Exhibit 10.4(ix) to Form 10-K for the year ended December 31, 1995. (x) Assignment Agreement (Assignment of Amended and Restated Tennis Operating Agreement), dated January 9, 1996. Exhibit 10.4(x) to Form 10-K for the year ended December 31, 1995. (xi) Golf Course Use Agreement by and between Maui Land & Pineapple Company, Inc. and NI Hawaii Resort, Inc. dated, January 9, 1996. Exhibit 10.4(xi) to Form 10-K for the year ended December 31, 1995. (xii) Memorandum of Understanding between Maui Hotels, Kapalua Investment Corp. and NI Hawaii Resort, Inc., effective October 31, 1995. Exhibit 10.4(xii) to Form 10-K for the year ended December 31, 1995. (xiii) Supplemental Agreement, entered into among Maui Hotels, Kapalua Investment Corp. and NI Hawaii Resort, Inc. as of February 15, 1996. Exhibit 10.4(xiii) to Form 10-K for the year ended December 31, 1995. (xiv) Release of Real Property Mortgage, Security Agreement and Financing Statement, dated March 12, 1996. Exhibit 10.4(xiv) to Form 10-K for the year ended December 31, 1995. 10.5 Partnership Agreement of Plantation Club Associates, dated November 10, 1988. Exhibit (10)A to Form 10-K for the year ended December 31, 1988. 10.6* Mortgage, Security Agreement and Financing Statement, dated November 27, 1996. 10.7 Compensatory plans or arrangements (i) Executive Deferred Compensation Plan (revised as of 8/16/91). Exhibit (10)A to Form 10-Q for the quarter ended September 30, 1994. (ii) Executive Insurance Plan (Amended). Exhibit (10)A to Form 10-K for the year ended December 31, 1980. (iii) Supplemental Executive Retirement Plan (effective as of January 1, 1988). Exhibit (10)B to Form 10-K for the year ended December 31, 1988. 10.8(i) Hotel Ground Lease between Maui Land & Pineapple Company, Inc. and The KBH Company. Exhibit (10)B to Form 10-Q for the quarter ended September 30, 1985. (ii) Third Amendment of Hotel Ground Lease, dated and effective as of September 5, 1996. Exhibit (10)A to Form 10-Q for the quarter ended September 30, 1996. 10.9(i) Letter to Mr. Darrell D. Friedman from Mary Cameron Sanford dated April 29, 1996. Exhibit (10)A to Form 10-Q for the quarter ended March 31, 1996. (ii) Letter to Mary Cameron Sanford from Darrell D. Friedman dated April 30, 1996. Exhibit (10)B to Form 10-Q for the quarter ended March 31, 1996. 11. Statement re computation of per share earnings: Net Income (Loss) divided by weighted Average Common Shares Outstanding equals Net Income (Loss) Per Common Share. 13.* Annual Report to security holders. Maui Land & Pineapple Company, Inc. 1996 Annual Report. 21. Subsidiaries of registrant: All of the following were incorporated in the State of Hawaii: Maui Pineapple Company, Ltd. Kapalua Land Company, Ltd. Kapalua Investment Corp. Kapalua Water Company, Ltd. Kapalua Waste Treatment Company, Ltd. Honolua Plantation Land Company, Ltd. 27.* Financial Data Schedule. As of December 31, 1996 and for the year then ended. 99. Additional Exhibits. 99.1* Financial Statements of Kaahumanu Center Associates for the years ended December 31, 1996, 1995 and 1994. 99.2 Financial Statements of Kaptel Associates for the years ended December 31, 1994 and 1993. Exhibit 99.1 to Form 10-K for the year ended December 31, 1994. EX-10 2 AMENDED AND RESTATED REVOLVING CREDIT AND TERM LOAN AGREEMENT THIS AMENDED AND RESTATED REVOLVING CREDIT AND TERM LOAN AGREEMENT (the "Amendment and Restatement"), dated as of DECEMBER 4, 1996, by and among MAUI LAND & PINEAPPLE COMPANY, INC., a Hawaii corporation (the "Bor- rower"), BANK OF HAWAII, a Hawaii banking corporation ("BOH"), FIRST HAWAIIAN BANK, a Hawaii banking cor- poration ("FHB"), CENTRAL PACIFIC BANK, a Hawaii banking corporation ("CPB") (BOH, FHB and CPB are each sometimes called a "Lender" and collectively called the "Lenders"), and BANK OF HAWAII, as Agent for the Lenders to the extent and in the manner provided hereinbelow and in the Agency Agreement referred to below (in such capacity, the "Agent"). W I T N E S S E T H: WHEREAS, the Borrower, the Lenders and Bank of America, National Trust and Savings Association ("BOA") (the Lenders and BOA are collectively called the "Original Lenders") and the Agent are parties to that certain Revolving and Term Loan Agreement, dated as of December 31, 1992, as amended by a First Loan Modification Agreement, dated as of March 1, 1993, and supplemented by letter agreements dated April 30, 1993 and June 24, 1993, and further amended by Second Loan Modification Agreement, dated September 8, 1993, by a Third Loan Modification Agreement, dated September 30, 1993, by a Fourth Loan Modification Agreement, dated March 8, 1994, by a Fifth Loan Modification Agreement, dated effective as of December 31, 1994, by a Sixth Loan Modification Agreement, dated effective as of March 31, 1995, and by a Seventh Loan Modification Agreement dated effective as of December 31, 1995, each among the Borrower, the Original Lenders and the Agent (as so amended and supplemented, the "Original Loan Agreement"); WHEREAS, the Original Loan Agreement and the other "Loan Documents" referred to therein, as respec- tively amended, set forth the terms and conditions upon which the Original Lenders (i) have made available to the Borrower the Revolving Loans in the original aggregate principal amount of up to $40,000,000 at any one time outstanding (subject to mandatory reduction, from time to time, of such aggregate principal amount available) and (ii) shall make available to the Borrower the Term Loans in an amount up to the aggregate principal amount of the Revolving Loans outstanding upon expiration of the Revolving Loan Period, all as more particularly described therein; WHEREAS, contemporaneously herewith, the Lenders have purchased the interests of BOA under the Original Loan Agreement and the other Loan Documents referred to therein (the "BOA Purchase"), and the respective "Individual Loan Commitment Percentage" of each Lender is now as follows: (1) BOH's Individual Loan Commitment Percentage is equal to 45%; (2) FHB's Individual Loan Commitment Percentage is equal to 42%; and (3) CPB's Individual Loan Commitment Percentage is equal to 13%; WHEREAS, the Borrower has heretofore made the following mandatory reductions of the Aggregate Loan Commitment pursuant to Section 2.06(A) of the Original Loan Agreement: (1) $4,000,000 of net mortgage loan proceeds of the permanent financing of the Napili Plaza project pursuant to Section 2.06(A)(4); and (2) $3,000,000 pursuant to Section 2.06(A)(2); and as a result thereof, as of the date of this Amendment and Restatement, the Aggregate Loan Commitment has been permanently reduced to be equal to $15,000,000, and the respective Individual Loan Commitments of the Lenders is as follows: (1) BOH's Individual Loan Commitment is equal to $6,750,000; (2) FHB's Individual Loan Commitment is equal to $6,300,000; and (3) CPB's Individual Loan Commitment is equal to $1,950,000; WHEREAS, capitalized terms used herein and not otherwise defined herein shall have the respective meaning assigned thereto in the Original Loan Agreement; WHEREAS, the Borrower, the Lenders and the Agent have agreed to further amend the terms of the Original Loan Agreement, among other matters, to: (1) extend the "Revolving Loan Period" (sched- uled to expire on June 30, 1997) to and including December 31, 1997; (2) provide for the availability of the Term Loans on January 1, 1998 (subject to the satisfaction of certain terms and conditions), the principal of which Term Loans shall be payable in six semi-annual installments thereafter, and which shall mature on De- cember 31, 2000; (3) provide for a $4,000,000 cap on the manda- tory reduction of the Aggregate Loan Commitment from net sale proceeds of the sale of the Napili Plaza project or net mortgage loan proceeds from permanent financing of the Napili Plaza project; (4) change the interest rate applicable to out- standing principal of the Term Loans to be equal to (i) if the aggregate principal amount of the Term Loans outstanding on January 10, 1998 is equal to $15,000,000 or less, a floating rate per annum equal to the Base Rate plus 0.25%, and (ii) if the aggregate principal amount of the Term Loans outstanding on January 10, 1998 is greater than $15,000,000, a floating rate per annum equal to the Base Rate plus 0.50%; (5) reduce the commitment fee payable on the unused portion of the commitments of the Lenders to be equal to 0.25%; (6) amend certain financial covenants and nega- tive covenants of the Borrower; and (7) make certain conforming and other amendments to the terms of the Original Loan Agreement; WHEREAS, in order to effect the foregoing amendments and to clarify the current terms of Original Loan Agreement (in light of the various prior amendments and new amendments thereto), the Borrower, the Lenders and the Agent have agreed to amend and restate the Original Loan Agreement in its entirety, subject to the satisfaction of the conditions precedent set forth in Section 3.02 hereof, all as set forth hereinbelow in this Amendment and Restatement; NOW, THEREFORE, in consideration of the pre- mises, the mutual covenants set forth herein and other good and valuable consideration, the receipt and suffi- ciency of which are hereby acknowledged, the Borrower, the Lenders and the Agent hereby agree that effective on the Effective Date (as defined below), the terms and pro- visions of the Original Loan Agreement are amended and restated to read in their entirety as follows: I. Additional Definitions As used in this Loan Agreement, each of the terms defined in this Article I shall have the meaning given to it in this Article I: 1.01 "Agency Agreement" means the Agency Agree- ment dated as of March 1, 1993, among the Original Lenders and the Agent, authorizing the Agent to act as agent in respect of the Loans, as amended from time to time. 1.02 "Aggregate Loan Commitment" means, subject to reductions pursuant to the provisions of Section 2.06 of this Loan Agreement: (1) during the Initial Period, Forty Million Dollars ($40,000,000); and (2) on and after each Commitment Reduction Date and until the next Commitment Reduction Date, if any, the Aggregate Loan Commitment after giving effect to the re- duction to occur on such Commitment Reduction Date." On and as of the date of this Amendment and Restatement, the Aggregate Loan Commitment has been reduced to be equal to $15,000,000, subject to further permanent reduction in accordance with the terms hereof. 1.03 "Business Day" means any day except a Sat- urday, Sunday or other day on which commercial banks in Hawaii are authorized by law to close. 1.04 "Capital Expenditures" means all expendi- tures that, in accordance with generally accepted accounting principles consistently applied, should be capitalized on the accounting records of the Borrower and its Subsidiaries. 1.05 "Cash Flow from Operating Activities" means, at any time, the consolidated cash flows of the Borrower and the Subsidiaries from operating activities, determined on a basis consistent with the basis used for the determination of the Statements of Cash Flows from Operating Activities as presented in the Borrower's 1991 Annual Report to its stockholders. 1.06 "Commitment Reduction Date" means each of the following dates: (i) the earlier of (a) January 1, 1996 and (b) the date that the Aggregate Loan Commitment is reduced to $22,000,000 or less (the earlier of such dates is herein referred to as the `First 1996 Commitment Reduction Date'); (ii) December 31, 1996 (the `Second 1996 Com- mitment Reduction Date'); and (iii) each other date that the Aggregate Loan Commitment is to be reduced pursuant to the provisions of Section 2.06(A) of this Loan Agreement. 1.07 "Consolidated Current Assets" and "Con- solidated Current Liabilities" mean, at any time, all as- sets or liabilities, respectively, that, in accordance with generally accepted accounting principles consis- tently applied, should be classified as current assets or current liabilities, respectively, on a consolidated balance sheet of the Borrower and its Subsidiaries, except that "Consolidated Current Assets" shall not include growing crops and that "Consolidated Current Liabilities" shall not include the aggregate outstanding principal amount of the Loans, together with accrued and unpaid interest thereon, at the time of determination. 1.08 "Current Ratio" means, at any time, Con- solidated Current Assets divided by Consolidated Current Liabilities. 1.09 "Effective Date" shall have the meaning assigned thereto in Section 3.02 hereof. 1.10 "Environmental Indemnification Agreement" means an Environmental Indemnification Agreement in the form of Exhibit A attached to the Original Loan Agreement, made by the Borrower in favor of the Lenders, as amended from time to time. 1.11 "Expiry Date" means January 1, 1998. 1.12 "Financial Statements" means the consol- idated balance sheets of the Borrower and its Subsidiaries and consolidated statements of income and retained earnings of the Borrower and its Subsidiaries and other financial statements (a) heretofore furnished to the Lenders, or any of them, and (b) to be furnished to the Lenders pursuant to the provisions of this Loan Agreement. 1.13 "Indebtedness for Borrowed Money" means any indebtedness or obligation or liability to repay borrowed monies, whether matured or unmatured, liquidated or unliquidated, direct or contingent, joint or several, including, without limitation, all such indebtedness guaranteed, directly or indirectly, in any manner, or endorsed (other than for collection or deposit in the ordinary course of business) or discounted with recourse. 1.14 "Individual Loan Commitment" means, subject to further reductions pursuant to the provisions of Section 2.06 of this Loan Agreement: (1) In respect of Bank of Hawaii, $14,000,000 during the Initial Period and on and after each Commitment Reduction Date and until the next Commitment Reduction Date, if any, an amount equal to the difference of (x) Bank of Hawaii's Individual Loan Commitment immediately before giving effect to the reduction to occur on such Commitment Reduction Date, minus (y) the product of (i) the Aggregate Loan Commitment Reduction Amount which is to occur on such Commitment Reduction Date, multiplied by (ii) Bank of Hawaii's Individual Loan Commitment Percentage. As of the date of this Amendment and Restatement, Bank of Hawaii's Individual Loan Commitment is equal to $6,750,000, subject to further permanent reduction from time to time in accordance with the terms of this Loan Agreement. (2) In respect of First Hawaiian Bank, $13,000,000 during the Initial Period and on and after each Commitment Reduction Date and until the next Commit- ment Reduction Date, if any, an amount equal to the dif- ference of (x) First Hawaiian Bank's Individual Loan Com- mitment immediately before giving effect to the reduction to occur on such Commitment Reduction Date, minus (y) the product of (i) the Aggregate Loan Commitment Reduction Amount which is to occur on such Commitment Reduction Date, multiplied by (ii) First Hawaiian Bank's Individual Loan Commitment Percentage. As of the date of this Amendment and Restatement, First Hawaiian Bank's Individual Loan Commitment is equal to $6,300,000, subject to further permanent reduction from time to time in accordance with the terms of this Loan Agreement. (3) In respect of Bank of America, National Trust and Savings Association, $9,000,000 during the Ini- tial Period, as heretofore permanently reduced from time to time. Pursuant to the BOA Purchase, as described in the recitals of this Amendment and Restatement, BOA has no interest in, to or under the Loan Agreement or the other Loan Documents, and BOA's Individual Loan Commitment is equal to zero ($0.00). (4) In respect of Central Pacific Bank, $4,000,000 during the Initial Period and on and after each Commitment Reduction Date and until the next Commitment Reduction Date, if any, an amount equal to the difference of (x) Central Pacific Bank's Individual Loan Commitment immediately before giving effect to the reduction to occur on such Commitment Reduction Date, minus (y) the product of (i) the Aggregate Loan Commitment Reduction Amount which is to occur on such Commitment Reduction Date, multiplied by (ii) Central Pacific Bank's Individual Loan Commitment Percentage. As of the date of this Amendment and Restatement, CPB's Individual Loan Commitment is equal to $1,950,000, subject to further permanent reduction from time to time in accordance with the terms of this Loan Agreement. 1.15 "Individual Loan Commitment Percentage" means, in respect of Bank of Hawaii, originally 35%, and pursuant to the BOA Purchase, as described in the re- citals hereof, BOH's current Individual Loan Commitment Percentage is 45.0%; in respect of First Hawaiian Bank, originally 32.5%, and pursuant to the BOA Purchase, as described in the recitals hereof, FHB's current Individual Loan Commitment Percentage is 42.0%; in respect of Bank of America National Trust and Savings Association, originally 22.5%, and pursuant to the BOA Purchase, as described in the recitals hereof, BOA's current Individual Loan Commitment Percentage is 0.00%; and in respect of Central Pacific Bank, originally 10.0%, and pursuant to the BOA Purchase, as described in the re- citals hereof, CPB's current Individual Loan Commitment Percentage is 13.0%. 1.16 "Initial Loan Period" means the period commencing on December 31, 1992 and ending on the first Commitment Reduction Date to occur. 1.17 "Investments" means all expenditures by the Borrower and its Subsidiaries, not reflected as Capital Expenditures in the Financial Statements, made for the purpose of acquiring, increasing or supplementing equity interests of any nature in partnerships, joint ventures, corporations, trusts, associations or other business entities, or in real property of any kind, and reflected as Investments in the Financial Statements. 1.18 "KCA" means Kaahumanu Center Associates, a Hawaii limited partnership which is organized between the Borrower or a wholly-owned Subsidiary thereof, as general partner, and the State of Hawaii Employee Retirement System, as limited partner, for the purpose of acquiring, expanding and operating the Kaahumanu Shopping Center complex currently owned by the Borrower. 1.19 "Laws" means all ordinances, statutes, rules, regulations, orders, injunctions, writs or decrees of any government or political subdivision or agency thereof, or any court or similar entity established by any thereof. 1.20 "Lenders" is defined in the preamble of this Amendment and Restatement; provided, however, that as used hereinbelow, "Lenders" means (i) prior to the BOA Purchase, BOH, FHB, BOA and CPB, and (ii) subsequent to the BOA Purchase, BOH, FHB and CPB. 1.21 "Loan Agreement" means the Original Loan Agreement, as amended and restated by this Amendment and Restatement, and as may be further amended from time to time. 1.22 "Loan Documents" means this Loan Agreement, the Notes, the Mortgage, the Environmental Indemnity Agreement and the Additional Security Mortgage described in Section 5.01(B) of this Loan Agreement, in each case as originally executed and as thereafter amended, modified or restated from time to time in accordance with the respective terms thereof. 1.23 "Loans" means all Revolving Loans and Term Loans to be made to the Borrower pursuant to this Loan Agreement. 1.24 "Majority in Interest of the Lenders" means Lenders holding 100% of the aggregate principal amount of the Loans then outstanding hereunder (or if no Loans are at the time outstanding, Lenders having 100% of the Aggregate Loan Commitment). 1.25 "Maturity Date" means December 31, 2000. 1.26 "Mortgage" means a Mortgage and Security Agreement in substantially the form of Exhibit B attached to the Original Loan Agreement, made by the Borrower, as Mortgagor, in favor of the Lenders, as Mortgagees, as originally executed and as thereafter amended or modified in accordance with its terms. 1.27 "Net Profits" means, for any fiscal year, the consolidated, after-tax net profits of the Borrower and its Subsidiaries for such year, determined in accord- ance with generally accepted accounting principles con- sistently applied. 1.28 "Net Worth" means, at any time, on a con- solidated basis for the Borrower and the Subsidiaries, their Net Worth as shown in the most recent Financial Statements (provided, however, that for purposes of determining Net Worth under this Loan Agreement, the amount of any goodwill or debt discount carried as assets on such Financial Statements, trademarks, patents, copyrights, organizational expense and other similar intangible items shall be subtracted). 1.29 "Notes" means, collectively, (i) the Re- volving Notes, as respectively amended from time to time and (ii) from and after the date of the making of the Term Loans, each of the Term Notes, as respectively amended from time to time. 1.30 "Obligations" means, collectively, the ob- ligations of the Borrower to pay the principal of and in- terest on the Notes in accordance with the terms thereof and to satisfy all of the Borrower's other indebtedness, covenants, liabilities and obligations to the Lenders un- der the Loan Documents, whether now existing or hereafter incurred, matured or unmatured, direct or contingent, joint or several. 1.31 "Person" means any individual, corporation, partnership, association, joint-stock company, trust, unincorporated organization, joint venture, court or government or political subdivision or agency thereof. 1.32 "Records" means correspondence, memoranda, tapes, discs, papers, books and other documents, or transcribed information of any type, whether expressed in ordinary or machine language. 1.33 "Recourse Debt" means, as to the Borrower or any Subsidiary, all items of indebtedness, obligation or liability for borrowed funds, whether now existing or hereafter incurred, matured or unmatured, direct or con- tingent, joint or several, including, but without limita- tion: (A) All indebtedness for borrowed money guaranteed, directly or indirectly, in any manner, or endorsed (other than for collection or deposit in the ordinary course of business) or discounted with recourse; (B) All indebtedness for borrowed money in ef- fect guaranteed, directly or indirectly, through agreements, contingent or otherwise: (1) to purchase such indebtedness; or (2) to purchase, sell or lease (as lessee or lessor) property, products, materials or supplies or to purchase or sell services, primarily for the purpose of enabling the debtor to make payment of such indebtedness or to assure the owner of the indebtedness against loss; or (3) to supply funds to or in any other manner invest in the debtor; and (C) All indebtedness for borrowed money secured by (or for which the holder of such indebtedness has a right, contingent or otherwise, to be secured by) any mortgage, deed of trust, pledge, lien, security interest or other charge or encumbrance on property owned or acquired subject thereto, whether or not the liabilities secured thereby have been assumed; provided, however, the foregoing provisions to the con- trary notwithstanding, Nonrecourse Secured Debt shall not be considered Recourse Debt. For this purpose "Nonre- course Secured Debt" means all items of indebtedness in- curred by the Borrower or a Subsidiary for borrowed money, now existing or hereafter arising, secured by real or personal collateral and in respect of which the sole recourse of the holder of the debt instrument for payment of the indebtedness evidenced thereby is against the col- lateral for such indebtedness, and not against the obligor individually or the obligor's other assets. 1.34 "Revolving Loans" means Loans requested by the Borrower pursuant to Section 2.03, below, and granted by the Lenders during the Revolving Loan Period (as that term is defined in Section 2.01, below). 1.35 "Revolving Notes" means, collectively (i) originally, each of four Notes, executed by the Borrower pursuant to the Original Loan Agreement and payable indi- vidually to the order of an Original Lender, in each case, as amended from time to time, and (ii) from and after the Effective Date, each of the Notes, as here- tofore respectively amended, as respectively amended and restated by the three Amended and Restated Revolving Notes (as defined in Section 3.02(a) hereof) to be executed by the Borrower pursuant to this Amendment and Restatement, and as may be further respectively amended from time to time. 1.36 "Subsidiary" means any corporation of which more than 50% of the outstanding voting securities having ordinary voting power to elect a majority of the Board of Directors of such corporation shall, at the time of determination, be owned directly, or indirectly through one or more Subsidiaries, by the Borrower. A list of the currently-existing Subsidiaries is attached to the Original Loan Agreement as Exhibit H. 1.37 "Term Loan" has the meaning given to it in Section 2.01(b) of this Loan Agreement. 1.38 "Term Notes" means, collectively, the three Term Notes to be executed by the Borrower and pay- able to the order of each Lender, individually, each in the form of Annex IV hereto, and completed in conformity with the provisions of this Loan Agreement. 1.39 "Total Debt" means, as to the Borrower and all Subsidiaries, on a consolidated basis, all Indebted- ness for Borrowed Money, including, without limitation, all Recourse Debt and Nonrecourse Secured Debt, plus all lease obligations which are capitalized on the Borrower's and/or Subsidiaries' balance sheets in accordance with generally accepted accounting principles. II. The Loans 2.01 General Terms. (a) Revolving Loans. On the terms and provisions and subject to the satisfaction of the conditions stated in this Loan Agreement, each Lender hereby severally agrees to make Loans to the Bor- rower, from time to time and at any time prior to the Ex- piry Date (the "Revolving Loan Period"), each in a principal amount equal to such Lender's Individual Loan Commitment Percentage of the total amount to be borrowed on any occasion; provided, however, that (a) subject to the provisions of Section 2.06 of this Loan Agreement, the aggregate principal amount at any one time outstand- ing of all Loans hereunder shall not exceed the Aggregate Loan Commitment (i.e., $40,000,000 at any one time out- standing during the Initial Period and, at any one time outstanding on and after each Commitment Reduction Date and until the next Commitment Reduction Date, if any, the Aggregate Loan Commitment after giving effect to the reduction to occur on such Commitment Reduction Date), (b) no Lender shall be obligated to make Loans to the Borrower which shall exceed, in the aggregate principal amount at any one time outstanding, such Lender's Indi- vidual Loan Commitment, (c) each advance of Loan proceeds hereunder shall be made by the several Lenders ratably, in a principal amount equal to such Lender's Individual Loan Commitment Percentage of the total amount to be borrowed on any occasion, (d) no Lender shall have any obligation or liability to the Borrower or any other Person as a result of the failure of another of the Lenders to observe any of its obligations under this Loan Agreement, and (e) no Lender (in its capacity as such) shall have any obligation or liability to the Borrower or any other Person as a result of the failure of the Agent to observe any of its obligations under this Loan Agree- ment or the Agency Agreement. During the Revolving Loan Period the Borrower may borrow, repay without penalty or premium and reborrow hereunder, either the full amount of the Aggregate Loan Commitment then in effect or any lesser sum, provided that any borrowing hereunder shall be in an amount not less than $500,000, and an integral multiple of $100,000, and provided that any voluntary prepayment hereunder shall be in an amount not less than $250,000, and an integral multiple of $50,000. Principal of and interest on the Revolving Loans shall be paid by the Borrower at the times and in the manner stated in the Revolving Notes and in this Loan Agreement, including, without limitation, Section 2.07 and 2.08 below. (b) Term Loans. Subject to the satisfaction of all terms and conditions of this Loan Agreement, including, without limitation, Section 3.03 hereof, each Lender severally agrees to make a term loan ("Term Loan") to the Borrower on the Expiry Date, in an amount equal to the aggregate principal amount of the Revolving Loans then outstanding and owing by the Borrower to such Lender. The proceeds of each Term Loan to be made by each Lender shall be used to repay in full the Revolving Loans outstanding with respect to such Lender on the date of the making of the Term Loan. Term Loans may not be reborrowed. Principal of and interest on the Term Loans shall be paid by the Borrower at the times and in the manner stated in the Term Notes and in this Loan Agreement, including, without limitation, Section 2.07 and 2.08 below. 2.02 Notes. (a) Revolving Notes. The Borrower's obligation to pay the principal of, and inter- est on, all Revolving Loans made by each Lender shall be evidenced by a separate Revolving Note, executed by the Borrower and payable to the order of such Lender. Each Revolving Note issued to a Lender shall (i) be payable to the order of such Lender and be dated the date of the initial borrowing of proceeds of Revolving Loans, (ii) be in the original principal amount of the Individual Loan Commitment of such Lender, (iii) mature on the Expiry Date, (iv) bear interest as provided in Section 2.07 hereof, (v) be repaid as provided in such Revolving Note and in Sections 2.07 and 2.08 hereof and (vi) be entitled to the benefits of this Loan Agreement. (b) Term Notes. Each Term Loan made by a Lender to the Borrower shall be evidenced by a separate Term Note, each executed by the Borrower and payable to the order of such Lender. Each Term Note issued to a Lender shall (i) be in the form of hereto with blanks appropriately completed in conformity with this Loan Agreement, (ii) be dated the Expiry Date, (iii) be in the principal amount of the aggregate unpaid principal amount of all Revolving Loans then outstanding with respect to such Lender, (iv) bear interest as provided in Section 2.07 hereof, (v) be repaid as provided in such Term Note and in Sections 2.07 and 2.08 hereof, (vi) mature on the Maturity Date and (vii) be entitled to the benefits of this Loan Agreement. 2.03 Requests for Revolving Loans. In respect of each Revolving Loan to be made pursuant to Section 2.01(a) of this Loan Agreement, the Borrower shall give to the Agent at least two full Business Days' prior tele- phonic notice of the Borrower's request therefor, in each case immediately followed by a confirmation in writing to the Agent, specifying the date of such Revolving Loan, which shall be a Business Day, and the principal amount of such Revolving Loan (which shall be not less than $500,000 and shall be in an integral multiple of $100,000). 2.04 Disbursements. During the Revolving Loan Period the Agent will credit the proceeds of each Revolv- ing Loan to the Borrower's deposit account with Bank of Hawaii or, at the Borrower's request, disburse the pro- ceeds of such Revolving Loan to the order of the Borrower. 2.05 Fees. (a) Initial Commitment Fees. As used in this Section 2.05(a), the term "Tranche A Commit- ment" means that portion of the Aggregate Loan Commitment which does not exceed $30,000,000 and the term "Tranche B Commitment" means that portion of the Aggregate Loan Com- mitment which exceeds $30,000,000. Also for the purposes of this Section 2.05(a), all Revolving Loan proceeds not exceeding $30,000,000 at any one time outstanding shall be deemed to have been disbursed pursuant to the Tranche A Commitment, and only those Loan proceeds which are in excess of $30,000,000 at any one time outstanding shall be deemed to have been disbursed pursuant to the Tranche B Commitment. During the Revolving Loan Period prior to the date of this Amendment and Restatement, the Borrower shall pay to the Agent, for remittance to the Lenders, (a) commitment fees at the rate of one-half of one percent (0.5%) a year on the average daily undisbursed amount of the Tranche A Commitment during each quarterly period or portion thereof, and (b) commitment fees at the rate of one-quarter of one percent (0.25%) a year on the average daily undisbursed amount of the Tranche B Commitment dur- ing each quarterly period or portion thereof; provided, however, that, in the event any Revolving Loan proceeds attributable to the Tranche B Commitment are disbursed at any time, the commitment fee rate which is payable in respect of the entire Tranche B Commitment shall be increased to the rate of one-half of one percent (0.5%) a year on the daily average undisbursed amount of the Tranche B Commitment, and such increased rate shall be effective for the period commencing on the date which is ninety calendar days preceding the date of disbursement of such Revolving Loan proceeds and shall continue to be effective thereafter until the aggregate outstanding principal amount of the Revolving Loans shall have been reduced to or below $30,000,000. All commitment fees provided for in this Section 2.05 shall be computed on the basis of a year of 365 days (or 366 days in leap years) and paid for the actual number of days elapsed. Such commitment fee shall be payable quarterly, on the last day of each September, December, March and June, and also, in respect of additional fees payable pursuant to any retroactive increase in the commitment fee rate applicable to the Tranche B Commitment, within 30 days after the Agent's submittal to the Borrower of a bill therefor. (b) Amended Commitment Fee. With respect to the period from and after Effective Date until the Expiry Date, the Borrower shall pay to the Agent for pro rata distribution to each Lender, a commitment fee on the average daily unutilized Aggregate Loan Commitment, computed at the rate of one-quarter of one percent (0.25%) per annum computed on the basis of the actual number of days elapsed over a year of 365 or 366 days (as the actual case may be) and payable quarterly in arrears commencing on December 31, 1996, and thereafter, on the last day of each March, June, September and December prior to the Expiry Date and on the Expiry Date (or such earlier date as the Aggregate Loan Commitment shall be terminated). (c) Extension Fee. For and in respect of the extension of the Revolving Period effected by this Amend- ment and Restatement, the Borrower shall also pay to the Agent on or before the Effective Date for pro rata distribution to each Lender, an extension fee in the aggregate principal amount of $25,000. (d) Agent's Fee. For and in respect of the services of the Agent to be rendered hereunder and under the Agency Agreement, the Borrower agrees to pay to the Agent the fee set forth in Section 5.01(N) hereof. 2.06 Reductions of Commitment. A. Mandatory Reduction. On May 15, 1995, the Aggregate Loan Commitment was reduced to $23,000,000; and on each Commitment Reduction Date thereafter, the Aggre- gate Loan Commitment shall be reduced to the amount set forth below with respect to such Commitment Reduction Date: (1) At the close of business on the First 1996 Commitment Reduction Date, the Aggregate Loan Commitment in effect at the opening of business on such date shall be reduced to Twenty-two Million Dollars ($22,000,000.00); (2) At the close of business on the Second 1996 Commitment Reduction Date, the Aggregate Loan Com- mitment in effect at the opening of business on such date shall be reduced by Three Million Dollars ($3,000,000.00); and (3) The Aggregate Loan Commitment in effect shall be reduced by the close of business on the date of the earlier of (x) the date of the sale of the Napili Plaza project in an amount equal to the net sale proceeds of such sale and (y) the date of any permanent financing of the Napili Plaza project in an amount equal to the net mortgage loan proceeds of such permanent financing, up to but not exceeding the sum of $4,000,000. The Borrower shall pay to the Lenders through the Agent no later than the close of business on each Commitment Reduction Date, as a mandatory prepayment of the aggre- gate outstanding principal amount of the Loans, an amount equal to the difference between (I) the aggregate out- standing principal amount of the Loans, minus (II) the Aggregate Loan Commitment as so reduced. In addition to the foregoing, by the close of business on each date the Borrower or any Subsidiary receives any net sales proceeds (i.e., gross sales proceeds less closing costs acceptable to the Lenders) in respect of the sale of any real estate assets of the Borrower or any Subsidiary, the Borrower shall notify the Agent of such sale and the Borrower's receipt of such net sale proceeds and shall pay to the Lenders through the Agent 75% of the after-tax net proceeds so received by the Borrower as a mandatory payment of the outstanding principal amount of the Loans; provided, however, that such mandatory payments of principal shall not permanently reduce the Aggregate Loan Commitment. B. Voluntary Reduction. The Borrower shall have the right, at any time and from time to time, upon not less than one full calendar month's prior written no- tice to the Agent, to voluntarily reduce the amount of the Aggregate Loan Commitment, in any integral multiple of $1,000,000. Contemporaneously with each such voluntary reduction, the Borrower shall repay or prepay to the Lenders, through the Agent, the amount, if any, by which the then outstanding aggregate principal balance of the Loans exceeds the Aggregate Loan Commitment as so reduced. C. Effects of Reductions. After any such re- duction, (a) the commitment fees provided for in Section 2.05 of this Loan Agreement shall be calculated in respect of the Aggregate Loan Commitment as so reduced, (b) the Individual Loan Commitments of each Lender shall be reduced pro rata in accordance with their respective Individual Loan Commitment Percentage, which shall remain unchanged, and (c) the mandatory reduction described in subparagraph A above, and the notice of reduction described in subparagraph B above, each shall be irrevocable and the Aggregate Loan Commitment may not be thereafter increased without the written consent of all of the Lenders. 2.07 Interest Rates and Payments of Interest. Interest on the principal balance of the Loans shall ac- crue and be paid at the rates, at the times and in the manner stated in the Notes and as follows: (a) Revolving Period. Outstanding balances of principal of the Revolving Loans shall bear interest at the following rates per annum: (1) During the period commencing on the date of initial disbursement of proceeds of the Revolving Loans, to and including December 31, 1993, a floating rate equal to the Base Rate in effect from time to time; (2) During the period commencing on Janu- ary 1, 1994 to and including May 15, 1995, a floating rate equal to one-half of one percentage point (0.5%), plus the Base Rate in effect from time to time; (3) During the period commencing on May 15, 1995, to but not including the date (the "Interest Reduction Date"), if any, that the Aggregate Loan Commitment is reduced to $15,000,000.00 or less, a float- ing rate equal to one-quarter of one percentage point (0.25%), plus the Base Rate in effect from time to time; and (4) During the period commencing on the Interest Reduction Date, if any, to but not including that the date that the Revolving Loans are paid in full, a floating rate equal to the Base Rate in effect from time to time; During the Revolving Period, interest accruing on the principal balance of the Revolving Loans at the floating rate(s) per annum aforesaid shall be due and payable (i) quarterly in arrears on the last day of each March, June, September and December and (ii) at maturity (whether by acceleration or otherwise). (b) Term Loan Period. In the event that the Term Loans shall be made, during the period commencing on the Expiry Date, to and including the date that the Term Loans are paid in full, (i) if the aggregate principal amount of the Term Loans outstanding on the Expiry Date is less than or equal to $15,000,000, a floating rate per annum equal to one-quarter of one percent (0.25%) plus the Base Rate in effect from time to time, or (ii) if the aggregate principal amount of the Term Loans outstanding on the Expiry Date is greater than $15,000,000, a floating rate per annum equal to one-half of one percent (0.50%) plus the Base Rate in effect from time to time. From and after the date of the making of the Term Loans, interest accruing on the principal balance of the Term Loans at the floating rate(s) per annum aforesaid shall be due and payable (i) quarterly in arrears on the last day of each March, June, September and December and (ii) at maturity (whether by acceleration or otherwise). (c) General. With respect to all Loans: (1) "Base Rate" means the primary index rate established from time to time by Bank of Hawaii in the ordinary course of its business and with due consideration of the money market, and published by intrabank memoranda for the guidance of its loan officers in pricing all of its loans which float with the Base Rate. (2) Any floating rate of interest will increase or decrease during the term of this Loan Agree- ment if there is an increase or decrease in the rate to which the floating rate is tied. If the rate to which the floating rate is tied is no longer available, the Agent will choose a new rate that is based on comparable information. (3) Interest shall be computed on the ba- sis of the actual number of days elapsed between payments and on the basis of a 365-day year (or, in leap years, on the basis of 366-day year). (4) In computing interest on each Loan, the date of the making of such Loan shall be included and the date of payment shall be excluded; provided, however, that if a Loan is repaid on the same day on which it is made, such day shall nevertheless be included in computing interest thereon. (5) In no event shall the Borrower be ob- ligated to pay any amount under this Agreement that ex- ceeds the maximum amount allowable by law. If any sum is collected in excess of the applicable maximum amount al- lowable by law, the excess collected shall, at the Lend- ers' discretion, be applied to reduce the principal bal- ance of the Loans or returned to the Borrower. (6) The foregoing rates of interest shall be subject to the provisions of Section 6.02(c) hereof relating to the Default Rate upon the occurrence and dur- ing the continuance of an Event of Default. 2.08 Payments and Prepayments of Principal. (a) Revolving Loans. The principal of the Re- volving Loans shall be due and payable as set forth in Section 2.06 hereof with respect to mandatory reductions of principal. In addition, on the Expiry Date (or such earlier date on which the Aggregate Loan Commitment shall be terminated), the outstanding principal balance of all Revolving Loans shall be due and payable. (b) Term Loans. The principal of the Term Loans shall be due and payable as set forth in Section 2.06 hereof with respect to mandatory reductions of prin- cipal. In addition, the outstanding principal balance of the Term Loans shall be repaid in six equal semi-annual installments, each of which shall be in an amount equal to the lesser of (1) the product of the aggregate outstanding principal balance of the Term Loans, multiplied by 1/6, or (2) the then outstanding principal balance of the Term Loans. On the Maturity Date, the entire principal balance of the Term Loans shall be due and payable. (c) General. (1) Principal balances outstanding under the Notes shall be paid, and may be prepaid without pen- alty or premium, in the amounts, at the times and in the manner stated herein and in the Notes. No payment or prepayment of principal under any of the Notes shall be made without a concurrent payment or prepayment of principal under the other Notes, and all principal amounts paid or prepaid on the Notes shall be shared among the Lenders pro rata, in accordance with their respective Individual Loan Commitment Percentages. Payments and prepayments of principal, during the Revolving Loan Period, shall be in amounts not less than $250,000, and in integral multiples of $50,000. (2) If any payment under this Agreement is not made when due, the Borrower will pay to the Agent for pro rata distribution to the Lenders (or for the sole account of Agent to the extent relating to a payment not to be distributed to the Lenders) a late charge in respect of that payment, in the amount of 5% of the overdue payment. 2.09 Sums Payable to the Lenders. The Agent shall send to the Borrower, from time to time, statements of all amounts due under the Notes and other Loan Docu- ments, which statements shall be considered correct and conclusively binding on the Borrower, absent manifest er- ror, unless the Borrower notifies the Agent to the con- trary within 30 Business Days of its receipt of any statement which it deems to be incorrect. The records of the Agent evidencing the date of disbursement and principal amount of each Loan and the amounts of all repayments of principal and payments of interest on each Loan shall constitute prima facie evidence of the making and repayment of such Loans and of the payment of such interest. However, the Agent's making of erroneous notations in its records shall not affect the Borrower's obligation to repay the outstanding balance of principal under a Loan, and accrued interest thereon, as provided in this Loan Agreement. All sums payable to the Lenders under the Notes and other Loan Documents shall be paid directly to the Agent in its capacity as such, not later than 10:00 a.m. (Honolulu time) on the date when due, in immediately available funds. Alternatively, at its sole discretion, the Agent may charge against any deposit account which the Borrower maintains with the Agent all or any part of any amount due under the Notes and other Loan Documents. 2.10 Payment Dates. Whenever any payment of principal of, or interest on, any Loan or of any commit- ment fee shall be due on a day which is not a Business Day, the date for payment thereof shall be extended to the next succeeding Business Day. If the date for any payment of principal is extended by operation of law or otherwise, interest shall be payable for such extended time. 2.11 Funding Loss and Yield Protection Provi- sions. (a) Change in Legality; Additional Costs to Lenders. If after the date of this Loan Agreement any change in applicable law or regulation or in the interpretation or administration thereof by any governmental authority charged with the interpretation or administration thereof (whether or not having the force of law) shall, with respect to the Lenders, or any of them, (i) change the basis of taxation of payments to the Lenders, or any of them, or the principal or interest on the Loans under this Loan Agreement, (ii) impose, modify or hold applicable any fees, reserve requirements, spe- cial deposits or any costs to the Lenders, or any of them, in respect of the Loans, or (iii) cause a reduction in the amount of any sum received or receivable here- under; then, and in any such event, the Borrower shall pay to the Agent, on demand, for distribution to such Lender(s), such additional amounts as will compensate such Lender(s) on an after-tax basis for such cost or reduction incurred; provided, however, that the Borrower shall not be obligated directly or indirectly to pay for federal or state income taxes measured or levied generally upon the net income of any Lender. The Lenders may use any reasonable method in calculating their ad- ditional costs under this Section, which calculation shall be conclusive absent manifest error. (b) Capital Requirements. If the Lenders, or any of them, shall determine that compliance with any law, regulation or any guideline or request from any central bank or other governmental authority (whether or not having the force of law) would result in an increase in the amount of capital required or expected to be maintained by such Lender(s) or any corporation controlling such Lender(s), and that such increase is based upon the existence of such Lender's commitment hereunder and other commitments of this type, then, and in any such event, the Borrower shall pay the Agent as an additional fee, from time to time on demand, for distribution to such Lender(s), such amount(s) as such Lender(s) shall determine to be the amount(s) that will compensate it or them or such other corporation for any reduction in the rate of return on such capital. A cer- tificate as to the amount of compensation, submitted to the Borrower by the affected Lender(s), shall be conclusive and binding for all purposes absent manifest error. III. Conditions Precedent 3.01 Documents Required. The Lenders shall have no several obligations to make disbursements of Loans pursuant to the provisions of this Loan Agreement, unless and until the Lenders (through the Agent) shall have received such executed originals or certified copies of each of the following instruments as the Lenders (through the Agent) may have reasonably requested, in each case in form and substance acceptable to the Lenders and their respective legal counsel: (A) This Loan Agreement, the Notes, the Mort- gage, an Additional Security Mortgage in the form of Ex- hibit G attached to the Original Mortgage, UCC Financing Statements describing the security interests created by the Mortgage and Additional Security Mortgage, and the Environmental Indemnity Agreement; (B) The Agency Agreement; (C) A certificate signed by the Borrower's corporate secretary, certifying to the Lenders and Agent: (1) as to the adoption of Resolutions of the Borrower's Board of Directors authorizing the execution, delivery and performance of the Loan Documents and all other documents to be delivered by the Borrower pursuant to this Loan Agreement; (2) as to the incumbency and signatures of the officers of the Borrower signing the Loan Documents, and each other document to be delivered by the Borrower pursuant to this Loan Agreement; and (3) that the Articles of Incorporation and By-Laws of the Borrower, true copies of which have been attached to such certification, have not been amended since the date of such delivery; (D) A certificate of the Director of Commerce and Consumer Affairs of the State of Hawaii, evidencing the good standing of the Borrower in the State of Hawaii; (E) A written opinion of independent counsel to the Borrower, addressed to the Lenders, stating that: (1) The Borrower and the Subsidiaries are corporations duly organized, validly existing and in good standing under the Laws of the State of Hawaii and are duly qualified and in good standing as foreign corpora- tions in all jurisdictions wherein the nature of their businesses or the properties owned by them make such qualification necessary; (2) The Borrower has the corporate power and authority to execute and deliver the Loan Documents, to borrow money hereunder, and to perform the Obligations; (3) All corporate action required to be taken by the Borrower to enter into the transactions con- templated by this Loan Agreement has been duly taken, and all consents and approvals of all Persons, necessary to the validity of the Loan Documents, and each other docu- ment to be delivered by the Borrower hereunder have been duly obtained, and the Loan Documents and such other documents do not conflict with any provision of the Articles of Incorporation or By-Laws of the Borrower, or of any applicable Laws or any other agreement binding upon the Borrower or its property of which such counsel has knowledge and the Borrower's execution, delivery and performance of the Loan Documents do not require the consent or approval of any governmental body or regulatory authority; (4) The Loan Documents and all other documents required to be delivered by the Borrower pur- suant to the provisions of this Loan Agreement have been duly executed by, and each is a valid and binding obliga- tion of, the Borrower, enforceable in accordance with its terms; (5) Kapalua Land Company, Ltd. ("KLC") has the corporate power and authority to execute and deliver the Additional Security Mortgage, all corporate action required to be taken by KLC in respect of its execution and delivery of the Additional Security Mortgage has been duly taken, and the Additional Security Mortgage has been duly executed and delivered by KLC and is a valid and binding obligation of KLC, enforceable in accordance with its terms; and (6) Such counsel is without any knowledge of any matters contrary to the representations and war- ranties contained in Section 4.01 of this Loan Agreement; and (F) A certificate dated the date of this Loan Agreement and signed by the President or an Executive Vice President of the Borrower, certifying to the Lenders and Agent that: (1) The representations and warranties contained in Section 4.01 of this Loan Agreement are true on and as of such date; and (2) No Event of Default under this Loan Agreement, and no event which, with the giving of notice or passage of time, or both, would become such an Event of Default, has occurred on and as of such date; (G) Evidence that the Revolving and Term Loan Agreement dated as of December 27, 1990, as amended by instruments dated as of December 31, 1991 and March 31, 1992, among Bank of Hawaii, First Hawaiian Bank and Bank of America National Trust and Savings Association (successor-in-interest to Security Pacific National Bank), as Lenders, Bank of Hawaii, as Agent, and the Borrower, together with the Notes and Agency Agreement therein described, have been terminated, and that all Loans and all other indebtedness of the Borrower thereunder have been repaid or paid in full (or that arrangements, acceptable to the Lenders and Agent thereunder, the Lenders and Agent hereunder, and the Borrower, have been made for the repayment of said Loans and the payment of all such other indebtedness from the proceeds of the initial Loans under this Loan Agreement); and (H) Evidence that the Mortgage and Additional Security Mortgage have been recorded in the Bureau of Conveyances of the State of Hawaii (and, if appropriate, filed in the Office of the Assistant Registrar of the Land court of Hawaii), that the related UCC Financing Statements have been filed in said Bureau, and that the Lenders hold a first mortgage lien on and first security interest in all properties described in and purported to be encumbered by the Mortgage and Additional Security Mortgage, subject to no liens or encumbrances other than those noted in (or authorized by) the Mortgage. In addition to the foregoing conditions precedent, the following conditions shall have been satisfied: (I) At the time of the initial disbursement of Loan proceeds under this Loan Agreement, the Borrower shall have paid to the Lenders, through the Agent, a $75,000 Loan extension fee. (J) At the time of the initial disbursement of Loan proceeds under this Loan Agreement and of each sub- sequent disbursement of Loan proceeds under this Loan Agreement: (1) No Event of Default under this Loan Agreement shall have occurred and be continuing, and no event shall have occurred and be continuing that, with the giving of notice or passage of time, or both, would become such an Event of Default; (2) The Agent shall have received a tele- phonic request for such disbursement pursuant to Section 2.03 of this Loan Agreement, immediately followed by con- firmation in writing signed by an authorized officer of the Borrower; (3) The representations and warranties contained in Section 4.01 of this Loan Agreement shall be true on and as of the date of such disbursement with the same force and effect as if made on and as of such date; (4) The Lenders shall have remitted to the Agent the Lenders' respective pro rata shares of the disbursement then due; and (5) All legal matters incidental to such disbursement shall be satisfactory to the Agent's counsel. The parties hereto acknowledge that the foregoing conditions precedent set forth in this Section 3.01 have heretofore been satisfied with respect to the initial disbursement of Loan proceeds. 3.02 Conditions Precedent to Effective Date of Amendment and Restatement. Notwithstanding anything herein to the contrary, the effectiveness of the amendment and restatement of the Original Loan Agreement in accordance with the terms of this Amendment and Restatement, is subject to the satisfaction of all of the following conditions, and on the date of the satisfaction of such conditions (the "Effective Date"), the Original Loan Agreement shall be deemed amended and restated as set forth herein: (a) Documents Required. The Agent shall have received, in each case in form and substance satisfactory to the Agent and the Lenders, such fully executed origi- nals or certified copies as the Agent and the Lenders may have requested of each of the following, in each case as amended through the Effective Date: (1) Loan Documents. This Amendment and Restatement, and three separate Amended and Restated Re- volving Notes in the form of Annex I, Annex II and Annex III, respectively (each called an "Amended and Restated Revolving Note" and collectively called the "Amended and Restated Revolving Notes"), each executed by the Borrower and completed in conformity with the provisions of this Amendment and Restatement; (2) Consents and Authority. Evidence that the Borrower has obtained all necessary and appropriate authority, approvals and consents to execute, deliver and perform the terms of (i) this Amendment and Restatement and the Amended and Restated Revolving Notes (collectively called the "Amending Documents") and (ii) the Loan Documents, as amended and restated by the Amending Documents, including, without limitation, certified resolutions of the Borrower as to such author- ity. (b) Certain Other Events. On the Effective Date: (1) No event shall have occurred and be continuing that (i) constitutes an Event of Default, or (ii) with the giving of notice or passage of time, or both, would constitute such an Event of Default (a "De- fault"). (2) The representations and warranties contained in Section 4.01 of this Loan Agreement shall be true on and as of the Effective Date with the same force and effect as if made on the Effective Date, other than as previously disclosed to the Agent with respect to the representations and warranties set forth in Section 4.01(F) and (K) hereof. (3) No material adverse change shall have occurred in the financial condition of the Borrower since the date of the most recent of the Borrower's financial statements submitted to the Agent. (4) The Borrower shall have delivered to the Agent and the Lenders a certificate dated the Effec- tive Date, signed by the President or an Executive Vice President of the Borrower, certifying to the Agent and the Lenders the matters set forth in clauses (1) and (2) of Section 3.01(F) of this Loan Agreement. (5) All legal matters incidental to the closing shall be satisfactory to legal counsel for the Agent and each Lender. (c) Interest and Other Charges. On the Effec- tive Date, the Borrower shall have paid to the Agent (i) the $25,000 extension fee referred to in Section 2.05(c) hereof, and (ii) all sums of accrued interest and other fees and charges then outstanding under the Loan Docu- ments. On the Effective Date, subject to the satisfaction of the foregoing conditions, the Original Loan Agreement and each of the Revolving Notes shall be deemed amended and restated in accordance with the provisions of this Amendment and Restatement and the Amended and Restated Revolving Notes, with the force and effect set forth in Section 7.18 hereof. 3.03 Conditions to Term Loans. The obligation of the Lenders to make their respective Term Loans to the Borrower on the Expiry Date shall be subject to the satisfaction of the following conditions precedent: (a) Term Notes. The Borrower shall have ex- ecuted and delivered to the Agent for distribution to the Lenders each of the Term Notes; (b) Defaults and Events of Default. No Default or Event of Default under this Loan Agreement shall have occurred and be continuing; (c) Representations and Warranties. The representations and warranties contained in Section 4.01 of this Loan Agreement shall be true on and as of the Expiry Date with the same force and effect as if made on the Expiry Date; (d) Certificate. The Borrower shall have de- livered to the Agent and the Lenders a certificate dated the Expiry Date, signed by the President or an Executive Vice President of the Borrower, certifying to the Agent and the Lenders the matters set forth in clauses (1) and (2) of Section 3.01(F) of this Loan Agreement; and (e) Illegality. The making of the Term Loans shall not have been rendered illegal by any of the Laws applicable thereto. If such conditions shall not have been satisfied on Expiry Date, all outstanding principal together with ac- crued and theretofore unpaid interest on the Revolving Loans and all other amounts due to the Lenders under the Loan Documents shall be paid in full on the Expiry Date. IV. Representations and Warranties 4.01 Original. To induce the Lenders to enter into this Loan Agreement, the Borrower represents and warrants to the Lenders as follows: (A) The Borrower and the Subsidiaries are cor- porations duly organized, validly existing and in good standing under the Laws of Hawaii; the Borrower and the Subsidiaries have the lawful corporate power and adequate authority, rights and franchises to own or lease their respective properties and to engage in the businesses they each conduct, and each is duly qualified and in good standing as a foreign corporation in each jurisdiction, if any, wherein the nature of the business transacted by it or property owned by it makes such qualification necessary; (B) The execution and performance of the Loan Documents will not immediately, or with the passage of time or the giving of notice, or both: (1) Violate the Articles of Incorporation or By-Laws of the Borrower, or violate any Laws or breach or result in a default under any contract, agreement, or instrument to which the Borrower or any Subsidiary is a party or by which the Borrower or any Subsidiary or its property is bound, or require the consent or approval of any governmental office or official; or (2) Result in the creation (or an obliga- tion to create) or imposition of any security interest in, or lien or encumbrance on, any of the assets of the Borrower or any Subsidiary, other than the liens or security interests intended to be created by the Mortgage and by the Additional Security Mortgage described in Section 5.01(B) of this Loan Agreement; (C) The Borrower has the corporate power and authority to execute and deliver the Loan Document and to incur and perform the Obligations, and has taken all cor- porate action necessary to authorize the execution, delivery, and performance of the Loan Documents; (D) The Borrower's execution, delivery and performance of the Loan Documents do not require the consent or approval of any governmental body or other regulatory authority; (E) This Loan Agreement is, and the remainder of the Loan Documents when executed and delivered will be, the legal, valid and binding obligations of the Borrower, and enforceable in accordance with their respective terms; (F) All Financial Statements heretofore fur- nished by the Borrower to the Lenders, including any schedules and notes pertaining thereto, were prepared in accordance with generally accepted accounting principles consistently applied, and fully and fairly presented the financial condition of the Borrower and its Subsidiaries at the dates thereof and the results of operations for the periods covered thereby, and as of the date of this Loan Agreement there have been no material adverse changes in the consolidated financial condition or business of the Borrower and its Subsidiaries from September 30, 1992; (G) Except as otherwise permitted by this Loan Agreement, the Borrower and its Subsidiaries have filed all federal, state and local tax returns and other reports they were required by Laws to have filed prior to the date of this Loan Agreement and which are material to the conduct of their respective businesses, have paid or caused to be paid all taxes, assessments and other governmental charges that were due and payable prior to the date of this Loan Agreement, and have made adequate provision for the payment of such taxes, assessments or other charges accruing but not yet payable; and the Borrower has no knowledge of any deficiency or additional assessment in a materially important amount in connection with any taxes, assessments or charges not provided for on its books; (H) Except to the extent that the failure to comply would not materially interfere with the conduct of the business of the Borrower or any Subsidiary or have a materially adverse effect on the financial condition of the Borrower or any Subsidiary, the Borrower and its Sub- sidiaries have complied with all applicable Laws in re- spect of: (1) restrictions, specifications, or other re- quirements pertaining to products that the Borrower or any Subsidiary grows, manufactures or sells or to the services each performs; (2) the conduct of their respec- tive businesses; and (3) the use, maintenance, and oper- ation of the real and personal properties owned or leased by them in the conduct of their respective businesses; (I) There are no chemical substances, pollut- ants, contaminants or hazardous or toxic substances, materials or wastes (collectively, "hazardous materials") at any premises owned, leased, operated, controlled or used by the Borrower or any of the Subsidiaries where such could reasonably be expected to have a materially adverse effect on the operations or financial condition of the Borrower and the Subsidiaries or the Borrower's ability to repay the Loans, and the Borrower and the Subsidiaries do not manufacture, process, distribute, use, treat, store, dispose of, transport or handle hazardous materials in such a manner as to create expectations of such a materially adverse effect on the operations or financial condition of the Borrower and the Subsidiaries or the Borrower's ability to repay the Loans; (J) The Borrower has no Subsidiaries other than those listed in Exhibit H, attached to the Original Loan Agreement; (K) No litigation or other proceeding is pend- ing or threatened against the Borrower or any of its Sub- sidiaries or any of their respective properties which, if determined adversely to the Borrower or any such Subsid- iary, would have a materially adverse effect on the con- solidated financial condition or business prospects of the Borrower and its Subsidiaries; (L) Neither the execution of this Loan Agree- ment nor the Borrower's use of proceeds of the Loans will constitute a violation of any of Regulations G, T and U of the Board of Governors of the Federal Reserve System or any interpretations thereof or rulings thereunder; (M) The Borrower and its Subsidiaries have good and marketable title to all of their respective assets, subject only to such exceptions or encumbrances as do not materially adversely affect either the consolidated financial conditions of the Borrower and its Subsidiaries as currently reflected in the Financial Statements or the conduct of the businesses of the Borrower and its Subsidiaries; (N) All Defined Benefit Pension Plans, as de- fined in the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), of the Borrower and each Sub- sidiary meet the minimum funding standards of 302 of ERISA, and no Reportable Event or Prohibited Transaction, as defined in ERISA, has occurred in respect of any such Plan; (O) No representation or warranty by the Bor- rower contained in this Loan Agreement or in any certif- icate or other document furnished by the Borrower pursuant to this Loan Agreement contains any untrue statement of material fact or omits to state a material fact necessary to make such representation or warranty not misleading in light of the circumstances under which it was made; and (P) Neither the Borrower nor any Subsidiary is subject to provisions of the Investment Company Act of 1940, provisions of the Public Utility Holding Company Act of 1935, provisions of the Interstate Commerce Act or provisions of any other statute or regulation which restrict the execution or performance of this Loan Agreement or the Notes by the Borrower. 4.02 Survival. All representations and war- ranties stated above in Section 4.01 shall survive until all the Obligations shall have been satisfied in full. V. The Borrower's Covenants The Borrower covenants to and agrees with the Lenders that, so long as any of the Obligations shall re- main unsatisfied or any commitments hereunder remain out- standing, the Borrower will comply, and will cause its Subsidiaries to comply, with the following covenants: 5.01 Affirmative Covenants. (A) The Borrower will furnish to the Lenders, through the Agent: (1) Within 60 days after the close of each quarterly accounting period in each fiscal year: (a) a consolidated statement of Net Worth and a con- solidated statement of cash flow of the Borrower and its Subsidiaries for such quarterly period; (b) a consoli- dated income statement of the Borrower and Subsidiaries for such quarterly period; (c) a consolidated balance sheet of the Borrower and Subsidiaries as of the end of such quarterly period; (d) a certification by the Borrower's chief financial officer, in reasonable detail, evidencing the Borrower's compliance at the end of such quarterly accounting period with the covenants contained in Sections 5.01 and 5.02 of this Loan Agreement; (e) summary schedules of income and cash flow for the Borrower's resort division and pineapple division and Kaahumanu Center, all in reasonable detail, subject to year-end audit adjustments and certified by the Borrower's President or principal financial officer to have been prepared in accordance with generally accepted accounting principles consistently applied by the Borrower and Subsidiaries, except for any inconsistencies explained in such certificate; and (f) a written summary (in reasonable detail) of all projects approved by the Borrower or any of its Subsidiaries during such quarterly period which are reasonably expected to involve Capital Expenditures exceeding $1,000,000; (2) Within 90 days after the close of each fiscal year: (a) a consolidated statement of Net Worth and a consolidated statement of cash flow of the Borrower and its Subsidiaries for such fiscal year; (b) a consolidated income statement of the Borrower and Subsidiaries for such fiscal year; (c) a consolidated balance sheet of the Borrower and Subsidiaries as of the end of such fiscal year (all of the aforementioned finan- cial statements to be certified to without qualification by independent certified public accountants selected by the Borrower); (d) summary schedules of income and cash flow for the Borrower's resort division, pineapple division and Kaahumanu Center; (e) detailed statements of Capital Expenditures and Investments made or incurred in such fiscal year, all of the foregoing to be in reasonable detail, including all supporting schedules and comments; and (f) a certification by the chief financial officer of the Borrower, in reasonable detail, evidencing the Borrower's compliance at the end of such fiscal year with the covenants contained in Sections 5.01 and 5.02 of this Loan Agreement; (3) By December 1 of each year, (a) copies of the Borrower's three-to-five year summary forecast of income and cash flow for the Borrower's resort division, pineapple division and Kaahumanu Center, and (b) a Capital Expenditure and Investment forecast for each such division; (4) Promptly after the sending or making available or filing of the same, copies of all reports, proxy statements and financial statements that the Bor- rower sends or makes available to its stockholders and all registration statements and reports that the Borrower files with the Securities and Exchange Commission or any successor Person; and (5) Within 60 days following the close of each quarterly accounting period subsequent to the organization of KCA, statements of KCA's net worth at the end of such period and cash flow for such period, KCA's income statement for such period, and KCA's balance sheet as of the end of such period, in reasonable detail, certified to by KCA's chief financial officer. (B) On or before March 31, 1993, the Borrower will execute and deliver to the Lenders an Additional Se- curity Mortgage, in substantially the form of the Mort- gage attached to the Original Loan Agreement as Exhibit B, constituting a first mortgage lien on the "Village Golf Course" properties currently owned by the Borrower, and will cause said Additional Security Mortgage (and a related UCC Financing Statement to be executed by the Borrower) to be duly recorded in the Bureau of Conveyances of the State of Hawaii (and, if appropriate, filed in the Office of the Assistant Registrar of the Land Court of Hawaii), and will provide to the Lenders evidence (which may be in the form of an opinion of Borrower's independent legal counsel) that the properties encumbered by said Additional Security constitute one or more duly subdivided lots, capable of being mortgaged in compliance with applicable subdivision laws and ordinances. (C) The Borrower and its Subsidiaries will maintain their real estate and other properties in good condition and repair (normal wear and tear excepted), and will pay and discharge or cause to be paid and discharged when due, the cost of repairs to or maintenance of the same, and will pay or cause to be paid all of their in- debtedness as it becomes due, except as otherwise permit- ted by Section 5.01(E) of this Loan Agreement. (D) The Borrower and its Subsidiaries will maintain, or cause to be maintained, public liability in- surance and fire and extended coverage insurance on all assets owned or leased by them, all in such form and amounts as are consistent with industry practices. The Borrower and its Subsidiaries may procure any such insur- ance from any insurance company or companies authorized to do business in Hawaii. (E) The Borrower and its Subsidiaries will pay or cause to be paid when due, all taxes, assessments and charges or levies imposed upon them or on any of their property or which any of them is required to withhold and pay over, except where contested in good faith by appro- priate proceedings with adequate reserves therefor having been set aside on their books, and the Borrower will pay all governmental charges or taxes (except income, fran- chise or similar taxes) at any time payable or ruled to be payable in respect of the existence, execution or delivery of this Loan Agreement and the Notes by reason of any existing or hereafter enacted federal or state statute. (F) The Borrower will maintain: (1) At all times on and after January 1, 1994, a Current Ratio of not less than 1.90; (2) A Recourse Debt/Net Worth Ratio of not more than (a) 0.80 at December 31, 1995, March 31, 1996, and September 30, 1996, and (b) 0.70 at December 31, 1996 and thereafter (for the purposes of this covenant, KCA's debt approved by the Lenders pur- suant to the last sentence in Section 5.02(I) of this Loan Agreement, and any KCA debt which is nonrecourse to the Borrower, shall be disregarded); and (3) A minimum Net Worth of at least (a) $57,000,000 at December 31, 1995, and thereafter, (b) an amount equal to the sum of (i) $57,000,000, plus (ii) 50% of the cumulative net profits (but no the net losses) of the Borrower. (G) The Borrower and its Subsidiaries will, when requested so to do, make available for inspection by the Agent's duly authorized representatives any of their properties and Records, and will furnish to the Lenders (through the Agent) any information regarding their busi- ness affairs and financial condition within a reasonable time after written request therefor. (H) The Borrower and its Subsidiaries will take all necessary steps to preserve their respective corporate existences and to comply with all present and future Laws applicable to them in the operation of their respective businesses and to comply with all material agreements to which they are subject (the foregoing to the contrary notwithstanding, the Borrower shall have the right to dissolve or liquidate such of its Subsidiaries as its management may determine to dissolve or liquidate in the exercise of sound business judgment). (I) The Borrower will give immediate written notice to the Agent, in reasonable detail, of the occur- rence of any event in respect of which a report on Form 8-K should be filed by the Borrower with the Securities and Exchange Commission. (J) The Borrower will notify the Agent imme- diately if the Borrower becomes aware of the occurrence of any Event of Default under this Loan Agreement or of any fact, condition or event that only with the giving of notice or passage of time, or both, could become such an Event of Default, or of the failure of the Borrower or any Subsidiary to observe any of their respective undertakings under this Loan Agreement. (K) The Borrower and its Subsidiaries will: (1) fund all their Defined Benefit Pension Plans in ac- cordance with no less than the minimum funding standards of 302 of ERISA; and (2) promptly advise the Agent of the occurrence of any Reportable Event or Prohibited Transac- tion in respect of any such Plan. (L) If the Borrower or any of its Subsidiaries, during the Term Loan period, or during the continuance of an Event of Default, or at any other time following the Agent's notification to the Borrower that the provisions of this Section 5.01(L) shall be operative, sell real estate assets worth more than $1,000,000, in a single transaction or in a series of related transactions, the Borrower will apply 75% of the net cash proceeds of the sale(s), after applicable income taxes arising out of the sale(s), to the repayment of the Loans promptly upon receipt of such net sales proceeds in cash. The provisions of this Section 5.01(L) shall not apply to the disposition of the proceeds of the Borrower's sale of its West Maui Airport in October, 1992, and a Kahana property in November, 1992, heretofore disclosed in writing to the Lenders. (M) The Borrower will, on or before Decem- ber 31, 1993, (a) cause KCA to be organized and contribute to KCA all of the Borrower's right, title and interest in and to "KSC" and the "Additional Parcel," as those terms are defined in Section 5.02(A) hereof, and (b) cause KCA to obtain and have in place appropriate construction financing for KCA's proposed expansion of the Kaahumanu Shopping Center complex, on terms and conditions acceptable to the Lenders. (N) The Borrower will pay to the Agent, on (or at the Borrower's option before) July 1 of each year, a $25,000 Agent's Fee for services rendered and to be ren- dered by the Agent under the Agency Agreement. 5.02 Negative Covenants. (A) Neither the Borrower nor any Subsidiary will enter into any merger, consolidation, reorganization or recapitalization, or reclassify its capital stock, or substantially change the nature of its business as now conducted, except that (1) any wholly-owned Subsidiary may merge with any other Subsidiary provided said wholly-owned Subsidiary is the surviving entity, (2) any Subsidiary may merge with the Borrower provided the Borrower is the surviving entity, (3) the Borrower and any wholly-owned Subsidiary may make contributions to the capital of, and receive dividends from, wholly-owned Subsidiaries, and (4) the Borrower may cause KCA to be organized between the Borrower or a wholly-owned Sub- sidiary thereof and the State of Hawaii Employee Retire- ment System ("ERS"), and the Borrower may contribute to the capital of KCA all of the Borrower's right, title and interest in and to the Kaahumanu Shopping Center ("KSC") and the adjacent 8.4-acre parcel ("Additional Parcel"), provided that the Borrower or said wholly-owned Subsidiary shall retain at all times not less than a 50% general partnership interest in KCA. (B) Neither the Borrower nor any Subsidiary will sell, transfer, lease or otherwise dispose of all or (except in the ordinary course of business as now con- ducted or except as contemplated by clause (4) of Section 5.02(A), above) any material part of its assets unless, in respect of such sale or other disposition, the Borrower shall have complied with all applicable require- ments stated above in Section 5.01(L) of this Loan Agreement. (C) The Borrower will not declare or pay any dividends, or make any other payment or distribution on account of its capital stock, except that the Borrower may declare and pay cash dividends for and in respect of the third and fourth quarters of 1996, provided that (i) dividends paid for the third quarter of 1996 do not exceed 30% of Net Profits through the first three quarters of 1996 and (ii) cumulative dividends paid in respect of the third and fourth quarters of 1996 do not exceed 30% of Net Income for 1996. (D) Neither the Borrower nor any Subsidiary will make any Capital Expenditures or any Investments, or both, in any of the fiscal years listed below in column (a) which, together with all other Capital Expenditures and Investments made by the Borrower and its Subsidiaries in any such fiscal year, will exceed in the aggregate the amount shown opposite such fiscal year listed below in column (b): (a) (b) 1992 $14.0 Million 1993 $13.0 Million 1994 $11.0 Million 1995 $10.0 Million 1996 $ 8.5 Million 1997 $10.0 Million thereafter $ 9.0 Million (E) The Borrower will not redeem, purchase or retire any of its capital stock, except that the Borrower may redeem, purchase or retire shares of its capital stock with funds which could have been, but were not, used for the payment of cash dividends pursuant to the provisions of Section 5.02(C) of this Loan Agreement (subject to the limitations therein set forth). (F) Neither the Borrower nor any Subsidiary will furnish to any of the Lenders or the Agent any cer- tificate or other document that will contain any untrue statement of material fact or that will omit to state a material fact necessary to make it not misleading in light of the circumstances under which it was furnished. (G) Neither the Borrower nor any Subsidiary will directly or indirectly apply any part of the proceeds of any of the Loans to the purchasing or carrying of any "margin stock" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System, or any regulations, interpretations or rulings thereunder. (H) Neither the Borrower nor any Subsidiary, without the prior written consent of all of the Lenders, will incur, agree to incur, assume, or in any manner be- come liable in respect of any Indebtedness for Borrowed Money (recourse or nonrecourse) other than the indebted- ness evidenced by the Notes and this Loan Agreement and additional indebtedness which, together with the indebtedness evidenced by the Notes and this Loan Agree- ment, shall cause Total Debt to not exceed: (a) $66,000,000 in the aggregate principal amount as of December 31, 1993, and (b) $63,000,000 in the aggregate principal amount as of March 31, 1994, and (c) $65,000,000 in the aggregate principal amount as of June 30, 1994, and (d) $69,000,000 in the aggregate principal amount as of September 30, 1994, and (e) $57,000,000 in the aggregate principal amount as of December 31, 1994, and (f) $58,000,000 in the aggregate principal amount as of March 15, 1995, and (g) $53,000,000 in the aggregate principal amount as of May 5, 1995, and (h) $50,000,000 in the aggregate principal amount as of December 31, 1995, and (i) $40,000,000 in the aggregate principal amount as of December 31, 1996 and thereafter. For the purposes of this Section 5.02(H), KCA's debt ap- proved by the Lenders pursuant to the last sentence in Section 5.02(I) of this Agreement, and any KCA debt which is nonrecourse to the Borrower, including that portion subject to Borrower's Limited Payment Guaranty, shall not be deemed to constitute indebtedness of the Borrower or any Subsidiary. As used herein, "Borrower's Limited Pay- ment Guaranty" means any guaranty of the Borrower guaran- tying payment of indebtedness of KCA relating to the Kaahumanu Shopping Center. (I) Neither the Borrower nor any Subsidiary, without the prior written consent of all of the Lenders, will hypothecate, pledge, mortgage, grant a security in- terest in or otherwise encumber (or permit to be encum- bered) any of its assets now owned or hereafter acquired, otherwise than in the ordinary course of the business of the Borrower or such Subsidiary (for purposes of this Section 5.02(I), encumbrances incurred or created in the ordinary course of business shall be deemed to include (a) liens for taxes and governmental (or quasi- governmental) assessments or similar charges that are not yet due and payable, (b) pledges or deposits to secure payment of workers' compensation or to participate in any fund established under workers' compensation, unemployment insurance, pensions or similar social security programs, (c) liens of mechanics, materialmen, warehousemen, carriers or other similar liens that are not yet due and payable, (d) good faith pledges or deposits made to secure performance of bids, tenders, contracts (other than for the repayment of borrowed money), leases, statutory obligations, or surety, appeal, indemnity, performance or similar bonds required in the ordinary course of business, not exceeding at any one time outstanding $1,000,000 for all such pledges or deposits in the aggregate for the Borrower and its Subsidiaries, (e) retained liens or security interests of equipment lessors on equipment leased under equipment leases permitted by this Loan Agreement, (f) retained liens or security interests of equipment vendors securing payment of the purchase price of such equipment purchased on time by the Borrower or its Subsidiaries, and (g) liens and security interests held by lenders in respect of the mortgage loans described in Exhibit I attached to the Original Loan Agreement). Notwithstanding the foregoing provisions of this Section 5.02(I), the Borrower or its Subsidiaries may mortgage to ERS, to secure loan(s) made or to be made by ERS to KCA, all of the Borrower's or any Subsidiary's interests in the properties commonly referred to as the Kapalua Bay Hotel, The Shops at Kapalua Bay, "Site 29," the Bay Club, Kaahumanu Shopping Center, the 8.4-acre Additional Parcel, and the Napili Shopping Center properties, provided that the Borrower shall have first obtained the Lenders' approval of the terms and conditions of the ERS loan(s) to KCA and any additional construction financing for the proposed KSC expansion, and KCA may mortgage its interests in any and all of the KSC properties (including the 8.4-acre Additional Parcel), provided that the Borrower shall have first obtained the Lenders' approval of the terms and conditions of (a) any construction financing secured thereby, and (b) any other financing secured thereby if such financing is made with recourse to the Borrower or any of its assets other than its joint venture interest in KCA. VI. Default 6.01 Events of Default. The occurrence of any one or more of the following events shall constitute an Event of Default under this Loan Agreement and the Notes: (A) The Borrower shall fail to pay when due any principal or interest or fee or other charge payable under this Loan Agreement or any of the Notes and such failure shall continue for a period of five Business Days. (B) The Borrower or any Subsidiary shall fail to observe or perform any other obligation to be observed or performed by it under this Loan Agreement or any of the Notes, and such failure shall continue for 30 days after: (1) notice of such failure from the Agent; or (2) the Agent is notified of such failure or should have been so notified pursuant to the provisions of Section 5.01(I) of this Agreement, whichever is earlier. (C) Any financial statement, other statement, representation, warranty or certificate made or furnished by the Borrower or any Subsidiary to any of the Lenders or the Agent in connection with this Loan Agreement, or as an inducement to the Lenders or the Agent to enter into this Loan Agreement, or in any separate statement or document delivered pursuant to the provisions of this Loan Agreement, shall be materially false, incorrect, or incomplete when made or delivered. (D) The Borrower or any Subsidiary shall admit its inability to pay its debts as they mature, or shall make an assignment for the benefit of any of its credi- tors. (E) A decree or order for relief shall be en- tered by a court having jurisdiction in respect of the Borrower or any Subsidiary in an involuntary case under the federal Bankruptcy Code or any other applicable fed- eral or state bankruptcy, insolvency or similar law, or a receiver, liquidator, assignee, custodian, trustee, se- questrator (or similar official) shall be appointed for the Borrower or any Subsidiary or for any substantial part of its property, and any such decree or order shall continue unstayed and in effect for a period of 60 consecutive days. (F) The Borrower or any Subsidiary shall com- mence a voluntary case under the federal Bankruptcy Code or any other applicable federal or state bankruptcy, in- solvency or similar law, or the Borrower or any Subsid- iary shall consent to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or other similar official) of the Borrower or any Subsidiary or any substantial part of its property. (G) The Borrower or any Subsidiary (i) shall have failed to pay at its stated due date any Indebtedness for Borrowed Money in excess of $1,000,000 in the aggregate (other than indebtedness evidenced by the Notes) and such failure shall have continued beyond any applicable grace period, or (ii) shall have failed to observe or perform any term, covenant or provision con- tained in any agreement or instrument (other than this Loan Agreement or the Notes) by which it is bound, evi- dencing or securing or otherwise relating to any Indebtedness for Borrowed Money in excess of $1,000,000 in the aggregate, and the effect thereof shall have been the acceleration of the maturity of said indebtedness by the holder or holders thereof or of any obligations issued in respect thereof or by a trustee or trustees acting on behalf of such holder or holders. (H) A final judgment which alone or with other outstanding final judgments against the Borrower or any Subsidiary exceeds $3,000,000 in the aggregate and (i) such judgment shall not be discharged or fully bonded against within 60 days, or (ii) within 60 days after entry of such judgment, execution shall not be stayed pending appeal, or (iii) such judgment shall not be discharged within 60 days after expiration of any such stay. 6.02 Rights and Remedies. If an Event of De- fault shall occur and be continuing the Lenders shall have, in addition to any and all other rights and rem- edies, legal or equitable, available to the Lenders under any and all of the Loan Documents or at law, the following additional rights and remedies: (a) The absolute right to deny to the Borrower any further disbursements of Loan proceeds (the Lenders' obligation to extend any further credit to the Borrower shall immediately terminate); (b) The right, at the option of the Lenders, to declare, without notice, the entire principal amount and accrued interest for all Loans outstanding under this Loan Agreement, plus any fees and charges reasonably incurred by the Agent and/or the Lenders under any of the Loan Documents, immediately due and payable; and (c) The right, at the option of the Lenders, to charge interest on any principal amount outstanding under this Agreement at a rate per annum equal to one and one-half percentage points (1.50%) plus the rate of interest otherwise in effect (the "Default Rate"); (d) The right to the ex parte appointment without bond of a receiver, without regard to the value of any collateral or solvency of any party liable for payment, observance or performance of any of the obli- gations of the Borrower or any other obligors, owing to the Lenders under or pursuant to the Loan Documents; and (e) The Agent and the Lenders may exercise any and all other rights and remedies, legal or equitable, available to the Agent and/or the Lenders under the Notes and under any and all of the other Loan Documents or at law or in equity. VII. Miscellaneous 7.01 Further Assurance. From time to time, the Borrower, the Lenders and the Agent will execute and de- liver such additional documents and provide such addi- tional information as may be reasonably required to carry out the intent of this Loan Agreement. 7.02 Title Insurance and Appraisals. The Lend- ers will not require that the Borrower provide (or pay the costs of) title insurance on the properties encumbered by the Mortgage or Additional Security Mortgage (collectively, the "Mortgaged Properties"). Although the Lenders have not required that any appraisal of the Mortgaged Properties be furnished as a condition precedent to the first disbursement of Loan proceeds, the Lenders reserve the right to obtain at the Borrower's expense (and the Borrower agrees to pay all costs of) appraisals of the Mortgaged Properties, from any licensed or certified appraiser designated by the Lenders, from time to time, whenever such appraisals may be (a) required by any law, rule or regulation applicable to the conduct of any Lender's business, (b) requested or directed by any governmental authority charged with the administration of such law, rule or regulation or any Lender's compliance therewith, whether or not such request or direction has the force of law, or (c) when reasonably deemed appropriate by the Lenders in their sole discretion (reappraisals referred to in this clause (c) shall not be required more frequently than annually). 7.03 Enforcement and Waiver by the Lenders. The Lenders, or the Agent on behalf of the Lenders, shall have the right at all times to enforce the provisions of the Loan Documents, as they may be amended from time to time, in strict accordance with their respective terms, notwithstanding any conduct or custom on the part of any of the Lenders or the Agent in refraining from so doing at any time or times. The failure of the Lenders or the Agent at any time or times to enforce their rights under such provisions, strictly in accordance with the same, shall not be construed as having created a custom in any way or manner contrary to specific provisions of the Loan Documents or as having in any way or manner modified or waived the same. No single or partial exercise of any right by any Lender or the Agent shall preclude the further or other exercise thereof. All rights and remedies of the Lenders and Agent are cumulative and concurrent and the exercise of one right or remedy shall not be deemed a waiver or release of any other right or remedy. 7.04 Expenses of the Lenders and Agent. The Borrower will, on demand, reimburse to the Lenders and the Agent all reasonable expenses, including the reasonable fees and expenses of legal counsel for the Lenders and the Agent, incurred by any of the Lenders or the Agent in connection with the negotiation, preparation, administration, amendment, modification, waiver, and/or enforcement of the Loan Documents and the collection or attempted collection of the indebtedness evidenced by the Loan Documents, or any of them including but not limited to bankruptcy or reorganization proceedings. 7.05 Notices. Any notices or consents required or permitted by this Loan Agreement or the other Loan Documents shall be in writing and may be delivered in person or sent by United States mail or by telecopy and shall be deemed delivered when delivered in person or when deposited in the United States mail, certified, postage prepaid, return receipt requested, or when sent during normal business hours at the place of receipt and the receipt of which is confirmed in writing if by telecopy, to the address of the parties as follows, un- less such address is changed by written notice hereunder: (A) If to the Borrower: Maui Land & Pineapple Company, Inc. P. O. Box 187 Kahului, Maui, Hawaii 96732 Attention: Executive Vice President, Finance Telecopy No.: (808) 871-0953 (B) If to the Lenders, in care of the Agent: Bank of Hawaii P. O. Box 2900 Honolulu, Hawaii 96846 Attention: Manager, Corporate Bank Hawaii Telecopy No.: (808) 537-8301. 7.06 Waiver and Release by the Borrower. To the maximum extent permitted by applicable law, the Borrower: (a) Waives notice and opportunity to be heard, after acceleration of the indebtedness evidenced by the Loan Documents, before exercise by the Agent or other Lenders of the remedy of setoff or of any other remedy or procedure permitted by any applicable law or by any prior agreement with the Borrower, and, except where specifically required by this Loan Agreement or by any applicable law, notice of any other action taken by the Agent or any other Lender; (b) Waives presentment, demand for payment, notice of dishonor, and any and all other notices or demands in con- nection with the delivery, acceptance, performance, or enforcement of this Loan Agreement, and consents to any extension of time (and even multiple extensions of time for longer than the original term), renewals, releases of any person or organization liable for the payment of the Obligations under this Loan Agreement, and waivers or modifications or other indulgences that may be granted or consented to by the Agent and the Lenders in respect of the Loans evidenced by this Loan Agreement; and (c) Releases the Agent and the Lenders and their respective officers, agents, and employees from all claims for loss or damage caused by any act or omission on the part of any of them except willful misconduct. To the maximum extent permitted by applicable Laws, the Bor- rower waives notice and opportunity to be heard, after ac- celeration in the manner provided above in Section 6.02, before exercise by the Lenders or the Agent of the remedy of setoff or of any other remedy or procedure permitted by any applicable Laws or by any agreement with the Borrower or any Subsidiary, and, except where specifically required by the Loan Documents or by any applicable Laws, notice of any other action taken by the Lenders or the Agent. 7.07 Disclosure of Information. The Borrower con- sents to the Agent's or any Lender's disclosure to the other Lenders or the Agent of any information held by the disclosing entity from time to time, financial or otherwise, pertaining in any way to the creditworthiness or other condition of the Borrower or any Subsidiary. The Agent and Lenders agree that they shall maintain confidentiality with regard to nonpublic information concerning the Borrower and Subsidiaries obtained from the Borrower, provided that the Agent and Lenders shall not be precluded from making disclosure regarding such information: (i) to their own respective counsel, accountants and other professional advisors, (ii) in response to a subpoena or order of a court of governmental agency, (iii) to any entity participating or considering participating in any credit made under this Loan Agreement, (iv) to any guarantor or subordinated lender with respect to this Loan Agreement or (v) as required by law or applicable regulation. 7.08 Applicable Law. The substantive Laws of the State of Hawaii shall govern the construction of this Loan Agreement and the Notes and the rights and remedies of the parties hereto and thereto. 7.09 Binding Effect and Entire Agreement. This Loan Agreement shall inure to the benefit of, and shall be binding on, the parties hereto and the respective successors and per- mitted assigns of the parties hereto. This Loan Agreement, and the remainder of the Loan Documents, together with all other documents executed and delivered pursuant to this Loan Agreement, constitute the entire agreement among the Lenders, the Agent and the Borrower concerning the subject matter hereof. 7.10 Amendments; Consents. No amendment, modifica- tion, supplement, termination, or waiver or forbearance of any provision of this Loan Agreement or any of the other Loan Documents, and no consent to any departure by the Borrower therefrom, may in any event be effective unless in writing signed by a Majority in Interest of the Lenders and the Agent, and then only in the specific instance and for the specific purpose given; provided, however, that no action shall be taken which has the effect of altering any required payment of principal, interest or fees, or releasing any collateral security for the Loans, unless in writing signed by all of the Lenders and the Agent. 7.11 Assignments. A. The Borrower shall have no right to assign any of its rights or obligations under any of the Loan Documents without the prior written consent of the Lenders. B. None of the Lenders shall assign any of its rights or obligations under the Loan Documents without the prior written consent of the Borrower, which consent shall not be unreasonably withheld or delayed; provided, however, the foregoing provision to the contrary notwithstanding, (a) any of the Lenders may sell participations in Loans made or to be made by it, to any entity affiliated with such Lender, without Borrower's consent, so long as such Lender remains primarily obligated to the Borrower under this Loan Agreement and so long as the Borrower shall not be obligated in any manner to deal directly with the affiliated purchaser of such participa- tion, and (b) any Lender may negotiate, pledge, transfer or assign the Note held by it (or the receivable evidenced there- by) to a Federal Reserve Bank or to any other agency or instrumentality of the United States of America to support borrowings of Federal funds by such Lender. C. Subject to the foregoing restrictions, the Bor- rower consents to each Lender's negotiation, offer, and sale to third parties ("Participants") of the credit facility evidenced by the Loan Documents (the "Credit Facility") or participating interests in the Credit Facility, to any and all discussions and agreements heretofore or hereafter made between each Lender and any Participant or prospective Participant regarding the interest rate, fees, and other terms and provisions applicable to the Credit Facility, and to each Lender's disclosure to any Participant or prospective Par- ticipant, from time to time, of such financial and other information pertaining to the Borrower and the Credit Facility as any Lender and such Participant or prospective Participant may deem appropriate (whether public or non-public, confidential or non-confidential, and including information relating to any insurance required to be carried by the Borrower and any financial or other information bearing on the Borrower's creditworthiness and the value of any col- lateral). The Borrower acknowledges that the Lenders' disclo- sure of such information to any Participant or prospective Participant constitutes an ordinary and necessary part of the process of effectuating and servicing the Credit Facility. 7.12 Release of Non-Golf Areas. A purpose of the Mortgage and of the Additional Security Mortgages herein men- tioned (collectively, the "Mortgages") is to secure the Obli- gations by a mortgage lien on the Borrower's and Kapalua Land Company, Ltd.'s respective interests in three golf courses commonly known as the "Plantation Course," "Bay Course" and "Village Course." In view of the fact that the Bay Course and Village Course have not been duly subdivided so as to consti- tute one or more duly subdivided lots, the land descriptions of the Bay Course and Village Course, set forth or to be set forth in the Mortgages, include lands ("Excess Lands") in excess of the lands commonly known to comprise the Bay Course and Village Course. The Lenders agree that the Borrower shall have the right to subdivide the lands initially described in the Mortgages as comprising the Bay Course and Village Course, and to obtain releases of the Excess Lands from the liens of the Mortgages, upon the following terms and conditions: (a) the lot or lots to be released from the Mortgages, comprising the Excess Lands, as well as the lot or lots which are to remain subject to the Mortgage(s) following the release of the Excess Lands, shall have been designated as specific lots approved by all governmental authorities having jurisdiction over the subdivision thereof; (b) the costs of subdivision and the costs of preparing the releases shall be borne by the Bor- rower; (c) the form and content of each release shall be acceptable to the Lenders; and (d) in connection with any such release, appropriate provisions shall have been made for access to and from and utility and similar easements for, any lot or lots not to be released from the Mortgage(s). Within fifteen days after the Lenders' declaration of an Event of Default and of their intention to foreclose the Mortgages, the Borrower shall commence, and thereafter diligently pursue to completion, any subdivision necessary to accomplish the purposes of this Section 7.12, so as to enable the Lenders to foreclose the Mortgages against all the Golf Courses, while releasing to the Borrower the Excess Lands. In the event the Borrower shall not commence such subdivision within said fifteen-day period, or thereafter diligently pursue the subdivision to completion, the Lenders shall be entitled at the Borrower's expense, and are hereby appointed as the duly- appointed attorneys-in-fact of the Borrower (with full power of substitution), to commence and/or complete said subdivision. Said power of attorney is coupled with an interest, and is irrevocable. 7.13 Right of Setoff; Security Interest in Accounts. At any time, whether or not an Event of Default shall have oc- curred, the Agent and each Lender may set off obligations owed by the Agent or such Lender, as the case may be, to the Bor- rower (such as balances in checking and savings accounts) against the Obligations, without first resorting to other col- lateral. To further secure the Obligations, the Borrower grants to the Agent and the Lenders a security interest in all checking, savings, and other deposit accounts now or hereafter maintained by the Borrower with the Agent and the Lenders. 7.14 Dispute Resolution. Any controversy or claim arising out or relating to this Agreement or any of the other Loan Documents shall, at the request of any party, be decided by binding arbitration conducted in the State of Hawaii without a judge or jury, under the auspices of the American Arbitration Association or Dispute Prevention and Resolution, Inc. in accordance with Chapter 658 of the Hawaii Revised Statutes and the respective and applicable rules of the aforementioned organizations. The arbitrator will apply any applicable statute of limitations and will determine any controversy concerning whether an issue is arbitrable. Judgment upon the arbitration award may be entered in any court having jurisdiction. The prevailing party will be entitled to recover its reasonable attorney's fees and costs as determined by the arbitrator. This agreement to arbitrate shall not limit to restrict the right, if any, of any party to exercise before, during or following any arbitration proceeding, with respect to any claim or controversy, self-help remedies such as setoff, to foreclose a mortgage or lien or other security interest in any collateral judicially or by power of sale, or to obtain provisional or ancillary remedies such as injunctive relief from a court having jurisdiction. Any party may seek those remedies without waiving its right to submit the controversy or claim in ques- tion to arbitration. 7.15 Severability. If any provision of any of the Loan Documents shall be held invalid under any of the appli- cable Laws, such invalidity shall not affect any other provi- sion of any of the Loan Documents that can be given effect without the invalid provision, and, to this end, the provi- sions of the Loan Documents are severable. 7.16 Section Headings. The titles of Sections appear herein as a matter of convenience only, and shall not affect the construction of this Loan Agreement or any provi- sion hereof. 7.17 Survival of Certain Payment Obligations. The obligations of the Borrower to indemnify the Lenders against, and pay and reimburse to the Lenders, the costs and expenses referred to in Section 7.04 of this Loan Agreement (a) shall survive the repayment of the Loans and termination of this Loan Agreement to the extent such losses, costs and expenses are specifically billed to the Borrower within 60 days after full repayment of the Loans and termination of this Agreement, and (b) shall not survive the repayment of the Loans and termination of this Loan Agreement to the extent of any such costs or expenses which are not specifically billed to the Borrower within 60 days after full repayment of the Loans and termination of this Loan Agreement. 7.18 Amendment and Restatement; Amendment of Loan Documents. (a) On and as of the Effective Date, the Original Loan Agreement shall be deemed amended and restated in its en- tirety by this Amendment and Restatement, which shall supercede the terms and provisions of the Original Loan Agreement with respect to all Obligations from and after the date of this Amendment and Restatement. The Borrower, the Lenders and the Agent acknowledge and agree that this Amendment and Restatement constitutes only an amendment and restatement of the Original Loan Agreement, and in connection therewith, (i) nothing herein is intended, nor shall it be construed, to constitute a refinancing of the indebtedness under the Original Loan Agreement, (ii) all outstanding Obligations under the Original Loan Agreement and the "Loan Documents" referred to therein, as amended, shall continue to be outstanding under this Amendment and Restatement and the Loan Documents referred to herein and (iii) all Obligations owing from and after the Effective Date shall be paid, per- formed and observed in accordance with the terms of this Amendment and Restatement and the other Loan Documents, as so amended restated and as may be further amended from time to time. (b) The Borrower, the Lenders and the Agent agree that from and after the Effective Date, all references to (i) the Original Loan Agreement (including, without limitation, references to "Revolving and Term Loan Agreement", the "Loan Agreement" or "Agreement" or other defined terms) set forth in the Notes, the Mortgage, the Environmental Indemnity Agreement, the Additional Security Mortgage and any other Loan Documents, as amended, shall mean the Original Loan Agreement, as amended and restated by this Amendment and Restatement and as may be further amended from time to time, (ii) the Revolving Notes, or any of them, shall mean such Revolving Note(s), as heretofore amended, as respectively amended and restated by the Amended and Restated Revolving Notes referred to herein and as may be further amended from time to time and (iii) any of the other Loan Documents shall mean such Loan Documents, as heretofore amended, as amended and restated by this Amendment and Restatement and the Amended and Restated Revolving Notes, and as amended by the Amended and Restated Revolving Notes and as may be further amended from time to time. (c) All Exhibits, schedules and other attachments to the Original Loan Agreement are hereby incorporated herein by reference and shall be deemed to constitute Exhibits, schedules and attachments to this Amendment and Restatement. 7.17 Execution in Counterparts. This Amendment and Restatement may be executed in any number of counterparts, each of which shall be deemed to be an original, and all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the Borrower, the Lenders and the Agent have duly executed this Loan Agreement, the execution of this Loan Agreement by the Borrower constituting (a) the personal certification of the persons signing this Loan Agreement on behalf of the Borrower that, to the best of their knowledge, the representations and warranties made in Article IV of this Loan Agreement are true and correct as of the date of this Loan Agreement, and (b) the undertaking of such persons and of the Borrower that each request for a disbursement of Loan proceeds, made pursuant to Section 2.03 of this Loan Agreement, shall constitute the Borrower's affirmation and the personal affirmation on the part of the persons making such request that, to the best of their knowledge at the time of the making of any _________________________________________________________ / / / / / / / / / / / / / / / / / / / such request, (i) the representations and warranties stated in Section 4.01 of this Loan Agreement are true and correct, (ii) no Event of Default under this Loan Agreement has occurred and is continuing, and (iii) no event has occurred and is continu- ing that, with the giving of notice or passage of time, or both, would become such an Event of Default. MAUI LAND & PINEAPPLE COMPANY, INC. /S/ PAUL J. MEYER By: _____________________________ Its EXECUTIVE VICE PRESIDENT/FINANCE /S/ GARY L. GIFFORD By: _____________________________ Its PRESIDENT BANK OF HAWAII, individually and as Agent /S/ GREGG E. LING By: _____________________________ Its VICE PRESIDENT FIRST HAWAIIAN BANK /S/ ANN M. K. LEE By: _____________________________ Its ASSISTANT VICE PRESIDENT CENTRAL PACIFIC BANK /S/ ROBERT D. MURAKAMI By: _____________________________ Its VICE PRESIDENT EX-10 3 WAIVER TO NOTE PURCHASE AGREEMENT This Waiver (the "Waiver") to the Note Purchase Agreement is issued as of December 31, 1996, to Maui Land & Pineapple Company, Inc. ("Company") by John Hancock Mutual Life Insurance Company ("John Hancock"). WHEREAS, Company and John Hancock are parties to that certain Note Purchase Agreement dated as of September 9, 1993 as amended by that certain First Amendment to Note Purchase Agreement dated as of March 30, 1994 and that certain Second Amendment to Note Purchase Agreement dated as of November 13, 1995 (collectively the "Note Purchase Agreement:); and WHEREAS, John Hancock transferred a portion of the 9.43% Promissory Notes of the Company to JHMAC Trust 1996, which transferred said portion to Bankers Trust Company as collateral agent (John Hancock and Bankers Trust Company are collectively the "Purchaser"); and WHEREAS, the Company has requested that Section 7.4 Dividends, Distributions, etc., be waived with respect to the dividend of five cents ($0.5) per share aggregating eighty-nine thousand eight hundred fifty seven dollars ($89,857) declared on November 1, 1996 and paid on December 20, 1996 (the "Dividend"); and WHEREAS, Purchasers are willing to waive the provisions of Section 7.4 of the Note Purchase Agreement with respect to the Dividend. NOW, THEREFORE, in consideration of the mutual conditions and agreements set forth in this Waiver, the Company and Purchasers hereby agree as follows: Purchasers waive Section 7.4 of the Note Purchase Agreement with respect to the Dividend. Except as specifically set forth above, all of the terms and conditions of the Note Purchase Agreement are hereby ratified and confirmed and remain in full force and effect. Except as set forth herein, the execution, delivery and effectiveness of this Waiver shall not operate as a waiver of any right, power or remedy of Purchasers under the Note Purchase Agreement or any of the Notes. No fee or other consideration of any type is being paid by Company or any of its subsidiaries to the any other person in connection with this Waiver. IN WITNESS WHEREOF, the undersigned executed this Waiver as of the date first set forth above. JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY By: __/S/ D. DANA DONOVAN___ Title Sr. Investment Officer BARNETT & CO. By: _/S/ RICHARD MCCORMICK Title: ASSISTANT TREASURER MAUI LAND & PINEAPPLE COMPANY, INC. By: _/S/ PAUL J. MEYER_______ Title: EVP-Finance EX-10 4 | | | | | | | | | | | LAND COURT SYSTEM | REGULAR SYSTEM Return by Mail ( ) Pickup ( ) To: Tax Map Key No.: (2) 4-3-3-109 MORTGAGE, SECURITY AGREEMENT AND FINANCING STATEMENT This Mortgage, Security Agreement and Financing Statement ("Mortgage"), dated Nov. 27 , 1996, is made by MAUI LAND & PINEAPPLE COMPANY, INC., a Hawaii corpora- tion, whose address is P. O. Box 187, Kahului, Maui, Hawaii 96732-0187 (the "Mortgagor"), in favor of BANK OF HAWAII, a Hawaii corporation, whose address is P. O. Box 2900, Honolulu, Hawaii 96846 (the "Mortgagee"). 1. Granting Clauses. The Mortgagor hereby mortgages to the Mortgagee, and grants to the Mortgagee a mortgage lien on and security interest in, all of the following-described properties, in each case to the full extent of the Mortgagor's right, title and interest therein, whether now held or hereafter acquired by the Mortgagor (collectively, the "Mortgaged Properties"): (a) the land described in Exhibit A, attached hereto, together with all easements, rights, privileges, licenses, tenements, hereditaments and appurtenances in any way now or hereafter relating or appertaining thereto (collectively, the "Land"); and (b) all buildings and other improvements now or hereafter located or constructed on the Land or any part thereof (the "Improvements," and, together with the Land, the "Premises"); and (c) all of the Mortgagor's right, title and in- terest in, to and under any and all offers to lease, leases, rental agreements, agreements of sale, sale con- tracts, management contracts or other agreements now or hereafter entered into by the Mortgagor, covering any part of the Mortgaged Properties; and (d) all of the Mortgagor's present and future rents, royalties, profits, revenues, income, deposits or other benefits arising from the use, operation or sale of the Premises, or any part thereof (collectively, the "Income Stream"); and (e) all furniture, furnishings, fixtures and equipment now or at any time hereafter attached to or lo- cated on or within or used or to be used in any way in connection with the use, operation or occupation of the Premises or any part thereof (collectively, the "Equipment"); and (f) all of the Mortgagor's contract rights re- lating to the development, construction or operation of the Premises and all drawings, plans, specifications, file materials, operating and maintenance manuals and records, warranties, guaranties, appraisals and data relating to the Premises and/or the Equipment, and all permits, certificates, approvals and authorizations, however characterized, issued or furnished (whether necessary or not) for the development, construction, operation or use of the Premises, including, without limitation, subdivision approvals, building permits, certificates of occupancy and certificates of operation; and (g) all proceeds of the conversion, voluntary or involuntary, of any of the foregoing into cash or liquidated claims, including, without limitation, proceeds of insurance and condemnation or other awards or payments in respect thereof. SUBJECT, HOWEVER, to the encumbrances described in Exhibit A, attached hereto. 2. Secured Obligations. This Mortgage secures: (i) payment of all indebtedness now or hereafter evidenced by the promissory note made by the Mortgagor, dated the date of this Mortgage, payable to the Mortgagee's order in the principal amount of $5,000,000, and any renewals, extensions or modifications thereof (said promissory note, as it now exists or as it may be hereafter modified, is herein called the "Note"); and (ii) payment of all other sums agreed or provided to be paid by the Mortgagor pursuant to any of the other documents which evidence or secure the indebtedness under the Note (which documents, as they now exist or as they may be hereafter modified, are herein called the "Loan Documents"); and (iii) the observance and performance of all other cove- nants, provisions, terms and agreements on the part of the Mortgagor to be observed or performed under this Mortgage and any and all other Loan Documents (all indebtedness and other obligations referred to in this Section 2 are herein collectively called the "Secured Obligations"). 3. Events of Default. As used in this Mort- gage, the term "Event of Default" has the meaning given to it in the Note. 4. Mortgagee's Rights and Remedies Upon De- fault. Subject in all events to the terms of this Mort- gage and until the happening of an Event of Default, the Mortgagor shall be permitted to use and possess the Mort gaged Properties, but only in the ordinary course of its business as now conducted. However, if any Event of De- fault shall occur and be continuing: (a) The Mortgagee may, by written notice to the Mortgagor, declare the entire unpaid amount of the Secured Obligations to be immediately due and payable; (b) The Mortgagee may, to the extent permitted by law, (i) peaceably enter the Premises and exclude the Mortgagor and its agents and servants therefrom, (ii) use, operate, manage and control the Premises and Equipment, (iii) maintain, protect and restore the Mortgaged Proper- ties and make all repairs and alterations thereof and additions and improvements thereto as the Mortgagee may deem reasonably necessary, (iv) collect and receive the Income Stream and out of the same pay all reasonable expenses incurred by the Mortgagee in connection with the exercise of its rights and remedies hereunder, and apply the remainder thereof to the payment of other Secured Obligations; (c) The Mortgagee may, with or without entry, sell the Mortgaged Properties or any part thereof at one or more sales, as an entity or in parcels, and at such time or times and place or places and upon such terms and after such notice thereof, as may be required by law, or institute and prosecute judicial proceedings for the partial or complete foreclosure of this Mortgage and/or the specific performance of any one or more of the Secured Obligations and/or the enforcement of any other appropriate legal right or equitable remedy, as the Mortgagee may elect; (d) Pending such proceedings, the Mortgagee shall be entitled to the appointment without bond of a re- ceiver or receivers of the Mortgaged Properties, or any part thereof, without regard to the value of the Mortgaged Properties or the solvency of any person liable for the payment, observance or performance of the Secured Obliga- tions and regardless of whether the Mortgagee has an ade- quate remedy at law; (e) The Mortgagee may elect to treat any part of the Mortgaged Properties which consists of a right in action or of property that can be severed from the Premises without causing structural damage thereto as personal property, and exercise as to such property all rights, remedies and privileges with respect to reposses- sion, retention, sale and disposition of proceeds as are accorded to a secured party under the Uniform Commercial Code or in effect in the State of Hawaii; (f) At any sale(s) made by virtue of this Sec- tion 4 (a "Foreclosure Sale"), the Mortgagee, or an officer of any court empowered to do so, may execute and deliver to the purchaser(s) a good and sufficient instru- ment or instruments conveying, assigning or transferring all of the Mortgagor's estate, right, title and interest in and to the properties and rights sold, and, for such purposes, the Mortgagee is hereby appointed as the attorney in fact of the Mortgagor, in its name and stead, to make all necessary conveyances, assignments, transfers and deliveries of the properties so sold, and the Mortgagee may substitute one or more persons with like power, and the Mortgagor hereby ratifies and confirms all that the Mortgagee or its substitute shall lawfully do by virtue hereof. This power of attorney is coupled with an interest and is irrevocable; (g) The Mortgagee may adjourn from time to time any Foreclosure Sale, by announcement at the time and place appointed for such sale or for such adjourned sale(s) and, except as otherwise required by law, the Mortgagee, without further notice or publication, may make such sale at the time and place to which the same shall have been adjourned; (h) At any Foreclosure Sale the Mortgagee may be the purchaser and, upon compliance with the terms of sale, may hold, retain, possess and dispose of the properties so purchased in its absolute right without further accountability, and the Mortgagee, in lieu of paying cash for the properties so purchased, may make settlement for the purchase price by crediting against the purchase price all or any part of the unpaid amount of the Secured Obligations, after deducting from the sales price the expenses of the sale and costs of the foreclosure proceeding and any other sums that Mortgagee may be authorized to deduct therefrom; (i) The Mortgagee may apply the proceeds of any Foreclosure Sale, first, to the payment of all costs and expenses of the sale(s) and all proceedings in connection therewith, including reasonable fees of legal counsel, second, to the payment or reimbursement to the Mortgagee of any disbursements made by the Mortgagee for taxes, assessments or other charges prior to the lien of this Mortgage which the Mortgagee shall deem it advisable to pay, third, to the payment or reimbursement to the Mortgagee of all other reasonable disbursements made by the Mortgagee as authorized by this Mortgage or any of the other Loan Documents, fourth, to the payment in such order as the Mortgagee may designate of the remainder of the Secured Obligations, and fifth, the remainder, if any, shall be paid over to the Mortgagor, or to whomsoever may be lawfully entitled to receive the same, or as a court of competent jurisdiction may direct; (j) If the proceeds of any Foreclosure Sale are insufficient to discharge all items mentioned in clauses first through fourth of the preceding paragraph, the Mortgagor shall remain liable for the deficiency, and the Mortgagee may have any other legal recourse against the Mortgagor for the deficiency; (k) Neither the Mortgagor nor any person claim- ing through or under it, to the extent the Mortgagor may lawfully so agree, shall set up, claim or seek to take ad- vantage of any appraisement, valuation, stay, extension or redemption laws in order to prevent or hinder the enforce- ment or foreclosure of this Mortgage; and the Mortgagor, for itself and all who may claim through or under it, hereby waives, to the full extent that it may lawfully do so, the benefit of all such laws and any and all rights to have the Mortgaged Properties (or any part thereof or in- terest therein) marshaled upon any foreclosure of this Mortgage; (l) The Mortgagee shall have the right to en- force one or more remedies hereunder, or any other remedy the Mortgagee may have, successively or concurrently, in- cluding the right to foreclose this Mortgage with respect to any portion of the Mortgaged Properties, without thereby impairing the lien of this Mortgage on the remainder of the Mortgaged Properties or affecting other remedies of the Mortgagee in respect thereof; and (m) No failure on the Mortgagee's part to exer- cise, and no course of dealing with respect to, and no de- lay in exercising, any right or remedy hereunder shall operate as a waiver thereof, nor shall any single or par- tial exercise by the Mortgagee of any right or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right or remedy. The remedies herein provided are cumulative with, and not exclusive of, any other remedies provided by any other Loan Documents or by law. 5. Mortgagor's Representations, Warranties and Covenants. The Mortgagor represents and warrants to and covenants with the Mortgagee as follows: (a) Title. The Mortgagor represents and war- rants that it has good right and lawful authority to exe- cute this Mortgage and that it owns the Premises and all other Mortgaged Properties, in each case subject to no lien, security interest or other encumbrance except for (i) the encumbrances described in Exhibit A, attached hereto, (ii) liens for real property taxes and assessments not yet due and payable, and (iii) liens and security interests created by this Mortgage. (b) Further Acts. The Mortgagor will, at its own expense, within five days after the Mortgagee's written request therefor, execute and deliver such further documents and do such further acts as may be reasonably necessary to carry out the purposes of this Mortgage and to perfect the lien and security interests hereby created against the Mortgaged Properties and any and all additions thereto, substitutions therefor and renewals and replace- ments thereof. (c) Permits and Laws. The Mortgagor shall (i) maintain in full force and effect all governmental permits, consents, approvals, licenses and franchises ("Permits") now or hereafter required by any governmental agency or authority to operate or use and occupy the Premises and Equipment for their intended purposes, and (ii) comply with all requirements set forth in the Permits and all requirements of any law, ordinance, rule or regulation applicable to the Mortgagor or all or any part of the Mortgaged Properties and all applicable requirements of any recorded deed of restrictions, declaration or covenant running with the land or otherwise, now or hereafter in force. The Mortgagor shall not initiate or consent to any change in the zoning or any other permitted use classification of the Premises without the Mortgagee's prior written consent. (d) Maintenance. The Mortgagor shall maintain the Premises in good operating order, condition and repair. The Premises shall not be demolished or materially altered, nor shall any of the Equipment be removed therefrom, without the Mortgagee's prior written consent, except that items constituting Equipment may without such consent be removed if immediately replaced (free from security interests of or reservations of title by third parties) with similar items of Equipment having a value and utility for their intended purposes that is not less than the value and such utility of the Equipment so removed. (e) Taxes, Liens, etc. The Mortgagor shall pay and discharge, from time to time when they become due, all taxes and assessments imposed upon or assessed against the Mortgaged Properties or any part thereof. The Mortgagor will not permit any mechanics', materialmen's, tax, judg- ment or other lien or security interest to be hereafter created and remain on the Mortgaged Properties, except liens of real property taxes or assessments not yet due and payable. (f) Waste. The Mortgagor will not suffer any waste or any unlawful, improper or offensive use of the Mortgaged Properties or any act or negligence whereby the Mortgaged Properties or any interest therein shall become liable to seizure or attachment or the lien and security interest created hereby shall be impaired. (g) Inspection. Representatives of the Mort- gagee shall have the right to enter and inspect the Mort- gaged Properties at all reasonable times. (h) Insurance Coverage. The Mortgagor will, in respect of all insurable properties now or hereafter con- stituting any portion of the Mortgaged Properties and in respect of all insurable activities of the Mortgagor, pro- cure and maintain (or cause to be procured and maintained), at all times during the effectiveness of this Mortgage, insurance in such forms and covering such risks and hazards and in such amounts as are reasonably satisfactory to the Mortgagee. Such insurance shall include: (i) property insurance with coverage for all causes of loss, including hurricane and windstorm coverage, written on the Insurance Service Office ("ISO") "Broad Form" or its equivalent, in amounts not less than the full insurable replacement value of all such insurable properties, and including the following endorsements, if requested by the Mortgagee: (1) replacement cost coverage, (2) agreed amount, and (3) building ordinance coverage insuring against contingent liability from the operation of laws, statutes, ordinances or regulations concerning the Improvements on or about the Premises, demolition of such Improvements and increased cost of construction of such Improvements. Additionally, if required by the Mortgagee, the Mortgagor shall procure a difference-in-conditions policy to include earthquake, backup of sewers and broad collapse coverage with a limit of liability determined to be prudent by the Mortgagee; (ii) while insurable properties are under construction, a builder's risk policy, completed value form, non-reporting, with an amount of coverage equal to 100% of the estimated replace- ment cost of the Improvements upon completion of construction, written on (or provide coverage equal to the coverage provided by) an ALS 1972 policy (including earthquake and flood coverage, if available), or its equivalent; (iii) commercial general liability insurance (occurrence form), including coverage, to the extent reasonably available, for premises/operations, independent contractors, contractual liability, personal injury, employees as additional insureds and broad form property damage; (iv) flood insurance, if and to the extent required by law, naming the Mortgagee as a loss payee; (v) if requested by the Mortgagee, business income insurance, in amounts sufficient to cover all amounts payable under the Note dur- ing any period of 6 consecutive months; and (vi) all such other insurance insuring all insurable properties constituting part of the Mortgaged Properties, and insuring all insurable activities of the Mortgagor, against all other risks usually insured against by persons oper- ating like properties in the locality where the Mortgaged Properties are located. (i) Insurance Policies. All insurance policies required by this Mortgage shall (i) prohibit cancellation or substantial modification by the insurer without at least 30 days' prior written notice to the Mortgagee, and (ii) provide that the insurance shall not be invalidated as to the Mortgagee by any act or neglect of any person owning or leasing the Mortgaged Properties, or by foreclosure proceeding or notice of sale or sale by deed or assignment in lieu of foreclosure or by any other change in the title or ownership of the Mortgaged Properties, and (iii) contain an agreement by the insurer that the policy constitutes primary insurance. All property insurance policies required by this Mortgage shall be carried in the name of the Mortgagor, shall contain a standard mortgagee clause (without contribution) in favor of the Mortgagee, and provide that losses thereunder shall be adjusted with the insurer by the Mortgagor, but with settlements subject to the approval of the Mortgagee and payments made jointly to the Mortgagor and the Mortgagee. In the event of loss or physical damage to the Mortgaged Properties, the Mortgagor shall give immediate notice thereof to the Mortgagee, and the Mortgagee may make proof of the loss if the same is not made promptly by the Mortgagor. Upon the execution of this Mortgage and thereafter not less than 10 days prior to the expiration dates of expiring policies, originals of all policies of such insurance (or certificates thereof in form acceptable to the Mortgagee) shall be deposited with the Mortgagee. If the Mortgagor fails to carry any such insurance or fails to deliver the policies (or certificates) to the Mortgagee, then the Mortgagee, at its option but without being obligated to do so, may procure such insurance from year to year and pay the premiums therefor, and the Mortgagor will reimburse the Mortgagee on demand for premiums so paid, with interest thereon from the time of payment at the post-default rate chargeable under the Note (the "Default Rate"), and the same shall be secured by this Mortgage. All insurance required by the preceding paragraph (h) shall be issued by insurance companies licensed and admitted to do business in Hawaii and having a rating by Best's Insurance Reports of Class A:VI or better. The Mortgagee shall not be responsible for the collection of any insurance proceeds or for the insolvency of any insurer or insurance underwriter. (j) Condemnation Awards. Should all or any part of the Mortgaged Properties be taken by eminent domain, the Mortgagor, forthwith upon payment thereof, will cause to be deposited with the Mortgagee the Mortgagor's share of the award for any Mortgaged Properties so taken, to the extent of the unpaid balance of the Secured Obligations. In the event of any such taking (other than a taking for governmental occupancy for a limited or specified period), the Mortgagee shall release the properties so taken upon receipt by and deposit with the Mortgagee of the proceeds of such award so recovered by the Mortgagor. (k) Use of Insurance and Condemnation Proceeds. All insurance proceeds received by the Mortgagor or the Mortgagee on account of damage to or destruction of any Mortgaged Properties and the Mortgagor's share of all pro- ceeds of any award for any Mortgaged Properties taken by eminent domain received by the Mortgagee, less the cost, if any, incurred by the Mortgagee with respect thereto, shall be applied to the restoration of any damaged Premises or Equipment; provided, however, at the option of the Mortgagee such proceeds may be applied to the payment of the Secured Obligations. If any such proceeds are to be applied to the payment of the cost of repairing, restoring or rebuilding the Mortgaged Properties so damaged or destroyed or taken (the "work"), such proceeds shall be applied from time to time as the work progresses, subject to such reasonable conditions as may be imposed by the Mortgagee to insure the lien-free completion of the work; and, on completion of the work and payment in full therefor, or on any failure on the part of the Mortgagor promptly to commence or continue the work, the amount of any such proceeds then or thereafter in the hands of the Mortgagor or the Mortgagee shall be applied to the payment of the Secured Obligations. Nothing herein contained shall prevent the Mortgagee from applying at any time the whole or any part of such proceeds to the curing, either in whole or in part, of any Event of Default. (l) Transfer Restrictions. The Mortgagor, without having obtained the Mortgagee's prior written consent thereto, shall not sell, transfer or assign to any other person (including by way of an agreement of sale or similar instrument), or further mortgage or otherwise encumber, the Mortgaged Properties or any part thereof or interest therein; provided, however, that the Mortgagor may, without such consent, execute and deliver (but only in the ordinary course of the Mortgagor's business) tenant leases of any part of the Premises (the "Tenant Leases"), subject to the satisfaction of the conditions that (i) the form and content of the Tenant Leases shall have been ap- proved by the Mortgagee, which approval shall not be un- reasonably withheld or delayed, (ii) if requested by the Mortgagee, such Tenant Leases shall be fully subordinate to the lien of this Mortgage, and (iii) as further security for the payment, observance and performance of the Secured Obligations, the Mortgagor shall have assigned to the Mortgagee all rentals payable under the Tenant Leases by means of an Assignment of Rents, acceptable to the Mortgagee in form and in content. (m) Appearances. The Mortgagee may appear in and defend any action or proceeding purporting to affect the security hereof and in such event the Mortgagee shall be allowed and paid, and the Mortgagor hereby agrees to pay on demand, all the Mortgagee's reasonable expenses, including cost of evidence of title and attorneys' fees in a reasonable amount, incurred in such action or proceeding in which the Mortgagee may appear. (n) Tax Deposits. Following the occurrence of an Event of Default, the Mortgagor shall deposit with the Mortgagee monthly in advance, together with and in addition to any other payments then payable under the Loan Documents, a sum equal to the full amount of all real property taxes and assessments next due on the Mortgaged Properties (all as estimated by the Mortgagee) less all sums already paid therefor, divided by the number of months to elapse before one month prior to the date when such taxes and assessments will become due and payable. The Mortgagee may commingle such sums with deposits of others and may invest such sums for its (the Mortgagee's) sole benefit, without any obligation to pay interest thereon to the Mortgagor, and the Mortgagee may from time to time expend such sums, or any part thereof, to pay said taxes and assessments as and when the same become due and payable. If the total of such deposits shall exceed the amount necessary to pay said taxes and assessments such excess may, at the Mortgagee's option, be released to the Mortgagor or applied on any indebtedness secured hereby. If, however, the total of such deposits shall not be sufficient to pay said taxes and assessments when the same shall become due and payable, then the Mortgagor shall make up the deficiency on or before the date when payment of such taxes and assessments shall be due. If at any time the Mortgagor shall tender to the Mortgagee full payment of the Secured Obligations, the Mortgagee shall, in computing the amount thereof, credit to the account of the Mortgagor any balance remaining in the funds accumu- lated under the provisions of this paragraph. As further security for the Secured Obligations, the Mortgagor grants to the Mortgagee a security interest in all funds accumulated under the provisions of this paragraph. (o) Reappraisals. The Mortgagee shall have the right to obtain at the Mortgagor's expense reappraisals of the Mortgaged Properties, from any licensed or certified appraiser designated by the Mortgagee, from time to time (i) whenever such reappraisal may be required by any law, rule or regulation applicable to the conduct of the Mort- gagee's business, or (ii) whenever requested or directed by any governmental authority charged with the administration of such law, rule or regulation or the Mortgagee's compliance therewith, whether or not such r- equest or direction has the force of law, or (iii) whenever reasonably deemed appropriate by the Mortgagee at its sole discretion. (p) Mortgagee's Expenses. Whether or not an Event of Default shall have occurred, the Mortgagor cove- nants that it will pay or reimburse to the Mortgagee, on demand, all expenses, including reasonable fees of legal counsel, incurred by the Mortgagee in connection with the administration and enforcement of the Secured Obligations, the investigation and policing of any Event of Default, the negotiation, documentation and administration of any loan "work out" proposal (whether or not effectuated), the foreclosure of this Mortgage and sale of the Mortgaged Properties, and the exercise of any other rights or remedies provided to the Mortgagee by this Mortgage or any of the other Loan Documents, together with interest thereon from the date of demand until payment is made at the Default Rate, the payment or reimbursement of which expenses, with interest thereon at the Default Rate, shall be included among the Secured Obligations and secured by this Mortgage. (q) Financial Statements. The Mortgagor will keep and maintain accurate and proper books of record and account in accordance with sound accounting practice; the Mortgagee's representatives shall have the right to examine the books of account of the Mortgagor and to discuss the affairs, finances and accounts of the Mortgagor and the income and expenses of the Mortgaged Properties and to be informed as to the same by the Mortgagor and its employees or agents, all at such reason- able times and intervals as the Mortgagee may desire. The Mortgagor will furnish to the Mortgagee, or will cause to be furnished to the Mortgagee, (i) within 120 days after the end of each fiscal year, financial statements of the Mortgagor, for and at the end of such fiscal year, in- cluding a balance sheet and statement of income and expenses, audited by a certified public accountant selected by the Mortgagor and approved by the Mortgagee, (ii) annual financial statements and income tax returns of any guarantor of the Secured Obligations and (iii) such other financial reports, certificates or information as the Mortgagee may reasonably request, in each case in form and detail acceptable to the Mortgagee. (r) ADA Requirements. So long as this Mortgage remains outstanding, the Mortgagor will, at its own cost and expense, in respect of the Premises and in respect of the Mortgagor's business activities at or within the Premises: (i) comply with all requirements of the federal Americans With Disabilities Act ("ADA") and the rules pro- mulgated thereunder ("Rules"), to the extent applicable to the Mortgagor's ownership, management, operation, leasing, use, construction, reconstruction, repair, remodeling, re- habilitation or alteration of the Premises, or any part thereof; (ii) immediately provide to the Mortgagee written notice (and immediately provide to the Mortgagee copies) of any and all notices of actual, potential or alleged violations of the ADA or Rules and any and all governmental investigations or regulatory actions instituted or threatened, regarding the ADA or Rules; and (iii) furnish to the Mortgagee, from time to time whenever reasonably requested by the Mortgagee, an ADA Compliance Assessment, in form reasonably acceptable to the Mort- gagee, made by an architect or engineer having a good repute for skill and experience in the field of ADA com- pliance and otherwise reasonably acceptable to the Mort- gagee. In the event that the Mortgagee or a purchaser of the Premises at foreclosure (or by conveyance in lieu of foreclosure) incurs any compliance expenses or other ex- penses (including reasonable fees of legal counsel) or liabilities as a result of the failure of the Premises to comply with the requirements of the ADA and the Rules at the date of the Mortgagee's or purchaser's acquisition thereof, the Mortgagor shall indemnify the Mortgagee or the purchaser against all reasonable expenses and liabilities so incurred by the Mortgagee or the purchaser; and the indemnification provisions of this sentence shall survive said foreclosure (or conveyance in lieu of foreclosure). (s) Notices. All notices, demands, approvals and other communications provided for in this Mortgage shall be in writing and shall be delivered to the appro- priate party at its address shown on the first page of this Mortgage. Addresses for notices and other communications may be changed from time to time by written notice given as aforesaid. All communications shall be effective when actually received; provided, however, that nonreceipt of any communication as the result of a change of address of which the sending party was not notified or as the result of a refusal to accept delivery shall be deemed receipt of such communication. (t) Successors. As and when used herein, the term "Mortgagee" shall include Bank of Hawaii and its suc- cessors and assigns; the term "Mortgagor" shall include the named Mortgagor and its successors and permitted assigns; and the term "person" shall include person, part- nership, association, trust or corporation. (u) Captions. The captions or headings of Sec- tions contained in this Mortgage are inserted for conve- nience only and shall not in any way affect the meaning or construction of any provision of this Mortgage. IN WITNESS WHEREOF, the Mortgagor has caused this instrument to be duly executed as of the date above written. MAUI LAND & PINEAPPLE COMPANY, INC., a Hawaii corporation /S/ PAUL J. MEYER By _____________________________ Name: PAUL J. MEYER Title: EXECUTIVE VICE PRESIDENT/FINANCE /S/ ADELE H. SUMIDA By _____________________________ Name: ADELE H. SUMIDA Title: SECRETARY EX-13 5 MAUI LAND & PINEAPPLE COMPANY, INC. ANNUAL REPORT 1996 CONTENTS Letter to Shareholders 2 Pineapple 4 Resort 5 Commercial & Property 6 Independent Auditors' Report 7 Consolidated Balance Sheets 8 Consolidated Statements of Operations and Retained Earnings 10 Consolidated Statements of Cash Flows 11 Notes to Consolidated Financial Statements 12 Common Stock 19 Selected Financial Data 20 Management's Discussion and Analysis of Results of Operations and Financial Condition 21 Officers and Directors 24 THE COMPANY Maui Land & Pineapple Company, Inc., a Hawaii corporation organized in 1909, is a land-holding and operating company with several wholly-owned subsidiaries, including two major operating companies, Maui Pineapple Company, Ltd. and Kapalua Land Company, Ltd. The Company, as used herein, refers to the parent and its wholly-owned subsidiaries. The Company's principal business activities are Pineapple, Resort and Commercial & Property. The Company owns approximately 28,600 acres on the island of Maui, of which about 8,100 acres are used directly or indirectly in the Company's operations. Approximately 2,160 people were employed by the Company in 1996 on a year-round or seasonal basis. Maui Pineapple Company, Ltd. is the operating subsidiary for Pineapple. Its canned pineapple, pineapple juice, and fresh pineapple are found in supermarkets throughout the United States. The canned pineapple products are sold as store-brand pineapple with 100% HAWAIIAN U.S.A.TM imprinted on the can lid. In addition, the products are sold through institutional, industrial and export distribution channels. Kapalua Land Company, Ltd. is the development and operating subsidiary for the Kapalua Resort. The Kapalua Resort is a master-planned golf resort community on Maui's northwest coast. The property encompasses 1,650 acres bordering the ocean with three white sand beaches. Commercial & Property includes the operations of various properties, including Kaahumanu Center, the largest retail and entertainment center on Maui. It also includes the Company's land entitlement and management activities and land sales which are not part of the Kapalua resort. 10-K REPORT Shareholders who wish to receive, free of charge, a copy of the Company's 10-K Report to the Securities and Exchange Commission may write to: Corporate Secretary Maui Land & Pineapple Company, Inc. P. O. Box 187 Kahului, Hawaii 96733-6687 ANNUAL MEETING The Annual Meeting of Shareholders of the Company will be held at 9:00 a.m. on Friday, May 2, 1997, in the Corporate Office courtyard of Maui Land & Pineapple Company, Inc., 120 Kane Street, Kahului, Hawaii. OFFICES Corporate Offices Pineapple Marketing Office Maui Land & Pineapple Company, Inc. Maui Pineapple Company, Ltd. P. O. Box 187 P. O. Box 4003 Kahului, Hawaii 96733-6687 Concord, California 94524-4003 Telephone: 808-877-3351 Telephone: 510-798-0240 Fax: 808-871-0953 Fax: 510-798-0252 http://www.mauiland.com Maui Pineapple Company, Ltd. P. O. Box 187 Kahului, Hawaii 96733-6687 Telephone: 808-877-3351 Fax: 808-871-0953 http://www.mauiland.com/mauipine/ Kapalua Land Company, Ltd. 1000 Kapalua Drive Kapalua, Hawaii 96761-9028 Telephone: 808-669-5622 Fax: 808-669-5454 http://www.kapaluamaui.com Kaahumanu Center 275 Kaahumanu Avenue Kahului, Hawaii 96732-1612 Telephone: 808-877-3369 Fax: 808-877-5992 http://www.maui.net/~kcenter/ Transfer Agent & Registrar Independent Auditors ChaseMellon Shareholder Services Deloitte & Touche LLP 85 Challenger Road 1132 Bishop Street, Suite 1200 Ridgefield Park, New Jersey 07660 Honolulu, Hawaii 96813-2870 Telephone: 800-356-2017 Telephone: 808-543-0700 MAUI LAND & PINEAPPLE COMPANY, INC. & SUBSIDIARIES FINANCIAL HIGHLIGHTS
1996 1995 1994 (Dollars in Thousands Except Per Share Amounts) REVENUES Pineapple $ 95,700 $ 81,052 $ 81,044 Resort 35,676 34,330 34,109 Commercial & Property 4,850 10,123 10,617 Corporate 109 72 112 --------- --------- --------- Total 136,335 125,577 125,882 ========= ========= ========= NET LOSS (747) (1,559) (3,909) ========= ========= ========= NET LOSS PER COMMON SHARE $ (.42) $ (.87) $ (2.18) ========= ========= ========= AVERAGE COMMON SHARES OUTSTANDING 1,797,125 1,797,125 1,797,125 TOTAL ASSETS $ 132,851 137,085 $ 235,411 CURRENT RATIO 2.23 2.78 .97 LONG-TERM DEBT and CAPITAL LEASES $ 28,898 $ 36,227 $ 99,180 STOCKHOLDERS' EQUITY 58,033 58,870 60,429 STOCKHOLDERS' EQUITY PER COMMON SHARE $ 32.29 32.76 $ 33.63 EMPLOYEES 2,160 1,990 2,020
TO OUR SHAREHOLDERS AND EMPLOYEES Nineteen ninety-six was an important year for the Company. Major effort was put into analyzing our resources and businesses and into developing a strategic plan to maximize the Company's profitability and long-term financial performance. The strategic plan incorporates changes to our product mix, the way we produce our products, and how we maximize use of our resources. In addition to the strategic planning effort, the pace of fundamental improvements in our businesses referred to in our letter last year continued in 1996. These improvements added value to the Company and increased operating efficiency. The 1996 net loss of $747,000 was a modest improvement from the 1995 net loss of $1.6 million. A more appropriate year-to-year comparison would involve deleting the $5 million non-cash income recorded in 1995 from reversal of the prior years' losses of Kaptel Associates. On that basis, the net loss improved by $4 million from 1995 to 1996. Revenues in 1996 increased by 9 percent to $136 million from $126 million due to higher case volume of pineapple product sold and higher average prices, reflecting for the first time in a number of years reasonable market conditions for our pineapple products. The operating results from our major business segments, Pineapple, Resort and Commercial & Property, were a $4 million profit, a $2.2 million profit and a $105,000 profit, respectively. This compares to operating results of a $3.5 million loss, a $7.3 million profit, and a $3.3 million profit, respectively, for Pineapple, Resort and Commercial & Property in 1995. It should be noted that Pineapple recorded a year-to-year improvement in operating profit of $7.5 million and that Resort operating profit, when adjusted for the 1995 Kaptel non-cash income, recorded a small year-to-year decrease in operating profit of $148,000. Commercial & Property operating profit for 1995 includes four months of consolidated results from Kaahumanu Center prior to conversion to the equity accounting method, and also includes land sales which resulted in operating profit of $3.4 million in 1995 compared to land sales which resulted in operating profit of $700,000 in 1996. The substantial progress made in 1996 in returning our pineapple business to profitability was, for the second consecutive year, hampered by very dry weather. Almost zero rainfall for five months last summer in many of our fields resulted in lower fruit quality, which was made worse by unusually heavy rainfall in November and December. As a result, production was lower than we expected by 300,000 cases of pineapple product and average production cost per case was substantially higher than expected. The effect of this extraordinary weather pattern was to reduce the operating profit we expected from pineapple by over $2 million. Growing conditions since December of 1996 have been more normal and we expect 1997 to be an improved production year. With the cooperation of a neighboring sugar producer, Hawaiian Commercial & Sugar Co. ("HC&S"), the County of Maui, and State Department of Health officials, an operating problem for our pineapple cannery was successfully resolved in 1996. Approval was received and construction commenced on a pipeline to carry washdown and clean cooling water from the cannery approximately two miles to HC&S' sugar cane fields for reuse as irrigation water. This excellent cooperative effort will allow us to discontinue using deep injection wells and to recycle a substantial amount of non-potable water. Good progress was made in developing new product opportunities in 1996. Cannery modifications are underway that will allow us to efficiently produce and package high quality, chilled, pre-cut pineapple. We are developing proprietary pre-cut products as well as working with other food companies as a supplier. We believe the revenues and profit margins from the fresh, pre-cut product line, our new tropical fruit product and other new products, as well as improved operating efficiency will result in continued improvement in operating profit for the Pineapple business in 1997. While generally improved economic conditions in Asia and the U.S. mainland resulted in an increased number of visitors to Hawaii on a statewide basis, the full year growth in visitor arrivals to Maui was less than 1 percent. We believe the relatively short runway at Kahului Airport, which does not allow fully-laden direct flights to and from international and mainland destinations, remains the most serious impediment to the health of our key visitor industry. Maui consistently has been rated the best island vacation destination worldwide by Conde' Nast, which would indicate strong demand for Maui as a vacation destination. We are convinced that safe and convenient direct access by air travel remains a fundamental requirement of our visitors and for a healthy visitor business segment. We believe the Maui community must aggressively support an extended runway at Kahului Airport as a vital improvement in our transportation system. Kapalua's overall occupancy increased by 8 percent over 1995 levels due to substantially higher occupancy at The Ritz-Carlton Kapalua and at the Company's Kapalua Villas. We are extremely pleased with the well deserved recognition the Ritz-Carlton received from AAA and Travel & Leisure Magazine last fall. The extensive renovation of the Kapalua Bay Hotel planned by its new owner, The Yarmouth Group, for later this year will have a temporary negative effect on resort occupancy in 1997. However, we believe the renovation and excellent management capabilities of the Halekulani organization, which now operates the Kapalua Bay Hotel, will result in improved occupancy and better operating results for the resort in years to come. As discussed in greater detail later in this report, Resort operating profit in 1996 was negatively affected by the reduced land lease rent from the Kapalua Bay Hotel associated with the change in ownership of the hotel in September 1996. We expect the rental revenue from this property to increase over the next three years. Operating profit from resort operations benefited from the first full year of higher sewer and water rates, which served to reduce the net cost of providing services to the Kapalua resort community. Higher marketing expenses and operating costs in the resort's recreational and retail activities and reduced land lease rent, however, resulted in operating profit from resort operations declining by 10 percent from 1995. Resort land development activities benefited from a small but encouraging improvement in resort property sales, including three lot sales at the Plantation Estate project, two of which should close in 1997. We are hopeful that demand for resort property will continue to improve in 1997 and that we will be able to take advantage of opportunities to improve the quality and scope of the Kapalua resort community. The Company's Commercial & Property business segment produced lower operating profits in 1996 for a number of reasons which are discussed in greater detail in a later section of this report. The largest commercial property on Maui, Kaahumanu Center, made considerable progress in terms of operating results and new tenants. Unfortunately, a number of tenants with national affiliations were forced to close their doors primarily due to difficult mainland retail market conditions. The awards and recognition Kaahumanu Center received in 1996 from the International Council of Shopping Centers were gratifying. Even more satisfying has been the acceptance of the Center by the Maui community in its first full year of expanded operation. At the end of 1996, the Company's consolidated debt, including capital leases, totaled $30.2 million, a $7.3 million reduction from year-end 1995, a $98.4 million reduction from year-end 1994, and a $67.8 million reduction from year-end 1993. Part of this reduction in debt is the result of a change in 1995 to the equity method of accounting for the investment in Kaahumanu Center Associates. We expect to make further progress in reducing the Company's debt in 1997 and to reach the targeted level of financial leverage for the Company. Despite the small dividend declared and paid in the fourth quarter, our key goal of resuming a consistent level of dividends remains elusive and dependent on further debt reduction and consistent operating cash flow and net profit. In September of 1996, The Nature Conservancy, a leading national conservation organization, presented its President's Award to the Company for our conservation activities on the Company's Puu Kukui watershed lands in West Maui. The Puu Kukui activities are a cooperative effort among the Company, The Nature Conservancy and the State of Hawaii, which provides a portion of the funding. This national award as the leading corporate sponsor of a conservation effort and the assistance from The Nature Conservancy and the State are greatly appreciated. We are disappointed that 1996 did not allow us to report a substantial level of net profit. We believe the changes made to our businesses and the commitment to our goal of sustained profits will yield results in 1997 and the future. Thank you for your continued support. /S/ MARY C. SANFORD Mary C. Sanford Chairman /S/ GARY L. GIFFORD Gary L. Gifford President & CEO February 7, 1997 PINEAPPLE In 1996 Maui Pineapple Company, Ltd. recorded a $4 million operating profit. Although this operating profit was less than expected, it is a $7.5 million improvement from the 1995 loss of $3.5 million, and it is Pineapple's first profit since 1992. These improved financial results are primarily due to higher case sales volume and higher pricing in the marketplace. Pineapple's overall case sales volume increased by 11% in 1996. Pricing remained firm throughout the year and was higher than 1995. Total canned fruit sales increased 10%, led by grocery fruit, our largest solid pack segment. Most other canned fruit business categories also enjoyed increases, except export fruit where sales volume declined sharply due to a combination of economic and competitive factors in the Japanese market. Total canned juice sales case volume increased by 12%. Major juice case volume gains came from the government, grocery and inter-canner segments. Sales volume of institutional and export juice declined 7% and 41%, respectively. Export juice represents a small percentage of our juice business, so this large decline did not seriously affect sales and profits. Concentrate sales volume increased 28% due to favorable marketplace demand. Total fresh fruit sales declined 8%, primarily due to reduced supply of fruit for this market segment. Fresh fruit sales in Hawaii were flat while Jet Fresh U.S. mainland sales declined 11%. The weather was the single largest reason for lower than expected profits. For the second year in a row Maui suffered extreme weather conditions that resulted in a smaller pack than planned and an increase in production cost per case, in spite of continued emphasis on cost control. The island of Maui suffered a severe drought, beginning in May and lasting through the end of October. An extremely wet period followed this dry period, beginning in early November and continuing through year- end. These weather extremes affected both fruit size and fruit quality, resulting in substantially lower than expected recovery in the fourth quarter. We reduced some effects of the drought by using irrigation systems. However, due to the lack of rain and water restrictions imposed by the County of Maui, we were unable to irrigate adequately. Case volume of imported canned pineapple into the United States was up 4% in 1996 compared to 1995 levels. However, average unit values rose significantly. Though the antidumping duties imposed on Thai packers played a part in higher average unit values, far more important were the fruit shortages experienced in Thailand and the Philippines. We expect the supply from these countries to increase in 1997, but not to a level that would affect our planned volume and pricing. On November 8, 1996, the United States Court of International Trade instructed the United States Department of Commerce to recalculate its antidumping margins on imports of canned pineapple fruit from Thailand. The Court ruled that the Department of Commerce's reliance on the Thai pineapple companies' normal accounting records (their allocation ratio between juice and solid pack) was inconsistent with a higher court's previous ruling. Maui Pineapple Company, Ltd. will appeal this decision and the Department of Commerce will also probably appeal. Our counsel believes we stand a good chance of overturning the Court's decision. The appeal process could take from twelve to eighteen months. Meanwhile, the current antidumping margins remain in effect, and no change to the tariff will occur until the appeal process is completed. We can best characterize 1996 as a year of continued repositioning of our business. We implemented strategic plans in 1996 that will be the key to our improved financial performance in 1997 and beyond. We continue to expand our efforts to leverage our Hawaiian competitive advantage. Through consumer-focused marketing efforts we are educating consumers to look for the "100% HAWAIIAN U.S.A. TM" stamp on our can lids. We conveyed this message in 1996 through targeted consumer media in selected high volume markets and will continue this effort in 1997. Most important from a strategic standpoint is our effort to diversify our business. In 1996 Maui Pineapple Company, Ltd. formed a new subsidiary, Royal Coast Tropical Fruit Company, Inc. Within this subsidiary we have started new business initiatives with U.S. and foreign-based companies in the fresh fruit and processed food categories. In 1996 we developed two new products: tropical fruit mix and fresh-cut pineapple. The tropical fruit mix is a combination of canned pineapple, papaya and guava. The fresh-cut pineapple is in conveniently packaged, ready- to-serve, chilled chunks. Sales of tropical fruit mix and fresh-cut pineapple began in 1996 on a limited basis. We anticipate increased sales activity for these products in 1997. These opportunities to diversify have the potential for long-term growth and to make a significant contribution to profit. As reported last year, in 1996 we began to source and ship Costa Rican fresh pineapple to U.S. east coast customers under our new Royal Coast trademark. Though we are disappointed with the results to date, we believe that we will succeed in this activity in 1997. We have made substantial progress in forming other key strategic alliances intended to benefit us in 1997 and beyond. We anticipate that these activities will make a contribution to our business in the near future. On February 20, 1997, the pineapple industry of Hawaii and the International Longshoremen's and Warehousemen's Union reached an agreement on a new labor contract that expires on November 30, 1999. The terms of the new agreement are reasonable considering the competitive nature of the labor market in Hawaii and other collective bargaining agreements. We expect to deliver a profit in 1997, while continuing to position our business for improving financial performance and healthy long-term growth. RESORT In 1996, Kapalua Land Company, Ltd. had a profit, before allocated interest and corporate expense, of $2.2 million compared with a profit of $7.3 million in 1995. Almost all of the reduction was due to a $5 million gain in 1995 from the reversal of previously allocated losses from The Ritz-Carlton Kapalua Hotel joint venture. Much of our focus for 1996 was on the resort's two hotels and short-term villa rentals. After resolving the issues related to ownership and debt that were reported at this time last year, The Ritz-Carlton Kapalua Hotel had an excellent year with increased occupancy and market recognition as one of Hawaii's best hotels. Readers of 'Travel & Leisure' Magazine voted the hotel #1 in Hawaii and in November of last year the hotel was awarded the prestigious 'AAA' Five Diamond rating. The most significant event in 1996 was the purchase in September of the Kapalua Bay Hotel by The Yarmouth Group, a highly respected U.S.-based real estate investment and property management company. The new owners have engaged Halekulani Corporation to oversee management of the hotel and a major renovation of the property is scheduled to be completed by the fourth quarter of 1997. Related to the purchase were separate agreements between ourselves and Yarmouth providing for consolidation of the short-term villa rental operations, an option for a joint-venture development of the adjoining oceanfront 12 acre parcel (Site 29), a new lease for the Bay Club restaurant, and an amended hotel ground lease which included three years of reduced rent. When renovation is completed later this year, and with Halekulani providing management, we believe the Kapalua Bay Hotel again will be recognized as one of the finest luxury hotels in Hawaii. Based on our villa agreement with Yarmouth, all but fifteen of the hotel's villa rental contracts were assigned to The Kapalua Villas and consolidated into our operation. The Kapalua Bay Hotel has dropped "& Villas" from the name of the hotel, but will maintain an inventory of a maximum of fifteen villas as additional luxury suites for the hotel. As a result of the consolidation, we presently have over 250 villas in The Kapalua Villas rental program and a cooperative relationship with both hotels to market and operate Kapalua as a unified resort destination. Our villa operation is now positioned to be clearly recognized in the market as the third Kapalua 'property' for visitor accommodations. Collectively, these changes for The Ritz-Carlton Kapalua Hotel, the Kapalua Bay Hotel and The Kapalua Villas represent a dramatic improvement in what is basically the foundation for the resort and a unique strategic positioning for Kapalua in the upper end of Hawaii's luxury resort market. Overall, Hawaii's resort real estate market has shown increased activity but still remains relatively weak. Resort resale activity in 1996 for all of Maui showed an increase of about 30% in total dollar volume, primarily in condominium product. Kapalua's resale activity increased about 10% in 1996, also mostly from increased condominium activity. Our real estate operation, Kapalua Realty, has made significant progress in increasing market share of Kapalua resales with 60% of the sales and 46% of the listings in 1996. We saw increased interest in our remaining inventory of two-acre Plantation Estate lots resulting in one sale in 1996 and two other sales scheduled to close escrow in the second quarter of 1997. This leaves only one lot unsold in the first phase of this development. Planning efforts are underway to reconfigure Plantation Estates Phase II into fewer, larger lots as an alternative residential product which would complement Phase I and the overall resort master plan for Kapalua. Our primary planning focus has been on the near term development of the core area of Kapalua and Site 29 next to the Kapalua Bay Hotel. Significant components under consideration for inclusion in the 55-acre central core area include a Town Center, golf academy/clubhouse, resort spa, villa reception center and new villa product. We expect to finalize these plans in 1997 and be in a position to begin construction of specific projects in 1998. After a very strong first quarter, the visitor industry showed little full-year growth in 1996 with the number of visitors to Maui up less than 1% and average occupancy for the island unchanged at 73%. Our resort occupancy for Kapalua increased over 8% but still remains below the Maui average. Total revenue for ongoing resort operations in 1996 increased just under 4% to $35.7 million while profits decreased to just over $2 million in 1996 compared with $2.3 million in 1995. The decrease in profits was due to lower ground rent from the Kapalua Bay Hotel, increased marketing expenses, lower resort membership income and a lower average golf green fee which were only partly offset by revenue increases for Kapalua Water Company, restaurant and other commercial leases, and higher profits from The Kapalua Villas. Our resort marketing emphasis in 1996 again included special events highlighted by the 15th annual Lincoln-Mercury Kapalua International golf tournament and the inaugural Earth Maui Nature Summit, hosted by the Kapalua Nature Society. As a result of our ongoing commitment to stewardship of the environment and our natural resources, Kapalua recently became the first resort in the world to be certified by Audubon International as an Audubon Heritage Cooperative Sanctuary. With projections of a relatively flat year for Hawaii's visitor industry and the scheduled renovation of the Kapalua Bay Hotel, we do not expect to show much financial improvement from resort operations in 1997. Increased development profit in 1997 is dependent on whether or not Yarmouth exercises the joint venture development option on Site 29. We believe the resort is in an excellent strategic position to show improved long-term results beginning in 1998. COMMERCIAL & PROPERTY The Commercial & Property segment produced lower revenue and operating profit in 1996 compared to 1995. Revenue decreased from $10.1 million in 1995 to $4.9 million in 1996. Operating profit, before allocation of interest and corporate expense, was $105,000 in 1996 compared to $3.3 million in 1995. Two land sales contributed a total of $700,000 profit and cash flow in 1996. One of the sales was a one-acre parcel of land in West Maui for $200,000. The other transaction was the sale of a 15.3-acre parcel of land located along the Pukalani Bypass Highway for $500,000. In 1995 land sales arising from four transactions contributed a total of $3.4 million profit and cash flow. The lower amount of income from land sales was the principal reason for the reduction in operating profit from this segment. Accounting for Kaahumanu Center Associates (KCA) by the equity method since April 30, 1995 also was a major reason for lower revenue in 1996. For the first four months of 1995, the financial statements of KCA were consolidated with the Company. Kaahumanu Center produced substantially improved results in 1996 and the Company's share of losses from KCA was $131,000 lower in 1996 compared to the eight months ended December 31, 1995. Napili Plaza showed improved results due to improved occupancy and tenant sales. Kaahumanu Center's results were, however, lower than expected due to the closing of several stores in conjunction with the rejection of leases through tenant bankruptcies, together with lower than anticipated sales due to Maui's slowly recovering economy. Most of these closings were part of the bankruptcy proceedings of several hundred stores nationally and is not necessarily a reflection of the center as a whole. Kaahumanu Center continued to attract new national tenants including LensCrafters, Speedo, Florsheim, Benetton, Gymboree and others. Kaahumanu Center will face new competition from Maui Marketplace, a major shopping center slated to open in Kahului during the first half of 1997. While the new center will have some impact on sales initially, Kaahumanu Center is well positioned as the dominant center on Maui. Kaahumanu Center received the prestigious International Council of Shopping Centers 1996 International Design & Development Award for Renovation & Expansion of an Existing Project. The center also was recognized in December of 1996 by the Hawaii Chapter of the International Council of Shopping Centers as the Shopping Center of the Year. In 1996, the Company participated in the ten-year updates for the County of Maui's community plans for the West Maui and Makawao-Pukalani-Kula regions. The Maui County Council approved the West Maui Community Plan in February 1996. The amended plan included a 150-acre expansion of the Kapalua Resort as part of Project District 2. This is a 450-acre Project District in kapalua which includes most of The Village Golf Course and is targeted by the Company for longer term development. The amended plan also included the addition of a single-family designation for 12 acres of the Company's land in Mahinahina, which we plan to eventually develop into an employee housing subdivision. The Makawao-Pukalani-Kula Community Plan was approved by the Maui County Council in July 1996. Included in the amended community plan were the addition of single-family designations for a total of 89 acres of Company owned land in Pukalani and the business/commercial designation for an additional 4 acres of land in Haliimaile. A portion of the lands designated single-family are planned to be eventually developed into an employee housing subdivision. The County of Maui's community plan designation is generally the initial discretionary approval required in the lengthy governmental land entitlement process and provides a roadmap for future development plans. INDEPENDENT AUDITORS' REPORT To the Stockholders and Directors of Maui Land & Pineapple Company, Inc.: We have audited the accompanying consolidated balance sheets of Maui Land & Pineapple Company, Inc. and its subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of operations and retained earnings and of cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of Kaptel Associates, the Company's investment in which was previously accounted for by the equity method. The Company's share of losses in excess of its investment in Kaptel Associates of $4,990,000 as of December 31, 1994, and its share of losses from Kaptel Associates of $4,119,000 for the year ended December 31, 1994, are included in the accompanying financial statements. The financial statements of Kaptel Associates were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Kaptel Associates, is based solely on the report of such other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of the other auditors for 1994, such consolidated financial statements present fairly, in all material respects, the financial position of the Companies as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. /S/ DELOITTE & TOUCHE LLP DELOITTE & TOUCHE LLP Honolulu, Hawaii February 7, 1997 (March 3, 1997 as to the fifth paragraph of Note 4) MAUI LAND & PINEAPPLE COMPANY, INC. & SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 1996 and 1995
1996 1995 (Dollars in Thousands) ASSETS CURRENT ASSETS Cash $ 453 $ 166 Accounts and notes receivable, less allowance of $698 and $573 14,343 13,142 Inventories Pineapple products 9,740 13,920 Real estate held for sale 339 340 Merchandise, materials and supplies 6,405 5,415 Prepaid expenses and other assets 4,028 3,571 -------- -------- Total Current Assets 35,308 36,554 -------- -------- NOTES RECEIVABLE--REAL ESTATE SALES 419 541 -------- -------- INVESTMENTS AND OTHER ASSETS 10,514 11,433 -------- -------- PROPERTY Land 4,605 4,469 Land improvements 42,184 41,671 Buildings 47,991 47,625 Machinery and equipment 93,472 90,240 Construction in progress 2,747 1,170 -------- -------- Total property 190,999 185,175 Less accumulated depreciation 104,389 96,618 -------- -------- Net Property 86,610 88,557 -------- -------- TOTAL $132,851 $137,085 ======== ======== 1996 1995 (Dollars in Thousands) LIABILITIES & STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current portion of long-term debt $ 53 $ -- Capital lease obligations 1,201 1,263 Trade accounts payable 7,661 5,761 Payroll and employee benefits 4,235 3,658 Accrued interest 898 1,030 Other accrued liabilities 1,793 1,414 -------- -------- Total Current Liabilities 15,841 13,126 -------- -------- LONG-TERM LIABILITIES Long-term debt 27,347 34,500 Capital lease obligations 1,551 1,727 Deferred income taxes 850 504 Accrued retirement benefits 21,983 22,594 Other noncurrent liabilities 7,246 5,764 -------- -------- Total Long-Term Liabilities 58,977 65,089 -------- -------- CONTINGENCIES AND COMMITMENTS STOCKHOLDERS' EQUITY Common stock--no par value, 1,800,000 shares authorized, 1,797,125 shares issued and outstanding 12,318 12,318 Retained earnings 45,715 46,552 -------- -------- Stockholders' Equity 58,033 58,870 -------- -------- TOTAL $132,851 $137,085 ======== ======== See Notes to Consolidated Financial Statements
MAUI LAND & PINEAPPLE COMPANY, INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994 (Dollars in Thousands Except Per Share Amounts) REVENUES Net sales $106,666 $ 91,227 $ 91,158 Operating revenue 28,062 30,104 30,760 Other income 1,607 4,246 3,964 -------- -------- -------- Total Revenues 136,335 125,577 125,882 -------- -------- -------- COSTS AND EXPENSES Cost of goods sold 75,279 69,314 67,321 Operating expenses 24,030 24,315 23,853 Shipping and marketing 19,185 16,793 16,568 General and administrative 14,507 15,160 14,352 Equity in (earnings) losses of joint ventures 882 (4,001) 4,844 Interest 3,575 7,021 5,682 -------- -------- -------- Total Costs and Expenses 137,458 128,602 132,620 -------- -------- -------- LOSS BEFORE INCOME TAX CREDIT (1,123) (3,025) (6,738) INCOME TAX CREDIT (376) (1,466) (2,829) -------- -------- -------- NET LOSS (747) (1,559) (3,909) -------- -------- -------- RETAINED EARNINGS, BEGINNING OF YEAR 46,552 48,111 52,020 CASH DIVIDENDS DECLARED (90) -- -- -------- -------- -------- RETAINED EARNINGS, END OF YEAR 45,715 46,552 48,111 ======== ======== ======== PER COMMON SHARE Net Loss (.42) (.87) (2.18) ======== ======== ======== Cash Dividends $ .05 $ -- $ -- ======== ======== ======== See Notes to Consolidated Financial Statements.
MAUI LAND & PINEAPPLE COMPANY, INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994 (Dollars in Thousands) OPERATING ACTIVITIES Net Loss $ (747) $ (1,559) $ (3,909) Adjustments to reconcile net loss to cash provided by operating activities Depreciation 8,606 10,202 10,851 Undistributed equity in (earnings) losses of joint ventures 1,010 (3,850) 4,844 Gain on property disposals (812) (3,408) (2,966) Deferred income taxes (389) (1,471) (851) Increase in accounts receivable (1,105) (723) (469) (Increase) decrease in refundable income taxes (44) 1,392 6,054 Decrease in inventories 3,191 862 575 Increase (decrease) in trade payables 1,602 573 (4,207) Net change in other operating assets and liabilities 442 124 1,614 -------- -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 11,754 2,142 11,536 -------- -------- -------- INVESTING ACTIVITIES Purchases of property (5,284) (5,679) (43,488) Proceeds from surrender of insurance policies 3,125 -- -- Proceeds from sale of property 845 3,469 3,062 Reimbursement from Kaahumanu Center Associates 328 11,843 -- Payments for other investments 275 (3,260) (137) -------- -------- -------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (711) 6,373 (40,563) -------- -------- -------- FINANCING ACTIVITIES Payments of long-term debt (28,097) (25,515) (24,632) Proceeds from long-term borrowings 18,800 16,388 56,558 Payments on capital lease obligations (1,369) (1,491) (1,853) Dividends paid (90) -- -- -------- -------- -------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (10,756) (10,618) 30,073 -------- -------- -------- NET INCREASE (DECREASE) IN CASH 287 (2,103) 1,046 CASH AT BEGINNING OF YEAR 166 2,269 1,223 -------- -------- -------- CASH AT END OF YEAR $ 453 $ 166 $ 2,269 ======== ======== ======== Supplemental Disclosures of Cash Flow Information and Non-Cash Investing and Financing Activities: 1. Cash paid (received) during the year (in thousands): Interest (net of amount capitalized) $ 3,751 $ 7,339 $ 5,753 Income taxes $ 301 $ (1,205) $ (7,967) 2. In 1995, the $4.7 million loan from Kaptel Associates to the Company was offset against the cost of the related off-site improvements (see Note 3 to Consolidated Financial Statements). 3. Effective April 30, 1995, the Employees' Retirement System of the State of Hawaii converted its $30.6 million loan to an additional 49% ownership in Kaahumanu Center Associates (see Note 3 to Consolidated Financial Statements). 4. Capital lease obligations of $1,092,000 in 1996 and $1,343,000 in 1994 were incurred for new equipment. See Notes to Consolidated Financial Statements.
MAUI LAND & PINEAPPLE COMPANY, INC. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATION The consolidated financial statements include the accounts of Maui Land & Pineapple Company, Inc. and its wholly-owned subsidiaries, primarily Maui Pineapple Company, Ltd. and Kapalua Land Company, Ltd. Significant intercompany balances and transactions have been eliminated. INVENTORIES Inventories of tinplate, cans, ends and canned pineapple products are stated at cost, not in excess of market value, using the dollar value last-in, first-out (LIFO) method. The costs of growing pineapple are charged to production in the year incurred rather than deferred until the year of harvest. For financial reporting purposes, each year's total cost of growing and harvesting pineapple is allocated to products on the basis of their respective market values; for income tax purposes, the allocation is based upon the weight of fruit included in each product. Real estate held for sale is stated at the lower of cost or fair value less cost to sell. Merchandise, materials and supplies are stated at cost, not in excess of market value, using retail and average cost methods. INVESTMENTS AND OTHER ASSETS Cash surrender value of life insurance policies are reflected net of loans against the policies. Investments in joint ventures are accounted for using the equity method. PROPERTY AND DEPRECIATION Property is stated at cost. Major replacements, renewals and betterments are capitalized while maintenance and repairs that do not improve or extend the life of an asset are charged to expense as incurred. When property is retired or otherwise disposed of, the cost of the property and the related accumulated depreciation are written off and the resulting gains or losses are included in income. Depreciation is provided over estimated useful lives of the respective assets using the straight-line method. POSTRETIREMENT BENEFITS The Company's policy is to fund pension cost at a level at least equal to the minimum amount required under federal law, but not more than the maximum amount deductible for federal income tax purposes. Deferred compensation plans for certain management employees provide for specified payments after retirement. The present value of estimated payments to be made are accrued over the period of active employment. The estimated cost of providing postretirement health care and life insurance benefits is accrued over the period employees render the necessary services. REVENUE RECOGNITION Revenue from the sale of pineapple is recognized when title to the product is transferred to the customer. The timing of the transfer of title varies according to the shipping and delivery terms of the sale. Sales of real estate are recognized as revenues in the period in which sufficient cash has been received, collection of the balance is reasonably assured and risks of ownership have passed to the buyer. INTEREST CAPITALIZATION Interest costs are capitalized during the construction period of major capital projects. ADVERTISING AND RESEARCH AND DEVELOPMENT The cost of advertising and research and development activities are expensed as incurred. LEASES Leases that transfer substantially all of the benefits and risks of ownership of the property are accounted for as capital leases. Amortization of capital leases is included in depreciation expense. Other leases are accounted for as operating leases. INCOME TAXES The Company's provision for income taxes is calculated using the liability method. Deferred income taxes are provided for all temporary differences between the financial statement and tax bases of assets and liabilities using enacted tax rates. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Future actual amounts could differ from those estimates. NET LOSS PER COMMON SHARE Net loss per common share is computed using the weighted average number of shares outstanding during the period. 2. INVENTORIES The replacement cost of pineapple product inventories at year-end approximated $22 million in 1996 and $26 million in 1995. In 1996 and 1995 there were partial liquidations of LIFO inventories; thus, cost of sales included prior years' inventory costs which were lower than current costs. Had current costs been charged to cost of sales, the net losses for 1996 and 1995 would have increased by $795,000 or $.44 per share and $54,000 or $.03 per share, respectively. Pineapple product inventories were comprised of the following components at December 31, 1996 and 1995: 1996 1995 (Dollars in Thousands) Finished Goods $7,306 $11,631 Work In Progress 1,645 1,088 Raw Materials 789 1,201 ------ ------- Total $9,740 $13,920 ====== ======= 3. INVESTMENTS AND OTHER ASSETS Investments and Other Assets at December 31, 1996 and 1995 consisted of the following: 1996 1995 (Dollars in Thousands) Plantation Club Associates $ 2,961 $ 3,683 Cash Surrender Value of Life Insurance Policies (net) 386 1,172 Deferred Costs 4,889 4,617 Other 2,278 1,961 ------- ------- Total $10,514 $11,433 ======= ======= Cash surrender values of life insurance policies are stated net of policy loans totaling $892,000 at December 31, 1996 and $3,088,000 at December 31, 1995. Deferred costs are primarily intangible predevelopment costs incurred for the Kapalua Resort, which will be allocated to future development projects. PLANTATION CLUB ASSOCIATES Plantation Club Associates (PCA) is an unincorporated joint venture between Kapalua Land Company, Ltd. (Kapalua) and Rolfing Partners (Rolfing). It was formed in 1988 to finance and develop a third 18-hole golf course and two residential development projects at the Kapalua Resort. Kapalua and Rolfing each contributed $9.3 million in cash to the joint venture. Kapalua also contributed the fee interest in approximately 230 acres of land to be used for the residential projects. Kapalua's basis in the land was nominal and PCA did not assign any cost to the land contributed. Profits and losses of the joint venture are allocated based on the estimated distributions to the partners, which are 85% to Kapalua and 15% to Rolfing. The partnership agreement requires that all major decisions receive unanimous approval of the partners. Summarized balance sheet information for PCA as of December 31, 1996 and 1995 and operating information for the three years ended December 31, 1996 follows: 1996 1995 (Dollars in Thousands) Real estate inventories $2,608 $2,874 Other assets 1,351 1,925 ------ ------ Total Assets 3,959 4,799 Less: Total Liabilities 547 551 ------ ------ Partners' Capital $3,412 $4,248 ====== ====== 1996 1995 1994 Revenues $ 560 $ 672 $5,155 Costs and Expenses 397 481 5,965 ------ ------ ------ Net Income (Loss) $ 163 $ 191 $ (810) ====== ====== ====== PCA's real estate inventories as of December 31, 1996 consists of three residential lots in Plantation Estates Phase I and allocated planning and off- site costs related to Plantation Estates Phase II. Kapalua's pre-tax share of the joint venture's net income (loss) was $128,000, $152,000, and $(766,000) for 1996, 1995 and 1994, respectively. These amounts include expenses incurred by the Company related to the investment (primarily amortization of capitalized interest cost). The Company received cash distributions from PCA of $850,000, $465,000 and $1,716,000 in 1996, 1995 and 1994, respectively. KAPTEL ASSOCIATES Kapalua Investment Corp. (KIC), a wholly-owned subsidiary of Maui Land & Pineapple Company, Inc., was a 25% general partner in Kaptel Associates, the partnership that owned The Ritz-Carlton Kapalua Hotel. In February of 1995, Kaptel defaulted on its $186 million non-recourse financing arrangement. NI Hawaii Resorts, Inc. (NI), the major general partner, acquired the indebtedness and on October 31, 1995, the partners of Kaptel concluded an agreement to dissolve the partnership. KIC transferred its interest in the partnership to NI. Because of the dissolution agreement, the Company's equity in the losses of Kaptel Associates recorded through June 30, 1995 were reversed in the third quarter of 1995. The net reversal of these losses in 1995 of $4,990,000 was recorded as a credit to equity in (earnings) loss of joint ventures. The Company's share of the partnership's loss for 1994 was $4,119,000. Summarized operating information for Kaptel Associates for the year ended December 31, 1994 follows (in thousands): Revenues $39,750 Costs and Expenses 56,226 -------- Net Loss $16,476 ======== The Company leased the 36-acre hotel site to Kaptel under a long-term lease. In 1990, the Company borrowed $4,750,000 from Kaptel for construction of certain off-site improvements related to the hotel property. Principal and interest payments on the loan were payable solely from rental income receivable by the Company under the hotel ground lease. The lease was renegotiated with the hotel owner, effective January 1, 1996. The renegotiated lease subordinates the Company's fee interest to a $65 million first mortgage and requires that ground rents be applied against the off-site loan with any balance remaining on the loan at January 1, 1999 to be canceled. For accounting purposes, the off-site loan was offset against the cost of the off-site improvements as of December 31, 1995, and the Company will not recognize any income from the ground lease until January 1, 1999. KAAHUMANU CENTER ASSOCIATES In June 1993 Kaahumanu Center Associates (KCA) was formed to finance the expansion and renovation of and to own and operate Kaahumanu Center. KCA is a partnership between the Company as general partner and the Employees' Retirement System of the State of Hawaii (ERS) as a limited partner. The Company contributed the then existing shopping center, subject to a first mortgage, and approximately nine acres of adjacent land. ERS contributed $312,000 and made a $30.6 million loan to the partnership. The remainder of the construction cost was funded principally by bank loans. The expansion and renovation was substantially complete by the end of November of 1994. Effective April 30, 1995, the ERS converted its $30.6 million loan to an additional 49% ownership in KCA. Effective with the conversion of the ERS loan, the Company and ERS each have a 50% interest in KCA and the Company has accounted for its investment in KCA by the equity method. Prior to the conversion, the financial statements of KCA were consolidated with those of the Company. The Company has a long-term agreement with KCA to manage the Kaahumanu Center. The agreement provides for certain performance tests, which if not met could result in termination of the agreement. KCA does not have any employees. As such the Company provides all on-site and administrative personnel and also incurs other costs and expenses, primarily insurance and real property taxes, which are reimbursable by KCA. The Company generates a portion of the electricity used by Kaahumanu Center. In 1996 reimbursements from KCA for payroll and other costs and expenses totaled $2,391,000 and the Company charged KCA $2,621,000 for electricity and management fees. For the eight months ended December 31, 1995, reimbursements for payroll and other costs and expenses totaled $1,512,000 and charges by the Company for electricity and management fees totaled $1,695,000. At December 31, 1996 and 1995, $630,000 and $843,000, respectively, were due to the Company from KCA for management fees, electricity and reimbursable costs. Summarized balance sheet information for KCA as of December 31, 1996 and 1995 and operating information for the year ended December 31, 1996 and for the eight months ended December 31, 1995 follows: 1996 1995 (Dollars in Thousands) Current assets $ 701 $ 1,402 Property and equipment, net 75,581 77,793 Other assets, net 5,461 5,976 ------- -------- Total Assets 81,743 85,171 ======= ======== Current liabilities 1,742 1,832 Noncurrent liabilities 63,226 64,011 ------- -------- Total Liabilities 64,968 65,843 ======= ======== Partners' Capital 16,775 19,328 ======= ======== Revenues 13,677 8,991 Costs and Expenses 15,697 11,272 ------- -------- Net Loss $ 2,020 $ 2,281 ======= ======== The Company's share of losses from KCA was $1,010,000 and $1,141,000, respectively, for 1996 and for the eight months ended December 31, 1995. ERS and the Company each have a 9% cumulative, non-compounded priority right to cash distributions based on their net contributions to the partnership (preferred return). For the purpose of calculating preferred returns, each partner's capital contribution had an agreed upon value of $30.9 million on May 1, 1995. The Company's preferred return is subordinate to the ERS preferred return. As of December 31, 1996, the accumulated unpaid preferred return was $3.9 million each for ERS and the Company. Pursuant to cash calls, the partners each contributed $357,000 to the partnership in January of 1997. The Company's investment in KCA is a negative $6.3 million at December 31, 1996, and is included in other noncurrent liabilities. The negative balance is a result of recording the Company's initial contribution in 1993 at net book value of the assets contributed, reduced by the related debt. In 1995, $1.3 million owing to the Company by KCA was considered a capital contribution. This amount was reduced in 1996 by $533,000 for items which would have impacted the previous amount owing, including a payment of $328,000 to the Company. 4. BORROWING ARRANGEMENTS Short-term bank lines of credit available to the Company at December 31, 1996 were $2 million. These lines provide for interest at the prime rate (8.25% at December 31, 1996) plus 3/4% to 1%. There were no borrowings under these lines at December 31, 1996, but a $600,000 letter of credit has been reserved against these lines to secure the Company's portion of insurance claims administered by an insurance company. During 1996, 1995 and 1994, the Company had average borrowings outstanding of $36.5 million, $67.6 million, and $114.2 million, respectively, at average interest rates of 8.9%, 9.7%, and 8.5%, respectively. Long-term debt at December 31, 1996 and 1995 consisted of the following (interest rates represent the rates at December 31): 1996 1995 (Dollars in Thousands) Revolving credit agreement, 8.25% and 8.75% $ 2,400 $14,500 Senior unsecured notes, 8.86% 20,000 20,000 Mortgage loan, 8.25% 5,000 -- ------- ------- Total 27,400 34,500 Less portion classified as current 53 -- ------- ------- Long-term debt $27,347 $34,500 ======= ======= The Company has a revolving credit agreement with participating banks under which it may borrow up to $15 million in revolving loans through December 31, 1997. Amounts outstanding at that date may, at the Company's option, be converted to a three-year term loan payable in six equal semi- annual installments. The entire outstanding balance has been reflected as long-term because the Company intends to continue such borrowings under this or other arrangements for more than one year. The available commitment reduces by 75% of the after-tax net proceeds from any sale of real estate. Commitment fees of 1/4% are payable on the unused portions of this credit line. At December 31, 1996, the interest rate on this loan was at the prime rate. The agreement contains certain financial covenants, including the maintenance of consolidated net worth and working capital at certain levels and limits on the incurrence of other indebtedness and capital expenditures. The loan is collateralized by the Company's three golf courses at the Kapalua Resort. The agreement does not allow for the declaration of dividends except for the amount which was declared with respect to earnings through the third quarter of 1996. In September 1993 the Company concluded a private placement of $20 million in ten-year, 8.86% senior unsecured notes. Mandatory annual principal payments of 20% of the original principal amount will begin in 1999. The agreement includes certain financial covenants which are similar to, but somewhat more restrictive than the Company's revolving credit agreement, including a formula permitting payment of dividends. This formula did not allow for the amount of dividend which was declared with respect to earnings through the third quarter of 1996 and as of December 31, 1996, the Company was in default of this provision of the note agreement. The lender subsequently waived the dividend restriction with respect to this dividend. The mortgage loan is collateralized by the Napili Plaza shopping center and matures on December 31, 2005. Payments are based on a 25-year amortization. The interest rate, presently fixed at 8.25%, will be adjusted as of January 1, 2000 and January 1, 2003. Maturities of long-term debt during the next five years, from 1997 through 2001, are as follows: $53,000, $862,000, $4,867,000, $4,872,000, $4,079,000. 5. POSTRETIREMENT BENEFITS The Company has defined benefit pension plans covering substantially all regular employees. Pension benefits are based primarily on years of service and compensation levels. The projected benefit obligations were determined using discount rates of 8% and 7% as of December 31, 1996 and 1995, respectively, and compensation increases ranging up to 4.5%. The expected long-term rate of return on assets was 8% for 1996 and 1995. The assets of the plans consist primarily of stocks, bonds, real estate and short-term investments. Net pension cost for 1996, 1995 and 1994 included the following components: 1996 1995 1994 (Dollars in Thousands) Service cost--benefits earned during the year $ 982 $ 882 $1,078 Interest cost on projected benefit obligation 2,190 2,076 1,963 Actual return on plan assets (3,117) (5,294) 490 Net amortization and deferral 258 2,863 (3,070) ------ ------ ------- Net pension expense $ 313 $ 527 $ 461 ====== ====== ======= The following table sets forth the funded status of the pension plans and the amounts recognized in the balance sheets at December 31:
1996 1995 Assets Accumulated Assets Accumulated Exceed Benefits Exceed Benefits Accumulated Exceed Accumulated Exceed Benefits Assets Benefits Assets (Dollars in Thousands) Actuarial present value of benefit obligations Vested benefits $25,086 $ 1,243 $26,543 $ 1,215 Nonvested benefits 256 79 302 90 ------- ------- ------- ------- Accumulated benefit 25,342 1,322 obligation 26,845 1,305 Effect of assumed increase in compensation levels 2,670 320 3,825 284 ------- ------- ------- ------- Projected benefit obligation for services rendered to date 28,012 1,642 30,670 1,589 Assets of plans at fair value 32,216 776 29,996 663 ------- ------- ------- ------- Assets over (under) projected benefit obligation 4,204 (866) (674) (926) Unrecognized net (gain) loss (272) 168 4,290 176 Unrecognized net transition (asset) obligation (2,787) 421 (3,350) 448 Unrecognized prior service cost 298 67 351 75 Adjustment required to recognize minimum liability -- (336) -- (415) ------- ------- ------- ------- Pension asset (liability) recognized in balance sheets $ 1,443 $ (546) $ 617 $ (642) ======= ======= ======= =======
The Company has an Employee Stock Ownership Plan (ESOP) for non- bargaining salaried employees and bargaining unit clerical employees of Maui Pineapple Company, Ltd. Since December of 1993, the 205,533 shares originally sold to the ESOP in 1979 have all been allocated to participants' accounts. Contributions to the ESOP are payable in cash or in shares of Company stock. A contribution of $574,000 was paid in 1994. The Company made no contributions to the ESOP in 1996 or 1995. The Company has a contributory, defined contribution plan covering all non-bargaining salaried employees and bargaining unit clerical employees of Maui Pineapple Company, Ltd. The participants may elect to make pretax contributions to the plan. The Company can also elect to contribute, but made no contributions to the plan in 1996, 1995 or 1994. In addition to providing pension benefits, the Company provides certain health care and life insurance benefits to substantially all retirees. The net periodic cost of these benefits for 1996, 1995 and 1994 consisted of the following components:
1996 1995 1994 (Dollars in Thousands) Service cost $ 328 $ 337 $ 433 Interest cost 1,012 985 1,056 Actual return on plan assets -- -- 59 Net amortization and deferral (371) (374) (219) ------ ------ ------ Net expense $ 969 $ 948 $1,329 ====== ====== ======
The funded status of these plans as of December 31, 1996 and 1995 was as follows: 1996 1995 (Dollars in Thousands) Accumulated postretirement benefit obligation: Retirees $ 6,901 $ 6,970 Fully eligible active plan participants 2,576 3,159 Other active plan participants 4,136 4,897 ------- ------- Accumulated postretirement benefit obligation 13,613 15,026 Unrecognized prior service cost 1,619 1,766 Unrecognized net gain 4,033 2,272 ------- ------- Accrued postretirement benefit obligation recognized in balance sheets $19,265 $19,064 ======= =======
Measurements of the accumulated postretirement benefit obligation as of December 31, 1996 and 1995 were determined using discount rates of 8% and 7%, respectively, and compensation increases ranging up to 4.5%. The accumulated postretirement benefit obligation as of December 31, 1996 and 1995 was determined using a health care cost trend rate of 10% in 1995, decreasing by .5% each year from 1995 through 2004 and 5% thereafter. The effect of a 1% annual increase in these assumed cost trend rates would increase the accrued postretirement benefit obligation by approximately $2,254,000 as of December 31, 1996 and the aggregate of the service and interest cost for 1996 by approximately $260,000 . 6. REAL ESTATE SALES Other income for 1996, 1995 and 1994 includes $700,000, $3.4 million, and $3 million, respectively, attributable to real estate sales. 7. LEASES LESSEE The Company has capital leases, primarily on equipment used in pineapple operations, which expire at various dates through 2001. At December 31, 1996 and 1995, property included capital leases of $5,842,000 and $10,452,000, respectively (accumulated depreciation of $906,000 and $5,840,000, respectively). Future minimum rental payments under capital leases aggregate $3,068,000 (including $316,000 representing interest) and are payable during the next five years (1997 to 2001) as follows: $1,405,000, $947,000, $387,000, $172,000 and $157,000. The Company also has various operating leases, primarily for land used in pineapple operations, which expire at various dates through 2012. A major operating lease covering approximately 1,500 acres used primarily for Pineapple operations expires on December 31, 1999. Total rental expense under operating leases was $736,000 in 1996, $818,000 in 1995, and $837,000 in 1994. Future minimum rental payments under operating leases aggregate $2,253,000 and are payable during the next five years (1997 to 2001) as follows: $637,000, $515,000, $408,000, $125,000, $58,000, respectively, and $510,000 thereafter. LESSOR The Company leases land and land improvements, primarily to the hotels at Kapalua, and buildings, primarily to retail tenants. The leases generally provide for minimum rents and, in most cases, percentage rentals based on tenant revenues. In addition, the leases generally provide for reimbursement of common area maintenance and other expenses. Total rental income under these operating leases was as follows: 1996 1995 1994 (Dollars in Thousands) Minimum rentals $2,370 $4,569 $5,323 Percentage rentals 738 1,235 2,048 ------ ------ ------ Total $3,108 $5,804 $7,371 ====== ====== ====== Property at December 31, 1996 and 1995 includes leased property of $18,643,000 and $18,617,000, respectively (accumulated depreciation of $8,009,000 and $7,402,000, respectively). Future minimum rental income aggregates $8,524,000 and is receivable during the next five years (1997 to 2001) as follows: $1,629,000, $1,366,000, $911,000, $768,000, $469,000, respectively, and $3,381,000 thereafter. 8. INCOME TAXES The components of the income tax provision (credit) were as follows: 1996 1995 1994 (Dollars in Thousands) Current Federal $ 51 $ 32 $(1,674) State (38) (27) (304) ------- ------- ------- Total 13 5 (1,978) ------- ------- ------- Deferred Federal (379) (1,197) (544) State (10) (274) (307) ------- ------- ------- Total (389) (1,471) (851) ------- ------- ------- Total provision (credit) $ (376) $(1,466) $(2,829) ======= ======= ======= A reconciliation between the total provision (credit) and the amount computed using the statutory federal rate of 34% follows: 1996 1995 1994 (Dollars in Thousands) Federal provision (credit) at statutory rate $ (382) $(1,028) $(2,291) Adjusted for State income tax credits-- net of effect on federal income taxes (19) (192) (350) Appreciated property donation -- (228) -- Other 25 (18) (188) ------- ------- ------- Total income tax credit $ (376) $(1,466) $(2,829) ======= ======= ======= Deferred tax assets and liabilities were comprised of the following types of temporary differences as of December 31, 1996 and 1995: 1996 1995 (Dollars in Thousands) Accrued retirement benefits $ 7,440 $ 7,671 Net operating loss carryforward 3,366 4,237 Minimum tax credit carryforward 2,709 2,552 Accrued liabilities 1,224 1,232 Allowance for doubtful accounts 264 219 Inventory 87 -- ------- ------- Total deferred tax assets 15,090 15,911 ------- ------- Deferred condemnation proceeds (6,507) (6,580) Property net book value (4,729) (4,983) Income from partnerships (1,796) (2,095) Charitable contributions (1,357) (1,311) Pineapple marketing costs (624) (815) Inventory -- (461) Other (64) (42) ------- ------- Total deferred tax liabilities (15,077) (16,287) ------- ------- Net deferred tax asset (liability) $ 13 $ (376) ======= ======= At December 31, 1996 the Company had federal income tax net operating loss carryforwards of approximately $8 million, which expire in 2009. The Company also had federal minimum tax credit carryforwards of $2.7 million. The Company's federal income tax returns for 1989 through 1994 are under examination by the Internal Revenue Service. The revenue agent's report on these years has not yet been issued and the Company cannot predict the outcome of these examinations. 9. INTEREST CAPITALIZATION Interest cost incurred in 1996, 1995 and 1994 was $3,633,000, $7,043,000 and $10,208,000, respectively, of which $58,000, $22,000 and $4,526,000, respectively, was capitalized. 10. RESEARCH AND DEVELOPMENT Research and development expenses totaled $489,000 in 1996, $410,000 in 1995 and $375,000 in 1994. 11. CONTINGENCIES AND COMMITMENTS There are various claims and legal actions pending against the Company. In the opinion of management, after consultation with legal counsel, the resolution of these matters will not have a material adverse effect on the Company's financial position or results of operations. At December 31, 1996, the Company had commitments under signed contracts of $6.6 million. The Company has guaranteed the payment of up to $10 million of debt service for Kaahumanu Center Associates. The guaranty will be released by the lender when Kaahumanu Center attains a defined level of net operating income. In September 1996 the owners of the Kapalua Bay Hotel sold the hotel to a third party. In connection with this transaction, the Company granted the buyers an option to purchase a 50% interest in 12 acres adjacent to the hotel for $4 million. The option expires in April 1997. Upon exercise of the option, the Company and the buyers have agreed that they will negotiate the structure and terms of an entity to own, develop and sell the parcel. 12. CONCENTRATIONS OF CREDIT RISK A substantial portion of the Company's trade receivables result from sales of pineapple products, primarily to food distribution customers in the United States. Credit is extended after evaluating creditworthiness and no collateral is generally required from customers. Notes receivable result principally from sales of real estate in Hawaii and are collateralized by the property sold. 13. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS Except as indicated below, the carrying amount is considered to be the fair value of financial instruments. The following methods and assumptions were used to estimate the fair value of certain financial instruments: Notes and Interest Receivable: The fair value of these assets was estimated based on rates currently available for similar types of transactions. Long-Term Debt and Accrued Interest: The fair value of these liabilities was estimated based on rates currently available to the Company for debt with similar terms and remaining maturities. The estimated fair values for these financial instruments at December 31, 1996 and 1995 were as follows: 1996 1995 (Dollars in Thousands) Carrying Fair Carrying Fair Amount Value Amount Value Notes and Interest Receivable $ 697 $ 563 $ 891 $ 830 Long-Term Debt and Accrued Interest $29,189 $29,751 $38,618 $36,935 14. RECLASSIFICATIONS Certain amounts for prior years have been reclassified to conform with the presentation for the current year. 15. BUSINESS SEGMENTS The Company's principal activities are Pineapple, Resort and Commercial & Property. Inter-segment sales were insignificant. Pineapple includes growing pineapple, canning pineapple in tin-plated steel containers fabricated by the Company, and marketing canned and fresh pineapple products. Resort includes the development and sale of real estate, property management and the operation of recreational and retail facilities and utility companies at Kapalua on Maui. It also includes the Company's investments in Plantation Club Associates and Kaptel Associates (through 1995). Commercial & Property includes Kaahumanu Center (investment in Kaahumanu Center Associates, effective May 1, 1995), Napili Plaza shopping center and non-resort property rentals and sales. It also includes the Company's land entitlement and management activities. "Operating Profit (Loss)" is total revenues less all expenses except corporate expenses, interest expense and income taxes. Assets identifiable by activity are those assets used in the operations of each activity. Neither total export sales nor sales to any single customer exceeded 10% of consolidated revenues. 1996 1995 1994 (Dollars in Thousands) Revenues Pineapple $ 95,700 $ 81,052 $ 81,044 Resort 35,676 34,330 34,109 Commercial & Property(3) 4,850 10,123 10,617 Corporate 109 72 112 -------- -------- -------- Total Revenues 136,335 125,577 125,882 ======== ======== ======== Operating Profit (Loss) Pineapple 4,007 (3,548) (867) Resort (1) 2,190 7,338 (2,203) Commercial & Property (2)(3) 105 3,312 5,151 -------- -------- -------- Total Operating Profit (Loss) 6,302 7,102 2,081 -------- -------- -------- Corporate Expenses--Net (3,850) (3,106) (3,137) Interest Expense (3,575) (7,021) (5,682) -------- -------- -------- Loss Before Income Tax Credit (1,123) (3,025) (6,738) ======== ======== ======== Depreciation Pineapple 4,943 5,112 5,561 Resort 3,050 3,492 3,689 Commercial & Property 415 1,355 1,309 Corporate 198 243 292 -------- -------- -------- Total Depreciation 8,606 10,202 10,851 ======== ======== ======== Capital Expenditures Pineapple 4,657 1,442 1,148 Resort 1,699 975 1,851 Commercial & Property 2 634 40,427 Corporate 341 243 75 -------- -------- -------- Total Capital Expenditures 6,699 3,294 43,501 ======== ======== ======== Identifiable Assets Pineapple 65,663 66,877 71,343 Resort 54,668 57,462 64,415 Commercial & Property 8,102 8,405 94,475 Corporate 4,418 4,341 5,178 -------- -------- -------- Total Assets $132,851 $137,085 $235,411 ======== ======== ======== (1) Resort operating profit (loss) includes the Company's equity in the earnings (loss) of Plantation Club Associates of $128,000 for 1996, $152,000 for 1995, and $(766,000) for 1994. Resort operating profit (loss) also includes the Company's equity in the loss of Kaptel Associates of $4,119,000 for 1994 and the reversal of previous equity in losses of $4,990,000 in 1995. (2) Commercial & Property includes the Company's equity in the losses of Kaahumanu Center Associates of $1,010,000 for 1996 and $1,141,000 for the eight months ended December 31, 1995. Prior to April 30, 1995, Kaahumanu Center was consolidated in the Company's financial statements. (3) Commercial & Property includes gains on property sales of $700,000 in 1996, $3.4 million in 1995 and $3 million in 1994. COMMON STOCK The Company paid a dividend of five cents per share in the fourth quarter of 1996. The terms of loan agreements restrict the Company from declaring future dividends. At February 3, 1997, there were 388 shareholders of record. Stock is traded over the counter nationally. The range of common stock bid prices which follow were supplied by the National Quotation Bureau Incorporated. The quotes reflect inter-dealer prices and do not include retail markup, markdown or commission and may not necessarily represent actual transactions. First Second Third Fourth Quarter Quarter Quarter Quarter 1996 High 48 46.5 44.5 47 Low 46 43.5 43.5 40 1995 High 52 52 51 52 Low 40 38 39 30 SELECTED FINANCIAL DATA
1996 1995 1994 1993 1992 (Dollars in Thousands Except Per Share Amounts) FOR THE YEAR Summary of Operations Revenues ` $136,335 $125,577 $125,882 $131,172 $147,049 Cost of goods sold 75,279 69,314 67,321 84,932 81,147 Operating expenses 24,030 24,315 23,853 22,577 20,762 Shipping and marketing 19,185 16,793 16,568 17,673 15,917 General and administrative 14,507 15,160 14,352 18,657 16,578 Equity in (earnings) losses of joint ventures 882 (4,001) 4,844 1,018 11 Interest expense 3,575 7,021 5,682 4,797 4,031 Income taxes (credits) (376) (1,466) (2,829) (7,423) 2,183 Income (loss) before cumulative effect of accounting changes (747) (1,559) (3,909) (11,059) 6,420 Cumulative effect of accounting changes -- -- -- -- (7,673) Net Loss (747) (1,559) (3,909) (11,059) (1,253) Per Common Share Income (loss) before cumulative effect of accounting changes (.42) (.87) (2.18) (6.15) 3.57 Cumulative effect of accounting changes -- -- -- -- (4.27) Net Loss (.42) (.87) (2.18) (6.15) (.70) Pro Forma Amounts Assuming Inventory Accounting Principle was Applied Retroactively (1) Net Loss -- -- -- -- (2,138) Net Loss Per Common Share -- -- -- -- (1.19) Other Data Cash dividends Amount 90 -- -- 1,348 1,797 Per common share .05 -- -- .75 1.00 Depreciation $ 8,606 $ 10,202 $ 10,851 $ 10,315 $ 9,774 Return on beginning stockholders' equity (1.3%) (2.6%) (6.1%) (14.5%) (1.6%) Percent of net loss to revenues (.5%) (1.2%) (3.1%) (8.4%) (0.9%) AT YEAR END Current assets less current liabilities (2) $ 19,467 $ 23,428 $ (1,097) $ 29,398 $ 26,233 Ratio of current assets to current liabilities (2) 2.23 2.78 .97 2.47 2.33 Property, net of depreciation (3) $ 86,610 $ 88,557 $180,194 $148,774 $121,045 Total assets (3) 132,851 137,085 235,411 211,588 177,544 Long-term debt and capital leases (3) 28,898 36,227 99,180 96,108 60,569 Stockholders' equity Amount 58,033 58,870 60,429 64,321 76,187 Per common share $ 32.29 $ 32.76 $ 33.63 $ 35.79 $ 42.40 Common shares outstanding 1,797,125 1,797,125 1,797,125 1,797,125 1,797,125
(1) In 1992, the Company adopted a change in the method of accounting for tinplate, cans, ends and canned pineapple. These inventories, which were previously accounted for under a single-pool LIFO method, were split into two pools - one for tinplate, empty cans and ends and another for finished goods. (2) At December 31, 1994, current liabilities exceeded current assets because borrowings totaling $27.8 million on a revolving credit commitment were classified as current. The commitment has since been amended and borrowings under this line were classified as noncurrent at December 31, 1996 and 1995. (3) Property, net of depreciation, total assets and long-term debt and capital leases decreased in 1995 primarily because, as of April 30, 1995, the Company no longer consolidated Kaahumanu Center Associates (see Note 3 to Consolidated Financial Statements). MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS 1996 vs. 1995 CONSOLIDATED For the year 1996 the Company reported a net loss of $747,000 compared to a net loss of $1.6 million for 1995. Operating results from the Company's Pineapple operations improved by $7.5 million in 1996 compared to 1995. However, 1995 included $5 million of income representing the reversal of the Company's prior years equity in losses of Kaptel Associates (see Note 3 to Consolidated Financial Statements). Also offsetting the improved 1996 results from Pineapple operations was lower income from land sales, which was $700,000 in 1996 compared to $3.4 million in 1995. General and administrative expenses decreased by 4% in 1996 compared to 1995. The decrease was largely a result of accounting for Kaahumanu Center Associates (KCA) by the equity method since May 1, 1995. Prior to that time, the financial statements of KCA were consolidated with those of the Company (see Note 3 to Consolidated Financial Statements). Partially offsetting this decrease were higher expenses for outside consultants and increased employment-related costs as a result of wage adjustments and additional employees. Interest expense decreased by 49% in 1996 as a result of lower average borrowings and lower average rates. For the first four months of 1995, the Company's consolidated debt was higher by approximately $75 million as a result of financing arrangements for Kaahumanu Center. This was the primary reason for higher average borrowings and rates in 1995. PINEAPPLE Revenue from Pineapple was $96 million in 1996 compared to $81 million in 1995. In 1996, Pineapple operations contributed an operating profit of $4 million compared to an operating loss of $3.5 million for 1995. Increased case sales volume (the number of cases sold) provided an $8 million revenue increase; higher prices also resulted in revenue increases of $8 million. A change in the mix of products sold, lower fresh fruit sales and other income resulted in a $1 million net revenue decline. Higher cost of sales in 1996 resulted primarily from increased sales volume. Production costs were higher in 1996 because of lower quality fruit in the fourth quarter as a result of unfavorable weather conditions. Lower quality fruit reduces the recovery (the amount of saleable product per ton of fruit processed) and thereby increases the unit cost of the product. In 1996 and 1995 there were partial liquidations of LIFO inventories, which resulted in lower costs from prior years being included in cost of sales. Cost of sales for 1996 and 1995 would have been higher by $1,281,000 and $104,000, respectively, based on current production costs for the respective years. Shipping and marketing costs increased in 1996 due to the higher volume of sales, increased marketing and promotional efforts and higher surface and ocean freight costs. RESORT In 1996 the Resort segment contributed revenue of $35.7 million compared to $34.3 million in 1995. Operating profit for 1996 was $2.2 million compared to $7.3 million for 1995. In 1995 the Resort operating profit included $5 million representing the reversal of the Company's equity in prior years losses of Kaptel Associates (see Note 3 to Consolidated Financial Statements). Operating profit from Resort ongoing operations declined in 1996 compared to 1995, largely reflecting lower revenues from commercial leasing, golf and membership operations, coupled with increased costs and expenses. Partially offsetting these declines were increased operating profits from The Kapalua Villas and the water and sewer utility operations. Overall costs and expenses related to ongoing resort operations increased by $1.6 million, of which over 50% represented higher labor costs. Marketing expenses were higher, primarily as a result of new advertising initiatives which began in 1996. Other costs and expenses were largely commensurate with corresponding revenues. In September of 1996 the number of condominium units in The Kapalua Villa program increased by 79 units as a result of an agreement for the Company to take over management of units previously managed by the Kapalua Bay Hotel. This operation contributed revenue increases of 39% in 1996. Merchandise sales increased by 4%. Revenues from the water and sewer utilities increased by 48% as a result of the Public Utility Commission's approval of rate increases. Lower revenue from Resort golf operations and decreased land lease revenue partially offset these increases. The number of paid golf rounds increased in 1996. However lower average rates resulted in a decrease in total revenue from golf operations. Maturation of the membership program resulted in a decrease in initiation fees that was not offset by increases in annual dues. Revenue from land leases declined because of renegotiation of the leases for the land underlying The Ritz-Carlton Kapalua (see Note 3 to Consolidated Financial Statements), and the Kapalua Bay Hotel (see following discussion of Liquidity, Capital Resources and Other). COMMERCIAL & PROPERTY The Commercial & Property segment contributed revenue of $4.9 million in 1996 compared to $10.1 million in 1995. The net result was an operating profit in 1996 of $105,000 compared to an operating profit of $3.3 million in 1995. Costs and expenses charged to this segment were $4.7 million in 1996 compared to $6.8 million for 1995. Revenue and operating profit for 1996 included two land sales totaling $700,000 compared to $3.4 million of land sales in 1995. Land sales in 1995 included $1.8 million from the State of Hawaii for the land taken under condemnation for the King Kekaulike High School and sales of three other parcels for $1.6 million. Excluding results from land sales, the decrease in revenue and costs and expenses from this segment was primarily the result of accounting for Kaahumanu Center Associates (KCA) by the equity method since April 30, 1995. Prior to that time, the results of KCA were consolidated with the Company (see Note 3 to Consolidated Financial Statements). In 1996 the loss produced by Kaahumanu Center was reduced by 48% compared to results for the year 1995. The Company's equity in the losses of KCA were $131,000 lower in 1996 compared to 1995. 1995 vs. 1994 CONSOLIDATED The Company reported a consolidated net loss of $1.6 million for 1995. For 1994 the Company incurred a consolidated net loss of $3.9 million. The primary reason for the reduced loss in 1995 was the reversal of the Company's previous equity in losses of Kaptel Associates. In October 1995, the Company transferred its interest in Kaptel to the major general partner and reversed losses, recorded through June 30, 1995, into income in the third quarter of 1995 (see Note 3 to Consolidated Financial Statements). Income from the reversal of these losses was partially offset by a higher operating loss from the Company's Pineapple operations and lower operating profits from ongoing Resort operations and the Commercial & Property segment. General and administrative expenses increased by approximately 5.6%, largely due to higher bad debt and workers compensation expenses. These increases were partially offset by lower expenses for postretirement medical costs, primarily as a result of changes in medical inflation assumptions. Interest expense increased by 24% in 1995 compared to 1994. The increase was primarily the result of a high debt level for the first four months of 1995 arising from the Kaahumanu Center expansion project (see Note 3 to Consolidated Financial Statements) and higher average interest rates. PINEAPPLE Revenue from Pineapple was $81 million for 1995, approximately the same as 1994 as higher average prices in 1995 were offset by lower case volume of sales. Higher average prices in 1995 resulted in revenue increases of approximately $4.2 million. Reductions in case sales volume and lower fresh fruit sales offset the higher prices. The operating loss from Pineapple operations increased from $867,000 in 1994 to $3.5 million in 1995. The higher operating loss in 1995 resulted from higher production costs and from increased general and administrative costs. Shipping and selling expense for 1995 was about the same as in 1994 as lower sales volume was offset by an increase in ocean freight rates. Higher production costs in 1995 were largely due to hot, dry weather conditions which resulted in smaller than normal, porous fruit. This lower quality fruit reduced pineapple yields (tons per acre) and recoveries (cases per ton), which in turn increased per unit production costs. In 1995, there was a partial liquidation of LIFO inventories, which resulted in lower costs from prior years being included in cost of sales. Cost of sales for 1995 would have been higher by $104,000 based on current production costs. RESORT Revenue from the Kapalua Resort was $34.3 million in 1995 compared to $34.1 million in 1994. The segment contributed an operating profit of $7.3 million in 1995 compared to an operating loss of $2.2 million in 1994. Operating profit for 1995 included $5 million representing the reversal of the Company's equity in prior years losses of Kaptel Associates. The operating loss for 1994 included a $4.1 million loss from Kaptel Associates. Plantation Club Associates contributed $152,000 to operating profit for 1995 while the Resort's share of the loss for 1994 was $766,000. Costs and expenses attributable to Resort's ongoing operations increased by $869,000 in 1995 compared to 1994 due partially to higher expenses related to commercial leases and to increased marketing and general and administrative expenses. Other costs and expenses fluctuations were commensurate with corresponding revenues. Resort occupancies were about the same in 1995 compared to 1994. Merchandise sales were lower by 2%. Revenue from the Resort membership program decreased by 34% and real estate sales commissions declined by 45%. These declines were offset by increased revenues from golf operations and The Kapalua Villas. Paid rounds of golf decreased by 2%, but overall revenue from golf operations increased because of higher average rates. The number of occupied rooms at The Kapalua Villas increased by 10% and revenue increased by 12%. COMMERCIAL & PROPERTY Revenue from the Commercial & Property segment was $10.1 million in 1995 compared to $10.6 million in 1994. Operating profit for 1995 decreased by $1.8 million, from $5.1 million in 1994 to $3.3 million in 1995. Included in 1995 is revenue and operating profit from land sales of $3.4 million, compared to $3 million in 1994. Excluding results from land sales, revenue from this segment decreased by $944,000. The primary reason for this decrease in revenue was the result of exclusion of Kaahumanu Center Associates (KCA) from the Company's consolidated financial statements since May 1995. As of April 30, 1995, the Employees Retirement System of the State of Hawaii converted its $30.6 million loan to KCA to an additional 49% equity interest in the partnership. Accordingly, as of April 30, 1995, the Company no longer consolidated KCA and instead accounted for the investment by the equity method. Costs and expenses related to this segment increased by $1.3 million, including $1.1 million representing the Company's loss from KCA for the eight months ended December 31, 1995. The loss and increased expenses from Kaahumanu Center largely related to interest and depreciation expenses as a result of the expansion and renovation of Kaahumanu Center. LIQUIDITY, CAPITAL RESOURCES AND OTHER At December 31, 1996, the Company's total debt, including capital leases was $30.2 million, a reduction of $7.3 million from year-end 1995. The debt reduction was accomplished as a result of cash flows from operating activities, in particular from the Company's Pineapple operations. Unused short- and long-term lines of credit available to the Company at year-end 1996 totaled $14.1 million. Pineapple capital expenditures in 1997 are estimated to be $6 million. Included in these expenditures is $2.4 million for completion of the Company's pineapple cannery waste water disposal system. This project, which replaces the Company's method of disposing of processing waste water, is expected to be completed by May of 1997. Of the remaining capital expenditures, approximately 79% are for replacement of existing equipment. Capital expenditures for the Resort segment are expected to be $2.8 million in 1997. The 1997 capital expenditures include $400,000 for a new well to provide water for existing and future Kapalua resort development. Of the remaining 1997 capital expenditures, $1.9 million is for replacement of existing equipment and facilities. In addition to these capital expenditures, the Company expects to contribute $1.1 million to the County of Maui, representing the balance of the Company's $4.3 million contribution to the West Maui sewer system expansion. The Company's capital expenditures for 1997 are expected to be funded by external sources and by operating cash flows. In 1994 Maui Pineapple Company, Ltd. and the International Longshoremen's and Warehousemen's Union filed an antidumping petition with the U. S. International Trade Commission and the U. S. Department of Commerce. The petition alleged that Thai producers of canned pineapple were violating the U.S. and international trade laws by selling their products in the United States at less than fair value, and that such sales were causing injury to the U.S. industry producing canned pineapple. In 1995, both the U. S. International Trade Commission and the U. S. Department of Commerce affirmed that the United States canned pineapple industry was being materially injured by unfair imports of canned pineapple from Thailand and duties ranging from 2% to 51% were imposed on all imports of canned pineapple fruit from Thailand into the United States. Thai pineapple companies appealed the decisions. In November of 1996, the U. S. Court of International Trade announced its decision on the appeal which would substantially reduce the duties being imposed. The Company is preparing to appeal the case to the Court of Appeals for the Federal Circuit. The appeal process is expected to take between 12 to 18 months. During this time, duties at the rates originally determined by the Department of Commerce will continue to be imposed on canned pineapple imported into the United States from Thailand. In September 1996 the owners of the Kapalua Bay Hotel sold the hotel to a third party. In connection with this transaction, the Company, as ground lessor, agreed to the amendment of certain terms of the lease, including no minimum rent for the first seven years and no percentage rent for the first year. Also in connection with this transaction, the Company granted the buyers an option to purchase a 50% interest in a 12 acre parcel adjacent to the hotel for $4 million. The option expires in April 1997. Upon exercise of the option, the Company and the buyers have agreed that they will negotiate the structure and terms of an entity to own, develop and sell the parcel. The Company, as a partner in various partnerships, may under certain circumstances, be called upon to make additional capital contributions (see Note 3 to Consolidated Financial Statements). The Company anticipates that in 1997 its share of cash calls by Kaahumanu Center Associates will be approximately $830,000. IMPACT OF INFLATION AND CHANGING PRICES The Company uses the LIFO method of accounting for its pineapple inventories. Under this method, the cost of products sold approximates current cost and during periods of rising prices the ending inventory balance is below current cost. The replacement cost of pineapple inventory was $22 million at December 31, 1996. Most of the land owned by the Company was acquired from 1911 to 1932 and is carried at cost. A small portion of "Real Estate Held for Sale" represents land cost. Replacements and additions to the Pineapple operations occur every year and some of the assets presently in use were placed in service in 1934. At Kapalua, some of the fixed assets were constructed and placed in service in the mid-to-late 1970s. Depreciation expense would be considerably higher if fixed assets were stated at current cost. FORWARD-LOOKING STATEMENTS The Company's Annual Report to Shareholders contains forward-looking statements (within the meaning of Private Securities Litigation Reform Act of 1995) as to the Company's expectations concerning 1997 profitability, reduction of debt, future sales of new products (including fresh-cut pineapple and tropical mix) distribution of Costa Rican pineapple, anticipated imports of fruit from Thailand and the Philippines, the appeal of a decision affecting antidumping duties, anticipated capital calls by Kaahumanu Center Associates, the potential impact on Kaahumanu Center of Maui Marketplace, and the effects of changes involving The Ritz-Carlton Kapalua Hotel, The Kapalua Bay Hotel and The Kapalua Villas. In addition, from time to time the Company may publish forward-looking statements as to those matters or other aspects of the Company's anticipated financial performance, business prospects, new products, marketing initiatives, or similar matters. Forward-looking statements contained in the Annual Report to Shareholders or otherwise made by the Company are subject to numerous factors (in addition to those otherwise noted in the Company's Annual Report or in its filings with the Securities and Exchange Commission) that could cause the Company's actual results and experience to differ materially from expectations expressed by the Company. Factors that might cause such differences, among others, include (1) changes in domestic, foreign or local economic conditions that affect the number, length of stay, or expenditure levels of East-bound or West-bound visitors, or agricultural production and transportation costs of the Company and its competitors, or Maui retail or real estate activity; (2) the effect of weather conditions on agricultural operations of the Company and its competitors; (3) the possibility of an adverse ruling on appeal of the antidumping decision; (4) events in the airline industry affecting passenger or freight capacity or cost; (5) possible shifts in market demand; and (6) the impact of competing products, competing resort destinations, and competitors' pricing. MAUI LAND & PINEAPPLE COMPANY, INC. Officers President & Chief Executive Officer Gary L. Gifford Executive Vice President/Finance Paul J. Meyer Executive Vice President/Pineapple Douglas R. Schenk Executive Vice President/Resort Donald A. Young Vice President/Retail Property Scott A. Crockford Vice President/Land Management Warren A. Suzuki Treasurer Darryl Y. H. Chai Secretary Adele H. Sumida Controller & Assistant Treasurer Ted L. Proctor Directors Mary C. Sanford--Chairman Chairman of the Board Maui Publishing Company, Ltd. Richard H. Cameron--Vice Chairman Publisher Maui Publishing Company, Ltd. Peter D. Baldwin President Baldwin Pacific Corporation Samuel K. Himmelrich, Sr. Chairman of the Board Inland Leidy, Inc. Randolph G. Moore Chief Executive Officer Kaneohe Ranch Fred E. Trotter III President F. E. Trotter, Inc. Andrew T. F. Ing--Director Emeritus Chairman of the Board Denis Wong and Associates Audit and Compensation Committees Peter D. Baldwin Richard H. Cameron Samuel K. Himmelrich, Sr. Andrew T. F. Ing Randolph G. Moore--Chairman, Audit Mary C. Sanford Fred E. Trotter III--Chairman, Compensation PRINCIPAL SUBSIDIARIES MAUI PINEAPPLE COMPANY, LTD. Officers President & Chief Executive Officer Douglas R. Schenk Executive Vice President/Sales & Marketing James B. McCann Executive Vice President/Finance & Treasurer Paul J. Meyer Vice President/Cannery Eduardo E. Chenchin Vice President/Plantations L. Douglas MacCluer Secretary Adele H. Sumida Controller Stacey M. Jio Assistant Treasurer Ted L. Proctor Directors Mary C. Sanford--Chairman Richard H. Cameron--Vice Chairman Peter D. Baldwin Douglas B. Cameron Gary L. Gifford Andrew T. F. Ing Paul J. Meyer Randolph G. Moore Claire C. Sanford Douglas R. Schenk Fred E. Trotter III KAPALUA LAND COMPANY, LTD. Officers President & Chief Executive Officer Donald A. Young Executive Vice President/Finance & Treasurer Paul J. Meyer Vice President/Administration & Support Operations Robert P. Derks Vice President/Development Robert M. McNatt Vice President/Resort Operations Gary M. Planos Secretary Adele H. Sumida Controller Russell E. Johnson Assistant Treasurer Ted L. Proctor Directors Mary C. Sanford--Chairman Richard H. Cameron--Vice Chairman Peter D. Baldwin Gary L. Gifford Andrew T. F. Ing Paul J. Meyer Randolph G. Moore Jared B. H. Sanford Fred E. Trotter III Donald A. Young Deceased: Mrs. J. Walter Cameron, March 24, 1996, Director Emeritus of Maui Land & Pineapple Company, Inc., Maui Pineapple Company, Ltd. and Kapalua land Company, Ltd. Douglas R. Sodetani, December 23, 1996, Director of Maui Pineapple Company, Ltd. and Kapalua Land Company, Ltd. EX-27 6
5 This schedule contains summary financial information extracted from the Maui Land & Pineapple Company, Inc. Balance Sheet as of December 31, 1996 and the Statement of Operations for the year then ended, and is qualified in its entirety by reference to such financial statements. 1,000 YEAR DEC-31-1996 DEC-31-1996 453 0 14,343 698 16,484 35,308 190,999 104,389 132,851 15,841 28,898 0 0 12,318 0 132,851 106,666 136,335 75,279 99,309 0 0 3,575 (1,123) (376) (747) 0 0 0 (747) (.42) (.42)
EX-99 7 INDEPENDENT AUDITORS' REPORT To the Partners of Kaahumanu Center Associates: We have audited the accompanying balance sheets of Kaahumanu Center Associates (a Hawaii limited partnership) as of December 31, 1996 and 1995, and the related statements of operations, changes in partners' capital (deficit) and cash flows for the three years ended December 31, 1996. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of the partnership at December 31, 1996 and 1995, and the results of its operations and its cash flows for the three years ended December 31, 1996 in conformity with generally accepted accounting principles. /S/ DELOITTE & TOUCHE LLP DELOITTE & TOUCHE LLP Honolulu, Hawaii February 7, 1997 KAAHUMANU CENTER ASSOCIATES Balance Sheets December 31, 1996 and 1995
ASSETS - ------ 1996 1995 ----------- ----------- Current Assets Cash $ 176,992 $ 502,635 Accounts receivable - less allowance of $34,942 and $101,356 for doubtful accounts 480,147 816,645 Prepaid expenses 43,957 82,520 ----------- ----------- Total Current Assets 701,096 1,401,800 ----------- ----------- Property Land and land improvements 5,976,029 5,787,383 Building 76,955,082 76,874,388 Furniture, fixtures and equipment 4,293,164 4,174,014 Construction in process 188,359 10,292 ----------- ----------- Total Property 87,412,634 86,846,077 Accumulated depreciation 11,831,746 9,052,587 ----------- ----------- Net Property 75,580,888 77,793,490 ----------- ----------- Other Assets 5,460,955 5,976,139 ----------- ----------- Total Assets $81,742,939 $85,171,429 =========== =========== LIABILITIES & PARTNERS' CAPITAL - ------------------------------- Current Liabilities Current portion of long-term debt $ 748,840 $ 661,888 Accounts payable 317,636 277,145 Due to ML&P 630,418 842,934 Other current liabilities 45,116 50,223 ----------- ----------- Total Current Liabilities 1,742,010 1,832,190 ----------- ----------- Long-Term Liabilities Long-term debt 63,152,354 63,955,794 Other long-term liabilities 73,690 55,026 ----------- ----------- Total Long-Term Liabilities 63,226,044 64,010,820 ----------- ----------- Partners' Capital 16,774,885 19,328,419 ----------- ----------- Total Liabilities & Partners' Capital $81,742,939 $85,171,429 =========== ===========
See notes to financial statements. KAAHUMANU CENTER ASSOCIATES Statements of Operations Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994 ----------- ---------- ---------- Revenues Rental income - minimum $ 7,721,398 $ 6,571,728 $2,805,574 Rental income - percentage 672,790 819,960 877,437 Other operating income - primarily recoveries from tenants 5,283,092 4,825,309 2,675,300 ----------- ---------- ---------- Total Revenues 13,677,280 12,216,997 6,358,311 ----------- ---------- ---------- Costs and Expenses Utilities 2,707,707 2,540,736 1,345,027 Payroll and related costs 1,843,850 1,816,498 984,068 Depreciation and amortization 3,277,602 3,354,646 956,872 Interest 5,603,074 6,113,766 743,742 Repairs and maintenance 508,892 558,101 314,201 General excise taxes 538,472 470,808 251,388 Real property taxes 288,938 255,206 133,360 Insurance 281,276 263,168 91,315 Provision for doubtful accounts 33,868 184,940 43,944 Advertising and promotions 106,425 172,894 39,995 Management fee 262,319 163,633 -- Professional fees 174,779 159,528 32,443 Other expenses 70,298 69,402 43,021 ----------- ---------- ---------- Total Costs and Expenses 15,697,500 16,123,326 4,979,376 ----------- ---------- ---------- Net Income (Loss) $(2,020,220) $(3,906,329) $1,378,935 =========== ========== ==========
See notes to financial statements. KAAHUMANU CENTER ASSOCIATES Statements of Changes in Partners' Capital (Deficit) Years Ended December 31, 1996, 1995 and 1994
State of Hawaii Maui Land & Employees' Pineapple Retirement Company, Inc. System TOTAL ------------- ---------- ------------ Partners' Capital (Deficit), December 31, 1993 $ (5,529,926) $ 317,287 $ (5,212,639) Net Income - 1994 1,365,146 13,789 1,378,935 ------------ ----------- ------------ Partners' Capital (Deficit), December 31, 1994 (4,164,780) 331,076 (3,833,704) Capital Contributions: Conversion of loan -- 30,587,879 30,587,879 Conversion of payable balance 1,332,060 -- 1,332,060 Cash Distribution -- (4,851,487) (4,851,487) Net Loss - 1995 (2,749,360) (1,156,969) (3,906,329) ------------ ----------- ------------ Partners' Capital (Deficit), December 31, 1995 (5,582,080) 24,910,499 19,328,419 Adjustment to prior year conversion of payable balance (533,314) -- (533,314) Net Loss - 1996 (1,010,110) (1,010,110) (2,020,220) ------------ ----------- ------------ Partners' Capital (Deficit), December 31, 1996 $ (7,125,504) $23,900,389 $ 16,774,885 ============ =========== ============
See notes to financial statements. KAAHUMANU CENTER ASSOCIATES Statements of Cash Flows Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994 ------------- ------------ ------------ Operating Activities: Net Income (Loss) $ (2,020,220) $ (3,906,329) $ 1,378,935 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 3,277,602 3,354,646 956,872 Accrued rent (359,705) (271,778) -- (Increase) decrease in accounts receivable 336,498 225,457 (948,086) Increase (decrease) in accounts payable (359,679) 606,996 1,433,272 Net change in other operating assets and liabilities 34,936 (257,585) 107,455 Net Cash Provided by ------------- ------------ ------------ (Used in) Operating Activities 909,432 (248,593) 2,928,448 ------------- ------------ ------------ Investment Activities: Purchases of property (584,175) (4,356,375) (41,768,581) Payments for deferred costs (237,436) (2,124,624) (1,449,395) (Increase) decrease in restricted cash 631,500 (1,503,926) -- Net Cash Used in Investment ------------- ------------ ------------ Activities (190,111) (7,984,925) (43,217,976) ------------- ------------ ------------ Financing Activities: Payments of long-term debt (716,488) (45,571,361) (181,998) Payment to ML&P for adjustment of prior year payable conversion (328,476) -- -- Proceeds from long-term debt -- 69,188,291 38,549,619 Increase (decrease) in amount due to ML&P -- (11,843,476) 2,940,635 Cash distribution -- (4,851,487) -- Net Cash Provided by (Used in) ------------- ------------ ------------ Financing Activities (1,044,964) 6,921,967 41,308,256 ------------- ------------ ------------ Net Increase (Decrease) in Cash (325,643) (1,311,551) 1,018,728 Cash, Beginning of Year 502,635 1,814,186 795,458 ------------- ------------ ------------ Cash, End of Year $ 176,992 $ 502,635 $ 1,814,186 ============= ============ ============
See notes to financial statements. KAAHUMANU CENTER ASSOCIATES Notes to Financial Statements Years Ended December 31, 1996, 1995 and 1994 ORGANIZATION Kaahumanu Center Associates (the Partnership) was formed on June 23, 1993 as a limited partnership between Maui Land & Pineapple Company, Inc. (ML&P), as general partner, and the Employees' Retirement System of the State of Hawaii (ERS), as limited partner. The purpose of the partnership is to finance the expansion and renovation of and to own and operate the Kaahumanu Shopping Center (the Center). The Center is a regional shopping mall located in Kahului, Maui. Prior to the expansion, the Center consisted of approximately 315,000 square feet of gross leasable area. The expansion and renovation which was completed in November 1994, increased the Center to approximately 573,000 square feet of gross leasable area. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting - The Partnership's policy is to prepare its financial statements using the accrual basis of accounting. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting periods. Future actual amounts could differ from those estimates. Property - Property which was contributed to the partnership by ML&P is stated at ML&P's net book value at the date of contribution; subsequent additions are stated at cost. Depreciation is computed using the straight-line method. Noncurrent Accounts Receivable - The excess of minimum rental income recognized on a straight-line basis over amounts receivable according to provisions of the lease are classified as noncurrent accounts receivable. Deferred Costs - Amounts expended by the Partnership for construction of tenant improvements are classified as deferred costs and are amortized over the terms of the respective leases. Interest Capitalization - Interest costs are capitalized during the construction period of major capital projects. Advertising and Promotion - The cost of advertising and sales promotion activities are expensed as incurred. Income Taxes - The Partnership is not subject to federal and state income taxes. The distributive shares of income or loss and other tax attributes from the Partnership are reportable by the individual partners. PARTNERSHIP AGREEMENT Capital Contributions - ML&P contributed the land and the shopping center improvements as they existed prior to the expansion and renovation project, subject to the existing first mortgage, together with approximately nine acres of adjacent land which became part of the expanded shopping center, for a 99% interest in the Partnership. Effective April 30, 1995, an amount of $1,332,000 owing to ML&P was considered a capital contribution. This amount was reduced in 1996 by $533,000 for items which would have impacted the previous amount owing, including a payment of $328,000 to ML&P in 1996. ERS originally contributed $312,000 for a one percent interest in the Partnership and made a loan of $30.6 million to the Partnership. Effective April 30, 1995, after completion of the expansion and renovation and the satisfaction of certain conditions, ERS converted its loan to capital for an additional 49% interest and became a 50% partner with ML&P. In January 1997 the Partnership received cash of $714,000 from the partners pursuant to a cash call. Allocations and Distributions - Profit and loss allocations and cash distributions of the partnership are based on the ownership interests of the partners. ERS and ML&P each have a 9% cumulative, non-compounded priority right to cash distributions based on their net contributions to the partnership (preferred return). The ML&P preferred return is subordinate to the ERS preferred return. For the purpose of calculating the preferred returns, each partner's capital contribution had an agreed upon value of $30.9 million on April 30, 1995. The accumulated unpaid preferred returns at December 31, 1996 were $3,928,000 for both ERS and ML&P. Management and Operations - ML&P as managing partner, is responsible for the day-to-day management of the Partnership's business affairs. Major decisions, as defined in the partnership agreement, require the unanimous approval of the partners. SUPPLEMENTAL CASH FLOW INFORMATION Supplemental Disclosure of Cash Flow Information and Non-Cash Investing and Financing Activities: 1. Interest (net of amounts capitalized) paid during 1996, 1995 and 1994 was $5,603,000, $6,671,000 and $655,000, respectively. 2. Effective April 30, 1995, the Employees' Retirement System of the State of Hawaii converted its $30.6 million loan to an additional 49% ownership in Kaahumanu Center Associates. At the same time, ML&P contributed $1.3 million by conversion to capital of an amount owing to it. This amount was adjusted in 1996 as discussed above. INTEREST The Partnership incurred interest expense of $5,603,000 for 1996, $6,114,000 for 1995 and $5,178,000 for 1994, of which $4,434,000 was capitalized for 1994. RELATED PARTY TRANSACTIONS The Partnership has an agreement with ML&P for the operation of the Center. The operating agreement has an initial term of 15 years, which commenced when ERS became a 50% partner, with options to renew for four additional 10-year periods. The agreement provides for certain performance tests, which if not met could result in termination of the agreement. Pursuant to the agreement, the Partnership pays to ML&P an operator's fee equal to 3% of gross revenues, as defined. In 1996 and 1995, ML&P charged the Partnership $262,000 and $164,000, respectively, for management fees. The Partnership does not have any employees. As such, ML&P provides all on-site and administrative personnel and also incurs other costs and expenses, primarily insurance and real property taxes, which are reimbursable by the Partnership. In 1996, 1995 and 1994 ML&P charged the Partnership $2,391,000, $2,356,000 and $1,352,000, respectively, for payroll and other costs and expenses. ML&P generates a portion of the electricity which is used by the Center. In 1996, 1995 and 1994 ML&P charged the Partnership $2,359,000, $2,214,000 and $1,163,000, respectively, for electricity. Amounts due to ML&P for management fees, electricity and reimbursable costs were $630,000 and $843,000 as of December 31, 1996 and 1995, respectively. OTHER ASSETS Other Assets at December 31, 1996 and 1995 consisted of the following: 1996 1995 Deferred costs $3,957,047 $4,200,435 Restricted cash 872,425 1,503,926 Noncurrent accounts receivable 631,483 271,778 Total Other Assets $5,460,955 $5,976,139 Deferred costs are net of amortization of $1,180,431 and $669,605 at December 31, 1996 and 1995, respectively. Restricted cash represents proceeds from the mortgage loan which are reserved for additional expansion costs (see BORROWING ARRANGEMENTS), as well as a percentage of revenues retained for capital improvements as set forth in the Partnership Operating Agreement. Noncurrent accounts receivable represent the excess of minimum rental income recognized on a straight-line basis over amounts receivable according to provisions of the lease. BORROWING ARRANGEMENTS The Partnership has a mortgage loan which bears interest at 8.57% and is payable in monthly installments of $526,000, including interest, through 2005 when the entire balance is payable. The loan is collateralized by the Center and is nonrecourse except for the first $10 million which is guaranteed by ML&P until the Center attains a defined level of net operating income. Based on rates currently available to the Partnership for debt with similar terms and maturity, the fair value of this liability was estimated to be $65.8 million and $71.1 million at December 31, 1996 and 1995, respectively. Scheduled principal maturities for the next five years from 1997 through 2001 are as follows: $749,000, $906,000, $942,000, $1,011,000 and $1,118,000. LEASES Tenant leases of the Center provide for monthly base rent plus percentage rents and reimbursement for common area maintenance and other costs. Future minimum rental income to be received under non- cancelable operating leases of the Center aggregates $65,684,000 and is receivable during the next five years (1997 to 2001) as follows: $6,492,000, $6,432,000, $6,266,000, $6,180,000, $6,032,000, respectively, and $34,282,000 thereafter. CONCENTRATION OF CREDIT RISK The Partnership extends credit to its tenants in the course of its leasing operations. The creditworthiness of existing and potential tenants are evaluated and under certain circumstances a security deposit is required. FAIR VALUE OF FINANCIAL INSTRUMENTS Except for the mortgage loan (see BORROWING ARRANGEMENTS), the Partnership believes the fair value of financial instruments approximates carrying amounts. RECLASSIFICATIONS Certain amounts for prior years have been reclassified to conform with the presentation for the current year. -----END PRIVACY-ENHANCED MESSAGE-----