-----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, IhS41ta5tlJLBv4PwjFucDhuC2G9hdovze6/LNmWB8/EXB0c7kCBCc0lxzh2G5w7 ayjFgYlf9Hzh2f9wfRHCxA== 0000063330-98-000024.txt : 19980327 0000063330-98-000024.hdr.sgml : 19980327 ACCESSION NUMBER: 0000063330-98-000024 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980326 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: SEC FILE NUMBER: 001-06510 FILM NUMBER: 98574143 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 (Mark One) [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to 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) 120 KANE STREET, P. O. BOX 187, 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 2, 1998, of the voting stock held by nonaffiliates of the registrant: $52,237,000. 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 2, 1998 Common Stock, no par value 1,797,125 shares Documents incorporated by reference: Parts I, II and IV -- Portions of the 1997 Annual Report to Security Holders. Part III -- Portions of Proxy Statement dated March 27, 1998. Exhibit Index--pages 19 - 22. 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 landholding and operating parent company as well as its principal wholly owned subsidiaries, 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 that are accounted for by the equity method. The most significant of these ventures are Kaahumanu Center Associates, the owner and operator of a regional shopping center, and Plantation Club Associates, a 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 fresh 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 land 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. 1997 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 that provided approximately 87% of the fruit processed in 1997. 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 the Company's 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 began selling fresh cut pineapple to customers in Hawaii. In 1997 the Company began test marketing fresh cut pineapple on the West Coast of the United States. In 1997 Royal Coast Tropical Fruit Company, Inc. (a wholly owned subsidiary of Maui Pineapple Company, Ltd.) entered into a joint venture with an Indonesian pineapple grower and canner. The joint venture, Premium Tropicals International, LLC, will market and sell Indonesian canned pineapple in the United States. Sales through this joint venture began in 1998. In 1997, approximately 20 domestic customers accounted for about 56% of the Company's pineapple sales. Export sales, primarily to Japan, Canada and Western Europe, amounted to approximately 4.1%, 5.7% and 7.1% of total pineapple sales in 1997, 1996 and 1995, respectively. Sales to the U.S. government amounted to approximately 12.9%, 12.5% and 13.1% of total pineapple sales in 1997, 1996 and 1995, 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 is 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 whole and fresh cut 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 and Indonesia, are also a major source of competition. Foreign production has the advantage of lower labor costs. The Company's principal marketing advantages are the high quality of its fresh and canned pineapple, the relative proximity to the West Coast United States fresh fruit market and being the only U.S. canner of pineapple. 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. For information regarding the antidumping petition and duties currently imposed on imports of canned pineapple fruit from Thailand, see Part I, Item 3. (A) of this report. For further information regarding Pineapple operations see Management's Discussion and Analysis of Financial Condition and Results of Operations. (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, seven residential subdivisions, three championship golf courses, two ten-court tennis facilities, a 22,000 square foot shopping center and over ten restaurants. Water and waste transmission utilities are also included in the Resort. Approximately 766 acres are available for further development within the Kapalua Resort. Kapalua Land Company, Ltd. is the developing and operating subsidiary of the Company's resort segment. 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. The Company, through subsidiaries and joint ventures, developed the Kapalua Resort, which opened in 1975 with The Bay Course. At Kapalua, the Company owns three golf courses (The Bay, The Village and The Plantation Courses), one tennis facility (The Tennis Garden), the shopping center (The Kapalua Shops), the land under both hotels (The Ritz-Carlton Kapalua Hotel and Kapalua Bay Hotel), as well as various on-site administrative and maintenance facilities. The Company operates the golf and tennis facilities, the shopping center, nine retail shops, a vacation rental program (The Kapalua Villas), and certain services to the resort including shuttle, security and maintenance of common areas. The Company is the ground lessor under long-term leases for both hotels and also receives rental income from certain other properties. The Company manages the Kapalua Club, a membership program that provides for certain rights and privileges of its members within the Resort. Joint ventures have enabled Kapalua to proceed with some development projects. Plantation Club Associates, an unincorporated joint venture between Kapalua Land Company, Ltd. and Rolfing Partners, 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). In 1997 the three remaining lots in Plantation Estates Phase I were sold and the partners concluded an agreement to liquidate the partnership effective as of December 31, 1997. For further information regarding Plantation Club Associates, 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. For further information regarding Kaptel Associates, see Note 3 to Consolidated Financial Statements. In 1997 the Company and ERE Yarmouth, owner of the Kapalua Bay Hotel, formed a 50/50 joint venture, Kapalua Coconut Grove LLC, to develop the 12-acre parcel adjacent to the hotel. Yarmouth purchased a one-half interest in the land from the Company prior to formation of the venture. The Kapalua Resort faces substantial competition from alternative visitor destinations throughout the world. Kapalua's total room inventory accounts for approximately 10% 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. Beginning in January 1999, Kapalua will host the Mercedes Championships, the season opening event for the PGA Tour. This event replaces the Lincoln-Mercury Kapalua International and is a major marketing event for Kapalua. Advertising placements in key publications are also designed to promote Kapalua through the travel trade, consumer, golf and real estate media. For further information regarding Resort operations see Management's Discussion and Analysis of Financial Condition and Results of Operations. (3) Commercial & Property Kaahumanu Center is the largest retail and entertainment center on Maui, with a gross leasable area (GLA) of approximately 573,000 square feet. On December 31, 1997, 127 tenants occupied 96% of the available GLA. Kaahumanu Center faces substantial competition from other retail centers in Kahului and in other areas of Maui. The Kahului area has approximately 1.7 million square feet of retail space in use or under construction. The Center's primary competitors are the Maui Mall and the Maui Market Place, both located within 3 miles of Kaahumanu Center. 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, 1997, 21 tenants occupied 82% of the GLA. Napili Plaza faces competition from several other retail locations in the Napili area, which have approximately 276,000 total square feet of retail area. The Company's land entitlement and management activities are included in the Commercial & Property segment. Land entitlement is the process of obtaining the required county, state and federal approvals to proceed with the planned development and use of a parcel of land, and satisfying all conditions and restrictions imposed in connection with such governmental approvals. The Company actively works with regulatory agencies and legislative bodies at all levels of government to obtain necessary entitlements. For further information regarding Commercial & Property operations see Management's Discussion and Analysis of Financial Condition and Results of Operations. (4) Employees In 1997 the Company employed 2,270 employees. Pineapple operations employed approximately 580 full-time and 1,160 seasonal or intermittent employees, of which approximately 44% were covered by collective bargaining agreements. Resort operations employed approximately 430 employees. Approximately 14% are part-time employees and approximately 22% were covered by collective bargaining agreements. The Company's Commercial & Property operations employed approximately 75 employees, and the balance of the employees was engaged in administrative activities. (5) Other Information The Company's Pineapple segment 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 $601,000 in 1997, $543,000 in 1996 and $410,000 in 1995. The Company has reviewed its compliance with Federal, State and local provisions that regulate the discharge of materials into the environment or otherwise relate to the protection of the environment. The Company does not expect any material future financial impact as a result of compliance with these laws. For information concerning certain pending environmental proceedings see Part I, Item 3. (B) and (C) of this report. (d) Financial Information About Foreign and Domestic Operations and Export Sales Export sales only arise in the Company's Pineapple segment. 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. 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 such 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.; (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 its 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 pineapple operations and approximately 1,650 acres are designated for the Kapalua Resort. The Kahului acreage includes offices, a can manufacturing plant and a 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 covering approximately 1,500 acres of land expires on December 31, 1999. Eleven leases expiring at various dates through 2012 cover the balance of the leased property. The aggregate land rental for all leased land was $519,000 in 1997. Item 3. LEGAL PROCEEDINGS A. Antidumping Petition. In June 1994, Maui Pineapple Company, Ltd. and the International Longshore and Warehouse 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 the 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 up to 51%. The Thai respondents appealed the dumping calculations of the Department of Commerce to the United States Court of International Trade (USCIT). Maui Pineapple filed a cross appeal concerning one element of the Department's determination. On November 8, 1996, the USCIT announced its decision regarding appeals filed by the Thai respondents. The USCIT remanded certain issues back to the Department of Commerce for recalculation. In one of the issues, the USCIT 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 USCIT's decision on this issue, which could substantially reduce the duties being imposed if the USCIT's position is upheld. In 1997 the Company and the Department of Commerce appealed the decision by the USCIT to the United States Court of Appeals for the Federal Circuit. A final decision by that court is not expected until mid-1998. The amount of duties on the Thai imports is subject to periodic reviews by the Department of Commerce. The Company or the Thai producers can initiate these reviews. If the cost of production changes relative to the selling price of the product in the U.S., the duties would be adjusted. Based on results of the recently finalized first review, there were no significant adjustments to the duties. Results of the second review, which covers the period from July 1996 to June 1997, are pending. B. Occidental Chemical Litigation. The County of Maui has sued several chemical manufacturers claiming that they are responsible for the presence of a nematocide commonly known as "DBCP" in certain water wells that the County of Maui maintains. One of those chemical manufacturers, Occidental Chemical Corporation ("OCC"), has claimed that Maui Land & Pineapple Company, Inc. ("MLP") is required to indemnify OCC against the County's claims under the terms of a March 14, 1978 Agreement for Sale of DBCP between MLP and Occidental Chemical Company. MLP rejected OCC's tender of this indemnification and, on November 13, 1997, filed a lawsuit against OCC, Maui Land & Pineapple Company, Inc. v. Occidental Chemical Corporation, Civil No. 97-0867 (Second Circuit Court, State of Hawaii), seeking judgment declaring that MLP has no obligation to indemnify OCC against the County's claims. On December 9, 1997, OCC removed MLP's lawsuit to the United States District Court for the District of Hawaii. On December 9, 1997 OCC filed a counterclaim against MLP in that lawsuit seeking judgment (a) declaring that MLP is obligated to indemnify OCC against the County's claims, and (b) awarding OCC damages for MLP's alleged breach of that obligation. OCC has not specified the amount it seeks to recover from MLP on its counterclaim, which MLP is contesting. MLP and OCC have each filed their answer to the other's claim, but have not commenced discovery or other litigation activity. No settlement negotiations have been initiated. MLP tendered the defense and indemnification of OCC's claims to its insurers, including Hawaiian Insurance & Guaranty Company, which is being liquidated by the State of Hawaii and is now known as HUI/Unico in Liquidation, Inc. ("HUI/Unico"). HUI/Unico agreed to defend MLP against OCC's claims under a reservation of the right to contest its obligation to do so. On September 2, 1997 HUI/Unico filed a lawsuit against MLP, Reynaldo D. Graulty, Insurance Commissioner of the State of Hawaii, in his capacity as Liquidator of HUI/Unico in Liquidation, Inc. v. Maui Land & Pineapple Company, Inc., Civil No. 97-3571-09 (First Circuit Court, State of Hawaii), seeking judgment declaring that HUI/Unico has no obligation to defend and indemnify MLP against OCC's claims. MLP is contesting HUI/Unico's lawsuit and, on October 13, 1997, filed a counterclaim against HUI/Unico seeking judgment declaring that HUI/Unico is obligated to defend and indemnify MLP against OCC's claims and awarding MLP damages for HUI/Unico's alleged breach of that obligation. MLP and HUI/Unico have commenced initial discovery. No settlement negotiations have been initiated. C. Cannery Waste Water Citations In June of 1997, at a total cost of $3.2 million, the Company completed a system for disposal of cooling and wastewater from its cannery operation at Kahului. The system transmits the water from the cannery to an agricultural area in Central Maui and recycles the water for irrigation purposes. This new system allowed the Company to discontinue its previous method of disposing of this water. The Department of Health of the State of Hawaii (DOH) issued citations to the Company for (1) it's previous discharge of condenser and can cooling water from the cannery into Kahului harbor, and (2) it's previous disposal of effluent from the cannery into an injection well. The Company is in negotiations with the DOH regarding the potential penalties that may be imposed on the Company. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information set forth under the caption "Common Stock" on page 19 of the Maui Land & Pineapple Company, Inc. 1997 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. 1997 Annual Report is incorporated herein by reference. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 21 through 23 of the Maui Land & Pineapple Company, Inc. 1997 Annual Report is incorporated herein by reference. Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable for 1997. 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. 1997 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 27, 1998, 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 terms of the executive officers expire in May of 1998 or at such time as their successors are elected. Gary L. Gifford (50) President and Chief Executive Officer since 1995; Executive Vice President/Resort from 1987 to 1995. Paul J. Meyer (50) Executive Vice President/Finance since 1984. Douglas R. Schenk (45) 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 (50) 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 (42) Vice President/Retail Property since 1995; General Manager of Kaahumanu Center from 1989 to 1995. Warren A. Suzuki (45) 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 14 and under the subcaption "Directors' Meetings and Committees" on page 8 of the Maui Land & Pineapple Company, Inc. Proxy Statement dated March 27, 1998 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 27, 1998 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 14 of the Maui Land & Pineapple Company, Inc. Proxy Statement dated March 27, 1998 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, 1997 and 1996 Consolidated Statements of Operations and Retained Earnings for the Years Ended December 31, 1997, 1996 and 1995 Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995 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, 1997, 1996 and 1995 are filed as exhibits. (a) 3. Exhibits Exhibits are listed in the "Index to Exhibits" found on pages 19 to 22 of this Form 10-K. (b) 3. Reports on Form 8-K There were no reports on Form 8-K filed for the period covered by this report. 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, 1997 and 1996 and for each of the three years in the period ended December 31, 1997, and have issued our report thereon dated February 6, 1998; such consolidated financial statements and report are included in your 1997 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 6, 1998 SCHEDULE II MAUI LAND & PINEAPPLE COMPANY, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
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 1997 $ 698 $ 47 $(a) 13 $(191) $ 567 1996 573 440 -- (315) 698 1995 $ 422 $ 385 $(c) (101) $(133) $ 573
(a) Recoveries. (b) Write off of uncollectible accounts. (c) 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. 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, 1998 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, 1998 Mary C. Sanford Chairman of the Board By /S/ RICHARD H. CAMERON Date March 26, 1998 Richard H. Cameron Vice Chairman of the Board By /S/ PAUL J. MEYER Date March 26, 1998 Paul J. Meyer Executive Vice President/Finance (Principal Financial Officer) By /S/ TED PROCTOR Date March 26, 1998 Ted Proctor Controller & Assistant Treasurer (Principal Accounting Officer) By /S/ PETER D. BALDWIN Date March 26, 1998 Peter D. Baldwin Director By /S/ SAMUEL K. HIMMELRICH, SR. Date March 26, 1998 Samuel K. Himmelrich, Sr. Director By /S/ RANDOLPH G. MOORE Date March 26, 1998 Randolph G. Moore Director By /S/ FRED E. TROTTER III Date March 26, 1998 Fred E. Trotter III Director INDEX TO EXHIBITS The exhibits designated by an asterisk (*) are filed herewith. 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. Exhibit 10.1(i) to Form 10-K for the year ended December 31, 1996. (ii)* First Loan Modification Agreement, dated December 31, 1997. (iii)* Second Loan Modification Agreement, dated March 17, 1998. 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. Exhibit 10.3(iv) to Form 10-K for the year ended December 31, 1996. (v) Third Amendment to Note Purchase Agreement, (between John Hancock Mutual Life Insurance Company and Maui Land & Pineapple Company, Inc.) issued as of March 31, 1997. Exhibit (10)A to Form 10-Q for the quarter ended March 31, 1997. 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 (i) Partnership Agreement of Plantation Club Associates, dated November 10, 1988. Exhibit (10)A to Form 10-K for the year ended December 31, 1988. (ii) Partnership Redemption Agreement Among Plantation Club Associates, Rolfing Partners and Kapalua Land Company, Ltd, dated September 30, 1997. Exhibit (10)A to Form 10-Q for the quarter ended September 30, 1997. 10.6 Mortgage, Security Agreement and Financing Statement, dated November 27, 1996. Exhibit 10.6 to Form 10-K for the year ended December 31, 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. (iv)* Executive Change-In-Control Severance Agreement (Gary L. Gifford, President/CEO), dated as of March 13, 1998. (v)* Executive Change-In-Control Severance Agreement (Paul J. Meyer, Executive Vice President/Finance), dated as of March 13, 1998. (vi)* Executive Change-In-Control Severance Agreement (Donald A. Young, Executive Vice President/Resort), dated as of March 13, 1998. (vii)* Executive Change-In-Control Severance Agreement (Douglas R. Schenk, Executive Vice President/Pineapple), dated as of March 16, 1998. (viii)* Change-In-Control Severance Agreement (Warren A. Suzuki, Vice President/Land Management), dated as of March 16, 1998. (ix)* Change-In-Control Severance Agreement (Scott A. Crockford, Vice President/Retail Property), dated as of March 13, 1998. (x)* Executive Severance Plan, effective as of March 5,1998. 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. 10.10 (i) Loan Agreement Between Pacific Coast Farm Credit Services, ACA and Maui Land & Pineapple Company, Inc., dated as of April 18, 1997. Exhibit (10)B to Form 10-Q for the quarter ended March 31, 1997. 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. 1997 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, Inc. 27.* Financial Data Schedule. As of December 31, 1997 and for the year then ended. 99. Additional Exhibits. 99.1* Financial Statements of Kaahumanu Center Associates for the years ended December 31, 1997, 1996 and 1995. EX-10.1(II) 2 FIRST LOAN MODIFICATION AGREEMENT FIRST LOAN MODIFICATION AGREEMENT, dated December 31, 1997 (the "Amendment"), by and among MAUI LAND & PINEAPPLE COMPANY, INC. (the "Borrower") and BANK OF HAWAII, a Hawaii banking corporation ("BKOH"), FIRST HAWAIIAN BANK, a Hawaii banking corporation ("FHB"), CENTRAL PACIFIC BANK, a Hawaii banking corporation ("CPB" and, together, with BKOH, and FHB, the "Lenders") and BANK OF HAWAII, as Agent for the Lenders (in such capacity, together with its successors in such capacity, the "Agent"). W I T N E S S E T H: WHEREAS, the Borrower, Lenders and Agent are parties to that certain Amended and Restated Revolving and Term Loan Agreement, dated as of December 4, 1996 (the "Loan Agreement"), pursuant to which the Lenders have made Loans to the Borrower on the terms and conditions stated therein; and WHEREAS, the Borrower, Lenders and Agent have agreed to amend the Loan Agreement and the other Loan Documents (as such term is defined in the Loan Agreement) for the purposes of, among other things, (i) providing that the rate per annum at which the Loans bear interest shall be, at the option of the Borrower, either the Base Rate or LIBOR (for one, two, three or six-month interest periods), plus (a) during the Revolving Loan Period, two and one-quarter percentage points (2.25%) and (b) during the period commencing on the Expiry Date and ending on the Maturity Date, two and one-half percentage points (2.50%), (ii) extending the maturity date of the Notes and amending and (iii) restating certain covenants of the Borrower set forth in the Loan Agreement, all as set forth in this Amendment; NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, each of the Borrower, Lenders and Agent agree as follows: SECTION 1. Definitions. Capitalized terms used herein and not otherwise defined herein shall have the mean ings ascribed to them in the Loan Agreement. SECTION 2. Amendments to Loan Agreement. (a) Effective on and after the Effective Date (as such term is defined in Section 5 of this Amendment), Section 1.11 of the Loan Agreement is amended and restated in its entirety to read as follows: "1.11 "Expiry Date" means December 31, 1999." (b) Effective on and after the Effective Date, Section 1.25 of the Loan Agreement is amended and restated in its entirety to read as follows: "1.25 "Maturity Date" means December 31, 2002." (c) Effective on and after the Effective Date, Article I of the Loan Agreement is amended to add thereto certain definitions as Sections 1.40 through 1.50 which shall read as follows: "1.40 'Eurodollar Day' means a Business Day which is also a day for trading by and between banks in U.S. dollar deposits in the London interbank Eurodollar market." "1.41 'Eurodollar Reserve Requirement' means the then maximum effective rates per annum (expressed as a percentage), as determined solely by the Agent (which determination shall be final, conclusive and binding on all of the parties hereto, absent manifest error), of the reserve requirements imposed pursuant to Regulation D by the Board of Governors of the Federal Reserve System on $1,000,000 'Eurocurrency Liabilities' of the Agent, having a maturity equal to the term of the applicable LIBOR Interest Period." "1.42 'Interest Period' means and includes any LIBOR Interest Period and any period for which interest in respect of the Loans is calculated on the basis of the Base Rate and determined in accordance with this Amendment and Restatement." "1.43 'LIBOR' means, for each LIBOR Interest Period, a rate computed pursuant to the following formula and adjusted as of the date of any change in the Eurodollar Reserve Requirements: Interbank Eurodollar Index Rate X 100 100% - Eurodollar Reserve Requirement 'Interbank Eurodollar Index Rate' means the rate per annum (expressed as a percentage) at which leading banks, as determined by the Agent, are offered deposits in United States Dollars in the London interbank Eurodollar market as of 11:00 a.m., London time, on the day three (3) Eurodollar Days prior to the beginning of such LIBOR Interest Period; for delivery in immediately available funds on the first day of such LIBOR Interest Period, in an amount equal or comparable to the principal amount of the applicable LIBOR Loan to be outstanding and for a period equal to the term of such LIBOR Interest Period." "1.44 'LIBOR Loan' means any Loan during any period during which such Loan is bearing interest at a rate based upon LIBOR, as provided in Section 2.07(a)(4)(ii) or Section 2.07(b)(ii) of this Amendment and Restatement, as the case may be." "1.45 'LIBOR Interest Period' means, with respect to each LIBOR Loan, an Interest Period consisting of one (1) month, two (2) months, three (3) months or six (6) months, as designated by the Borrower in accordance with Section 2.07(a)(4) or Section 2.07(b) of this Amendment and Restatement, as the case may be." "1.46 'Notice of Conversion' shall have the meaning provided in Section 2.07(d) of this Amendment and Restatement." "1.47 'Type' means either a Base Rate Loan or a LIBOR Loan." "1.48 'Base Rate Loan' means a Loan which bears interest at a rate per annum determined in accordance with Section 2.07(a)(4)(i) or Section 2.07(b)(i) of this Amendment and Restatement." "1.49 'Borrowing' means the draw down at any one time of the proceeds of a Loan pursuant to this Amendment and Restatement. "1.50 'Regulation D means Regulation D of the Board of Governors of the Federal Reserve System as from time to time in effect or any successor to all or a portion thereof establishing reserve requirements." (d) Effective on and after the Effective Date, Section 2.05(c) of the Loan Agreement is amended and restated in its entirety to read as follows: "(c) Extension Fee. For and in respect of the extension of the Revolving Period effected by this Amendment 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 $10,000." (e) Effective on and after the Effective Date, Section 2.06(B) of the Loan Agreement is amended and restated in its entirety to read as follows: "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 notice 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. Notwithstanding any provision in this Amendment and Restatement to the contrary, in no event shall any such voluntary reduction which results in a prepayment of any LIBOR Loan occur on any day other than the last day of the LIBOR Interest Period applicable to such LIBOR Loan." (f) Effective on and after the Effective Date, Section 2.07 of the Loan Agreement is amended and restated in its entirety to read as follows: "2.07 Interest Rates and Payments of Interest. Interest on the principal balance of the Loans shall accrue 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 January 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 and including December 31, 1997, a floating 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 (the "Remaining Revolving Period") commencing on January 1, 1998, to and including the Expiry Date, at the option of the Borrower initially either (i) a floating rate equal to the Base Rate in effect from time to time or (ii) LIBOR, plus two and one-quarter percentage points (2.25%). The Borrower shall give to the Agent no later than December 29, 1997 a written notice (the "Notice of Initial Interest Rate Election") that it elects to have the Revolving Loans bear interest as Base Rate Loans or LIBOR Loans, which Notice of Initial Interest Rate Election shall comply in all respects with the provisions of this Section 2.07(a)(4). Notwithstanding any provision in this Amendment and Restatement to the contrary, if the Borrower fails to give such Notice of Initial Interest Rate Election to the Agent on or before December 29, 1997, the Revolving Loans initially shall bear interest from and after January 1, 1998 as Base Rate Loans. In the event that the Borrower, pursuant to and in accor dance with this Section 2.07(a)(4), elects to have the Revolving Loans initially bear interest from and after January 1, 1998 as LIBOR Loans, such Notice of Initial Interest Rate Election must state whether the initial LIBOR Interest Period applicable to the Revolving Loans shall be a period of one month, two months, three months or six months. With respect to all LIBOR Loans in effect during the Remaining Revolving Period, the Borrower shall give to the Agent at least three (3) Eurodollar Days prior to the last day of the LIBOR Interest Period then applicable to such LIBOR Loans a written notice stating whether the Borrower elects to continue such Loan as a LIBOR Loan and the LIBOR Interest Period to be applicable thereto or as a Base Rate Loan; provided that in no event shall the Borrower have the right (x) to select a LIBOR Interest Period that extends beyond the Expiry Date or (y) if at the time of such election, an Event of Default shall have occurred, to continue such Loan as LIBOR Loan. Notwith standing any provision in this Amendment and Restatement to the contrary, in no event shall the Borrower have the right to borrow a Revolving Loan or to convert or con tinue any Revolving Loan as a LIBOR Loan, unless the amount of such new Revolving Loan equal to or greater than $500,000 or, with respect to a conversion or con tinuation of a Revolving Loan as a LIBOR Loan, the aggregate principal amount of all Revolving Loans is equal to or greater than $500,000. During the Revolving Period, interest accruing on the principal balance of the Revolving Loans at the 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, (ii) on the Expiry Date, (iii) on the last day of each LIBOR Interest Period and (iv) at maturity (whether by acceleration or otherwise). "(b) Term Loan Period. In the event that the Term Loans shall be made, then during the period (the "Term Loan Period") commencing on the Expiry Date, to and including the date that the Term Loans are paid in full, at the option of the Borrower initially either (i) a floating rate per annum equal to the Base Rate in effect from time to time, or (ii) LIBOR, plus two and one-half percentage points (2.50%). The Borrower shall give to the Agent no later than the date (the "Term Loan Interest Election Date") three (3) Eurodollar Days pre ceding the Expiry Date, a written notice (the "Notice of Interest Rate Election") that it elects to have the Term Loans bear interest as Base Rate Loans or LIBOR Loans, which Notice of Interest Rate Election shall comply in all respects with the provisions of this Section 2.07(b). Notwithstanding any provision in this Amendment and Restatement to the contrary, if the Borrower fails to give such Notice of Interest Rate Election to the Agent on or before the Term Loan Interest Election Date, the Term Loans initially shall bear interest from and after the date which the Term Loans are made as Base Rate Loans. In the event that the Borrower, pursuant to and in accordance with this Section 2.07(b), elects to have the Term Loans initially bear interest as LIBOR Loans, such Notice of Interest Rate Election must state whether the initial LIBOR Interest Period applicable to the Term Loans shall be a period of one month, two months, three months or six months. With respect to all LIBOR Loans in effect during the Term Loan Period, the Borrower shall give to the Agent at least three (3) Eurodollar Days prior to the last day of the LIBOR Interest Period then applicable to such LIBOR Loans a written notice stating whether the Borrower elects to continue such Loan as a LIBOR Loan and the LIBOR Interest Period to be applicable thereto or as a Base Rate Loan; provided that in no event shall the Borrower have the right (x) to select a LIBOR Interest Period that extends beyond the Maturity Date or (y) if at the time of such election, an Event of Default shall have occurred, to continue such Loan as LIBOR Loan. Notwithstanding any provision in this Amendment and Restatement to the contrary, in no event shall the Borrower have the right to borrow, con vert or continue any Term Loan as a LIBOR Loan, unless the aggregate principal amount of all Term Loans is greater than or equal to $500,000. 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) on the last day of each LIBOR Interest Period and (iii) 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 consid eration of the money market, and published by intrabank memoranda for the guidance of its loan officers in pric ing all of its loans which float with the Base Rate. (2) The Base Rate will increase or decrease during the term of this Loan Agreement if there is an increase or decrease in the rate to which the Base Rate is tied. If the rate to which the Base 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 (x) with respect to Base Rate Loans, a 365-day year (or, in leap years, on the basis of 366-day year) and (y) with respect to LIBOR Loans, on the basis of a 360-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 Amendment and Restatement that exceeds the maximum amount allowable by law. If any sum is collected in excess of the applicable maximum amount allowable by law, the excess collected shall, at the Lenders' discretion, be applied to reduce the principal balance 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 during the continuance of an Event of Default. "(d) At any time and from time to time, the Borrower may elect, subject to the condition precedent that no Event of Default shall have occurred and is con tinuing, to convert the Loans from one Type to another Type at any time and from time to time prior to the Expiry Date, with respect to the Revolving Loans, or the Maturity Date, with respect to the Term Loans, as the case may be. Each time that the Borrower elects to con vert Loans from one Type to another Type, it shall deliver to the Agent a written notice (a "Notice of Con version") at least three (3) Business Days, if such Loans are to be converted to Base Rate Loans, or at least three (3) Eurodollar Days, if such Loans are to be converted to LIBOR Loans, prior to the date on which such conversion is to be effective. Each such Notice of Conversion shall state (i) the date (the "Conversion Date") on which such conversion is to occur, which date shall be (1) a Business Day, if such Loans are to be converted from LIBOR Loans to Base Rate Loans or (2) a Eurodollar Day, if such Loans are to be converted to LIBOR Loans, (ii) whether such Loans are to be converted to Base Rate Loans or a LIBOR Loans and (iii) with respect to the conversion from Base Rate Loans to LIBOR Loans, the LIBOR Interest Period which shall be applicable to the LIBOR Loans upon such conversion. Notwithstanding any provision in this Amend ment and Restatement to the contrary, in no event shall the Borrower have any right to select any LIBOR Interest Period which extends beyond the Expiry Date, if such Loans are Revolving Loans, or the Maturity Date, if such Loans are Term Loans." (g) Effective on and after the Effective Date, Section 2.08(c)(1) of the Loan Agreement is amended and restated in its entirety to read as follows: "(1) Principal balances outstanding under the Notes shall be paid, and may be prepaid without penalty 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 prin cipal 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. Notwithstanding any provision in this Amendment and Restatement to the con trary, in no event shall any prepayment of any LIBOR Loan occur on any day other than the last day of the LIBOR Interest Period applicable to such LIBOR Loan." (h) Effective on and after the Effective Date, Section 2.10 of the Loan Agreement is amended and restated in its entirety to read as follows: "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 or Eurodollar Day, as may be applicable, the date for payment thereof shall be extended to the next succeeding Business Day or Eurodollar Day, as the case may be. If the date for any payment of principal is extended by operation of law or otherwise, interest shall be payable for such extended time." (i) Effective on and after the Effective Date, Section 2.11 of the Loan Agreement is amended to add thereto a new subsection (c) which shall read as follows: "(c) LIBOR Regulations. In the event that any Lender shall have reasonably determined (which determina tion shall be final and conclusive and binding upon all parties) that: (i) on any date for determining LIBOR for any LIBOR Interest Period, by reason of any change after the date hereof affecting the interbank Eurodollar market or affecting the position of such Lender in such market, adequate and fair means do not exist for ascertaining the applicable interest rate by reference to LIBOR; or (ii) at any time, by reason of (y) any change after the date hereof in any applicable law or governmental rule, regulation or order (or any interpre tation thereof by a Government Authority or otherwise (provided that, in the case of an interpretation not by a governmental authority, such interpretation shall be made in good faith and shall have a reasonable basis) and including the introduction of any new law or governmental rule, regulation or order), to the extent not provided for in clause (iii) below, or (z) in the case of LIBOR Loans, other circumstances affecting such Lender or the interbank Eurodollar market or the position of such Lender in such market, LIBOR shall not represent the effective pricing to such Lender for funding or maintaining the affected LIBOR Loan; or (iii) at any time, by reason of the requirements of Regulation D or other official reserve requirements, LIBOR shall not represent the effective pricing to such Lender for funding or maintaining the affected LIBOR Loan; or (iv) at any time, that the making or con tinuance of any LIBOR Loan has become unlawful by compli ance by such Lender in good faith with any law, govern mental rule, regulation, guideline or order, or would cause severe hardship to such Lender as a result of a contingency occurring after the date hereof which materi ally and adversely affects the interbank Eurodollar market; then, and in any such event, such Lender shall on such date of determination give notice (by telephone confirmed in writing) to the Agent and the Borrower of such determination. Thereafter, in the case of clause (i), (ii) or (iii) above, (and without affecting Borrower's obligations to pay interest on the Loans at the rates set forth in Section 2.07 hereof) Borrower shall pay to the Agent for payment to such Lender, upon written demand therefor, such additional amounts deemed in good faith by such Lender to be material (in the form of an increased rate of, or a different method of cal culating, interest or otherwise as the Agent or such Lender in its discretion shall determine) as shall be required to cause such Lender to receive interest with respect to its affected LIBOR Loan at a rate per annum equal to the sum of (x) the applicable rate per annum determined in accordance with Section 2.07(a)(4)(ii) or Section 2.07(b)(ii), as the case may be, hereinabove, plus (y) the effective pricing to such Lender to make or maintain such LIBOR Loan, and in the case of clause (iv), Borrower shall within five (5) Business Days prepay all LIBOR Loans so affected, together with all accrued interest thereon, subject to the provisions of Section 2.11(d) hereinbelow. A certificate as to additional amounts owed to any Lender, showing in reasonable detail the basis for the calculation thereof, submitted to Borrower and the Agent by the Lender shall, absent manifest error, be final, conclusive and binding upon all of the parties hereto. (d) At any time that any of its Loans are affected by the circumstances described in Section 2.11(c) Borrower may (i) if the affected LIBOR Loan is then being made pursuant to a Borrowing or a conversion, cancel said Borrowing or conversion by giving the Borrower notice thereof by telephone (confirmed in writ ing) pursuant to Section 2.11(c) or (ii) if the affected LIBOR Loan is then outstanding, upon at least three (3) Eurodollar Days' written notice to the Lender, require the Lender to convert such LIBOR Loan into a Base Rate Loan." (j) Effective on and after the Effective Date, Section 5.01(F)(3) of the Loan Agreement is amended to add thereto a new subsection (c) which shall read as follows: "(3) A minimum Net Worth of at least (a) on December 31, 1995, the amount of $57,000,000, (b) on December 31, 1996, an amount equal to the sum of (i) $57,000,000, plus (ii) 50% of the cumulative net profits (but not any net losses) of the Borrower for the fiscal year ending on such date, and (c) for the fiscal period of the Borrower ending on December 31, 1997 and at all times thereafter, an amount equal to the sum of (i) $58,300,000, plus (ii) 50% of the cumulative net profits (but not any net losses) of the Borrower from and after September 30, 1997." (k) Effective on and after the Effective Date, Section 5.01(N) of the Loan Agreement is amended and restated in its entirety to read as follows: "(N) The Borrower will pay to the Agent, on (or at the Borrower's option, before) (i) July 1 of each year prior to July 1, 1998, a $25,000 Agent's Fee and (ii) commencing on July 1, 1998 and on each July 1 of each year thereafter, a $15,000 Agent's Fee, in each case for services rendered and to be rendered by the Agent under the Agency Agreement." (l) Effective on and after the Effective Date, Section 5.02(C) of the Loan Agreement is amended and restated in its entirety to read as follows: "(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, subject to the satisfaction in full of the condition precedent that the Agent shall have received, prior to any declaration or payment of cash dividends, the Borrower's audited annual financial statements for the 1997 fiscal year and for each fiscal year thereafter of the Borrower, the Borrower may declare and pay cash dividends for and in respect of the third and fourth quarters of 1996 and for any fiscal year of the Borrower, beginning with the Borrower's 1997 fiscal year and for each fiscal year of the Borrower thereafter, provided that (i) dividends paid for the third quarter of 1996 do not exceed 30% of its Net Profits through the first three quarters of 1996, (ii) cumulative dividends paid in respect of the third and fourth quarters of 1996 and for each fiscal year of the Borrower thereafter do not exceed 30% of its Net Profits for 1996, (iii) dividends paid for the 1997 fiscal year do not exceed 30% of its Net Profits for the Borrower's 1997 fiscal year and (iv) dividends paid for each fiscal year of the Borrower after the Borrower's 1997 fiscal year do not exceed 30% of its Net Profits for such fiscal year." (m) Effective on and after the Effective Date, Section 5.02(D) of the Loan Agreement is amended and restated in its entirety to read as follows: "(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 thereafter $10.0 Million" (n) Effective on and after the Effective Date, Section 5.02(H) of the Loan Agreement is amended and restated in its entirety to read as follows: "(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 become liable in respect of any Indebtedness for Bor rowed Money (recourse or nonrecourse) other than the indebtedness evidenced by the Notes and this Loan Agreement and additional indebtedness which, together with the indebtedness evidenced by the Notes and this Loan Agreement, shall cause Total Debt to not exceed: (a) $66,000,000 in the aggregate princi pal amount as of December 31, 1993, and (b) $63,000,000 in the aggregate princi pal amount as of March 31, 1994, and (c) $65,000,000 in the aggregate princi pal amount as of June 30, 1994, and (d) $69,000,000 in the aggregate princi pal amount as of September 30, 1994, and (e) $57,000,000 in the aggregate princi pal amount as of December 31, 1994, and (f) $58,000,000 in the aggregate princi pal amount as of March 15, 1995, and (g) $53,000,000 in the aggregate princi pal amount as of May 5, 1995, and (h) $50,000,000 in the aggregate princi pal amount as of December 31, 1995, and (i) $40,000,000 in the aggregate princi pal amount as of December 31, 1996 and (j) $44,000,000 in the aggregate princi pal amount as of December 31, 1997 and thereafter. For the purposes of this Section 5.02(H), KCA's debt approved by the Lenders pursuant to the last sentence in Section 5.02(I) of this Amendment and Restatement, and any KCA debt which is Nonrecourse to the Borrower, including that portion subject to Borrower's Limited Pay ment Guaranty, shall not be deemed to constitute indebtedness of the Borrower or any Subsidiary." SECTION 3. General Amendments. All references set forth in the Loan Agreement (including, without limitation, all exhibits, schedules and appendices thereto), the Notes, the Mortgage, the Agency Agreement, the Environmental Indemnity Agreement, the Addi tional Security Mortgage and the other documents, instruments and agreements relating to the Loan Agreement, the Notes, the Mortgage, the Agency Agreement, the Environmental Indemnity Agreement, the Additional Security Mortgage or to the loans made under the Loan Agreement by the Lenders to the Borrower (collectively, the "Loan Documents") to (i) the Loan Agree ment, is amended to mean and include the Loan Agreement, as amended by this Amendment, and as may be further amended, modified and supplemented from time to time by written agree ment between the parties hereto, (ii) the Notes, are amended to mean and include the Notes, as amended by this Amendment, and as may be further amended from time to time, (iii) the Mortgage, is amended to mean and include the Mortgage, as amended from time to time, and (iv) the other Loan Documents, or any of them, are amended to mean and include such Loan Documents, as amended from time to time. SECTION 4. Representations, Warranties and Agreements. The Borrower hereby: (a) reaffirms each and all of its representa tions and warranties set forth in Section 4.01 of the Loan Agreement as being true and correct on and as of the date hereof with the same force and effect as if such representa tions and warranties were set forth in full herein (provided that the representations and warranties set forth in Section 4.01(F) of the Loan Agreement shall for the purposes hereof be deemed to be made with respect to the Borrower's financial statements most recently delivered to the Lenders pursuant to the Loan Agreement); (b) represents and warrants that no Event of Default and no event, which with the lapse of time, the giving of notice or both would constitute an Event of Default, has occurred and is continuing on and as of the date hereof; (c) represents and warrants that no material adverse change in the condition (financial or otherwise) of the Borrower has occurred since the periods covered by the Borrower's financial statements most recently delivered to the Lenders pursuant to the Loan Agreement; (d) represents and warrants that each of this Amendment, the Loan Agreement, as amended by this Amendment, and each of the Notes, as amended by this Amendment has been duly authorized, executed and delivered by the Borrower and constitutes the legal, valid and binding obligation of the Borrower and is enforceable in accordance with its terms; (e) represents and warrants that the execu tion, delivery and performance of this Amendment do not and will not violate articles of incorporation, by-laws, any ap plicable laws, rules, regulations, orders, injunctions, writs or decrees or result in a breach of or constitute a default under any contract, agreement or instrument to which the Bor rower is a party or by which the Borrower, or its properties are bound, or result in the creation or imposition of any security interest in, or lien or encumbrance upon any property or assets of the Borrower, except in favor of the Lenders; and (f) represents and warrants that no consent or withholding of objection, approval or authorization of or declaration or filing with, or the taking of any other action by or in respect of any governmental body or regulatory au thority or any other Person is required in connection with the execution, delivery and performance of this Amendment, other than as may have been obtained or effected prior to the date hereof, and in respect of which the Borrower shall have notified the Lenders in writing on or prior to the date hereof. SECTION 5. Effectiveness. Notwithstanding any thing herein to the contrary, the amendments to the Loan Agreement and the other Loan Documents set forth in Sections 2 and 3 of this Amendment, shall amend the provisions of the Loan Agreement, Notes and the other Loan Documents as of December 31, 1997 (the "Effective Date"), when each and all of the following conditions precedent shall have been satisfied in full: (a) Delivery of this Amendment. Each of the parties hereto shall have duly executed and delivered to the Agent this Amendment. (b) No Default. On and as of the Effective Date, no Event of Default shall have been declared by the Lenders under the Loan Agreement. (c) Payments; Charges; Fees. The Borrower shall have paid to the Lenders in accordance with the terms of the Loan Agreement all payments, charges and fees required to have been paid on or before the Effective Date by the terms of the Loan Agreement or the other Loan Documents, and in addition, shall have paid to the Agent for pro rata dis tribution to the Lenders an extension fee in the amount of $10,000. (d) Consents. There shall have been obtained all third-party consents, if any, necessary or appropriate to effect the amendments and consummate the transactions set forth in this Amendment. SECTION 6. Limitations. The amendments to the Loan Agreement, the Notes and the other Loan Documents set forth hereinabove in Sections 2 and 3 of this Amendment shall be limited precisely as written and shall not, except as expressly provided herein, be deemed otherwise to be a consent to any waiver, amendment or modification of any other terms or conditions of the Loan Agreement or any of the other Loan Documents. The Loan Agreement and other Loan Documents, heretofore amended and as amended hereby, are in all respects ratified and confirmed and shall remain in full force and effect. SECTION 7. Further Assurances. The Borrower shall take all such further actions and execute and deliver all such further documents and instruments as the Lenders may from time to time reasonably request to further evidence or effect the transactions contemplated by this Amendment. SECTION 8. Counterparts. This Amendment may be executed in two or more counterparts, each of which shall be an original hereof, but all of which together shall consti tute but one and the same instrument. SECTION 9. Headings. The section headings in this Amendment have been inserted for convenience of reference only and shall in no manner affect the meaning or interpretation of the various provisions hereof. SECTION 10. Governing Law. This Amendment shall be governed by, and construed in accordance with, the laws of the State of Hawaii. SECTION 12. Expenses of the Agent. Without in any way limiting the obligations of the Borrower under Section 7.04 of the Loan Agreement, the Borrower shall reimburse the Agent for all of the costs and expenses of the Agent in con nection with the preparation of this Amendment, including, but not limited to, reasonable attorneys fees and expenses. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed on the date first-above written. MAUI LAND & PINEAPPLE COMPANY, INC. By: /S/ PAUL J. MEYER Its: EXECUTIVE VICE PRESIDENT/ FINANCE By: /S/ DARRYL Y. H. CHAI Its: TREASURER BANK OF HAWAII, individually and as Agent By: /S/ PETER HO Its: V.P. FIRST HAWAIIAN BANK By: /S/ ANN M. K. LEE Ann M. K. Lee Its: Assistant Vice President CENTRAL PACIFIC BANK By: /S/ ALWYN CHIKAMOTO Its: Senior Vice President & Manager Corporate Banking Division EX-10.1(III) 3 SECOND LOAN MODIFICATION AGREEMENT SECOND LOAN MODIFICATION AGREEMENT, dated March 17, 1998 (the "Amendment"), by and among MAUI LAND & PINEAPPLE COMPANY, INC. (the "Borrower") and BANK OF HAWAII, a Hawaii banking corporation ("BKOH"), FIRST HAWAIIAN BANK, a Hawaii banking corporation ("FHB"), CENTRAL PACIFIC BANK, a Hawaii banking corporation ("CPB" and, together, with BKOH, and FHB, the "Lenders") and BANK OF HAWAII, as Agent for the Lenders (in such capacity, together with its successors in such capacity, the "Agent"). W I T N E S S E T H: WHEREAS, the Borrower, Lenders and Agent are parties to that certain Amended and Restated Revolving and Term Loan Agreement, dated as of December 4, 1996, as heretofore amended (as so amended, the "Loan Agreement"), pur suant to which the Lenders have made Loans to the Borrower on the terms and conditions stated therein; and WHEREAS, the Borrower, Lenders and Agent have agreed to amend the Loan Agreement and the other Loan Documents (as such term is defined in the Loan Agreement) for the purposes of amending Section 5.02(D) of the Loan Agree ment, all as set forth in this Amendment; NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, each of the Borrower, Lenders and Agent agree as follows: SECTION 1. Definitions. Capitalized terms used herein and not otherwise defined herein shall have the mean ings ascribed to them in the Loan Agreement. SECTION 2. Amendment to Loan Agreement. Effective on and after the Effective Date, Section 5.02(D) of the Loan Agreement is amended and restated in its entirety to read as follows: "(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 Expen ditures 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 $10.7 Million thereafter $10.0 Million" SECTION 3. General Amendments. All references set forth in the Loan Agreement (including, without limitation, all exhibits, schedules and appendices thereto), the Notes, the Mortgage, the Agency Agreement, the Environmental Indemnity Agreement, the Addi tional Security Mortgage and the other documents, instruments and agreements relating to the Loan Agreement, the Notes, the Mortgage, the Agency Agreement, the Environmental Indemnity Agreement, the Additional Security Mortgage or to the loans made under the Loan Agreement by the Lenders to the Borrower (collectively, the "Loan Documents") to (i) the Loan Agree ment, is amended to mean and include the Loan Agreement, as amended by this Amendment, and as may be further amended, modified and supplemented from time to time by written agree ment between the parties hereto, (ii) the Notes, are amended to mean and include the Notes, as amended by this Amendment, and as may be further amended from time to time, (iii) the Mortgage, is amended to mean and include the Mortgage, as amended from time to time, and (iv) the other Loan Documents, or any of them, are amended to mean and include such Loan Documents, as amended from time to time. SECTION 4. Representations, Warranties and Agreements. The Borrower hereby: (a) reaffirms each and all of its representa tions and warranties set forth in Section 4.01 of the Loan Agreement as being true and correct on and as of the date hereof with the same force and effect as if such representa tions and warranties were set forth in full herein (provided that the representations and warranties set forth in Section 4.01(F) of the Loan Agreement shall for the purposes hereof be deemed to be made with respect to the Borrower's financial statements most recently delivered to the Lenders pursuant to the Loan Agreement); (b) represents and warrants that no Event of Default and no event, which with the lapse of time, the giving of notice or both would constitute an Event of Default, has occurred and is continuing on and as of the date hereof; (c) represents and warrants that no material adverse change in the condition (financial or otherwise) of the Borrower has occurred since the periods covered by the Borrower's financial statements most recently delivered to the Lenders pursuant to the Loan Agreement; (d) represents and warrants that each of this Amendment, the Loan Agreement, as amended by this Amendment, and each of the Notes, as amended by this Amendment has been duly authorized, executed and delivered by the Borrower and constitutes the legal, valid and binding obligation of the Borrower and is enforceable in accordance with its terms; (e) represents and warrants that the execu tion, delivery and performance of this Amendment do not and will not violate articles of incorporation, by-laws, any ap plicable laws, rules, regulations, orders, injunctions, writs or decrees or result in a breach of or constitute a default under any contract, agreement or instrument to which the Bor rower is a party or by which the Borrower, or its properties are bound, or result in the creation or imposition of any security interest in, or lien or encumbrance upon any property or assets of the Borrower, except in favor of the Lenders; and (f) represents and warrants that no consent or withholding of objection, approval or authorization of or declaration or filing with, or the taking of any other action by or in respect of any governmental body or regulatory au thority or any other Person is required in connection with the execution, delivery and performance of this Amendment, other than as may have been obtained or effected prior to the date hereof, and in respect of which the Borrower shall have notified the Lenders in writing on or prior to the date hereof. SECTION 5. Effectiveness. Notwithstanding any thing herein to the contrary, the amendments to the Loan Agreement and the other Loan Documents set forth in Sections 2 and 3 of this Amendment, shall amend the provisions of the Loan Agreement, Notes and the other Loan Documents as of December 31, 1997 (the "Effective Date"), when each and all of the following conditions precedent shall have been satisfied in full: (a) Delivery of this Amendment. Each of the parties hereto shall have duly executed and delivered to the Agent this Amendment. (b) No Default. On and as of the Effective Date, no Event of Default shall have been declared by the Lenders under the Loan Agreement. (c) Payments; Charges; Fees. The Borrower shall have paid to the Lenders in accordance with the terms of the Loan Agreement all payments, charges and fees required to have been paid on or before the Effective Date by the terms of the Loan Agreement or the other Loan Documents. (d) Consents. There shall have been obtained all third-party consents, if any, necessary or appropriate to effect the amendments and consummate the transactions set forth in this Amendment. SECTION 6. Limitations. The amendments to the Loan Agreement, the Notes and the other Loan Documents set forth hereinabove in Sections 2 and 3 of this Amendment shall be limited precisely as written and shall not, except as expressly provided herein, be deemed otherwise to be a consent to any waiver, amendment or modification of any other terms or conditions of the Loan Agreement or any of the other Loan Documents. The Loan Agreement and other Loan Documents, heretofore amended and as amended hereby, are in all respects ratified and confirmed and shall remain in full force and effect. SECTION 7. Further Assurances. The Borrower shall take all such further actions and execute and deliver all such further documents and instruments as the Lenders may from time to time reasonably request to further evidence or effect the transactions contemplated by this Amendment. SECTION 8. Counterparts. This Amendment may be executed in two or more counterparts, each of which shall be an original hereof, but all of which together shall consti tute but one and the same instrument. SECTION 9. Headings. The section headings in this Amendment have been inserted for convenience of reference only and shall in no manner affect the meaning or interpretation of the various provisions hereof. SECTION 10. Governing Law. This Amendment shall be governed by, and construed in accordance with, the laws of the State of Hawaii. SECTION 12. Expenses of the Agent. Without in any way limiting the obligations of the Borrower under Section 7.04 of the Loan Agreement, the Borrower shall reimburse the Agent for all of the costs and expenses of the Agent in con nection with the preparation of this Amendment, including, but not limited to, reasonable attorneys fees and expenses. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed on the date first-above written. MAUI LAND & PINEAPPLE COMPANY, INC. By: /S/ PAUL J. MEYER Its: EVP/Finance By: /S/ GARY L. GIFFORD Its: President BANK OF HAWAII, individually and as Agent By: /S/ PETER HO Its: FIRST HAWAIIAN BANK By: /S/ ANN M. K. LEE Its: Assistant Vice President CENTRAL PACIFIC BANK By: /S/ ROBERT KAMEMOTO Its: Vice-President EX-10.7(IV) 4 MAUI LAND & PINEAPPLE COMPANY, INC. EXECUTIVE CHANGE-IN-CONTROL SEVERANCE AGREEMENT Gary L. Gifford President/CEO ARTICLE I. ESTABLISHMENT AND PURPOSE. 1.1 Effective Date. This Executive Change-in-Control Severance Agreement (the "Agreement") is made and entered into and is effective as of this 13th day of March, 1998 ("Effective Date"), by and between Maui Land & Pineapple Company, Inc. ("ML&P"), a Hawaii corporation, and Gary L. Gifford ("Executive") of ML&P and its Subsidiaries. This Agreement shall supersede and replace any prior severance agreement entered into between ML&P and the Executive. 1.2 Term of the Agreement. The Agreement shall commence as of the Effective Date written above, and shall continue until the Board of Directors of ML&P ("Board") determines, in good faith and in its sole discretion, that the Executive is no longer to be included in the Plan and so notifies in writing the Executive during the term of this Agreement of such determination. Provided, however, in the event that a Change in Control of ML&P or its Subsidiaries, as defined in Section 2.1 herein, occurs during the term of this Agreement, this Agreement shall remain irrevocably in effect for the greater of thirty-six (36) months from the date of such Change in Control, or until all benefits have been paid to the Executive hereunder. Further, in the event that the Board has knowledge that a third party has taken steps reasonably calculated to effect a Change in Control of ML&P or its Subsidiaries, including, but not limited to the commencement of a tender offer for the voting stock of ML&P, or the circulation of a proxy to ML&P's shareholders, then this Agreement shall remain irrevocably in effect until the Board, in good faith, determines that such third party has fully abandoned or terminated its effort to effect a Change in Control of ML&P or its Subsidiaries. 1.3 Purpose of the Agreement. The purpose of this Agreement pursuant to the Plan, is to advance the interests of ML&P and its Subsidiaries by assuring that ML&P and its Subsidiaries shall have the continued employment and dedication of the Executive and the availability of his advice and counsel in the event that an acquisition or Change in Control of ML&P or its Subsidiaries occurs. This Agreement shall also assure the Executive of equitable treatment during the period of uncertainty that surrounds an acquisition or Change in Control, and allow the Executive to act at all times in the best interest of ML&P and its shareholders. 1.4 Contractual Right to Benefits. This Agreement establishes and vests in the Executive a contractual right to the benefits which he or she is entitled hereunder, enforceable by the Executive against ML&P. However, nothing herein shall require ML&P to segregate, earmark, or otherwise set aside any funds or other assets to provide for any payments hereunder. 1.5 Legal Status. This Agreement shall be considered an unfunded agreement to provide welfare benefits to a select group of management or highly compensated employees and is therefore intended to be a "top-hat" plan exempt from the requirements of the provisions of Parts 2, 3 and 4 of Title I of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). ARTICLE II. DEFINITIONS AND CONSTRUCTION. 2.1 Definitions. Whenever used in this Agreement, the following terms shall have the meanings set forth below and, when the meaning is intended, the initial letter of the word is capitalized. a. "Base Salary" means the annualized salary at the beginning of each Year, which includes all regular basic wages, before reduction for any amounts deferred on a tax-qualified or nonqualified basis, payable in cash to an Executive for services rendered to ML&P or its Subsidiaries during the Year. Base Salary shall exclude bonuses, incentive compensation, special fees or awards, commissions, allowances, or any other form of premium or incentive pay, or amounts designated by ML&P or its Subsidiaries as payment toward or reimbursement of expenses. b. "Beneficial Owner" shall have the meaning ascribed to such terms in Rule 13d-3 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). c. "Beneficiary" with respect to an Executive means the persons or entities designated or deemed designated by the Executive pursuant to Section 8.2 herein. d. "Board" means the Board of Directors of ML&P. e. "Change in Control" of ML&P or its Subsidiaries means any one or more of the following occurrences: (1) Any Person, including a "group" as defined in Section 13 (d)(3) of the Exchange Act, who is not at the date of this Agreement the beneficial owner of shares of the given entity having 25% or more of the total number of votes that may be cast for the election of Directors of such entity, becomes the beneficial owner (including acquisition of beneficial ownership resulting from formation of a "group") of shares of such entity having 25% or more of such voting power; (2) Any Person, including a "group" as defined in Section 13(d)(3) of the Exchange Act, who is not at the date of this Agreement the beneficial owner of shares of a given entity having 50% or more of the total number of votes that may be cast for the election of Directors of such entity, becomes the beneficial owner (including acquisition of beneficial ownership resulting from formation of a "group") of shares of such entity having 50% or more of such voting power; (3) As the result of, or in connection with any cash tender or exchange offer, merger or other business combination, sale of assets or contested election, or any combination of the foregoing transactions, the persons who were Directors of the given entity before the transaction shall cease to constitute a majority of the Board of Directors of such entity or any successor to such entity; (4) A merger or consolidation of the given entity in which such entity is not the surviving entity; or (5) The sale, transfer, or other disposition of all or substantially all of the assets of the given entity (and for this purpose, the term "substantially all" shall mean assets having a fair market value, whether or not realized in the transaction, that is 50% or more of the aggregate fair market value of all assets of such entity); or in the case of a Subsidiary the sale, transfer or other disposition (other than to a direct or indirect wholly owned subsidiary of M&LP) of securities that immediately prior to such transaction constituted 50% or more of such Subsidiary's outstanding voting securities. f. "Committee" means the Compensation Committee of the Board of Directors of ML&P or any other committee appointed by the Board to administer this Agreement. g. "Disability" means a physical or mental condition which renders an Executive unable to discharge his normal work responsibility with ML&P or its Subsidiaries and which, in the opinion of a licensed physician selected by the Executive, subject to reasonable approval by the Committee based upon sufficient medical evidence, can be reasonably expected to continue for a period of at least one full calendar year. If an Executive fails to select a physician within ten (10) business days of a written request made by ML&P, then ML&P may select a physician for purposes of this paragraph. h. "Effective Date" means the date the Agreement is approved by the Board, or such other date as the Board shall designate in its resolution approving the Agreement, and as provided in Section 1.1 herein. i. "Effective Date of Termination" means the date on which a Qualifying Termination occurs. j. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, or any successor act thereto. k. "Expiration Date" means the date the Agreement expires, as provided in Section 1.2 herein. l. "Just Cause" means the basis for a termination of an Executive's employment by ML&P or its Subsidiaries for which no Severance Benefits are payable hereunder, as provided in Article IV herein. m. "ML&P" means Maui Land & Pineapple Company, Inc., a Hawaii corporation, or any successor thereto that adopts the Agreement, as provided in Section 8.1 herein. n. "Normal Retirement Date" shall mean the date on which the Executive attains age 65. o. "Person" shall have the meaning ascribed to such terms in Section 3 (a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a "group" as defined in Section 13(d); provided that for purposes of Section 2.1(e) "Person" shall not include any entity that is a direct or indirect wholly owned subsidiary of ML&P. p. "Qualifying Termination" means a termination of the Executive's employment by ML&P or its Subsidiaries as described in Section 3.2 herein. q. "Severance Benefit" means the payment of severance compensation as provided in Article III herein. r. "Subsidiaries" means Maui Pineapple Company, Ltd. and Kapalua Land Company, Ltd. s. "Year" means the consecutive 12-month period beginning each January 1 and ending December 31. 2.2 Gender and Number. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine, the plural shall include the singular, and the singular shall include the plural. 2.3 Severability. In the event any provision of the Agreement shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Agreement, and the Agreement shall be construed and enforced as if the illegal or invalid provision had not been included. 2.4 Modification. No express provisions of this Agreement may be modified, waived, or discharged unless such modification, waiver, or discharge is agreed to by the Executive in writing and approved by the Compensation Committee of the Board of Directors. 2.5 Applicable Law. To the extent not preempted by the laws of the United States, the laws of the State of Hawaii shall be the controlling law in all matters relating to the Agreement without regard to the conflicts of law principles in such laws. ARTICLE III. SEVERANCE BENEFITS. 3.1 Right to Severance Benefits. The Executive shall be entitled to receive from ML&P Severance Benefits as described in Section 3.4 herein, if there has been a Change in Control of ML&P or its Subsidiaries, as defined in Section 2.1(e) herein, and if, within thirty-six (36) months thereafter, the Executive's employment with ML&P or its Subsidiaries shall end for any reason specified in Section 3.2 herein as being a Qualifying Termination. An Executive shall not be entitled to receive Severance Benefits if the Executive's employment with ML&P or its Subsidiaries ends due to an involuntary termination by ML&P or its Subsidiaries for Just Cause, as provided under Article IV herein, or if the Executive's employment terminates due to death or Disability. 3.2 Qualifying Termination. The occurrence of any one or more of the following events within thirty-six (36) calendar months after a Change in Control of ML&P or its Subsidiaries shall cause the payment of Severance Benefits to the Executive, as provided under Section 3.4 herein: a. ML&P's or its Subsidiaries' involuntary termination of the Executive's employment without Just Cause, as defined in Article IV herein; b. The Executive's voluntary employment termination from ML&P or its Subsidiaries for Good Reason, as defined by Section 3.3 herein; c. A successor entity fails or refuses to assume ML&P's or its Subsidiaries' obligations under this Agreement in their entirety, as required by Article VIII herein; or d. ML&P or any successor entity commits a material breach of any of the provisions of this Agreement. 3.3 Definition of Good Reason. "Good Reason" means, without the Executive's express written consent, the occurrence after a Change in Control of ML&P or its Subsidiaries of any one or more of the following: a. The assignment of the Executive to duties materially inconsistent with the Executive's authorities, duties, responsibilities, and status (including offices, titles and reporting requirements) as an executive and/or officer of ML&P or its Subsidiaries, or a material reduction of the Executive's authorities, duties, or responsibilities from those in effect as of ninety (90) days prior to the Change in Control, other than an act that is remedied by ML&P or its Subsidiaries promptly after receipt of notice thereof given by the Executive (provided, however, that "Good Reason" shall not include the events described in the preceding portions of this paragraph (a) if the changes described therein have been approved by a majority of the board of directors of ML&P and also by a number of such directors who comprised at least a majority of the directors of ML&P 90 days prior to the Change In Control); b. ML&P or its Subsidiaries requiring the Executive to be based at a location in excess of seventy- five (75) miles from the location of the Executive's principal job location or office immediately prior to the Change in Control; except for required travel on company business to an extent substantially consistent with the Executive's then present business travel obligations; c. A more than ten percent (10%) reduction by ML&P or its Subsidiaries of the Executive's annual rate of Base Salary in effect as of ninety (90) days prior to the Change in Control; d. The failure of ML&P or its Subsidiaries to continue in effect any of ML&P's or its Subsidiaries' annual incentive compensation plans, or employee benefit or retirement plans, policies, practices, or other compensation arrangements in which the Executive participates as in effect prior to the Change in Control, unless such failure to continue the plan, policy, practice or arrangement pertains to all plan participants generally; or the failure by ML&P or its Subsidiaries to continue the Executive's participation therein on substantially the same basis, both in terms of the amount of benefits provided and the level of the Executive's participation relative to other participants and commensurate with the Executive's responsibility and duties; and e. The failure of ML&P or its Subsidiaries to obtain a satisfactory agreement from any successor to ML&P or its Subsidiaries to assume and agree to perform ML&P's or its Subsidiaries' obligations under this Agreement, as contemplated in Article VIII herein. 3.4 Description of Severance Benefits. In the event that an Executive becomes entitled to receive Severance Benefits, as provided in Section 3.1 herein, ML&P shall pay to the Executive and provide him with the following: a. An amount equal to 2.99 times the Executive's annual rate of Base Salary in effect upon the Effective Date of Termination; and b. A payout under the ML&P Annual Incentive Plan, in accordance with the terms of such plan; and c. A continuation of all welfare benefits at normal employee cost including medical and dental insurance, long-term disability, group term life insurance, and accidental death & dismemberment insurance for three (3) full years from the Effective Date of Termination or until the Executive reaches his Normal Retirement Date, whichever occurs earlier. In the event that participation in any one or more of the welfare benefits is not possible under the terms of the governing welfare benefit provisions or due to the modification or elimination of the welfare benefits, ML&P shall provide substantially identical welfare benefits at the normal employee cost of the affected welfare benefits. However, these benefits shall be discontinued prior to the end of the three (3) years in the event the Executive receives substantially similar benefits from a subsequent employer, as determined by the Committee. The right of the Executive and his spouse and other dependents to continued group health coverage under Section 4980B of the Internal Revenue Code of 1986, as amended ("Code"), shall commence at the end of the applicable Severance Benefits period. Unless otherwise provided under this Agreement, the applicable Severance Benefits period shall be treated as if it were a period of employment with ML&P or its Subsidiaries for purposes of determining rights and benefits under any retirement plan or other plan or program and shall be treated as a period of covered employment under such plan or other plan or program if the Executive was in covered employment immediately prior to the Change in Control, provided that, if such treatment is not possible under the terms of such plan or other plan or program, ML&P shall directly provide substantially identical benefits attributable to the crediting of the Severance Benefits period. 3.5 Reduction of Severance Benefits. In the event there are fewer than thirty-six (36) whole or partial months remaining from the Executive's Effective Date of Termination until the Executive's Normal Retirement Date, then the amounts provided for under Section 3.4(a) above shall be reduced by a fraction, the numerator of which shall be the number of whole or partial months remaining until the Executive's Normal Retirement Date, and the denominator of which shall be thirty-six (36). 3.6 Special Retirement Benefits. The Executive shall receive special retirement benefits as provided below, so that the total retirement benefits that the Executive receives will equal the retirement benefits that the Executive would have received under the Maui Land & Pineapple Company, Inc. Pension Plan for Non-Bargaining Unit Employees ("Retirement Plan"), Maui Land & Pineapple Company, Inc. Supplemental Executive Retirement Plan, and the Maui Land & Pineapple Company, Inc. Executive Supplemental Insurance Plan/Executive Deferred Compensation Plan (collectively, "Plans"), or any successor Plans or arrangements to such Plans, had the Executive continued in the employ of ML&P and its Subsidiaries for three (3) years following the Executive's Effective Date of Termination (or until his Normal Retirement Date, whichever is earlier) but without regard to any ancillary benefits. The amount of special retirement benefits payable hereunder to the Executive or his beneficiaries shall equal the excess of the amount specified in (a) over the amount specified in (b) below. a. The total retirement benefits on an actuarial equivalent single-life basis would be paid to the Executive if the three (3) years (or the period to his Normal Retirement Date, if less) following the Executive's Effective Date of Termination are added to his credited service under the Plans. b. The total retirement benefits actually paid on an actuarial equivalent single-life basis to the Executive under the Plans. Such special retirement benefits shall be paid at the same time and in the same form (e.g., actuarial equivalent single-life or contingent annuitant basis) as the Executive's retirement benefits under the Plans. The special retirement benefits shall be paid by the Plans or, if the terms of such Plans do not provide for such benefits, the special retirement benefits shall be paid directly by ML&P. The actuarial equivalent of special retirement benefits shall be determined in accordance with the factors provided under the Retirement Plan. 3.7 Outplacement Services. In the event that the Executive becomes entitled to receive Severance Benefits as provided in Section 3.1 herein, the Executive shall be entitled, at the expense of ML&P, to receive standard outplacement services as selected by the Executive, for a period of up to thirty-six (36) months from the Effective Date of Termination. However, such services shall not exceed a maximum annual benefit of ten percent (10%) of the Executive's annual rate of Base Salary as of the Effective Date of Termination. 3.8 Incentive Compensation. In the event that the Executive becomes entitled to receive Severance Benefits as provided in Section 3.1 herein, any deferred awards previously granted to the Executive under ML&P's or its Subsidiaries' incentive compensation plans and not previously paid to the Executive shall immediately vest on the date of the Executive's Effective Date of Termination and shall be paid no later than ninety (90) calendar days following that date, and be included as compensation in the month paid. ARTICLE IV. DISQUALIFICATION FROM RECEIPT OF BENEFITS. No Severance Benefits shall be payable to the Executive under this Agreement in the event the Executive is terminated by ML&P or its Subsidiaries for Just Cause. For this purpose, Just Cause shall mean willful, malicious conduct by the Executive which is detrimental to the best interests of ML&P, including theft, embezzlement, the conviction of a criminal act, disclosure of trade secrets, a gross dereliction of duty, or other grave misconduct on the part of the Executive which is substantially injurious to ML&P or its Subsidiaries. Just Cause also shall include the failure of the Executive to perform any and all covenants under this Agreement. ARTICLE V. FORM AND TIMING OF SEVERANCE BENEFITS. 5.1 Form and Timing of Severance Benefits. The Severance Benefits described in Section 3.4(a) and (b) herein, shall be paid by ML&P in cash to the Executive in a single lump sum as soon as practicable following the Executive's Effective Date of Termination, but in no event beyond ninety (90) calendar days from such date. The Severance Benefits described in Section 3.4 (c) herein shall be provided by ML&P to the Executive immediately upon the Executive's Effective Date of Termination and shall continue to be provided for three (3) full calendar years from the Executive's Effective Date of Termination or until the Executive reaches his Normal Retirement date, whichever occurs earlier. However, the Severance Benefits described in Section 3.4 (c) herein shall be discontinued prior to the end of the three (3) year period immediately upon the Executive receiving substantially similar benefits from a subsequent employer, as determined by the Committee. 5.2 Withholding of Taxes. ML&P or its Subsidiaries shall withhold from any amounts payable under this Agreement all Federal, state, city or other taxes as legally shall be required. ARTICLE VI. PARACHUTE PAYMENTS. 6.1 Determination of Alternative Severance Benefit Limit. Notwithstanding any other provision of this Agreement, if any portion of the Severance Benefits or any other payment under this Agreement, or under any other agreement with, or plan of, ML&P (in the aggregate "Total Payments") would constitute an "excess parachute payment," then the payments to be made to the Executive under this Agreement shall be reduced such that the value of the aggregate Total Payments that the Executive is entitled to receive shall be one dollar ($1) less than the maximum amount which the Executive may receive without becoming subject to the tax imposed by Section 4999 of the Code, or which ML&P may pay without loss of deduction under Section 280G(a) of the Code. However, such reduction in Severance Benefits shall apply if, and only if, the resulting Severance benefits with such reduction is greater in value to the Executive than the value of the Severance Benefits without a reduction, net of any tax imposed on the Executive pursuant to Section 4999 of the Code. For purposes of this Agreement, the terms "excess parachute payment" and "parachute payments" shall have the meanings assigned to such terms in Section 280G of the Code, and such "parachute payments" shall be valued as provided therein. 6.2 Procedure for Establishing Alternative Limitation. Within fifteen (15) calendar days following delivery of the notice of Qualifying Termination or notice by ML&P to the Executive of its belief that there is a payment or benefit due the Executive which will result in an "excess parachute payment" as defined in Section 280G of the Code, the Executive and ML&P, at ML&P's expense, shall obtain the opinion of ML&P's principal outside law firm, accounting firm, and/or compensation and benefits consulting firm, which sets forth: (a) the amount of the Executive's "annualized includible compensation for the base period" (as defined in Section 280G(d)(1) of the Code); (b) the present value of the Total Payments; and (c) the amount and present value of any "excess parachute payment." In the event that such opinion determines that there would be an "excess parachute payment," such that a reduction in the Severance Benefits would result in a greater net benefit to the Executive (as provided in Section 6.1 herein), then the Severance Benefits hereunder or any other payment determined under the opinion to be includible in Total Payments shall be reduced or eliminated so that, on the basis of calculations set forth in such opinion, there will be no "excess parachute payment". The reduction or elimination of specific payments shall apply to such type and amount of specific payments as may be designated by the Executive in writing delivered to ML&P within ten (10) calendar days of receipt of the opinion, or if the Executive fails to so notify ML&P, as may be reasonably determined by ML&P. The provisions of this Section 6.2, including the calculations, notices, and opinion provided herein, shall be based upon the conclusive presumption that the following amounts are reasonable: (a) the compensation and benefits provided for in Article III herein; and (b) any other compensation earned prior to the Effective Date of Termination by the Executive pursuant to ML&P's compensation programs (if such payments would have been made in the future in any event, even though the timing of such payment is triggered by the Change in Control). 6.3 Subsequent Imposition of Excise Tax. If, notwithstanding compliance with the provisions of Sections 6.1 and 6.2 herein, it is ultimately determined by a court or pursuant to a final determination by the Internal Revenue Service that any portion of the Total Payments is considered to be a "parachute payment", subject to excise tax under Section 4999 of the Code, which was not contemplated to be a "parachute payment" at the time of payment (so as to accurately determine whether a limitation should have been applied to the Total Payments to maximize the net benefit to the Executive, as provided in Sections 6.1 and 6.2 herein), the Executive shall be entitled to receive a lump sum cash payment sufficient to place the Executive in the same net after-tax position, computed by using the "Special Tax Rate" as such term is defined below, that the Executive would have been in had such payment not been subject to such excise tax, and had the Executive not incurred any interest charges or penalties with respect to the imposition of such excise tax. For purposes of this Agreement, the "Special Tax Rate" shall be the highest effective Federal and state marginal tax rates applicable to the Executive in the year in which the payment contemplated under this Section 6.3 is made. ARTICLE VII. OTHER RIGHTS AND BENEFITS NOT AFFECTED. 7.1 Other Benefits. Neither the provisions of this Agreement nor the Severance Benefits provided for hereunder shall reduce any amounts otherwise payable, or in any way diminish the Executive's rights as an employee of ML&P or its Subsidiaries, whether existing now or hereafter, under any benefit, incentive, retirement, stock option, stock bonus, stock purchase plan, or any employment agreement, or other plan or arrangement. 7.2 Employment Status. This Agreement does not constitute a contract of employment or impose on ML&P or its Subsidiaries any obligation to retain the Executive as an employee, to change the status of the Executive's employment, or to change ML&P's or its Subsidiaries' policies regarding termination of employment. The Executive serves as an employee of ML&P or its Subsidiaries, and this Agreement shall not create an employment relationship between ML&P or its Subsidiaries and the Executive. ARTICLE VIII. SUCCESSORS. 8.1 Successors. ML&P or its Subsidiaries will require any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) of all or substantially all of the business and/or assets of ML&P or its Subsidiaries, or any division or subsidiary thereof to expressly assume and agree to perform this Agreement in the same manner and to the same extent that ML&P or its Subsidiaries would be required to perform it if no such succession had taken place. Failure of ML&P or its Subsidiaries to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from ML&P or its Subsidiaries in the same amount and on the same terms as they would be entitled hereunder if terminated voluntarily following a Change in Control. Except for the purposes of implementing the foregoing, the date on which any succession becomes effective shall be deemed the Effective Date of Termination. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees, and legatees. If an Executive should die while any amount would still be payable to him hereunder had he continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement, to the Executive's devisee, legatee, or other designee, or if there is no such designee, to the Executive's estate. 8.2 Beneficiaries. In the event of the death of the Executive, all unpaid amounts payable to the Executive under this Agreement shall be paid to his or her Beneficiary. The Executive's spouse and other dependents shall continue to be covered by all applicable welfare benefits during the remainder of the Severance Benefits period, if any, pursuant to Section 3.4.c (unless payments at death are specified by the applicable welfare benefits provisions). The Beneficiary of the Executive's Severance Benefits under this Agreement shall be designated by the Executive in the form of a signed writing acceptable to the Committee. An Executive may make or change such designation at any time. ARTICLE IX. ADMINISTRATION. 9.1 Administration. The Compensation Committee of the Board of Directors shall administer this Agreement. The Committee is authorized to interpret this Agreement, to prescribe and rescind rules and regulations, to provide conditions and assurances deemed necessary and advisable, to protect the interest of ML&P or its Subsidiaries, and to make all other determinations necessary or advisable for the Agreement's administration. In fulfilling its administrative duties hereunder, the Committee may rely on outside counsel, independent accountants, or other consultants to render advice or assistance. 9.2 Indemnification and Exculpation. The members of the Board, its agents and officers, directors and employees of ML&P and its Subsidiaries shall be indemnified and held harmless by ML&P and its Subsidiaries against and from any and all loss, cost, liability, or expense that may be imposed upon or reasonably incurred by them in connection with or resulting from any claim, action, suit or proceeding to which they may be a party or in which they may be involved by reason of any action taken or failure to act under this Agreement and against and from any and all amounts paid by them in settlement (with ML&P's written approval) or paid by them in satisfaction of a judgment in any such action, suit or proceeding. The foregoing provision shall not be applicable to any person if the loss, cost, liability or expense is due to such person's gross negligence or willful misconduct. 9.3 Legal Fees. ML&P shall pay all reasonable legal fees, costs of litigation and other expenses incurred in good faith by the Executive as a result of ML&P's refusal to provide the Severance Benefits to which the Executive becomes entitled under this Agreement, or as a result of ML&P's contesting the validity, enforceability or interpretation of the Agreement. Provided, however, that such payments shall not exceed the amount permitted by law and ML&P's Articles of Incorporation. IN WITNESS WHEREOF, ML&P has caused this Agreement to be executed by a resolution of the Board of Directors, as of the day and year first above written. MAUI LAND & PINEAPPLE COMPANY, INC. By /S/ ADELE H. SUMIDA Its Secretary /S/ GARY L. GIFFORD GARY L. GIFFORD "Executive" ATTEST: /S/ IRIS Y. MATSUMOTO EX-10.7(V) 5 MAUI LAND & PINEAPPLE COMPANY, INC. EXECUTIVE CHANGE-IN-CONTROL SEVERANCE AGREEMENT Paul J. Meyer Executive Vice President/Finance ARTICLE I. ESTABLISHMENT AND PURPOSE. 1.1 Effective Date. This Executive Change-in-Control Severance Agreement (the "Agreement") is made and entered into and is effective as of this 13th day of March, 1998 ("Effective Date"), by and between Maui Land & Pineapple Company, Inc. ("ML&P"), a Hawaii corporation, and Paul J. Meyer ("Executive") of ML&P and its Subsidiaries. This Agreement shall supersede and replace any prior severance agreement entered into between ML&P and the Executive. 1.2 Term of the Agreement. The Agreement shall commence as of the Effective Date written above, and shall continue until the Board of Directors of ML&P ("Board") determines, in good faith and in its sole discretion, that the Executive is no longer to be included in the Plan and so notifies in writing the Executive during the term of this Agreement of such determination. Provided, however, in the event that a Change in Control of ML&P or its Subsidiaries, as defined in Section 2.1 herein, occurs during the term of this Agreement, this Agreement shall remain irrevocably in effect for the greater of thirty-six (36) months from the date of such Change in Control, or until all benefits have been paid to the Executive hereunder. Further, in the event that the Board has knowledge that a third party has taken steps reasonably calculated to effect a Change in Control of ML&P or its Subsidiaries, including, but not limited to the commencement of a tender offer for the voting stock of ML&P, or the circulation of a proxy to ML&P's shareholders, then this Agreement shall remain irrevocably in effect until the Board, in good faith, determines that such third party has fully abandoned or terminated its effort to effect a Change in Control of ML&P or its Subsidiaries. 1.3 Purpose of the Agreement. The purpose of this Agreement pursuant to the Plan, is to advance the interests of ML&P and its Subsidiaries by assuring that ML&P and its Subsidiaries shall have the continued employment and dedication of the Executive and the availability of his advice and counsel in the event that an acquisition or Change in Control of ML&P or its Subsidiaries occurs. This Agreement shall also assure the Executive of equitable treatment during the period of uncertainty that surrounds an acquisition or Change in Control, and allow the Executive to act at all times in the best interest of ML&P and its shareholders. 1.4 Contractual Right to Benefits. This Agreement establishes and vests in the Executive a contractual right to the benefits which he or she is entitled hereunder, enforceable by the Executive against ML&P. However, nothing herein shall require ML&P to segregate, earmark, or otherwise set aside any funds or other assets to provide for any payments hereunder. 1.5 Legal Status. This Agreement shall be considered an unfunded agreement to provide welfare benefits to a select group of management or highly compensated employees and is therefore intended to be a "top-hat" plan exempt from the requirements of the provisions of Parts 2, 3 and 4 of Title I of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). ARTICLE II. DEFINITIONS AND CONSTRUCTION. 2.1 Definitions. Whenever used in this Agreement, the following terms shall have the meanings set forth below and, when the meaning is intended, the initial letter of the word is capitalized. a. "Base Salary" means the annualized salary at the beginning of each Year, which includes all regular basic wages, before reduction for any amounts deferred on a tax-qualified or nonqualified basis, payable in cash to an Executive for services rendered to ML&P or its Subsidiaries during the Year. Base Salary shall exclude bonuses, incentive compensation, special fees or awards, commissions, allowances, or any other form of premium or incentive pay, or amounts designated by ML&P or its Subsidiaries as payment toward or reimbursement of expenses. b. "Beneficial Owner" shall have the meaning ascribed to such terms in Rule 13d-3 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). c. "Beneficiary" with respect to an Executive means the persons or entities designated or deemed designated by the Executive pursuant to Section 8.2 herein. d. "Board" means the Board of Directors of ML&P. e. "Change in Control" of ML&P or its Subsidiaries means any one or more of the following occurrences: (1) Any Person, including a "group" as defined in Section 13 (d)(3) of the Exchange Act, who is not at the date of this Agreement the beneficial owner of shares of the given entity having 25% or more of the total number of votes that may be cast for the election of Directors of such entity, becomes the beneficial owner (including acquisition of beneficial ownership resulting from formation of a "group") of shares of such entity having 25% or more of such voting power; (2) Any Person, including a "group" as defined in Section 13(d)(3) of the Exchange Act, who is not at the date of this Agreement the beneficial owner of shares of a given entity having 50% or more of the total number of votes that may be cast for the election of Directors of such entity, becomes the beneficial owner (including acquisition of beneficial ownership resulting from formation of a "group") of shares of such entity having 50% or more of such voting power; (3) As the result of, or in connection with any cash tender or exchange offer, merger or other business combination, sale of assets or contested election, or any combination of the foregoing transactions, the persons who were Directors of the given entity before the transaction shall cease to constitute a majority of the Board of Directors of such entity or any successor to such entity; (4) A merger or consolidation of the given entity in which such entity is not the surviving entity; or (5) The sale, transfer, or other disposition of all or substantially all of the assets of the given entity (and for this purpose, the term "substantially all" shall mean assets having a fair market value, whether or not realized in the transaction, that is 50% or more of the aggregate fair market value of all assets of such entity); or in the case of a Subsidiary the sale, transfer or other disposition (other than to a direct or indirect wholly owned subsidiary of M&LP) of securities that immediately prior to such transaction constituted 50% or more of such Subsidiary's outstanding voting securities. f. "Committee" means the Compensation Committee of the Board of Directors of ML&P or any other committee appointed by the Board to administer this Agreement. g. "Disability" means a physical or mental condition which renders an Executive unable to discharge his normal work responsibility with ML&P or its Subsidiaries and which, in the opinion of a licensed physician selected by the Executive, subject to reasonable approval by the Committee based upon sufficient medical evidence, can be reasonably expected to continue for a period of at least one full calendar year. If an Executive fails to select a physician within ten (10) business days of a written request made by ML&P, then ML&P may select a physician for purposes of this paragraph. h. "Effective Date" means the date the Agreement is approved by the Board, or such other date as the Board shall designate in its resolution approving the Agreement, and as provided in Section 1.1 herein. i. "Effective Date of Termination" means the date on which a Qualifying Termination occurs. j. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, or any successor act thereto. k. "Expiration Date" means the date the Agreement expires, as provided in Section 1.2 herein. l. "Just Cause" means the basis for a termination of an Executive's employment by ML&P or its Subsidiaries for which no Severance Benefits are payable hereunder, as provided in Article IV herein. m. "ML&P" means Maui Land & Pineapple Company, Inc., a Hawaii corporation, or any successor thereto that adopts the Agreement, as provided in Section 8.1 herein. n. "Normal Retirement Date" shall mean the date on which the Executive attains age 65. o. "Person" shall have the meaning ascribed to such terms in Section 3 (a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a "group" as defined in Section 13(d); provided that for purposes of Section 2.1(e) "Person" shall not include any entity that is a direct or indirect wholly owned subsidiary of ML&P. p. "Qualifying Termination" means a termination of the Executive's employment by ML&P or its Subsidiaries as described in Section 3.2 herein. q. "Severance Benefit" means the payment of severance compensation as provided in Article III herein. r. "Subsidiaries" means Maui Pineapple Company, Ltd. and Kapalua Land Company, Ltd. s. "Year" means the consecutive 12-month period beginning each January 1 and ending December 31. 2.2 Gender and Number. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine, the plural shall include the singular, and the singular shall include the plural. 2.3 Severability. In the event any provision of the Agreement shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Agreement, and the Agreement shall be construed and enforced as if the illegal or invalid provision had not been included. 2.4 Modification. No express provisions of this Agreement may be modified, waived, or discharged unless such modification, waiver, or discharge is agreed to by the Executive in writing and approved by the Compensation Committee of the Board of Directors. 2.5 Applicable Law. To the extent not preempted by the laws of the United States, the laws of the State of Hawaii shall be the controlling law in all matters relating to the Agreement without regard to the conflicts of law principles in such laws. ARTICLE III. SEVERANCE BENEFITS. 3.1 Right to Severance Benefits. The Executive shall be entitled to receive from ML&P Severance Benefits as described in Section 3.4 herein, if there has been a Change in Control of ML&P or its Subsidiaries, as defined in Section 2.1(e) herein, and if, within thirty-six (36) months thereafter, the Executive's employment with ML&P or its Subsidiaries shall end for any reason specified in Section 3.2 herein as being a Qualifying Termination. An Executive shall not be entitled to receive Severance Benefits if the Executive's employment with ML&P or its Subsidiaries ends due to an involuntary termination by ML&P or its Subsidiaries for Just Cause, as provided under Article IV herein, or if the Executive's employment terminates due to death or Disability. 3.2 Qualifying Termination. The occurrence of any one or more of the following events within thirty-six (36) calendar months after a Change in Control of ML&P or its Subsidiaries shall cause the payment of Severance Benefits to the Executive, as provided under Section 3.4 herein: a. ML&P's or its Subsidiaries' involuntary termination of the Executive's employment without Just Cause, as defined in Article IV herein; b. The Executive's voluntary employment termination from ML&P or its Subsidiaries for Good Reason, as defined by Section 3.3 herein; c. A successor entity fails or refuses to assume ML&P's or its Subsidiaries' obligations under this Agreement in their entirety, as required by Article VIII herein; or d. ML&P or any successor entity commits a material breach of any of the provisions of this Agreement. 3.3 Definition of Good Reason. "Good Reason" means, without the Executive's express written consent, the occurrence after a Change in Control of ML&P or its Subsidiaries of any one or more of the following: a. The assignment of the Executive to duties materially inconsistent with the Executive's authorities, duties, responsibilities, and status (including offices, titles and reporting requirements) as an executive and/or officer of ML&P or its Subsidiaries, or a material reduction of the Executive's authorities, duties, or responsibilities from those in effect as of ninety (90) days prior to the Change in Control, other than an act that is remedied by ML&P or its Subsidiaries promptly after receipt of notice thereof given by the Executive (provided, however, that "Good Reason" shall not include the events described in the preceding portions of this paragraph (a) if the changes described therein have been approved by a majority of the board of directors of ML&P and also by a number of such directors who comprised at least a majority of the directors of ML&P 90 days prior to the Change In Control); b. ML&P or its Subsidiaries requiring the Executive to be based at a location in excess of seventy- five (75) miles from the location of the Executive's principal job location or office immediately prior to the Change in Control; except for required travel on company business to an extent substantially consistent with the Executive's then present business travel obligations; c. A more than ten percent (10%) reduction by ML&P or its Subsidiaries of the Executive's annual rate of Base Salary in effect as of ninety (90) days prior to the Change in Control; d. The failure of ML&P or its Subsidiaries to continue in effect any of ML&P's or its Subsidiaries' annual incentive compensation plans, or employee benefit or retirement plans, policies, practices, or other compensation arrangements in which the Executive participates as in effect prior to the Change in Control, unless such failure to continue the plan, policy, practice or arrangement pertains to all plan participants generally; or the failure by ML&P or its Subsidiaries to continue the Executive's participation therein on substantially the same basis, both in terms of the amount of benefits provided and the level of the Executive's participation relative to other participants and commensurate with the Executive's responsibility and duties; and e. The failure of ML&P or its Subsidiaries to obtain a satisfactory agreement from any successor to ML&P or its Subsidiaries to assume and agree to perform ML&P's or its Subsidiaries' obligations under this Agreement, as contemplated in Article VIII herein. 3.4 Description of Severance Benefits. In the event that an Executive becomes entitled to receive Severance Benefits, as provided in Section 3.1 herein, ML&P shall pay to the Executive and provide him with the following: a. An amount equal to 2.99 times the Executive's annual rate of Base Salary in effect upon the Effective Date of Termination; and b. A payout under the ML&P Annual Incentive Plan, in accordance with the terms of such plan; and c. A continuation of all welfare benefits at normal employee cost including medical and dental insurance, long-term disability, group term life insurance, and accidental death & dismemberment insurance for three (3) full years from the Effective Date of Termination or until the Executive reaches his Normal Retirement Date, whichever occurs earlier. In the event that participation in any one or more of the welfare benefits is not possible under the terms of the governing welfare benefit provisions or due to the modification or elimination of the welfare benefits, ML&P shall provide substantially identical welfare benefits at the normal employee cost of the affected welfare benefits. However, these benefits shall be discontinued prior to the end of the three (3) years in the event the Executive receives substantially similar benefits from a subsequent employer, as determined by the Committee. The right of the Executive and his spouse and other dependents to continued group health coverage under Section 4980B of the Internal Revenue Code of 1986, as amended ("Code"), shall commence at the end of the applicable Severance Benefits period. Unless otherwise provided under this Agreement, the applicable Severance Benefits period shall be treated as if it were a period of employment with ML&P or its Subsidiaries for purposes of determining rights and benefits under any retirement plan or other plan or program and shall be treated as a period of covered employment under such plan or other plan or program if the Executive was in covered employment immediately prior to the Change in Control, provided that, if such treatment is not possible under the terms of such plan or other plan or program, ML&P shall directly provide substantially identical benefits attributable to the crediting of the Severance Benefits period. 3.5 Reduction of Severance Benefits. In the event there are fewer than thirty-six (36) whole or partial months remaining from the Executive's Effective Date of Termination until the Executive's Normal Retirement Date, then the amounts provided for under Section 3.4(a) above shall be reduced by a fraction, the numerator of which shall be the number of whole or partial months remaining until the Executive's Normal Retirement Date, and the denominator of which shall be thirty-six (36). 3.6 Special Retirement Benefits. The Executive shall receive special retirement benefits as provided below, so that the total retirement benefits that the Executive receives will equal the retirement benefits that the Executive would have received under the Maui Land & Pineapple Company, Inc. Pension Plan for Non-Bargaining Unit Employees ("Retirement Plan"), Maui Land & Pineapple Company, Inc. Supplemental Executive Retirement Plan, and the Maui Land & Pineapple Company, Inc. Executive Supplemental Insurance Plan/Executive Deferred Compensation Plan (collectively, "Plans"), or any successor Plans or arrangements to such Plans, had the Executive continued in the employ of ML&P and its Subsidiaries for three (3) years following the Executive's Effective Date of Termination (or until his Normal Retirement Date, whichever is earlier) but without regard to any ancillary benefits. The amount of special retirement benefits payable hereunder to the Executive or his beneficiaries shall equal the excess of the amount specified in (a) over the amount specified in (b) below. a. The total retirement benefits on an actuarial equivalent single-life basis would be paid to the Executive if the three (3) years (or the period to his Normal Retirement Date, if less) following the Executive's Effective Date of Termination are added to his credited service under the Plans. b. The total retirement benefits actually paid on an actuarial equivalent single-life basis to the Executive under the Plans. Such special retirement benefits shall be paid at the same time and in the same form (e.g., actuarial equivalent single-life or contingent annuitant basis) as the Executive's retirement benefits under the Plans. The special retirement benefits shall be paid by the Plans or, if the terms of such Plans do not provide for such benefits, the special retirement benefits shall be paid directly by ML&P. The actuarial equivalent of special retirement benefits shall be determined in accordance with the factors provided under the Retirement Plan. 3.7 Outplacement Services. In the event that the Executive becomes entitled to receive Severance Benefits as provided in Section 3.1 herein, the Executive shall be entitled, at the expense of ML&P, to receive standard outplacement services as selected by the Executive, for a period of up to thirty-six (36) months from the Effective Date of Termination. However, such services shall not exceed a maximum annual benefit of ten percent (10%) of the Executive's annual rate of Base Salary as of the Effective Date of Termination. 3.8 Incentive Compensation. In the event that the Executive becomes entitled to receive Severance Benefits as provided in Section 3.1 herein, any deferred awards previously granted to the Executive under ML&P's or its Subsidiaries' incentive compensation plans and not previously paid to the Executive shall immediately vest on the date of the Executive's Effective Date of Termination and shall be paid no later than ninety (90) calendar days following that date, and be included as compensation in the month paid. ARTICLE IV. DISQUALIFICATION FROM RECEIPT OF BENEFITS. No Severance Benefits shall be payable to the Executive under this Agreement in the event the Executive is terminated by ML&P or its Subsidiaries for Just Cause. For this purpose, Just Cause shall mean willful, malicious conduct by the Executive which is detrimental to the best interests of ML&P, including theft, embezzlement, the conviction of a criminal act, disclosure of trade secrets, a gross dereliction of duty, or other grave misconduct on the part of the Executive which is substantially injurious to ML&P or its Subsidiaries. Just Cause also shall include the failure of the Executive to perform any and all covenants under this Agreement. ARTICLE V. FORM AND TIMING OF SEVERANCE BENEFITS. 5.1 Form and Timing of Severance Benefits. The Severance Benefits described in Section 3.4(a) and (b) herein, shall be paid by ML&P in cash to the Executive in a single lump sum as soon as practicable following the Executive's Effective Date of Termination, but in no event beyond ninety (90) calendar days from such date. The Severance Benefits described in Section 3.4 (c) herein shall be provided by ML&P to the Executive immediately upon the Executive's Effective Date of Termination and shall continue to be provided for three (3) full calendar years from the Executive's Effective Date of Termination or until the Executive reaches his Normal Retirement date, whichever occurs earlier. However, the Severance Benefits described in Section 3.4 (c) herein shall be discontinued prior to the end of the three (3) year period immediately upon the Executive receiving substantially similar benefits from a subsequent employer, as determined by the Committee. 5.2 Withholding of Taxes. ML&P or its Subsidiaries shall withhold from any amounts payable under this Agreement all Federal, state, city or other taxes as legally shall be required. ARTICLE VI. PARACHUTE PAYMENTS. 6.1 Determination of Alternative Severance Benefit Limit. Notwithstanding any other provision of this Agreement, if any portion of the Severance Benefits or any other payment under this Agreement, or under any other agreement with, or plan of, ML&P (in the aggregate "Total Payments") would constitute an "excess parachute payment," then the payments to be made to the Executive under this Agreement shall be reduced such that the value of the aggregate Total Payments that the Executive is entitled to receive shall be one dollar ($1) less than the maximum amount which the Executive may receive without becoming subject to the tax imposed by Section 4999 of the Code, or which ML&P may pay without loss of deduction under Section 280G(a) of the Code. However, such reduction in Severance Benefits shall apply if, and only if, the resulting Severance benefits with such reduction is greater in value to the Executive than the value of the Severance Benefits without a reduction, net of any tax imposed on the Executive pursuant to Section 4999 of the Code. For purposes of this Agreement, the terms "excess parachute payment" and "parachute payments" shall have the meanings assigned to such terms in Section 280G of the Code, and such "parachute payments" shall be valued as provided therein. 6.2 Procedure for Establishing Alternative Limitation. Within fifteen (15) calendar days following delivery of the notice of Qualifying Termination or notice by ML&P to the Executive of its belief that there is a payment or benefit due the Executive which will result in an "excess parachute payment" as defined in Section 280G of the Code, the Executive and ML&P, at ML&P's expense, shall obtain the opinion of ML&P's principal outside law firm, accounting firm, and/or compensation and benefits consulting firm, which sets forth: (a) the amount of the Executive's "annualized includible compensation for the base period" (as defined in Section 280G(d)(1) of the Code); (b) the present value of the Total Payments; and (c) the amount and present value of any "excess parachute payment." In the event that such opinion determines that there would be an "excess parachute payment," such that a reduction in the Severance Benefits would result in a greater net benefit to the Executive (as provided in Section 6.1 herein), then the Severance Benefits hereunder or any other payment determined under the opinion to be includible in Total Payments shall be reduced or eliminated so that, on the basis of calculations set forth in such opinion, there will be no "excess parachute payment". The reduction or elimination of specific payments shall apply to such type and amount of specific payments as may be designated by the Executive in writing delivered to ML&P within ten (10) calendar days of receipt of the opinion, or if the Executive fails to so notify ML&P, as may be reasonably determined by ML&P. The provisions of this Section 6.2, including the calculations, notices, and opinion provided herein, shall be based upon the conclusive presumption that the following amounts are reasonable: (a) the compensation and benefits provided for in Article III herein; and (b) any other compensation earned prior to the Effective Date of Termination by the Executive pursuant to ML&P's compensation programs (if such payments would have been made in the future in any event, even though the timing of such payment is triggered by the Change in Control). 6.3 Subsequent Imposition of Excise Tax. If, notwithstanding compliance with the provisions of Sections 6.1 and 6.2 herein, it is ultimately determined by a court or pursuant to a final determination by the Internal Revenue Service that any portion of the Total Payments is considered to be a "parachute payment", subject to excise tax under Section 4999 of the Code, which was not contemplated to be a "parachute payment" at the time of payment (so as to accurately determine whether a limitation should have been applied to the Total Payments to maximize the net benefit to the Executive, as provided in Sections 6.1 and 6.2 herein), the Executive shall be entitled to receive a lump sum cash payment sufficient to place the Executive in the same net after-tax position, computed by using the "Special Tax Rate" as such term is defined below, that the Executive would have been in had such payment not been subject to such excise tax, and had the Executive not incurred any interest charges or penalties with respect to the imposition of such excise tax. For purposes of this Agreement, the "Special Tax Rate" shall be the highest effective Federal and state marginal tax rates applicable to the Executive in the year in which the payment contemplated under this Section 6.3 is made. ARTICLE VII. OTHER RIGHTS AND BENEFITS NOT AFFECTED. 7.1 Other Benefits. Neither the provisions of this Agreement nor the Severance Benefits provided for hereunder shall reduce any amounts otherwise payable, or in any way diminish the Executive's rights as an employee of ML&P or its Subsidiaries, whether existing now or hereafter, under any benefit, incentive, retirement, stock option, stock bonus, stock purchase plan, or any employment agreement, or other plan or arrangement. 7.2 Employment Status. This Agreement does not constitute a contract of employment or impose on ML&P or its Subsidiaries any obligation to retain the Executive as an employee, to change the status of the Executive's employment, or to change ML&P's or its Subsidiaries' policies regarding termination of employment. The Executive serves as an employee of ML&P or its Subsidiaries, and this Agreement shall not create an employment relationship between ML&P or its Subsidiaries and the Executive. ARTICLE VIII. SUCCESSORS. 8.1 Successors. ML&P or its Subsidiaries will require any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) of all or substantially all of the business and/or assets of ML&P or its Subsidiaries, or any division or subsidiary thereof to expressly assume and agree to perform this Agreement in the same manner and to the same extent that ML&P or its Subsidiaries would be required to perform it if no such succession had taken place. Failure of ML&P or its Subsidiaries to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from ML&P or its Subsidiaries in the same amount and on the same terms as they would be entitled hereunder if terminated voluntarily following a Change in Control. Except for the purposes of implementing the foregoing, the date on which any succession becomes effective shall be deemed the Effective Date of Termination. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees, and legatees. If an Executive should die while any amount would still be payable to him hereunder had he continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement, to the Executive's devisee, legatee, or other designee, or if there is no such designee, to the Executive's estate. 8.2 Beneficiaries. In the event of the death of the Executive, all unpaid amounts payable to the Executive under this Agreement shall be paid to his or her Beneficiary. The Executive's spouse and other dependents shall continue to be covered by all applicable welfare benefits during the remainder of the Severance Benefits period, if any, pursuant to Section 3.4.c (unless payments at death are specified by the applicable welfare benefits provisions). The Beneficiary of the Executive's Severance Benefits under this Agreement shall be designated by the Executive in the form of a signed writing acceptable to the Committee. An Executive may make or change such designation at any time. ARTICLE IX. ADMINISTRATION. 9.1 Administration. The Compensation Committee of the Board of Directors shall administer this Agreement. The Committee is authorized to interpret this Agreement, to prescribe and rescind rules and regulations, to provide conditions and assurances deemed necessary and advisable, to protect the interest of ML&P or its Subsidiaries, and to make all other determinations necessary or advisable for the Agreement's administration. In fulfilling its administrative duties hereunder, the Committee may rely on outside counsel, independent accountants, or other consultants to render advice or assistance. 9.2 Indemnification and Exculpation. The members of the Board, its agents and officers, directors and employees of ML&P and its Subsidiaries shall be indemnified and held harmless by ML&P and its Subsidiaries against and from any and all loss, cost, liability, or expense that may be imposed upon or reasonably incurred by them in connection with or resulting from any claim, action, suit or proceeding to which they may be a party or in which they may be involved by reason of any action taken or failure to act under this Agreement and against and from any and all amounts paid by them in settlement (with ML&P's written approval) or paid by them in satisfaction of a judgment in any such action, suit or proceeding. The foregoing provision shall not be applicable to any person if the loss, cost, liability or expense is due to such person's gross negligence or willful misconduct. 9.3 Legal Fees. ML&P shall pay all reasonable legal fees, costs of litigation and other expenses incurred in good faith by the Executive as a result of ML&P's refusal to provide the Severance Benefits to which the Executive becomes entitled under this Agreement, or as a result of ML&P's contesting the validity, enforceability or interpretation of the Agreement. Provided, however, that such payments shall not exceed the amount permitted by law and ML&P's Articles of Incorporation. IN WITNESS WHEREOF, ML&P has caused this Agreement to be executed by a resolution of the Board of Directors, as of the day and year first above written. MAUI LAND & PINEAPPLE COMPANY, INC. By /S/ GARY L. GIFFORD Its President /S/ PAUL J. MEYER PAUL J. MEYER "Executive" ATTEST: /S/ IRIS Y. MATSUMOTO EX-10.7(VI) 6 MAUI LAND & PINEAPPLE COMPANY, INC. EXECUTIVE CHANGE-IN-CONTROL SEVERANCE AGREEMENT Donald A. Young Executive Vice President/Resort ARTICLE I. ESTABLISHMENT AND PURPOSE. 1.1 Effective Date. This Executive Change-in-Control Severance Agreement (the "Agreement") is made and entered into and is effective as of this 13th day of March, 1998 ("Effective Date"), by and between Maui Land & Pineapple Company, Inc. ("ML&P"), a Hawaii corporation, and Donald A. Young ("Executive") of ML&P and its Subsidiaries. This Agreement shall supersede and replace any prior severance agreement entered into between ML&P and the Executive. 1.2 Term of the Agreement. The Agreement shall commence as of the Effective Date written above, and shall continue until the Board of Directors of ML&P ("Board") determines, in good faith and in its sole discretion, that the Executive is no longer to be included in the Plan and so notifies in writing the Executive during the term of this Agreement of such determination. Provided, however, in the event that a Change in Control of ML&P or its Subsidiaries, as defined in Section 2.1 herein, occurs during the term of this Agreement, this Agreement shall remain irrevocably in effect for the greater of thirty-six (36) months from the date of such Change in Control, or until all benefits have been paid to the Executive hereunder. Further, in the event that the Board has knowledge that a third party has taken steps reasonably calculated to effect a Change in Control of ML&P or its Subsidiaries, including, but not limited to the commencement of a tender offer for the voting stock of ML&P, or the circulation of a proxy to ML&P's shareholders, then this Agreement shall remain irrevocably in effect until the Board, in good faith, determines that such third party has fully abandoned or terminated its effort to effect a Change in Control of ML&P or its Subsidiaries. 1.3 Purpose of the Agreement. The purpose of this Agreement pursuant to the Plan, is to advance the interests of ML&P and its Subsidiaries by assuring that ML&P and its Subsidiaries shall have the continued employment and dedication of the Executive and the availability of his advice and counsel in the event that an acquisition or Change in Control of ML&P or its Subsidiaries occurs. This Agreement shall also assure the Executive of equitable treatment during the period of uncertainty that surrounds an acquisition or Change in Control, and allow the Executive to act at all times in the best interest of ML&P and its shareholders. 1.4 Contractual Right to Benefits. This Agreement establishes and vests in the Executive a contractual right to the benefits which he or she is entitled hereunder, enforceable by the Executive against ML&P. However, nothing herein shall require ML&P to segregate, earmark, or otherwise set aside any funds or other assets to provide for any payments hereunder. 1.5 Legal Status. This Agreement shall be considered an unfunded agreement to provide welfare benefits to a select group of management or highly compensated employees and is therefore intended to be a "top-hat" plan exempt from the requirements of the provisions of Parts 2, 3 and 4 of Title I of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). ARTICLE II. DEFINITIONS AND CONSTRUCTION. 2.1 Definitions. Whenever used in this Agreement, the following terms shall have the meanings set forth below and, when the meaning is intended, the initial letter of the word is capitalized. a. "Base Salary" means the annualized salary at the beginning of each Year, which includes all regular basic wages, before reduction for any amounts deferred on a tax-qualified or nonqualified basis, payable in cash to an Executive for services rendered to ML&P or its Subsidiaries during the Year. Base Salary shall exclude bonuses, incentive compensation, special fees or awards, commissions, allowances, or any other form of premium or incentive pay, or amounts designated by ML&P or its Subsidiaries as payment toward or reimbursement of expenses. b. "Beneficial Owner" shall have the meaning ascribed to such terms in Rule 13d-3 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). c. "Beneficiary" with respect to an Executive means the persons or entities designated or deemed designated by the Executive pursuant to Section 8.2 herein. d. "Board" means the Board of Directors of ML&P. e. "Change in Control" of ML&P or its Subsidiaries means any one or more of the following occurrences: (1) Any Person, including a "group" as defined in Section 13 (d)(3) of the Exchange Act, who is not at the date of this Agreement the beneficial owner of shares of the given entity having 25% or more of the total number of votes that may be cast for the election of Directors of such entity, becomes the beneficial owner (including acquisition of beneficial ownership resulting from formation of a "group") of shares of such entity having 25% or more of such voting power; (2) Any Person, including a "group" as defined in Section 13(d)(3) of the Exchange Act, who is not at the date of this Agreement the beneficial owner of shares of a given entity having 50% or more of the total number of votes that may be cast for the election of Directors of such entity, becomes the beneficial owner (including acquisition of beneficial ownership resulting from formation of a "group") of shares of such entity having 50% or more of such voting power; (3) As the result of, or in connection with any cash tender or exchange offer, merger or other business combination, sale of assets or contested election, or any combination of the foregoing transactions, the persons who were Directors of the given entity before the transaction shall cease to constitute a majority of the Board of Directors of such entity or any successor to such entity; (4) A merger or consolidation of the given entity in which such entity is not the surviving entity; or (5) The sale, transfer, or other disposition of all or substantially all of the assets of the given entity (and for this purpose, the term "substantially all" shall mean assets having a fair market value, whether or not realized in the transaction, that is 50% or more of the aggregate fair market value of all assets of such entity); or in the case of a Subsidiary the sale, transfer or other disposition (other than to a direct or indirect wholly owned subsidiary of M&LP) of securities that immediately prior to such transaction constituted 50% or more of such Subsidiary's outstanding voting securities. f. "Committee" means the Compensation Committee of the Board of Directors of ML&P or any other committee appointed by the Board to administer this Agreement. g. "Disability" means a physical or mental condition which renders an Executive unable to discharge his normal work responsibility with ML&P or its Subsidiaries and which, in the opinion of a licensed physician selected by the Executive, subject to reasonable approval by the Committee based upon sufficient medical evidence, can be reasonably expected to continue for a period of at least one full calendar year. If an Executive fails to select a physician within ten (10) business days of a written request made by ML&P, then ML&P may select a physician for purposes of this paragraph. h. "Effective Date" means the date the Agreement is approved by the Board, or such other date as the Board shall designate in its resolution approving the Agreement, and as provided in Section 1.1 herein. i. "Effective Date of Termination" means the date on which a Qualifying Termination occurs. j. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, or any successor act thereto. k. "Expiration Date" means the date the Agreement expires, as provided in Section 1.2 herein. l. "Just Cause" means the basis for a termination of an Executive's employment by ML&P or its Subsidiaries for which no Severance Benefits are payable hereunder, as provided in Article IV herein. m. "ML&P" means Maui Land & Pineapple Company, Inc., a Hawaii corporation, or any successor thereto that adopts the Agreement, as provided in Section 8.1 herein. n. "Normal Retirement Date" shall mean the date on which the Executive attains age 65. o. "Person" shall have the meaning ascribed to such terms in Section 3 (a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a "group" as defined in Section 13(d); provided that for purposes of Section 2.1(e) "Person" shall not include any entity that is a direct or indirect wholly owned subsidiary of ML&P. p. "Qualifying Termination" means a termination of the Executive's employment by ML&P or its Subsidiaries as described in Section 3.2 herein. q. "Severance Benefit" means the payment of severance compensation as provided in Article III herein. r. "Subsidiaries" means Maui Pineapple Company, Ltd. and Kapalua Land Company, Ltd. s. "Year" means the consecutive 12-month period beginning each January 1 and ending December 31. 2.2 Gender and Number. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine, the plural shall include the singular, and the singular shall include the plural. 2.3 Severability. In the event any provision of the Agreement shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Agreement, and the Agreement shall be construed and enforced as if the illegal or invalid provision had not been included. 2.4 Modification. No express provisions of this Agreement may be modified, waived, or discharged unless such modification, waiver, or discharge is agreed to by the Executive in writing and approved by the Compensation Committee of the Board of Directors. 2.5 Applicable Law. To the extent not preempted by the laws of the United States, the laws of the State of Hawaii shall be the controlling law in all matters relating to the Agreement without regard to the conflicts of law principles in such laws. ARTICLE III. SEVERANCE BENEFITS. 3.1 Right to Severance Benefits. The Executive shall be entitled to receive from ML&P Severance Benefits as described in Section 3.4 herein, if there has been a Change in Control of ML&P or its Subsidiaries, as defined in Section 2.1(e) herein, and if, within thirty-six (36) months thereafter, the Executive's employment with ML&P or its Subsidiaries shall end for any reason specified in Section 3.2 herein as being a Qualifying Termination. An Executive shall not be entitled to receive Severance Benefits if the Executive's employment with ML&P or its Subsidiaries ends due to an involuntary termination by ML&P or its Subsidiaries for Just Cause, as provided under Article IV herein, or if the Executive's employment terminates due to death or Disability. 3.2 Qualifying Termination. The occurrence of any one or more of the following events within thirty-six (36) calendar months after a Change in Control of ML&P or its Subsidiaries shall cause the payment of Severance Benefits to the Executive, as provided under Section 3.4 herein: a. ML&P's or its Subsidiaries' involuntary termination of the Executive's employment without Just Cause, as defined in Article IV herein; b. The Executive's voluntary employment termination from ML&P or its Subsidiaries for Good Reason, as defined by Section 3.3 herein; c. A successor entity fails or refuses to assume ML&P's or its Subsidiaries' obligations under this Agreement in their entirety, as required by Article VIII herein; or d. ML&P or any successor entity commits a material breach of any of the provisions of this Agreement. 3.3 Definition of Good Reason. "Good Reason" means, without the Executive's express written consent, the occurrence after a Change in Control of ML&P or its Subsidiaries of any one or more of the following: a. The assignment of the Executive to duties materially inconsistent with the Executive's authorities, duties, responsibilities, and status (including offices, titles and reporting requirements) as an executive and/or officer of ML&P or its Subsidiaries, or a material reduction of the Executive's authorities, duties, or responsibilities from those in effect as of ninety (90) days prior to the Change in Control, other than an act that is remedied by ML&P or its Subsidiaries promptly after receipt of notice thereof given by the Executive (provided, however, that "Good Reason" shall not include the events described in the preceding portions of this paragraph (a) if the changes described therein have been approved by a majority of the board of directors of ML&P and also by a number of such directors who comprised at least a majority of the directors of ML&P 90 days prior to the Change In Control); b. ML&P or its Subsidiaries requiring the Executive to be based at a location in excess of seventy- five (75) miles from the location of the Executive's principal job location or office immediately prior to the Change in Control; except for required travel on company business to an extent substantially consistent with the Executive's then present business travel obligations; c. A more than ten percent (10%) reduction by ML&P or its Subsidiaries of the Executive's annual rate of Base Salary in effect as of ninety (90) days prior to the Change in Control; d. The failure of ML&P or its Subsidiaries to continue in effect any of ML&P's or its Subsidiaries' annual incentive compensation plans, or employee benefit or retirement plans, policies, practices, or other compensation arrangements in which the Executive participates as in effect prior to the Change in Control, unless such failure to continue the plan, policy, practice or arrangement pertains to all plan participants generally; or the failure by ML&P or its Subsidiaries to continue the Executive's participation therein on substantially the same basis, both in terms of the amount of benefits provided and the level of the Executive's participation relative to other participants and commensurate with the Executive's responsibility and duties; and e. The failure of ML&P or its Subsidiaries to obtain a satisfactory agreement from any successor to ML&P or its Subsidiaries to assume and agree to perform ML&P's or its Subsidiaries' obligations under this Agreement, as contemplated in Article VIII herein. 3.4 Description of Severance Benefits. In the event that an Executive becomes entitled to receive Severance Benefits, as provided in Section 3.1 herein, ML&P shall pay to the Executive and provide him with the following: a. An amount equal to 2.99 times the Executive's annual rate of Base Salary in effect upon the Effective Date of Termination; and b. A payout under the ML&P Annual Incentive Plan, in accordance with the terms of such plan; and c. A continuation of all welfare benefits at normal employee cost including medical and dental insurance, long-term disability, group term life insurance, and accidental death & dismemberment insurance for three (3) full years from the Effective Date of Termination or until the Executive reaches his Normal Retirement Date, whichever occurs earlier. In the event that participation in any one or more of the welfare benefits is not possible under the terms of the governing welfare benefit provisions or due to the modification or elimination of the welfare benefits, ML&P shall provide substantially identical welfare benefits at the normal employee cost of the affected welfare benefits. However, these benefits shall be discontinued prior to the end of the three (3) years in the event the Executive receives substantially similar benefits from a subsequent employer, as determined by the Committee. The right of the Executive and his spouse and other dependents to continued group health coverage under Section 4980B of the Internal Revenue Code of 1986, as amended ("Code"), shall commence at the end of the applicable Severance Benefits period. Unless otherwise provided under this Agreement, the applicable Severance Benefits period shall be treated as if it were a period of employment with ML&P or its Subsidiaries for purposes of determining rights and benefits under any retirement plan or other plan or program and shall be treated as a period of covered employment under such plan or other plan or program if the Executive was in covered employment immediately prior to the Change in Control, provided that, if such treatment is not possible under the terms of such plan or other plan or program, ML&P shall directly provide substantially identical benefits attributable to the crediting of the Severance Benefits period. 3.5 Reduction of Severance Benefits. In the event there are fewer than thirty-six (36) whole or partial months remaining from the Executive's Effective Date of Termination until the Executive's Normal Retirement Date, then the amounts provided for under Section 3.4(a) above shall be reduced by a fraction, the numerator of which shall be the number of whole or partial months remaining until the Executive's Normal Retirement Date, and the denominator of which shall be thirty-six (36). 3.6 Special Retirement Benefits. The Executive shall receive special retirement benefits as provided below, so that the total retirement benefits that the Executive receives will equal the retirement benefits that the Executive would have received under the Maui Land & Pineapple Company, Inc. Pension Plan for Non-Bargaining Unit Employees ("Retirement Plan"), Maui Land & Pineapple Company, Inc. Supplemental Executive Retirement Plan, and the Maui Land & Pineapple Company, Inc. Executive Supplemental Insurance Plan/Executive Deferred Compensation Plan (collectively, "Plans"), or any successor Plans or arrangements to such Plans, had the Executive continued in the employ of ML&P and its Subsidiaries for three (3) years following the Executive's Effective Date of Termination (or until his Normal Retirement Date, whichever is earlier) but without regard to any ancillary benefits. The amount of special retirement benefits payable hereunder to the Executive or his beneficiaries shall equal the excess of the amount specified in (a) over the amount specified in (b) below. a. The total retirement benefits on an actuarial equivalent single-life basis would be paid to the Executive if the three (3) years (or the period to his Normal Retirement Date, if less) following the Executive's Effective Date of Termination are added to his credited service under the Plans. b. The total retirement benefits actually paid on an actuarial equivalent single-life basis to the Executive under the Plans. Such special retirement benefits shall be paid at the same time and in the same form (e.g., actuarial equivalent single-life or contingent annuitant basis) as the Executive's retirement benefits under the Plans. The special retirement benefits shall be paid by the Plans or, if the terms of such Plans do not provide for such benefits, the special retirement benefits shall be paid directly by ML&P. The actuarial equivalent of special retirement benefits shall be determined in accordance with the factors provided under the Retirement Plan. 3.7 Outplacement Services. In the event that the Executive becomes entitled to receive Severance Benefits as provided in Section 3.1 herein, the Executive shall be entitled, at the expense of ML&P, to receive standard outplacement services as selected by the Executive, for a period of up to thirty-six (36) months from the Effective Date of Termination. However, such services shall not exceed a maximum annual benefit of ten percent (10%) of the Executive's annual rate of Base Salary as of the Effective Date of Termination. 3.8 Incentive Compensation. In the event that the Executive becomes entitled to receive Severance Benefits as provided in Section 3.1 herein, any deferred awards previously granted to the Executive under ML&P's or its Subsidiaries' incentive compensation plans and not previously paid to the Executive shall immediately vest on the date of the Executive's Effective Date of Termination and shall be paid no later than ninety (90) calendar days following that date, and be included as compensation in the month paid. ARTICLE IV. DISQUALIFICATION FROM RECEIPT OF BENEFITS. No Severance Benefits shall be payable to the Executive under this Agreement in the event the Executive is terminated by ML&P or its Subsidiaries for Just Cause. For this purpose, Just Cause shall mean willful, malicious conduct by the Executive which is detrimental to the best interests of ML&P, including theft, embezzlement, the conviction of a criminal act, disclosure of trade secrets, a gross dereliction of duty, or other grave misconduct on the part of the Executive which is substantially injurious to ML&P or its Subsidiaries. Just Cause also shall include the failure of the Executive to perform any and all covenants under this Agreement. ARTICLE V. FORM AND TIMING OF SEVERANCE BENEFITS. 5.1 Form and Timing of Severance Benefits. The Severance Benefits described in Section 3.4(a) and (b) herein, shall be paid by ML&P in cash to the Executive in a single lump sum as soon as practicable following the Executive's Effective Date of Termination, but in no event beyond ninety (90) calendar days from such date. The Severance Benefits described in Section 3.4 (c) herein shall be provided by ML&P to the Executive immediately upon the Executive's Effective Date of Termination and shall continue to be provided for three (3) full calendar years from the Executive's Effective Date of Termination or until the Executive reaches his Normal Retirement date, whichever occurs earlier. However, the Severance Benefits described in Section 3.4 (c) herein shall be discontinued prior to the end of the three (3) year period immediately upon the Executive receiving substantially similar benefits from a subsequent employer, as determined by the Committee. 5.2 Withholding of Taxes. ML&P or its Subsidiaries shall withhold from any amounts payable under this Agreement all Federal, state, city or other taxes as legally shall be required. ARTICLE VI. PARACHUTE PAYMENTS. 6.1 Determination of Alternative Severance Benefit Limit. Notwithstanding any other provision of this Agreement, if any portion of the Severance Benefits or any other payment under this Agreement, or under any other agreement with, or plan of, ML&P (in the aggregate "Total Payments") would constitute an "excess parachute payment," then the payments to be made to the Executive under this Agreement shall be reduced such that the value of the aggregate Total Payments that the Executive is entitled to receive shall be one dollar ($1) less than the maximum amount which the Executive may receive without becoming subject to the tax imposed by Section 4999 of the Code, or which ML&P may pay without loss of deduction under Section 280G(a) of the Code. However, such reduction in Severance Benefits shall apply if, and only if, the resulting Severance benefits with such reduction is greater in value to the Executive than the value of the Severance Benefits without a reduction, net of any tax imposed on the Executive pursuant to Section 4999 of the Code. For purposes of this Agreement, the terms "excess parachute payment" and "parachute payments" shall have the meanings assigned to such terms in Section 280G of the Code, and such "parachute payments" shall be valued as provided therein. 6.2 Procedure for Establishing Alternative Limitation. Within fifteen (15) calendar days following delivery of the notice of Qualifying Termination or notice by ML&P to the Executive of its belief that there is a payment or benefit due the Executive which will result in an "excess parachute payment" as defined in Section 280G of the Code, the Executive and ML&P, at ML&P's expense, shall obtain the opinion of ML&P's principal outside law firm, accounting firm, and/or compensation and benefits consulting firm, which sets forth: (a) the amount of the Executive's "annualized includible compensation for the base period" (as defined in Section 280G(d)(1) of the Code); (b) the present value of the Total Payments; and (c) the amount and present value of any "excess parachute payment." In the event that such opinion determines that there would be an "excess parachute payment," such that a reduction in the Severance Benefits would result in a greater net benefit to the Executive (as provided in Section 6.1 herein), then the Severance Benefits hereunder or any other payment determined under the opinion to be includible in Total Payments shall be reduced or eliminated so that, on the basis of calculations set forth in such opinion, there will be no "excess parachute payment". The reduction or elimination of specific payments shall apply to such type and amount of specific payments as may be designated by the Executive in writing delivered to ML&P within ten (10) calendar days of receipt of the opinion, or if the Executive fails to so notify ML&P, as may be reasonably determined by ML&P. The provisions of this Section 6.2, including the calculations, notices, and opinion provided herein, shall be based upon the conclusive presumption that the following amounts are reasonable: (a) the compensation and benefits provided for in Article III herein; and (b) any other compensation earned prior to the Effective Date of Termination by the Executive pursuant to ML&P's compensation programs (if such payments would have been made in the future in any event, even though the timing of such payment is triggered by the Change in Control). 6.3 Subsequent Imposition of Excise Tax. If, notwithstanding compliance with the provisions of Sections 6.1 and 6.2 herein, it is ultimately determined by a court or pursuant to a final determination by the Internal Revenue Service that any portion of the Total Payments is considered to be a "parachute payment", subject to excise tax under Section 4999 of the Code, which was not contemplated to be a "parachute payment" at the time of payment (so as to accurately determine whether a limitation should have been applied to the Total Payments to maximize the net benefit to the Executive, as provided in Sections 6.1 and 6.2 herein), the Executive shall be entitled to receive a lump sum cash payment sufficient to place the Executive in the same net after-tax position, computed by using the "Special Tax Rate" as such term is defined below, that the Executive would have been in had such payment not been subject to such excise tax, and had the Executive not incurred any interest charges or penalties with respect to the imposition of such excise tax. For purposes of this Agreement, the "Special Tax Rate" shall be the highest effective Federal and state marginal tax rates applicable to the Executive in the year in which the payment contemplated under this Section 6.3 is made. ARTICLE VII. OTHER RIGHTS AND BENEFITS NOT AFFECTED. 7.1 Other Benefits. Neither the provisions of this Agreement nor the Severance Benefits provided for hereunder shall reduce any amounts otherwise payable, or in any way diminish the Executive's rights as an employee of ML&P or its Subsidiaries, whether existing now or hereafter, under any benefit, incentive, retirement, stock option, stock bonus, stock purchase plan, or any employment agreement, or other plan or arrangement. 7.2 Employment Status. This Agreement does not constitute a contract of employment or impose on ML&P or its Subsidiaries any obligation to retain the Executive as an employee, to change the status of the Executive's employment, or to change ML&P's or its Subsidiaries' policies regarding termination of employment. The Executive serves as an employee of ML&P or its Subsidiaries, and this Agreement shall not create an employment relationship between ML&P or its Subsidiaries and the Executive. ARTICLE VIII. SUCCESSORS. 8.1 Successors. ML&P or its Subsidiaries will require any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) of all or substantially all of the business and/or assets of ML&P or its Subsidiaries, or any division or subsidiary thereof to expressly assume and agree to perform this Agreement in the same manner and to the same extent that ML&P or its Subsidiaries would be required to perform it if no such succession had taken place. Failure of ML&P or its Subsidiaries to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from ML&P or its Subsidiaries in the same amount and on the same terms as they would be entitled hereunder if terminated voluntarily following a Change in Control. Except for the purposes of implementing the foregoing, the date on which any succession becomes effective shall be deemed the Effective Date of Termination. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees, and legatees. If an Executive should die while any amount would still be payable to him hereunder had he continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement, to the Executive's devisee, legatee, or other designee, or if there is no such designee, to the Executive's estate. 8.2 Beneficiaries. In the event of the death of the Executive, all unpaid amounts payable to the Executive under this Agreement shall be paid to his or her Beneficiary. The Executive's spouse and other dependents shall continue to be covered by all applicable welfare benefits during the remainder of the Severance Benefits period, if any, pursuant to Section 3.4.c (unless payments at death are specified by the applicable welfare benefits provisions). The Beneficiary of the Executive's Severance Benefits under this Agreement shall be designated by the Executive in the form of a signed writing acceptable to the Committee. An Executive may make or change such designation at any time. ARTICLE IX. ADMINISTRATION. 9.1 Administration. The Compensation Committee of the Board of Directors shall administer this Agreement. The Committee is authorized to interpret this Agreement, to prescribe and rescind rules and regulations, to provide conditions and assurances deemed necessary and advisable, to protect the interest of ML&P or its Subsidiaries, and to make all other determinations necessary or advisable for the Agreement's administration. In fulfilling its administrative duties hereunder, the Committee may rely on outside counsel, independent accountants, or other consultants to render advice or assistance. 9.2 Indemnification and Exculpation. The members of the Board, its agents and officers, directors and employees of ML&P and its Subsidiaries shall be indemnified and held harmless by ML&P and its Subsidiaries against and from any and all loss, cost, liability, or expense that may be imposed upon or reasonably incurred by them in connection with or resulting from any claim, action, suit or proceeding to which they may be a party or in which they may be involved by reason of any action taken or failure to act under this Agreement and against and from any and all amounts paid by them in settlement (with ML&P's written approval) or paid by them in satisfaction of a judgment in any such action, suit or proceeding. The foregoing provision shall not be applicable to any person if the loss, cost, liability or expense is due to such person's gross negligence or willful misconduct. 9.3 Legal Fees. ML&P shall pay all reasonable legal fees, costs of litigation and other expenses incurred in good faith by the Executive as a result of ML&P's refusal to provide the Severance Benefits to which the Executive becomes entitled under this Agreement, or as a result of ML&P's contesting the validity, enforceability or interpretation of the Agreement. Provided, however, that such payments shall not exceed the amount permitted by law and ML&P's Articles of Incorporation. IN WITNESS WHEREOF, ML&P has caused this Agreement to be executed by a resolution of the Board of Directors, as of the day and year first above written. MAUI LAND & PINEAPPLE COMPANY, INC. By /S/ GARY L. GIFFORD Its President /S/ DONALD A. YOUNG DONALD A. YOUNG "Executive" ATTEST: /S/ IRIS Y. MATSUMOTO EX-10.7(VII) 7 MAUI LAND & PINEAPPLE COMPANY, INC. EXECUTIVE CHANGE-IN-CONTROL SEVERANCE AGREEMENT Douglas R. Schenk Executive Vice President/Pineapple ARTICLE I. ESTABLISHMENT AND PURPOSE. 1.1 Effective Date. This Executive Change-in-Control Severance Agreement (the "Agreement") is made and entered into and is effective as of this 16th day of March, 1998 ("Effective Date"), by and between Maui Land & Pineapple Company, Inc. ("ML&P"), a Hawaii corporation, and Douglas R. Schenk ("Executive") of ML&P and its Subsidiaries. This Agreement shall supersede and replace any prior severance agreement entered into between ML&P and the Executive. 1.2 Term of the Agreement. The Agreement shall commence as of the Effective Date written above, and shall continue until the Board of Directors of ML&P ("Board") determines, in good faith and in its sole discretion, that the Executive is no longer to be included in the Plan and so notifies in writing the Executive during the term of this Agreement of such determination. Provided, however, in the event that a Change in Control of ML&P or its Subsidiaries, as defined in Section 2.1 herein, occurs during the term of this Agreement, this Agreement shall remain irrevocably in effect for the greater of thirty-six (36) months from the date of such Change in Control, or until all benefits have been paid to the Executive hereunder. Further, in the event that the Board has knowledge that a third party has taken steps reasonably calculated to effect a Change in Control of ML&P or its Subsidiaries, including, but not limited to the commencement of a tender offer for the voting stock of ML&P, or the circulation of a proxy to ML&P's shareholders, then this Agreement shall remain irrevocably in effect until the Board, in good faith, determines that such third party has fully abandoned or terminated its effort to effect a Change in Control of ML&P or its Subsidiaries. 1.3 Purpose of the Agreement. The purpose of this Agreement pursuant to the Plan, is to advance the interests of ML&P and its Subsidiaries by assuring that ML&P and its Subsidiaries shall have the continued employment and dedication of the Executive and the availability of his advice and counsel in the event that an acquisition or Change in Control of ML&P or its Subsidiaries occurs. This Agreement shall also assure the Executive of equitable treatment during the period of uncertainty that surrounds an acquisition or Change in Control, and allow the Executive to act at all times in the best interest of ML&P and its shareholders. 1.4 Contractual Right to Benefits. This Agreement establishes and vests in the Executive a contractual right to the benefits which he or she is entitled hereunder, enforceable by the Executive against ML&P. However, nothing herein shall require ML&P to segregate, earmark, or otherwise set aside any funds or other assets to provide for any payments hereunder. 1.5 Legal Status. This Agreement shall be considered an unfunded agreement to provide welfare benefits to a select group of management or highly compensated employees and is therefore intended to be a "top-hat" plan exempt from the requirements of the provisions of Parts 2, 3 and 4 of Title I of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). ARTICLE II. DEFINITIONS AND CONSTRUCTION. 2.1 Definitions. Whenever used in this Agreement, the following terms shall have the meanings set forth below and, when the meaning is intended, the initial letter of the word is capitalized. a. "Base Salary" means the annualized salary at the beginning of each Year, which includes all regular basic wages, before reduction for any amounts deferred on a tax-qualified or nonqualified basis, payable in cash to an Executive for services rendered to ML&P or its Subsidiaries during the Year. Base Salary shall exclude bonuses, incentive compensation, special fees or awards, commissions, allowances, or any other form of premium or incentive pay, or amounts designated by ML&P or its Subsidiaries as payment toward or reimbursement of expenses. b. "Beneficial Owner" shall have the meaning ascribed to such terms in Rule 13d-3 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). c. "Beneficiary" with respect to an Executive means the persons or entities designated or deemed designated by the Executive pursuant to Section 8.2 herein. d. "Board" means the Board of Directors of ML&P. e. "Change in Control" of ML&P or its Subsidiaries means any one or more of the following occurrences: (1) Any Person, including a "group" as defined in Section 13 (d)(3) of the Exchange Act, who is not at the date of this Agreement the beneficial owner of shares of the given entity having 25% or more of the total number of votes that may be cast for the election of Directors of such entity, becomes the beneficial owner (including acquisition of beneficial ownership resulting from formation of a "group") of shares of such entity having 25% or more of such voting power; (2) Any Person, including a "group" as defined in Section 13(d)(3) of the Exchange Act, who is not at the date of this Agreement the beneficial owner of shares of a given entity having 50% or more of the total number of votes that may be cast for the election of Directors of such entity, becomes the beneficial owner (including acquisition of beneficial ownership resulting from formation of a "group") of shares of such entity having 50% or more of such voting power; (3) As the result of, or in connection with any cash tender or exchange offer, merger or other business combination, sale of assets or contested election, or any combination of the foregoing transactions, the persons who were Directors of the given entity before the transaction shall cease to constitute a majority of the Board of Directors of such entity or any successor to such entity; (4) A merger or consolidation of the given entity in which such entity is not the surviving entity; or (5) The sale, transfer, or other disposition of all or substantially all of the assets of the given entity (and for this purpose, the term "substantially all" shall mean assets having a fair market value, whether or not realized in the transaction, that is 50% or more of the aggregate fair market value of all assets of such entity); or in the case of a Subsidiary the sale, transfer or other disposition (other than to a direct or indirect wholly owned subsidiary of M&LP) of securities that immediately prior to such transaction constituted 50% or more of such Subsidiary's outstanding voting securities. f. "Committee" means the Compensation Committee of the Board of Directors of ML&P or any other committee appointed by the Board to administer this Agreement. g. "Disability" means a physical or mental condition which renders an Executive unable to discharge his normal work responsibility with ML&P or its Subsidiaries and which, in the opinion of a licensed physician selected by the Executive, subject to reasonable approval by the Committee based upon sufficient medical evidence, can be reasonably expected to continue for a period of at least one full calendar year. If an Executive fails to select a physician within ten (10) business days of a written request made by ML&P, then ML&P may select a physician for purposes of this paragraph. h. "Effective Date" means the date the Agreement is approved by the Board, or such other date as the Board shall designate in its resolution approving the Agreement, and as provided in Section 1.1 herein. i. "Effective Date of Termination" means the date on which a Qualifying Termination occurs. j. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, or any successor act thereto. k. "Expiration Date" means the date the Agreement expires, as provided in Section 1.2 herein. l. "Just Cause" means the basis for a termination of an Executive's employment by ML&P or its Subsidiaries for which no Severance Benefits are payable hereunder, as provided in Article IV herein. m. "ML&P" means Maui Land & Pineapple Company, Inc., a Hawaii corporation, or any successor thereto that adopts the Agreement, as provided in Section 8.1 herein. n. "Normal Retirement Date" shall mean the date on which the Executive attains age 65. o. "Person" shall have the meaning ascribed to such terms in Section 3 (a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a "group" as defined in Section 13(d); provided that for purposes of Section 2.1(e) "Person" shall not include any entity that is a direct or indirect wholly owned subsidiary of ML&P. p. "Qualifying Termination" means a termination of the Executive's employment by ML&P or its Subsidiaries as described in Section 3.2 herein. q. "Severance Benefit" means the payment of severance compensation as provided in Article III herein. r. "Subsidiaries" means Maui Pineapple Company, Ltd. and Kapalua Land Company, Ltd. s. "Year" means the consecutive 12-month period beginning each January 1 and ending December 31. 2.2 Gender and Number. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine, the plural shall include the singular, and the singular shall include the plural. 2.3 Severability. In the event any provision of the Agreement shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Agreement, and the Agreement shall be construed and enforced as if the illegal or invalid provision had not been included. 2.4 Modification. No express provisions of this Agreement may be modified, waived, or discharged unless such modification, waiver, or discharge is agreed to by the Executive in writing and approved by the Compensation Committee of the Board of Directors. 2.5 Applicable Law. To the extent not preempted by the laws of the United States, the laws of the State of Hawaii shall be the controlling law in all matters relating to the Agreement without regard to the conflicts of law principles in such laws. ARTICLE III. SEVERANCE BENEFITS. 3.1 Right to Severance Benefits. The Executive shall be entitled to receive from ML&P Severance Benefits as described in Section 3.4 herein, if there has been a Change in Control of ML&P or its Subsidiaries, as defined in Section 2.1(e) herein, and if, within thirty-six (36) months thereafter, the Executive's employment with ML&P or its Subsidiaries shall end for any reason specified in Section 3.2 herein as being a Qualifying Termination. An Executive shall not be entitled to receive Severance Benefits if the Executive's employment with ML&P or its Subsidiaries ends due to an involuntary termination by ML&P or its Subsidiaries for Just Cause, as provided under Article IV herein, or if the Executive's employment terminates due to death or Disability. 3.2 Qualifying Termination. The occurrence of any one or more of the following events within thirty-six (36) calendar months after a Change in Control of ML&P or its Subsidiaries shall cause the payment of Severance Benefits to the Executive, as provided under Section 3.4 herein: a. ML&P's or its Subsidiaries' involuntary termination of the Executive's employment without Just Cause, as defined in Article IV herein; b. The Executive's voluntary employment termination from ML&P or its Subsidiaries for Good Reason, as defined by Section 3.3 herein; c. A successor entity fails or refuses to assume ML&P's or its Subsidiaries' obligations under this Agreement in their entirety, as required by Article VIII herein; or d. ML&P or any successor entity commits a material breach of any of the provisions of this Agreement. 3.3 Definition of Good Reason. "Good Reason" means, without the Executive's express written consent, the occurrence after a Change in Control of ML&P or its Subsidiaries of any one or more of the following: a. The assignment of the Executive to duties materially inconsistent with the Executive's authorities, duties, responsibilities, and status (including offices, titles and reporting requirements) as an executive and/or officer of ML&P or its Subsidiaries, or a material reduction of the Executive's authorities, duties, or responsibilities from those in effect as of ninety (90) days prior to the Change in Control, other than an act that is remedied by ML&P or its Subsidiaries promptly after receipt of notice thereof given by the Executive (provided, however, that "Good Reason" shall not include the events described in the preceding portions of this paragraph (a) if the changes described therein have been approved by a majority of the board of directors of ML&P and also by a number of such directors who comprised at least a majority of the directors of ML&P 90 days prior to the Change In Control); b. ML&P or its Subsidiaries requiring the Executive to be based at a location in excess of seventy- five (75) miles from the location of the Executive's principal job location or office immediately prior to the Change in Control; except for required travel on company business to an extent substantially consistent with the Executive's then present business travel obligations; c. A more than ten percent (10%) reduction by ML&P or its Subsidiaries of the Executive's annual rate of Base Salary in effect as of ninety (90) days prior to the Change in Control; d. The failure of ML&P or its Subsidiaries to continue in effect any of ML&P's or its Subsidiaries' annual incentive compensation plans, or employee benefit or retirement plans, policies, practices, or other compensation arrangements in which the Executive participates as in effect prior to the Change in Control, unless such failure to continue the plan, policy, practice or arrangement pertains to all plan participants generally; or the failure by ML&P or its Subsidiaries to continue the Executive's participation therein on substantially the same basis, both in terms of the amount of benefits provided and the level of the Executive's participation relative to other participants and commensurate with the Executive's responsibility and duties; and e. The failure of ML&P or its Subsidiaries to obtain a satisfactory agreement from any successor to ML&P or its Subsidiaries to assume and agree to perform ML&P's or its Subsidiaries' obligations under this Agreement, as contemplated in Article VIII herein. 3.4 Description of Severance Benefits. In the event that an Executive becomes entitled to receive Severance Benefits, as provided in Section 3.1 herein, ML&P shall pay to the Executive and provide him with the following: a. An amount equal to 2.99 times the Executive's annual rate of Base Salary in effect upon the Effective Date of Termination; and b. A payout under the ML&P Annual Incentive Plan, in accordance with the terms of such plan; and c. A continuation of all welfare benefits at normal employee cost including medical and dental insurance, long-term disability, group term life insurance, and accidental death & dismemberment insurance for three (3) full years from the Effective Date of Termination or until the Executive reaches his Normal Retirement Date, whichever occurs earlier. In the event that participation in any one or more of the welfare benefits is not possible under the terms of the governing welfare benefit provisions or due to the modification or elimination of the welfare benefits, ML&P shall provide substantially identical welfare benefits at the normal employee cost of the affected welfare benefits. However, these benefits shall be discontinued prior to the end of the three (3) years in the event the Executive receives substantially similar benefits from a subsequent employer, as determined by the Committee. The right of the Executive and his spouse and other dependents to continued group health coverage under Section 4980B of the Internal Revenue Code of 1986, as amended ("Code"), shall commence at the end of the applicable Severance Benefits period. Unless otherwise provided under this Agreement, the applicable Severance Benefits period shall be treated as if it were a period of employment with ML&P or its Subsidiaries for purposes of determining rights and benefits under any retirement plan or other plan or program and shall be treated as a period of covered employment under such plan or other plan or program if the Executive was in covered employment immediately prior to the Change in Control, provided that, if such treatment is not possible under the terms of such plan or other plan or program, ML&P shall directly provide substantially identical benefits attributable to the crediting of the Severance Benefits period. 3.5 Reduction of Severance Benefits. In the event there are fewer than thirty-six (36) whole or partial months remaining from the Executive's Effective Date of Termination until the Executive's Normal Retirement Date, then the amounts provided for under Section 3.4(a) above shall be reduced by a fraction, the numerator of which shall be the number of whole or partial months remaining until the Executive's Normal Retirement Date, and the denominator of which shall be thirty-six (36). 3.6 Special Retirement Benefits. The Executive shall receive special retirement benefits as provided below, so that the total retirement benefits that the Executive receives will equal the retirement benefits that the Executive would have received under the Maui Land & Pineapple Company, Inc. Pension Plan for Non-Bargaining Unit Employees ("Retirement Plan"), Maui Land & Pineapple Company, Inc. Supplemental Executive Retirement Plan, and the Maui Land & Pineapple Company, Inc. Executive Supplemental Insurance Plan/Executive Deferred Compensation Plan (collectively, "Plans"), or any successor Plans or arrangements to such Plans, had the Executive continued in the employ of ML&P and its Subsidiaries for three (3) years following the Executive's Effective Date of Termination (or until his Normal Retirement Date, whichever is earlier) but without regard to any ancillary benefits. The amount of special retirement benefits payable hereunder to the Executive or his beneficiaries shall equal the excess of the amount specified in (a) over the amount specified in (b) below. a. The total retirement benefits on an actuarial equivalent single-life basis would be paid to the Executive if the three (3) years (or the period to his Normal Retirement Date, if less) following the Executive's Effective Date of Termination are added to his credited service under the Plans. b. The total retirement benefits actually paid on an actuarial equivalent single-life basis to the Executive under the Plans. Such special retirement benefits shall be paid at the same time and in the same form (e.g., actuarial equivalent single-life or contingent annuitant basis) as the Executive's retirement benefits under the Plans. The special retirement benefits shall be paid by the Plans or, if the terms of such Plans do not provide for such benefits, the special retirement benefits shall be paid directly by ML&P. The actuarial equivalent of special retirement benefits shall be determined in accordance with the factors provided under the Retirement Plan. 3.7 Outplacement Services. In the event that the Executive becomes entitled to receive Severance Benefits as provided in Section 3.1 herein, the Executive shall be entitled, at the expense of ML&P, to receive standard outplacement services as selected by the Executive, for a period of up to thirty-six (36) months from the Effective Date of Termination. However, such services shall not exceed a maximum annual benefit of ten percent (10%) of the Executive's annual rate of Base Salary as of the Effective Date of Termination. 3.8 Incentive Compensation. In the event that the Executive becomes entitled to receive Severance Benefits as provided in Section 3.1 herein, any deferred awards previously granted to the Executive under ML&P's or its Subsidiaries' incentive compensation plans and not previously paid to the Executive shall immediately vest on the date of the Executive's Effective Date of Termination and shall be paid no later than ninety (90) calendar days following that date, and be included as compensation in the month paid. ARTICLE IV. DISQUALIFICATION FROM RECEIPT OF BENEFITS. No Severance Benefits shall be payable to the Executive under this Agreement in the event the Executive is terminated by ML&P or its Subsidiaries for Just Cause. For this purpose, Just Cause shall mean willful, malicious conduct by the Executive which is detrimental to the best interests of ML&P, including theft, embezzlement, the conviction of a criminal act, disclosure of trade secrets, a gross dereliction of duty, or other grave misconduct on the part of the Executive which is substantially injurious to ML&P or its Subsidiaries. Just Cause also shall include the failure of the Executive to perform any and all covenants under this Agreement. ARTICLE V. FORM AND TIMING OF SEVERANCE BENEFITS. 5.1 Form and Timing of Severance Benefits. The Severance Benefits described in Section 3.4(a) and (b) herein, shall be paid by ML&P in cash to the Executive in a single lump sum as soon as practicable following the Executive's Effective Date of Termination, but in no event beyond ninety (90) calendar days from such date. The Severance Benefits described in Section 3.4 (c) herein shall be provided by ML&P to the Executive immediately upon the Executive's Effective Date of Termination and shall continue to be provided for three (3) full calendar years from the Executive's Effective Date of Termination or until the Executive reaches his Normal Retirement date, whichever occurs earlier. However, the Severance Benefits described in Section 3.4 (c) herein shall be discontinued prior to the end of the three (3) year period immediately upon the Executive receiving substantially similar benefits from a subsequent employer, as determined by the Committee. 5.2 Withholding of Taxes. ML&P or its Subsidiaries shall withhold from any amounts payable under this Agreement all Federal, state, city or other taxes as legally shall be required. ARTICLE VI. PARACHUTE PAYMENTS. 6.1 Determination of Alternative Severance Benefit Limit. Notwithstanding any other provision of this Agreement, if any portion of the Severance Benefits or any other payment under this Agreement, or under any other agreement with, or plan of, ML&P (in the aggregate "Total Payments") would constitute an "excess parachute payment," then the payments to be made to the Executive under this Agreement shall be reduced such that the value of the aggregate Total Payments that the Executive is entitled to receive shall be one dollar ($1) less than the maximum amount which the Executive may receive without becoming subject to the tax imposed by Section 4999 of the Code, or which ML&P may pay without loss of deduction under Section 280G(a) of the Code. However, such reduction in Severance Benefits shall apply if, and only if, the resulting Severance benefits with such reduction is greater in value to the Executive than the value of the Severance Benefits without a reduction, net of any tax imposed on the Executive pursuant to Section 4999 of the Code. For purposes of this Agreement, the terms "excess parachute payment" and "parachute payments" shall have the meanings assigned to such terms in Section 280G of the Code, and such "parachute payments" shall be valued as provided therein. 6.2 Procedure for Establishing Alternative Limitation. Within fifteen (15) calendar days following delivery of the notice of Qualifying Termination or notice by ML&P to the Executive of its belief that there is a payment or benefit due the Executive which will result in an "excess parachute payment" as defined in Section 280G of the Code, the Executive and ML&P, at ML&P's expense, shall obtain the opinion of ML&P's principal outside law firm, accounting firm, and/or compensation and benefits consulting firm, which sets forth: (a) the amount of the Executive's "annualized includible compensation for the base period" (as defined in Section 280G(d)(1) of the Code); (b) the present value of the Total Payments; and (c) the amount and present value of any "excess parachute payment." In the event that such opinion determines that there would be an "excess parachute payment," such that a reduction in the Severance Benefits would result in a greater net benefit to the Executive (as provided in Section 6.1 herein), then the Severance Benefits hereunder or any other payment determined under the opinion to be includible in Total Payments shall be reduced or eliminated so that, on the basis of calculations set forth in such opinion, there will be no "excess parachute payment". The reduction or elimination of specific payments shall apply to such type and amount of specific payments as may be designated by the Executive in writing delivered to ML&P within ten (10) calendar days of receipt of the opinion, or if the Executive fails to so notify ML&P, as may be reasonably determined by ML&P. The provisions of this Section 6.2, including the calculations, notices, and opinion provided herein, shall be based upon the conclusive presumption that the following amounts are reasonable: (a) the compensation and benefits provided for in Article III herein; and (b) any other compensation earned prior to the Effective Date of Termination by the Executive pursuant to ML&P's compensation programs (if such payments would have been made in the future in any event, even though the timing of such payment is triggered by the Change in Control). 6.3 Subsequent Imposition of Excise Tax. If, notwithstanding compliance with the provisions of Sections 6.1 and 6.2 herein, it is ultimately determined by a court or pursuant to a final determination by the Internal Revenue Service that any portion of the Total Payments is considered to be a "parachute payment", subject to excise tax under Section 4999 of the Code, which was not contemplated to be a "parachute payment" at the time of payment (so as to accurately determine whether a limitation should have been applied to the Total Payments to maximize the net benefit to the Executive, as provided in Sections 6.1 and 6.2 herein), the Executive shall be entitled to receive a lump sum cash payment sufficient to place the Executive in the same net after-tax position, computed by using the "Special Tax Rate" as such term is defined below, that the Executive would have been in had such payment not been subject to such excise tax, and had the Executive not incurred any interest charges or penalties with respect to the imposition of such excise tax. For purposes of this Agreement, the "Special Tax Rate" shall be the highest effective Federal and state marginal tax rates applicable to the Executive in the year in which the payment contemplated under this Section 6.3 is made. ARTICLE VII. OTHER RIGHTS AND BENEFITS NOT AFFECTED. 7.1 Other Benefits. Neither the provisions of this Agreement nor the Severance Benefits provided for hereunder shall reduce any amounts otherwise payable, or in any way diminish the Executive's rights as an employee of ML&P or its Subsidiaries, whether existing now or hereafter, under any benefit, incentive, retirement, stock option, stock bonus, stock purchase plan, or any employment agreement, or other plan or arrangement. 7.2 Employment Status. This Agreement does not constitute a contract of employment or impose on ML&P or its Subsidiaries any obligation to retain the Executive as an employee, to change the status of the Executive's employment, or to change ML&P's or its Subsidiaries' policies regarding termination of employment. The Executive serves as an employee of ML&P or its Subsidiaries, and this Agreement shall not create an employment relationship between ML&P or its Subsidiaries and the Executive. ARTICLE VIII. SUCCESSORS. 8.1 Successors. ML&P or its Subsidiaries will require any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) of all or substantially all of the business and/or assets of ML&P or its Subsidiaries, or any division or subsidiary thereof to expressly assume and agree to perform this Agreement in the same manner and to the same extent that ML&P or its Subsidiaries would be required to perform it if no such succession had taken place. Failure of ML&P or its Subsidiaries to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from ML&P or its Subsidiaries in the same amount and on the same terms as they would be entitled hereunder if terminated voluntarily following a Change in Control. Except for the purposes of implementing the foregoing, the date on which any succession becomes effective shall be deemed the Effective Date of Termination. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees, and legatees. If an Executive should die while any amount would still be payable to him hereunder had he continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement, to the Executive's devisee, legatee, or other designee, or if there is no such designee, to the Executive's estate. 8.2 Beneficiaries. In the event of the death of the Executive, all unpaid amounts payable to the Executive under this Agreement shall be paid to his or her Beneficiary. The Executive's spouse and other dependents shall continue to be covered by all applicable welfare benefits during the remainder of the Severance Benefits period, if any, pursuant to Section 3.4.c (unless payments at death are specified by the applicable welfare benefits provisions). The Beneficiary of the Executive's Severance Benefits under this Agreement shall be designated by the Executive in the form of a signed writing acceptable to the Committee. An Executive may make or change such designation at any time. ARTICLE IX. ADMINISTRATION. 9.1 Administration. The Compensation Committee of the Board of Directors shall administer this Agreement. The Committee is authorized to interpret this Agreement, to prescribe and rescind rules and regulations, to provide conditions and assurances deemed necessary and advisable, to protect the interest of ML&P or its Subsidiaries, and to make all other determinations necessary or advisable for the Agreement's administration. In fulfilling its administrative duties hereunder, the Committee may rely on outside counsel, independent accountants, or other consultants to render advice or assistance. 9.2 Indemnification and Exculpation. The members of the Board, its agents and officers, directors and employees of ML&P and its Subsidiaries shall be indemnified and held harmless by ML&P and its Subsidiaries against and from any and all loss, cost, liability, or expense that may be imposed upon or reasonably incurred by them in connection with or resulting from any claim, action, suit or proceeding to which they may be a party or in which they may be involved by reason of any action taken or failure to act under this Agreement and against and from any and all amounts paid by them in settlement (with ML&P's written approval) or paid by them in satisfaction of a judgment in any such action, suit or proceeding. The foregoing provision shall not be applicable to any person if the loss, cost, liability or expense is due to such person's gross negligence or willful misconduct. 9.3 Legal Fees. ML&P shall pay all reasonable legal fees, costs of litigation and other expenses incurred in good faith by the Executive as a result of ML&P's refusal to provide the Severance Benefits to which the Executive becomes entitled under this Agreement, or as a result of ML&P's contesting the validity, enforceability or interpretation of the Agreement. Provided, however, that such payments shall not exceed the amount permitted by law and ML&P's Articles of Incorporation. IN WITNESS WHEREOF, ML&P has caused this Agreement to be executed by a resolution of the Board of Directors, as of the day and year first above written. MAUI LAND & PINEAPPLE COMPANY, INC. By /S/ GARY L. GIFFORD Its President /S/ DOUGLAS R. SCHENK DOUGLAS R. SCHENK "Executive" ATTEST: /S/ IRIS Y. MATSUMOTO EX-10.7(VIII) 8 MAUI LAND & PINEAPPLE COMPANY, INC. CHANGE-IN-CONTROL SEVERANCE AGREEMENT Warren A. Suzuki Vice President/Land Management ARTICLE I. ESTABLISHMENT AND PURPOSE. 1.1 Effective Date. This Change-in-Control Severance Agreement (the "Agreement") is made and entered into and is effective as of this 16th day of March, 1998 ("Effective Date"), by and between Maui Land & Pineapple Company, Inc. ("ML&P"), a Hawaii corporation, and Warren A. Suzuki ("Executive") of ML&P and its Subsidiaries. This Agreement shall supersede and replace any prior severance agreement entered into between ML&P and the Executive. 1.2 Term of the Agreement. The Agreement shall commence as of the Effective Date written above, and shall continue until the Board of Directors of ML&P ("Board") determines, in good faith and in its sole discretion, that the Executive is no longer to be included in the Plan and so notifies in writing the Executive during the term of this Agreement of such determination. Provided, however, in the event that a Change in Control of ML&P or its Subsidiaries, as defined in Section 2.1 herein, occurs during the term of this Agreement, this Agreement shall remain irrevocably in effect for the greater of twenty-four (24) months from the date of such Change in Control, or until all benefits have been paid to the Executive hereunder. Further, in the event that the Board has knowledge that a third party has taken steps reasonably calculated to effect a Change in Control of ML&P or its Subsidiaries, including, but not limited to the commencement of a tender offer for the voting stock of ML&P, or the circulation of a proxy to ML&P's shareholders, then this Agreement shall remain irrevocably in effect until the Board, in good faith, determines that such third party has fully abandoned or terminated its effort to effect a Change in Control of ML&P or its Subsidiaries. 1.3 Purpose of the Agreement. The purpose of this Agreement pursuant to the Plan, is to advance the interests of ML&P and its Subsidiaries by assuring that ML&P and its Subsidiaries shall have the continued employment and dedication of the Executive and the availability of his advice and counsel in the event that an acquisition or Change in Control of ML&P or its Subsidiaries occurs. This Agreement shall also assure the Executive of equitable treatment during the period of uncertainty that surrounds an acquisition or Change in Control, and allow the Executive to act at all times in the best interest of ML&P and its shareholders. 1.4 Contractual Right to Benefits. This Agreement establishes and vests in the Executive a contractual right to the benefits which he or she is entitled hereunder, enforceable by the Executive against ML&P. However, nothing herein shall require ML&P to segregate, earmark, or otherwise set aside any funds or other assets to provide for any payments hereunder. 1.5 Legal Status. This Agreement shall be considered an unfunded agreement to provide welfare benefits to a select group of management or highly compensated employees and is therefore intended to be a "top-hat" plan exempt from the requirements of the provisions of Parts 2, 3 and 4 of Title I of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). ARTICLE II. DEFINITIONS AND CONSTRUCTION. 2.1 Definitions. Whenever used in this Agreement, the following terms shall have the meanings set forth below and, when the meaning is intended, the initial letter of the word is capitalized. a. "Base Salary" means the annualized salary at the beginning of each Year, which includes all regular basic wages, before reduction for any amounts deferred on a tax-qualified or nonqualified basis, payable in cash to an Executive for services rendered to ML&P or its Subsidiaries during the Year. Base Salary shall exclude bonuses, incentive compensation, special fees or awards, commissions, allowances, or any other form of premium or incentive pay, or amounts designated by ML&P or its Subsidiaries as payment toward or reimbursement of expenses. b. "Beneficial Owner" shall have the meaning ascribed to such terms in Rule 13d-3 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). c. "Beneficiary" with respect to an Executive means the persons or entities designated or deemed designated by the Executive pursuant to Section 8.2 herein. d. "Board" means the Board of Directors of ML&P. e. "Change in Control" of ML&P or its Subsidiaries means any one or more of the following occurrences: (1) Any Person, including a "group" as defined in Section 13 (d)(3) of the Exchange Act, who is not at the date of this Agreement the beneficial owner of shares (or, in the case of a partnership, beneficial owner of partnership units) of the given entity having 25% or more of the total number of votes that may be cast for the election of Directors (or, in the case of a partnership, for the election of members of the corresponding governing body or for the determination the general partner of the partnership) of such entity, becomes the beneficial owner (including acquisition of beneficial ownership resulting from formation of a "group") of shares or units of such entity having 25% or more of such voting power; (2) Any Person, including a "group" as defined in Section 13(d)(3) of the Exchange Act, who is not at the date of this Agreement the beneficial owner of shares (or, in the case of a partnership, beneficial owner of partnership units) of a given entity having 50% or more of the total number of votes that may be cast for the election of Directors (or, in the case of a partnership, for the election of members of the corresponding governing body or for the determination the general partner of the partnership) of such entity, becomes the beneficial owner (including acquisition of beneficial ownership resulting from formation of a "group") of shares or units of such entity having 50% or more of such voting power; (3) As the result of, or in connection with any cash tender or exchange offer, merger or other business combination, sale of assets or contested election, or any combination of the foregoing transactions, the persons who were Directors of the given entity before the transaction shall cease to constitute a majority of the Board of Directors of such entity or any successor to such entity (or, in the case of a partnership, the general partner before the transaction shall cease to be the general partner of the partnership); (4) A merger or consolidation of the given entity in which such entity is not the surviving entity; or (5) The sale, transfer, or other disposition of all or substantially all of the assets of the given entity (and for this purpose, the term "substantially all" shall mean assets having a fair market value, whether or not realized in the transaction, that is 50% or more of the aggregate fair market value of all assets of such entity); or in the case of a Subsidiary the sale, transfer or other disposition (other than to a direct or indirect wholly owned subsidiary of M&LP) of securities that immediately prior to such transaction constituted 50% or more of such Subsidiary's outstanding voting securities. f. "Committee" means the Compensation Committee of the Board of Directors of ML&P or any other committee appointed by the Board to administer this Agreement. g. "Disability" means a physical or mental condition which renders an Executive unable to discharge his normal work responsibility with ML&P or its Subsidiaries and which, in the opinion of a licensed physician selected by the Executive, subject to reasonable approval by the Committee based upon sufficient medical evidence, can be reasonably expected to continue for a period of at least one full calendar year. If an Executive fails to select a physician within ten (10) business days of a written request made by ML&P, then ML&P may select a physician for purposes of this paragraph. h. "Effective Date" means the date the Agreement is approved by the Board, or such other date as the Board shall designate in its resolution approving the Agreement, and as provided in Section 1.1 herein. i. "Effective Date of Termination" means the date on which a Qualifying Termination occurs. j. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, or any successor act thereto. k. "Expiration Date" means the date the Agreement expires, as provided in Section 1.2 herein. l. "Just Cause" means the basis for a termination of an Executive's employment by ML&P or its Subsidiaries for which no Severance Benefits are payable hereunder, as provided in Article IV herein. m. "ML&P" means Maui Land & Pineapple Company, Inc., a Hawaii corporation, or any successor thereto that adopts the Agreement, as provided in Section 8.1 herein. n. "Normal Retirement Date" shall mean the date on which the Executive attains age 65. o. "Person" shall have the meaning ascribed to such terms in Section 3 (a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a "group" as defined in Section 13(d); provided that for purposes of Section 2.1(e) "Person" shall not include any entity that is a direct or indirect wholly owned subsidiary of ML&P. p. "Qualifying Termination" means a termination of the Executive's employment by ML&P or its Subsidiaries as described in Section 3.2 herein. q. "Severance Benefit" means the payment of severance compensation as provided in Article III herein. r. "Subsidiaries" means Maui Pineapple Company, Ltd. and Kapalua Land Company, Ltd. However, if the Executive under this Agreement is the Vice President Retail Property for ML&P, the term Subsidiaries shall mean and be limited to Kaahumanu Center Associates. s. "Year" means the consecutive 12-month period beginning each January 1 and ending December 31. 2.2 Gender and Number. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine, the plural shall include the singular, and the singular shall include the plural. 2.3 Severability. In the event any provision of the Agreement shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Agreement, and the Agreement shall be construed and enforced as if the illegal or invalid provision had not been included. 2.4 Modification. No express provisions of this Agreement may be modified, waived, or discharged unless such modification, waiver, or discharge is agreed to by the Executive in writing and approved by the Compensation Committee of the Board of Directors. 2.5 Applicable Law. To the extent not preempted by the laws of the United States, the laws of the State of Hawaii shall be the controlling law in all matters relating to the Agreement without regard to the conflicts of law principles in such laws. ARTICLE III. SEVERANCE BENEFITS. 3.1 Right to Severance Benefits. The Executive shall be entitled to receive from ML&P Severance Benefits as described in Section 3.4 herein, if there has been a Change in Control of ML&P or its Subsidiaries, as defined in Section 2.1(e) herein, and if, within twenty-four (24) months thereafter, the Executive's employment with ML&P or its Subsidiaries shall end for any reason specified in Section 3.2 herein as being a Qualifying Termination. An Executive shall not be entitled to receive Severance Benefits if the Executive's employment with ML&P or its Subsidiaries ends due to an involuntary termination by ML&P or its Subsidiaries for Just Cause, as provided under Article IV herein, or if the Executive's employment terminates due to death or Disability. 3.2 Qualifying Termination. The occurrence of any one or more of the following events within twenty-four (24) calendar months after a Change in Control of ML&P or its Subsidiaries shall trigger the payment of Severance Benefits to the Executive, as provided under Section 3.4 herein: a. ML&P's or its Subsidiaries' involuntary termination of the Executive's employment without Just Cause, as defined in Article IV herein; b. The Executive's voluntary employment termination from ML&P or its Subsidiaries for Good Reason, as defined by Section 3.3 herein; c. A successor entity fails or refuses to assume ML&P's or its Subsidiaries' obligations under this Agreement in their entirety, as required by Article VIII herein; or d. ML&P or any successor entity commits a material breach of any of the provisions of this Agreement. 3.3 Definition of Good Reason. "Good Reason" means, without the Executive's express written consent, the occurrence after a Change in Control of ML&P or its Subsidiaries of any one or more of the following: a. The assignment of the Executive to duties materially inconsistent with the Executive's authorities, duties, responsibilities, and status (including offices, titles and reporting requirements) as an executive and/or officer of ML&P or its Subsidiaries, or a material reduction of the Executive's authorities, duties, or responsibilities from those in effect as of ninety (90) days prior to the Change in Control, other than an act that is remedied by ML&P or its Subsidiaries promptly after receipt of notice thereof given by the Executive (provided, however, that "Good Reason" shall not include the events described in the preceding portions of this paragraph (a) if the changes described therein have been approved by a majority of the board of directors of ML&P and also by a number of such directors who comprised at least a majority of the directors of ML&P 90 days prior to the Change In Control); b. ML&P or its Subsidiaries requiring the Executive to be based at a location in excess of seventy- five (75) miles from the location of the Executive's principal job location or office immediately prior to the Change in Control; except for required travel on company business to an extent substantially consistent with the Executive's then present business travel obligations; c. A reduction by ML&P or its Subsidiaries of the Executive's annual rate of Base Salary in effect as of ninety (90) days prior to the Change in Control; d. The failure of ML&P or its Subsidiaries to continue in effect any of ML&P's or its Subsidiaries' annual incentive compensation plans, or employee benefit or retirement plans, policies, practices, or other compensation arrangements in which the Executive participates as in effect prior to the Change in Control, unless such failure to continue the plan, policy, practice or arrangement pertains to all plan participants generally; or the failure by ML&P or its Subsidiaries to continue the Executive's participation therein on substantially the same basis, both in terms of the amount of benefits provided and the level of the Executive's participation relative to other participants and commensurate with the Executive's responsibility and duties; and e. The failure of ML&P or its Subsidiaries to obtain a satisfactory agreement from any successor to ML&P or its Subsidiaries to assume and agree to perform ML&P's or its Subsidiaries' obligations under this Agreement, as contemplated in Article VIII herein. 3.4 Description of Severance Benefits. In the event that an Executive becomes entitled to receive Severance Benefits, as provided in Section 3.1 herein, ML&P shall pay to the Executive and provide him with the following: a. An amount equal to 2.00 times the Executive's annual rate of Base Salary in effect upon the Effective Date of Termination; and b. A payout under the ML&P Annual Incentive Plan, in accordance with the terms of such plan; and c. A continuation of all welfare benefits at normal employee cost including medical and dental insurance, long-term disability, group term life insurance, and accidental death & dismemberment insurance for two (2) full years from the Effective Date of Termination or until the Executive reaches his Normal Retirement Date, whichever occurs earlier. In the event that participation in any one or more of the welfare benefits is not possible under the terms of the governing welfare benefit provisions or due to the modification or elimination of the welfare benefits, ML&P shall provide substantially identical welfare benefits at the normal employee cost of the affected welfare benefits. However, these benefits shall be discontinued prior to the end of the two (2) years in the event the Executive receives substantially similar benefits from a subsequent employer, as determined by the Committee. The right of the Executive and his spouse and other dependents to continued group health coverage under Section 4980B of the Internal Revenue Code of 1986, as amended ("Code"), shall commence at the end of the applicable Severance Benefits period. Unless otherwise provided under this Agreement, the applicable Severance Benefits period shall be treated as if it were a period of employment with ML&P or its Subsidiaries for purposes of determining rights and benefits under any retirement plan or other plan or program and shall be treated as a period of covered employment under such plan or other plan or program if the Executive was in covered employment immediately prior to the Change in Control, provided that, if such treatment is not possible under the terms of such plan or other plan or program, ML&P shall directly provide substantially identical benefits attributable to the crediting of the Severance Benefits period. 3.5 Reduction of Severance Benefits. In the event there are fewer than twenty-four (24) whole or partial months remaining from the Executive's Effective Date of Termination until the Executive's Normal Retirement Date, then the amounts provided for under Section 3.4(a) above shall be reduced by a fraction, the numerator of which shall be the number of whole or partial months remaining until the Executive's Normal Retirement Date, and the denominator of which shall be twenty-four (24). 3.6 Special Retirement Benefits. The Executive shall receive special retirement benefits as provided below, so that the total retirement benefits that the Executive receives will equal the retirement benefits that the Executive would have received under the Maui Land & Pineapple Company, Inc. Pension Plan for Non-Bargaining Unit Employees ("Retirement Plan"), Maui Land & Pineapple Company, Inc. Supplemental Executive Retirement Plan, and the Maui Land & Pineapple Company, Inc. Executive Supplemental Insurance Plan/Executive Deferred Compensation Plan (collectively, "Plans"), or any successor plans or arrangements to such Plans, had the Executive continued in the employ of ML&P and its Subsidiaries for two (2) years following the Executive's Effective Date of Termination (or until his Normal Retirement Date, whichever is earlier) but without regard to any ancillary benefits. The amount of special retirement benefits payable hereunder to the Executive or his beneficiaries shall equal the excess of the amount specified in (a) over that in (b) below. a. The total retirement benefits on an actuarial equivalent single-life basis would be paid to the Executive if the two (2) years (or the period to his Normal Retirement Date, if less) following the Executive's Effective Date of Termination are added to his credited service under the Plans. b. The total retirement benefits actually paid on a single-life basis to the Executive under the Plans. Such special retirement benefits shall be paid at the same time and in the same form (e.g., actuarial equivalent single-life or contingent annuitant basis) as the Executive's retirement benefits under the Plans. The special retirement benefits shall be paid by the Plans or, if the terms of such Plans do not provide for such benefits, the special retirement benefits shall be paid directly by ML&P. The actuarial equivalent of special retirement benefits shall be determined in accordance with the factors provided under the Retirement Plan. 3.7 Outplacement Services. In the event that the Executive becomes entitled to receive Severance Benefits as provided in Section 3.1 herein, the Executive shall be entitled, at the expense of ML&P, to receive standard outplacement services as selected by the Executive, for a period of up to twenty-four (24) months from the Effective Date of Termination. However, such services shall not exceed a maximum annual benefit of ten percent (10%) of the Executive's annual rate of Base Salary as of the Effective Date of Termination. 3.8 Incentive Compensation. In the event that the Executive becomes entitled to receive Severance Benefits as provided in Section 3.1 herein, any deferred awards previously granted to the Executive under ML&P's or its Subsidiaries' incentive compensation plans and not previously paid to the Executive shall immediately vest on the date of the Executive's Effective Date of Termination and shall be paid no later than ninety (90) calendar days following that date, and be included as compensation in the month paid. ARTICLE IV. DISQUALIFICATION FROM RECEIPT OF BENEFITS. No Severance Benefits shall be payable to the Executive under this Agreement in the event the Executive is terminated by ML&P or its Subsidiaries for Just Cause. For this purpose, Just Cause shall mean willful, malicious conduct by the Executive which is detrimental to the best interests of ML&P, including theft, embezzlement, the conviction of a criminal act, disclosure of trade secrets, a gross dereliction of duty, or other grave misconduct on the part of the Executive which is substantially injurious to ML&P or its Subsidiaries. Just Cause also shall include the failure of the Executive to perform any and all covenants under this Agreement. ARTICLE V. FORM AND TIMING OF SEVERANCE BENEFITS. 5.1 Form and Timing of Severance Benefits. The Severance Benefits described in Section 3.4(a) and (b) herein, shall be paid by ML&P in cash to the Executive in a single lump sum as soon as practicable following the Executive's Effective Date of Termination, but in no event beyond ninety (90) calendar days from such date. The Severance Benefits described in Section 3.4 (c) herein shall be provided by ML&P to the Executive immediately upon the Executive's Effective Date of Termination and shall continue to be provided for two (2) full calendar years from the Executive's Effective Date of Termination or until the Executive reaches his Normal Retirement date, whichever occurs earlier. However, the Severance Benefits described in Section 3.4 (c) herein shall be discontinued prior to the end of the two (2) year period immediately upon the Executive receiving substantially similar benefits from a subsequent employer, as determined by the Committee. 5.2 Withholding of Taxes. ML&P or its Subsidiaries shall withhold from any amounts payable under this Agreement all Federal, state, city or other taxes as legally shall be required. ARTICLE VI. PARACHUTE PAYMENTS. 6.1 Determination of Alternative Severance Benefit Limit. Notwithstanding any other provision of this Agreement, if any portion of the Severance Benefits or any other payment under this Agreement, or under any other agreement with, or plan of, ML&P (in the aggregate "Total Payments") would constitute an "excess parachute payment," then the payments to be made to the Executive under this Agreement shall be reduced such that the value of the aggregate Total Payments that the Executive is entitled to receive shall be one dollar ($1) less than the maximum amount which the Executive may receive without becoming subject to the tax imposed by Section 4999 of the Code, or which ML&P may pay without loss of deduction under Section 280G(a) of the Code. However, such reduction in Severance Benefits shall apply if, and only if, the resulting Severance benefits with such reduction is greater in value to the Executive than the value of the Severance Benefits without a reduction, net of any tax imposed on the Executive pursuant to Section 4999 of the Code. For purposes of this Agreement, the terms "excess parachute payment" and "parachute payments" shall have the meanings assigned to such terms in Section 280G of the Code, and such "parachute payments" shall be valued as provided therein. 6.2 Procedure for Establishing Alternative Limitation. Within fifteen (15) calendar days following delivery of the notice of Qualifying Termination or notice by ML&P to the Executive of its belief that there is a payment or benefit due the Executive which will result in an "excess parachute payment" as defined in Section 280G of the Code, the Executive and ML&P, at ML&P's expense, shall obtain the opinion of ML&P's principal outside law firm, accounting firm, and/or compensation and benefits consulting firm, which sets forth: (a) the amount of the Executive's "annualized includible compensation for the base period" (as defined in Section 280G(d)(1) of the Code); (b) the present value of the Total Payments; and (c) the amount and present value of any "excess parachute payment." In the event that such opinion determines that there would be an "excess parachute payment," such that a reduction in the Severance Benefits would result in a greater net benefit to the Executive (as provided in Section 6.1 herein), then the Severance Benefits hereunder or any other payment determined under the opinion to be includible in Total Payments shall be reduced or eliminated so that, on the basis of calculations set forth in such opinion, there will be no "excess parachute payment". The reduction or elimination of specific payments shall apply to such type and amount of specific payments as may be designated by the Executive in writing delivered to ML&P within ten (10) calendar days of receipt of the opinion, or if the Executive fails to so notify ML&P, as may be reasonably determined by ML&P. The provisions of this Section 6.2, including the calculations, notices, and opinion provided herein, shall be based upon the conclusive presumption that the following amounts are reasonable: (a) the compensation and benefits provided for in Article III herein; and (b) any other compensation earned prior to the Effective Date of Termination by the Executive pursuant to ML&P's compensation programs (if such payments would have been made in the future in any event, even though the timing of such payment is triggered by the Change in Control). 6.3 Subsequent Imposition of Excise Tax. If, notwithstanding compliance with the provisions of Sections 6.1 and 6.2 herein, it is ultimately determined by a court or pursuant to a final determination by the Internal Revenue Service that any portion of the Total Payments is considered to be a "parachute payment", subject to excise tax under Section 4999 of the Code, which was not contemplated to be a "parachute payment" at the time of payment (so as to accurately determine whether a limitation should have been applied to the Total Payments to maximize the net benefit to the Executive, as provided in Sections 6.1 and 6.2 herein), the Executive shall be entitled to receive a lump sum cash payment sufficient to place the Executive in the same net after-tax position, computed by using the "Special Tax Rate" as such term is defined below, that the Executive would have been in had such payment not been subject to such excise tax, and had the Executive not incurred any interest charges or penalties with respect to the imposition of such excise tax. For purposes of this Agreement, the "Special Tax Rate" shall be the highest effective Federal and state marginal tax rates applicable to the Executive in the year in which the payment contemplated under this Section 6.3 is made. ARTICLE VII. OTHER RIGHTS AND BENEFITS NOT AFFECTED. 7.1 Other Benefits. Neither the provisions of this Agreement nor the Severance Benefits provided for hereunder shall reduce any amounts otherwise payable, or in any way diminish the Executive's rights as an employee of ML&P or its Subsidiaries, whether existing now or hereafter, under any benefit, incentive, retirement, stock option, stock bonus, stock purchase plan, or any employment agreement, or other plan or arrangement. 7.2 Employment Status. This Agreement does not constitute a contract of employment or impose on ML&P or its Subsidiaries any obligation to retain the Executive as an employee, to change the status of the Executive's employment, or to change ML&P's or its Subsidiaries' policies regarding termination of employment. The Executive serves as an employee of ML&P or its Subsidiaries, and this Agreement shall not create an employment relationship between ML&P or its Subsidiaries and the Executive. ARTICLE VIII. SUCCESSORS. 8.1 Successors. ML&P or its Subsidiaries will require any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) of all or substantially all of the business and/or assets of ML&P or its Subsidiaries, or any division or subsidiary thereof to expressly assume and agree to perform this Agreement in the same manner and to the same extent that ML&P or its Subsidiaries would be required to perform it if no such succession had taken place. Failure of ML&P or its Subsidiaries to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from ML&P or its Subsidiaries in the same amount and on the same terms as they would be entitled hereunder if terminated voluntarily following a Change in Control. Except for the purposes of implementing the foregoing, the date on which any succession becomes effective shall be deemed the Effective Date of Termination. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees, and legatees. If an Executive should die while any amount would still be payable to him hereunder had he continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement, to the Executive's devisee, legatee, or other designee, or if there is no such designee, to the Executive's estate. 8.2 Beneficiaries. In the event of the death of the Executive, all unpaid amounts payable to the Executive under this Agreement shall be paid to his or her Beneficiary. The Executive's spouse and other dependents shall continue to be covered by all applicable welfare benefits during the remainder of the Severance Benefits period, if any, pursuant to Section 3.4.c (unless payments at death are specified by the applicable welfare benefits provisions). The Beneficiary of the Executive's Severance Benefits under this Agreement shall be designated by the Executive in the form of a signed writing acceptable to the Committee. An Executive may make or change such designation at any time. ARTICLE IX. ADMINISTRATION. 9.1 Administration. The Compensation Committee of the Board of Directors shall administer this Agreement. The Committee is authorized to interpret this Agreement, to prescribe and rescind rules and regulations, to provide conditions and assurances deemed necessary and advisable, to protect the interest of ML&P or its Subsidiaries, and to make all other determinations necessary or advisable for the Agreement's administration. In fulfilling its administrative duties hereunder, the Committee may rely on outside counsel, independent accountants, or other consultants to render advice or assistance. 9.2 Indemnification and Exculpation. The members of the Board, its agents and officers, directors and employees of ML&P and its Subsidiaries shall be indemnified and held harmless by ML&P and its Subsidiaries against and from any and all loss, cost, liability, or expense that may be imposed upon or reasonably incurred by them in connection with or resulting from any claim, action, suit or proceeding to which they may be a party or in which they may be involved by reason of any action taken or failure to act under this Agreement and against and from any and all amounts paid by them in settlement (with ML&P's written approval) or paid by them in satisfaction of a judgment in any such action, suit or proceeding. The foregoing provision shall not be applicable to any person if the loss, cost, liability or expense is due to such person's gross negligence or willful misconduct. 9.3 Legal Fees. ML&P shall pay all reasonable legal fees, costs of litigation and other expenses incurred in good faith by the Executive as a result of ML&P's refusal to provide the Severance Benefits to which the Executive becomes entitled under this Agreement, or as a result of ML&P's contesting the validity, enforceability or interpretation of the Agreement. Provided, however, that such payments shall not exceed the amount permitted by law and ML&P's Articles of Incorporation. IN WITNESS WHEREOF, ML&P has caused this Agreement to be executed by a resolution of the Board of Directors, as of the day and year first above written. MAUI LAND & PINEAPPLE COMPANY, INC. By /S/ GARY L. GIFFORD Its President /S/ WARREN A. SUZUKI WARREN A. SUZUKI "Executive" ATTEST: /S/ IRIS Y. MATSUMOTO EX-10.7(IX) 9 MAUI LAND & PINEAPPLE COMPANY, INC. CHANGE-IN-CONTROL SEVERANCE AGREEMENT Scott A. Crockford Vice President/Retail Property ARTICLE I. ESTABLISHMENT AND PURPOSE. 1.1 Effective Date. This Change-in-Control Severance Agreement (the "Agreement") is made and entered into and is effective as of this 13th day of March, 1998 ("Effective Date"), by and between Maui Land & Pineapple Company, Inc. ("ML&P"), a Hawaii corporation, and Scott A. Crockford ("Executive") of ML&P and its Subsidiaries. This Agreement shall supersede and replace any prior severance agreement entered into between ML&P and the Executive. 1.2 Term of the Agreement. The Agreement shall commence as of the Effective Date written above, and shall continue until the Board of Directors of ML&P ("Board") determines, in good faith and in its sole discretion, that the Executive is no longer to be included in the Plan and so notifies in writing the Executive during the term of this Agreement of such determination. Provided, however, in the event that a Change in Control of ML&P or its Subsidiaries, as defined in Section 2.1 herein, occurs during the term of this Agreement, this Agreement shall remain irrevocably in effect for the greater of twenty-four (24) months from the date of such Change in Control, or until all benefits have been paid to the Executive hereunder. Further, in the event that the Board has knowledge that a third party has taken steps reasonably calculated to effect a Change in Control of ML&P or its Subsidiaries, including, but not limited to the commencement of a tender offer for the voting stock of ML&P, or the circulation of a proxy to ML&P's shareholders, then this Agreement shall remain irrevocably in effect until the Board, in good faith, determines that such third party has fully abandoned or terminated its effort to effect a Change in Control of ML&P or its Subsidiaries. 1.3 Purpose of the Agreement. The purpose of this Agreement pursuant to the Plan, is to advance the interests of ML&P and its Subsidiaries by assuring that ML&P and its Subsidiaries shall have the continued employment and dedication of the Executive and the availability of his advice and counsel in the event that an acquisition or Change in Control of ML&P or its Subsidiaries occurs. This Agreement shall also assure the Executive of equitable treatment during the period of uncertainty that surrounds an acquisition or Change in Control, and allow the Executive to act at all times in the best interest of ML&P and its shareholders. 1.4 Contractual Right to Benefits. This Agreement establishes and vests in the Executive a contractual right to the benefits which he or she is entitled hereunder, enforceable by the Executive against ML&P. However, nothing herein shall require ML&P to segregate, earmark, or otherwise set aside any funds or other assets to provide for any payments hereunder. 1.5 Legal Status. This Agreement shall be considered an unfunded agreement to provide welfare benefits to a select group of management or highly compensated employees and is therefore intended to be a "top-hat" plan exempt from the requirements of the provisions of Parts 2, 3 and 4 of Title I of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). ARTICLE II. DEFINITIONS AND CONSTRUCTION. 2.1 Definitions. Whenever used in this Agreement, the following terms shall have the meanings set forth below and, when the meaning is intended, the initial letter of the word is capitalized. a. "Base Salary" means the annualized salary at the beginning of each Year, which includes all regular basic wages, before reduction for any amounts deferred on a tax-qualified or nonqualified basis, payable in cash to an Executive for services rendered to ML&P or its Subsidiaries during the Year. Base Salary shall exclude bonuses, incentive compensation, special fees or awards, commissions, allowances, or any other form of premium or incentive pay, or amounts designated by ML&P or its Subsidiaries as payment toward or reimbursement of expenses. b. "Beneficial Owner" shall have the meaning ascribed to such terms in Rule 13d-3 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). c. "Beneficiary" with respect to an Executive means the persons or entities designated or deemed designated by the Executive pursuant to Section 8.2 herein. d. "Board" means the Board of Directors of ML&P. e. "Change in Control" of ML&P or its Subsidiaries means any one or more of the following occurrences: (1) Any Person, including a "group" as defined in Section 13 (d)(3) of the Exchange Act, who is not at the date of this Agreement the beneficial owner of shares (or, in the case of a partnership, beneficial owner of partnership units) of the given entity having 25% or more of the total number of votes that may be cast for the election of Directors (or, in the case of a partnership, for the election of members of the corresponding governing body or for the determination the general partner of the partnership) of such entity, becomes the beneficial owner (including acquisition of beneficial ownership resulting from formation of a "group") of shares or units of such entity having 25% or more of such voting power; (2) Any Person, including a "group" as defined in Section 13(d)(3) of the Exchange Act, who is not at the date of this Agreement the beneficial owner of shares (or, in the case of a partnership, beneficial owner of partnership units) of a given entity having 50% or more of the total number of votes that may be cast for the election of Directors (or, in the case of a partnership, for the election of members of the corresponding governing body or for the determination the general partner of the partnership) of such entity, becomes the beneficial owner (including acquisition of beneficial ownership resulting from formation of a "group") of shares or units of such entity having 50% or more of such voting power; (3) As the result of, or in connection with any cash tender or exchange offer, merger or other business combination, sale of assets or contested election, or any combination of the foregoing transactions, the persons who were Directors of the given entity before the transaction shall cease to constitute a majority of the Board of Directors of such entity or any successor to such entity (or, in the case of a partnership, the general partner before the transaction shall cease to be the general partner of the partnership); (4) A merger or consolidation of the given entity in which such entity is not the surviving entity; or (5) The sale, transfer, or other disposition of all or substantially all of the assets of the given entity (and for this purpose, the term "substantially all" shall mean assets having a fair market value, whether or not realized in the transaction, that is 50% or more of the aggregate fair market value of all assets of such entity); or in the case of a Subsidiary the sale, transfer or other disposition (other than to a direct or indirect wholly owned subsidiary of M&LP) of securities that immediately prior to such transaction constituted 50% or more of such Subsidiary's outstanding voting securities. f. "Committee" means the Compensation Committee of the Board of Directors of ML&P or any other committee appointed by the Board to administer this Agreement. g. "Disability" means a physical or mental condition which renders an Executive unable to discharge his normal work responsibility with ML&P or its Subsidiaries and which, in the opinion of a licensed physician selected by the Executive, subject to reasonable approval by the Committee based upon sufficient medical evidence, can be reasonably expected to continue for a period of at least one full calendar year. If an Executive fails to select a physician within ten (10) business days of a written request made by ML&P, then ML&P may select a physician for purposes of this paragraph. h. "Effective Date" means the date the Agreement is approved by the Board, or such other date as the Board shall designate in its resolution approving the Agreement, and as provided in Section 1.1 herein. i. "Effective Date of Termination" means the date on which a Qualifying Termination occurs. j. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, or any successor act thereto. k. "Expiration Date" means the date the Agreement expires, as provided in Section 1.2 herein. l. "Just Cause" means the basis for a termination of an Executive's employment by ML&P or its Subsidiaries for which no Severance Benefits are payable hereunder, as provided in Article IV herein. m. "ML&P" means Maui Land & Pineapple Company, Inc., a Hawaii corporation, or any successor thereto that adopts the Agreement, as provided in Section 8.1 herein. n. "Normal Retirement Date" shall mean the date on which the Executive attains age 65. o. "Person" shall have the meaning ascribed to such terms in Section 3 (a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a "group" as defined in Section 13(d); provided that for purposes of Section 2.1(e) "Person" shall not include any entity that is a direct or indirect wholly owned subsidiary of ML&P. p. "Qualifying Termination" means a termination of the Executive's employment by ML&P or its Subsidiaries as described in Section 3.2 herein. q. "Severance Benefit" means the payment of severance compensation as provided in Article III herein. r. "Subsidiaries" means Maui Pineapple Company, Ltd. and Kapalua Land Company, Ltd. However, if the Executive under this Agreement is the Vice President Retail Property for ML&P, the term Subsidiaries shall mean and be limited to Kaahumanu Center Associates. s. "Year" means the consecutive 12-month period beginning each January 1 and ending December 31. 2.2 Gender and Number. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine, the plural shall include the singular, and the singular shall include the plural. 2.3 Severability. In the event any provision of the Agreement shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Agreement, and the Agreement shall be construed and enforced as if the illegal or invalid provision had not been included. 2.4 Modification. No express provisions of this Agreement may be modified, waived, or discharged unless such modification, waiver, or discharge is agreed to by the Executive in writing and approved by the Compensation Committee of the Board of Directors. 2.5 Applicable Law. To the extent not preempted by the laws of the United States, the laws of the State of Hawaii shall be the controlling law in all matters relating to the Agreement without regard to the conflicts of law principles in such laws. ARTICLE III. SEVERANCE BENEFITS. 3.1 Right to Severance Benefits. The Executive shall be entitled to receive from ML&P Severance Benefits as described in Section 3.4 herein, if there has been a Change in Control of ML&P or its Subsidiaries, as defined in Section 2.1(e) herein, and if, within twenty-four (24) months thereafter, the Executive's employment with ML&P or its Subsidiaries shall end for any reason specified in Section 3.2 herein as being a Qualifying Termination. An Executive shall not be entitled to receive Severance Benefits if the Executive's employment with ML&P or its Subsidiaries ends due to an involuntary termination by ML&P or its Subsidiaries for Just Cause, as provided under Article IV herein, or if the Executive's employment terminates due to death or Disability. 3.2 Qualifying Termination. The occurrence of any one or more of the following events within twenty-four (24) calendar months after a Change in Control of ML&P or its Subsidiaries shall trigger the payment of Severance Benefits to the Executive, as provided under Section 3.4 herein: a. ML&P's or its Subsidiaries' involuntary termination of the Executive's employment without Just Cause, as defined in Article IV herein; b. The Executive's voluntary employment termination from ML&P or its Subsidiaries for Good Reason, as defined by Section 3.3 herein; c. A successor entity fails or refuses to assume ML&P's or its Subsidiaries' obligations under this Agreement in their entirety, as required by Article VIII herein; or d. ML&P or any successor entity commits a material breach of any of the provisions of this Agreement. 3.3 Definition of Good Reason. "Good Reason" means, without the Executive's express written consent, the occurrence after a Change in Control of ML&P or its Subsidiaries of any one or more of the following: a. The assignment of the Executive to duties materially inconsistent with the Executive's authorities, duties, responsibilities, and status (including offices, titles and reporting requirements) as an executive and/or officer of ML&P or its Subsidiaries, or a material reduction of the Executive's authorities, duties, or responsibilities from those in effect as of ninety (90) days prior to the Change in Control, other than an act that is remedied by ML&P or its Subsidiaries promptly after receipt of notice thereof given by the Executive (provided, however, that "Good Reason" shall not include the events described in the preceding portions of this paragraph (a) if the changes described therein have been approved by a majority of the board of directors of ML&P and also by a number of such directors who comprised at least a majority of the directors of ML&P 90 days prior to the Change In Control); b. ML&P or its Subsidiaries requiring the Executive to be based at a location in excess of seventy- five (75) miles from the location of the Executive's principal job location or office immediately prior to the Change in Control; except for required travel on company business to an extent substantially consistent with the Executive's then present business travel obligations; c. A reduction by ML&P or its Subsidiaries of the Executive's annual rate of Base Salary in effect as of ninety (90) days prior to the Change in Control; d. The failure of ML&P or its Subsidiaries to continue in effect any of ML&P's or its Subsidiaries' annual incentive compensation plans, or employee benefit or retirement plans, policies, practices, or other compensation arrangements in which the Executive participates as in effect prior to the Change in Control, unless such failure to continue the plan, policy, practice or arrangement pertains to all plan participants generally; or the failure by ML&P or its Subsidiaries to continue the Executive's participation therein on substantially the same basis, both in terms of the amount of benefits provided and the level of the Executive's participation relative to other participants and commensurate with the Executive's responsibility and duties; and e. The failure of ML&P or its Subsidiaries to obtain a satisfactory agreement from any successor to ML&P or its Subsidiaries to assume and agree to perform ML&P's or its Subsidiaries' obligations under this Agreement, as contemplated in Article VIII herein. 3.4 Description of Severance Benefits. In the event that an Executive becomes entitled to receive Severance Benefits, as provided in Section 3.1 herein, ML&P shall pay to the Executive and provide him with the following: a. An amount equal to 2.00 times the Executive's annual rate of Base Salary in effect upon the Effective Date of Termination; and b. A payout under the ML&P Annual Incentive Plan, in accordance with the terms of such plan; and c. A continuation of all welfare benefits at normal employee cost including medical and dental insurance, long-term disability, group term life insurance, and accidental death & dismemberment insurance for two (2) full years from the Effective Date of Termination or until the Executive reaches his Normal Retirement Date, whichever occurs earlier. In the event that participation in any one or more of the welfare benefits is not possible under the terms of the governing welfare benefit provisions or due to the modification or elimination of the welfare benefits, ML&P shall provide substantially identical welfare benefits at the normal employee cost of the affected welfare benefits. However, these benefits shall be discontinued prior to the end of the two (2) years in the event the Executive receives substantially similar benefits from a subsequent employer, as determined by the Committee. The right of the Executive and his spouse and other dependents to continued group health coverage under Section 4980B of the Internal Revenue Code of 1986, as amended ("Code"), shall commence at the end of the applicable Severance Benefits period. Unless otherwise provided under this Agreement, the applicable Severance Benefits period shall be treated as if it were a period of employment with ML&P or its Subsidiaries for purposes of determining rights and benefits under any retirement plan or other plan or program and shall be treated as a period of covered employment under such plan or other plan or program if the Executive was in covered employment immediately prior to the Change in Control, provided that, if such treatment is not possible under the terms of such plan or other plan or program, ML&P shall directly provide substantially identical benefits attributable to the crediting of the Severance Benefits period. 3.5 Reduction of Severance Benefits. In the event there are fewer than twenty-four (24) whole or partial months remaining from the Executive's Effective Date of Termination until the Executive's Normal Retirement Date, then the amounts provided for under Section 3.4(a) above shall be reduced by a fraction, the numerator of which shall be the number of whole or partial months remaining until the Executive's Normal Retirement Date, and the denominator of which shall be twenty-four (24). 3.6 Special Retirement Benefits. The Executive shall receive special retirement benefits as provided below, so that the total retirement benefits that the Executive receives will equal the retirement benefits that the Executive would have received under the Maui Land & Pineapple Company, Inc. Pension Plan for Non-Bargaining Unit Employees ("Retirement Plan"), Maui Land & Pineapple Company, Inc. Supplemental Executive Retirement Plan, and the Maui Land & Pineapple Company, Inc. Executive Supplemental Insurance Plan/Executive Deferred Compensation Plan (collectively, "Plans"), or any successor plans or arrangements to such Plans, had the Executive continued in the employ of ML&P and its Subsidiaries for two (2) years following the Executive's Effective Date of Termination (or until his Normal Retirement Date, whichever is earlier) but without regard to any ancillary benefits. The amount of special retirement benefits payable hereunder to the Executive or his beneficiaries shall equal the excess of the amount specified in (a) over that in (b) below. a. The total retirement benefits on an actuarial equivalent single-life basis would be paid to the Executive if the two (2) years (or the period to his Normal Retirement Date, if less) following the Executive's Effective Date of Termination are added to his credited service under the Plans. b. The total retirement benefits actually paid on a single-life basis to the Executive under the Plans. Such special retirement benefits shall be paid at the same time and in the same form (e.g., actuarial equivalent single-life or contingent annuitant basis) as the Executive's retirement benefits under the Plans. The special retirement benefits shall be paid by the Plans or, if the terms of such Plans do not provide for such benefits, the special retirement benefits shall be paid directly by ML&P. The actuarial equivalent of special retirement benefits shall be determined in accordance with the factors provided under the Retirement Plan. 3.7 Outplacement Services. In the event that the Executive becomes entitled to receive Severance Benefits as provided in Section 3.1 herein, the Executive shall be entitled, at the expense of ML&P, to receive standard outplacement services as selected by the Executive, for a period of up to twenty-four (24) months from the Effective Date of Termination. However, such services shall not exceed a maximum annual benefit of ten percent (10%) of the Executive's annual rate of Base Salary as of the Effective Date of Termination. 3.8 Incentive Compensation. In the event that the Executive becomes entitled to receive Severance Benefits as provided in Section 3.1 herein, any deferred awards previously granted to the Executive under ML&P's or its Subsidiaries' incentive compensation plans and not previously paid to the Executive shall immediately vest on the date of the Executive's Effective Date of Termination and shall be paid no later than ninety (90) calendar days following that date, and be included as compensation in the month paid. ARTICLE IV. DISQUALIFICATION FROM RECEIPT OF BENEFITS. No Severance Benefits shall be payable to the Executive under this Agreement in the event the Executive is terminated by ML&P or its Subsidiaries for Just Cause. For this purpose, Just Cause shall mean willful, malicious conduct by the Executive which is detrimental to the best interests of ML&P, including theft, embezzlement, the conviction of a criminal act, disclosure of trade secrets, a gross dereliction of duty, or other grave misconduct on the part of the Executive which is substantially injurious to ML&P or its Subsidiaries. Just Cause also shall include the failure of the Executive to perform any and all covenants under this Agreement. ARTICLE V. FORM AND TIMING OF SEVERANCE BENEFITS. 5.1 Form and Timing of Severance Benefits. The Severance Benefits described in Section 3.4(a) and (b) herein, shall be paid by ML&P in cash to the Executive in a single lump sum as soon as practicable following the Executive's Effective Date of Termination, but in no event beyond ninety (90) calendar days from such date. The Severance Benefits described in Section 3.4 (c) herein shall be provided by ML&P to the Executive immediately upon the Executive's Effective Date of Termination and shall continue to be provided for two (2) full calendar years from the Executive's Effective Date of Termination or until the Executive reaches his Normal Retirement date, whichever occurs earlier. However, the Severance Benefits described in Section 3.4 (c) herein shall be discontinued prior to the end of the two (2) year period immediately upon the Executive receiving substantially similar benefits from a subsequent employer, as determined by the Committee. 5.2 Withholding of Taxes. ML&P or its Subsidiaries shall withhold from any amounts payable under this Agreement all Federal, state, city or other taxes as legally shall be required. ARTICLE VI. PARACHUTE PAYMENTS. 6.1 Determination of Alternative Severance Benefit Limit. Notwithstanding any other provision of this Agreement, if any portion of the Severance Benefits or any other payment under this Agreement, or under any other agreement with, or plan of, ML&P (in the aggregate "Total Payments") would constitute an "excess parachute payment," then the payments to be made to the Executive under this Agreement shall be reduced such that the value of the aggregate Total Payments that the Executive is entitled to receive shall be one dollar ($1) less than the maximum amount which the Executive may receive without becoming subject to the tax imposed by Section 4999 of the Code, or which ML&P may pay without loss of deduction under Section 280G(a) of the Code. However, such reduction in Severance Benefits shall apply if, and only if, the resulting Severance benefits with such reduction is greater in value to the Executive than the value of the Severance Benefits without a reduction, net of any tax imposed on the Executive pursuant to Section 4999 of the Code. For purposes of this Agreement, the terms "excess parachute payment" and "parachute payments" shall have the meanings assigned to such terms in Section 280G of the Code, and such "parachute payments" shall be valued as provided therein. 6.2 Procedure for Establishing Alternative Limitation. Within fifteen (15) calendar days following delivery of the notice of Qualifying Termination or notice by ML&P to the Executive of its belief that there is a payment or benefit due the Executive which will result in an "excess parachute payment" as defined in Section 280G of the Code, the Executive and ML&P, at ML&P's expense, shall obtain the opinion of ML&P's principal outside law firm, accounting firm, and/or compensation and benefits consulting firm, which sets forth: (a) the amount of the Executive's "annualized includible compensation for the base period" (as defined in Section 280G(d)(1) of the Code); (b) the present value of the Total Payments; and (c) the amount and present value of any "excess parachute payment." In the event that such opinion determines that there would be an "excess parachute payment," such that a reduction in the Severance Benefits would result in a greater net benefit to the Executive (as provided in Section 6.1 herein), then the Severance Benefits hereunder or any other payment determined under the opinion to be includible in Total Payments shall be reduced or eliminated so that, on the basis of calculations set forth in such opinion, there will be no "excess parachute payment". The reduction or elimination of specific payments shall apply to such type and amount of specific payments as may be designated by the Executive in writing delivered to ML&P within ten (10) calendar days of receipt of the opinion, or if the Executive fails to so notify ML&P, as may be reasonably determined by ML&P. The provisions of this Section 6.2, including the calculations, notices, and opinion provided herein, shall be based upon the conclusive presumption that the following amounts are reasonable: (a) the compensation and benefits provided for in Article III herein; and (b) any other compensation earned prior to the Effective Date of Termination by the Executive pursuant to ML&P's compensation programs (if such payments would have been made in the future in any event, even though the timing of such payment is triggered by the Change in Control). 6.3 Subsequent Imposition of Excise Tax. If, notwithstanding compliance with the provisions of Sections 6.1 and 6.2 herein, it is ultimately determined by a court or pursuant to a final determination by the Internal Revenue Service that any portion of the Total Payments is considered to be a "parachute payment", subject to excise tax under Section 4999 of the Code, which was not contemplated to be a "parachute payment" at the time of payment (so as to accurately determine whether a limitation should have been applied to the Total Payments to maximize the net benefit to the Executive, as provided in Sections 6.1 and 6.2 herein), the Executive shall be entitled to receive a lump sum cash payment sufficient to place the Executive in the same net after-tax position, computed by using the "Special Tax Rate" as such term is defined below, that the Executive would have been in had such payment not been subject to such excise tax, and had the Executive not incurred any interest charges or penalties with respect to the imposition of such excise tax. For purposes of this Agreement, the "Special Tax Rate" shall be the highest effective Federal and state marginal tax rates applicable to the Executive in the year in which the payment contemplated under this Section 6.3 is made. ARTICLE VII. OTHER RIGHTS AND BENEFITS NOT AFFECTED. 7.1 Other Benefits. Neither the provisions of this Agreement nor the Severance Benefits provided for hereunder shall reduce any amounts otherwise payable, or in any way diminish the Executive's rights as an employee of ML&P or its Subsidiaries, whether existing now or hereafter, under any benefit, incentive, retirement, stock option, stock bonus, stock purchase plan, or any employment agreement, or other plan or arrangement. 7.2 Employment Status. This Agreement does not constitute a contract of employment or impose on ML&P or its Subsidiaries any obligation to retain the Executive as an employee, to change the status of the Executive's employment, or to change ML&P's or its Subsidiaries' policies regarding termination of employment. The Executive serves as an employee of ML&P or its Subsidiaries, and this Agreement shall not create an employment relationship between ML&P or its Subsidiaries and the Executive. ARTICLE VIII. SUCCESSORS. 8.1 Successors. ML&P or its Subsidiaries will require any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) of all or substantially all of the business and/or assets of ML&P or its Subsidiaries, or any division or subsidiary thereof to expressly assume and agree to perform this Agreement in the same manner and to the same extent that ML&P or its Subsidiaries would be required to perform it if no such succession had taken place. Failure of ML&P or its Subsidiaries to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from ML&P or its Subsidiaries in the same amount and on the same terms as they would be entitled hereunder if terminated voluntarily following a Change in Control. Except for the purposes of implementing the foregoing, the date on which any succession becomes effective shall be deemed the Effective Date of Termination. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees, and legatees. If an Executive should die while any amount would still be payable to him hereunder had he continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement, to the Executive's devisee, legatee, or other designee, or if there is no such designee, to the Executive's estate. 8.2 Beneficiaries. In the event of the death of the Executive, all unpaid amounts payable to the Executive under this Agreement shall be paid to his or her Beneficiary. The Executive's spouse and other dependents shall continue to be covered by all applicable welfare benefits during the remainder of the Severance Benefits period, if any, pursuant to Section 3.4.c (unless payments at death are specified by the applicable welfare benefits provisions). The Beneficiary of the Executive's Severance Benefits under this Agreement shall be designated by the Executive in the form of a signed writing acceptable to the Committee. An Executive may make or change such designation at any time. ARTICLE IX. ADMINISTRATION. 9.1 Administration. The Compensation Committee of the Board of Directors shall administer this Agreement. The Committee is authorized to interpret this Agreement, to prescribe and rescind rules and regulations, to provide conditions and assurances deemed necessary and advisable, to protect the interest of ML&P or its Subsidiaries, and to make all other determinations necessary or advisable for the Agreement's administration. In fulfilling its administrative duties hereunder, the Committee may rely on outside counsel, independent accountants, or other consultants to render advice or assistance. 9.2 Indemnification and Exculpation. The members of the Board, its agents and officers, directors and employees of ML&P and its Subsidiaries shall be indemnified and held harmless by ML&P and its Subsidiaries against and from any and all loss, cost, liability, or expense that may be imposed upon or reasonably incurred by them in connection with or resulting from any claim, action, suit or proceeding to which they may be a party or in which they may be involved by reason of any action taken or failure to act under this Agreement and against and from any and all amounts paid by them in settlement (with ML&P's written approval) or paid by them in satisfaction of a judgment in any such action, suit or proceeding. The foregoing provision shall not be applicable to any person if the loss, cost, liability or expense is due to such person's gross negligence or willful misconduct. 9.3 Legal Fees. ML&P shall pay all reasonable legal fees, costs of litigation and other expenses incurred in good faith by the Executive as a result of ML&P's refusal to provide the Severance Benefits to which the Executive becomes entitled under this Agreement, or as a result of ML&P's contesting the validity, enforceability or interpretation of the Agreement. Provided, however, that such payments shall not exceed the amount permitted by law and ML&P's Articles of Incorporation. IN WITNESS WHEREOF, ML&P has caused this Agreement to be executed by a resolution of the Board of Directors, as of the day and year first above written. MAUI LAND & PINEAPPLE COMPANY, INC. By /S/ GARY L. GIFFORD Its President /S/ SCOTT A. CROCKFORD SCOTT A. CROCKFORD "Executive" ATTEST: /S/ IRIS Y. MATSUMOTO EX-10.7(X) 10 01248916.1.010225-143 9. MAUI LAND & PINEAPPLE COMPANY, INC. EXECUTIVE SEVERANCE PLAN Article 1. Purpose. This Maui Land & Pineapple Company, Inc. Executive Severance Plan ("Plan") is intended to advance the interests of Maui Land & Pineapple Company, Inc. ("Company") and certain of its subsidiaries by providing severance benefits to eligible executive employees upon termination of employment in order to ease their transition out of the organization and facilitate their search for alternative employment. Article 2. Effective Date. This Plan shall become effective as of March 5, 1998 ("Effective Date"), upon adoption by the Board of Directors of the Company, and shall operate on the basis of the calendar year ("Plan Year"). Article 3. Participating Employers. This Plan provides for certain severance benefits for eligible executive employees of the Company and any other related entity designated by the Company ("Participating Employers"). Participants and beneficiaries may receive from the Plan Administrator, upon written request, information as to whether a particular employer is a Participating Employer, and if so, the Participating Employer's address. Article 4. Eligibility. Any individual employed by a Participating Employer in a position of Vice President or higher (or equivalent) and with a salary midpoint of 1040 or higher (or equivalent) shall be eligible to participate in this Plan ("Eligible Executive") upon and as of the date of written notice of his/her designation and approval as an Eligible Executive by the President and Chief Executive Officer of the Company. Article 5. Severance Benefits. In the event of an "Involuntary Termination of Employment" with a Participating Employer, an Eligible Executive shall be entitled to the payment of a severance benefit amount ("Severance Benefit Amount") equal to the Eligible Executive's "Monthly Base Salary" multiplied by his/her "Years of Service". For purposes of determining eligibility for a Severance Benefit Amount, the term "Involuntary Termination of Employment" shall mean, as determined by the Plan Administrator, a termination of employment at the initiation of the Participating Employer due to: (a) restructuring or downsizing of operations of the Company or its subsidiaries; (b) discontinuance of certain business activities of the Company or its subsidiaries; (c) elimination of a position with no comparable position (determined with reference to Section 6.d below) with the Company or its subsidiaries offered to the Eligible Executive. Also, for purposes of determining a Severance Benefit Amount, the term "Monthly Base Salary" shall be determined as of the date of termination of employment and shall mean the monthly base salary of the Eligible Executive in accordance with the payroll records and procedures of the Participating Employer, and such term shall not include bonuses and other supplementary compensation. Further, the term "Years of Service" shall be determined as of the date of termination of employment and shall mean the sum of each completed whole calendar year of continuous service since the Eligible Executive's most recent employment commencement date in which the Eligible Executive works 1,000 hours of service or more, and such term shall not include any partial Year of Service for any prorated calendar year in which less than 1,000 hours of service is performed. In determining Years of Service, service shall be credited for service with any Participating Employer. Notwithstanding the above portion of this Section 5, the maximum Severance Benefit Amount shall be equal to (a) 12 times the Monthly Base Salary in the case of an Eligible Executive whose salary midpoint is between 1040 to 2000, inclusive (or equivalent) and (b) 18 times the Monthly Base Salary in the case of an Eligible Executive whose salary midpoint is 2001 or above (or equivalent). In addition, with respect to any Eligible Executive, the minimum Severance Benefit Amount shall be equal to 6 times the Eligible Executive's Monthly Base Salary. The Severance Benefit Amount shall be paid in cash as a stream of income, less legally required deductions, paid on the regular payroll schedule commencing as of the date of the Eligible Executive's termination of employment. As such, the Severance Benefit Amount shall be paid as a continuation of the Eligible Executive's Monthly Base Salary, at the same payroll times and amounts that would otherwise apply but for his/her termination of employment, over the applicable number of months ("Severance Payment Period"). Upon the written request of an Eligible Executive, the Plan Administrator may, at its sole and complete discretion, authorize and provide for a different optional form of benefit payment (e.g., lump sum distribution). Article 6. Exclusions. Notwithstanding any provision herein to the contrary, an Eligible Executive shall not be entitled to the payment of any Severance Benefit Amount in the event of any of the following: a. The Eligible Executive terminates employment on a voluntary basis. b. The Eligible Executive terminates employment on a voluntary or involuntary basis for just cause. For this purpose, a voluntary or involuntary termination for just cause shall mean termination as a result of willful, malicious conduct by the Eligible Executive which is detrimental to the interests of the Company or its subsidiaries, including theft, embezzlement, conviction of a criminal act, disclosure of trade secrets, gross dereliction of duty, or other grave misconduct on the part of the Eligible Executive which is substantially injurious to the Company or its subsidiaries. c. The Eligible Executive terminates employment due to retirement and is eligible for normal retirement benefits under the Maui Land & Pineapple Company, Inc. Pension Plan for Non-Bargaining Unit Employees ("Retirement Plan"). d. The Eligible Executive refuses to accept a "comparable" position of employment with the Company or its subsidiaries, under which there is no reduction of his/her annual rate of base salary, and there is no material reduction of his/her authorities, duties, or responsibilities, and there is no geographic job relocation in excess of 75 miles. e. The Eligible Executive fails to agree to and execute a general release and waiver of all employment- related claims against the Company and its subsidiaries. f. The Eligible Executive is reemployed with the Company or its subsidiaries in a comparable (as determined in accordance with the provisions of Section 6.d above) or higher level position within 90 days of his/her termination of employment. g. The Eligible Executive is a party to a Maui Land & Pineapple Change-In-Control Severance Agreement and is determined by the Compensation Committee of the Board of Directors of the Company to be entitled to the payment of severance benefits thereunder due to the occurrence of a "change in control" within the meaning of such Agreement and all applicable conditions for the payment of such severance benefits are satisfied. Article 7. Other Benefits. a. Annual Incentive Plan. In the event that an Eligible Executive is entitled to a Severance Benefit Amount, the Eligible Executive shall be entitled to a payout under the Maui Land & Pineapple Company, Inc. Annual Incentive Plan in accordance with the terms and conditions of such plan. b. Welfare Benefits. In the event that an Eligible Executive is entitled to a Severance Benefit Amount, the Eligible Executive shall be entitled during the Severance Payment Period to medical and dental insurance benefits at the same coverage and normal employee cost levels as he/she were subject as of the date of termination of employment. In the event that participation in the medical or dental insurance plans is not possible under the terms of the plans or due to the modification or elimination of the plans, the Participating Employer shall provide substantially identical benefits at the same level of coverage and employee cost. However, the medical and dental insurance benefits shall be discontinued prior to the end of the Severance Payment Period in the event the Eligible Executive receives substantially similar benefits from a subsequent employer as determined by the Plan Administrator. The Eligible Executive shall be responsible for notifying the Plan Administrator of the receipt of such similar benefits from any subsequent employer. c. Retirement Benefits. An Eligible Executive's service and compensation during the Severance Payment Period shall not be considered for purposes of determining the Eligible Executive's benefits under the Retirement Plan. However, in the case of an Eligible Executive who is eligible for early retirement benefits under the Retirement Plan or other employee benefit plan as of his/her date of termination of employment, the Severance Payment Period shall be treated as if it were a period of employment exclusively for purposes of postponing any benefit payment, and the Eligible Executive shall be entitled to benefits due him/her as an early retiree as of the expiration of the Severance Payment Period. An Eligible Executive who would become first eligible for normal retirement benefits (either pension or post-retirement welfare benefits) during the Severance Payment Period shall be allowed to postpone the effective date of his/her termination of employment and to continue on active payroll, at the sole and complete discretion of the Plan Administrator, either on a paid administrative leave or specified work assignment, until his/her retirement eligibility date. During this "bridge" period, the Eligible Executive's current base salary and benefit level as of his/her otherwise applicable employment termination date shall continue and shall not be subject to merit or pay increases. As of his/her retirement eligibility date, the Eligible Executive's employment shall be terminated, and his/her otherwise applicable Severance Benefit Amount and Severance Benefit Period shall be proportionately reduced by the bridge compensation and period. d. Automobile. In the event that an Eligible Executive is entitled to a Severance Benefit Amount and is furnished a company-owned vehicle for use as an employee, he/she shall be allowed to purchase the assigned vehicle for the current low Blue Book price, less $500. This vehicle purchase option shall be available as of the date on which the Eligible Executive terminates employment and until the date of the agreement and execution of the general release and waiver as described in Section 6.e. If the Eligible Executive terminates employment and does not exercise his/her option to purchase the vehicle, he/she shall not be allowed to use the vehicle after such termination and prior to his/her actual purchase of the vehicle. Article 8. Distribution Due to Death. In the event that an Eligible Executive is entitled to the payment of a Severance Benefit Amount and he/she dies before the completion of the Severance Payment Period, the unpaid balance of any Severance Benefit Amount as of the date of death shall be paid in a single lump sum to his/her designated beneficiary as soon as practicable following the date of death. The Eligible Executive's designated beneficiary shall be designated or changed by the Eligible Executive (without the consent of any prior beneficiary) through written notice delivered to the Company. If no such beneficiary is designated, or if no designated beneficiary survives the Eligible Executive, the amount payable due to the Eligible Executive's death shall be payable to the Eligible Executive's estate. However, in the event of death, Article 7 above shall not be applicable and the other benefits described therein shall be forfeited and shall not be provided to any person effective as of the date of death (unless such other benefits are otherwise provided without regard to the provisions of this Plan). Article 9. Administration. The Plan shall be administered by Maui Land & Pineapple Company, Inc., who shall be the Plan Administrator for purposes of the requirements of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). The Plan Administrator shall have the exclusive right, power, and authority, in its sole and absolute discretion, to administer, apply, and interpret the Plan and other Plan documents and to decide all matters arising in connection with the operation or administration of the Plan. Without limiting the generality of the above, the Plan Administrator shall have the sole and absolute discretionary authority: (a) to take all actions and make all decisions with respect to the eligibility for, and the amount of, benefits payable under the Plan; (b) to formulate, interpret, and apply rules, regulations, and policies necessary to administer the Plan in accordance with its terms; (c) to decide questions, including legal or factual questions, relating to the calculation and payment of benefits under the Plan; (d) to resolve and clarify any ambiguities, inconsistencies, and omissions arising under the Plan or other Plan documents; and (e) except as otherwise provided herein, to process, and approve or deny, benefit claims and rule on any benefit exclusions. All determinations made by the Plan Administrator with respect to any matter arising under the Plan and any other Plan documents shall be final and binding on all parties. Legal process may be served on the Plan Administrator. The name and address of the Plan Administrator is: Maui Land & Pineapple Company, Inc. P.O. Box 187 Kahului, Maui, HI 96733-6687 1-(808) 877-3351 EIN: 99-0107542 Article 10. Amendment or Termination. The Company reserves the right at any time and from time to time, in its sole and absolute discretion, to terminate or amend in whole or in part any or all of the provisions of the Plan, by action of the Board of Directors of the Company or an authorized committee thereof. The identity of the members of the Board of Directors and such authorized committee may be obtained from the Plan Administrator. Article 11. Claims Procedure. A claim under this Plan may be made by the claimant in writing within 60 days of the date of termination of employment of the claimant. If a claim is wholly or partially denied, the Plan Administrator shall furnish the Eligible Executive notice in writing of the decision not later than 90 days after the date of the filing of the claim. If notice of denial of a claim is not furnished within such 90-day period, the claim shall be deemed denied. A written denial of a claim for benefits shall (i) specify the reason or reasons for the denial, (ii) refer to any provisions of the Severance Plan on which the denial is based, (iii) describe any additional material or information necessary for the Eligible Executive to perfect his/her claim with an explanation of why such material or information is necessary, and (iv) explain the Plan's claim procedure. Upon a denial of a claim, the Eligible Executive or his/her duly authorized representative may request a review by the Plan Administrator upon written application within 60 days after receipt of the denial of the claim. The Eligible Executive or his/her duly authorized representative may review pertinent documents and submit issues and comments in writing. The Plan Administrator shall make a decision concerning the review of the claim promptly, but not later than 60 days after receipt of request for review unless special circumstances require a longer period of time for review. If an extension of time for review is required, written notice of the extension will be furnished to the Eligible Executive and a decision shall be rendered as soon as possible, but not later than 120 days after receipt of the request for review. The decision on review will be in writing and include specific reasons for the decision and specific references to the Severance Plan provisions on which the decision is based. If the decision on review is not furnished within the time specified above, the claim will be deemed denied on review. Article 12. Incapacity. If the Plan Administrator finds that any person to whom payment is payable under this Plan is unable to care for his affairs because of illness or accident, or is a minor, any payment due (unless a prior claim for such payment has been made by a duly appointed guardian, committee, or other legal representative) may be paid to the spouse, a child, a parent, or a brother or sister, or to any person deemed by the Plan Administrator to have incurred expense for such person otherwise entitled to payment. Article 13. Funding. The amounts payable under this Plan shall be paid in cash from the general funds of the Company or Participating Employer, and an Eligible Executive shall have no right, title, or interest whatsoever in or to investments, if any, which the Company may make to aid it in meeting its obligations under this Plan. Title to and beneficial ownership of any such investments shall at all times remain in the Company. Nothing contained in this Plan, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind. To the extent that any person acquires a right to receive a payment under this Plan, such right shall be no greater than the right of any unsecured creditor. Article 14. Legal Status. This Plan is intended to constitute an employee welfare benefit plan under ERISA. As sponsored by the Company and Participating Employer, the Plan has been designated as Plan No. 508. Prior to the actual payment of the benefits hereunder, there is no transfer of any assets to an Eligible Executive or for the benefit of the Eligible Executive under this Plan, and the Plan is intended to confer no current benefit that would be immediately taxable to the Eligible Executive under the constructive receipt rule or economic benefit doctrine under the tax laws. Article 15. Continued Service. Nothing contained in this Plan shall be construed as conferring upon an Eligible Executive the right to continue in the employment of the Company or a Participating Employer in any capacity. Article 16. Nonassignment. The interests of an Eligible Executive hereunder may not be sold, transferred, signed, pledged, or hypothecated. No Eligible Executive may borrow against his interest in the Plan. Article 17. Controlling Documents. This document constitutes the actual Plan document and also serves as the Summary Plan Description as required under ERISA. Article 18. Enforceability and Controlling Law. If any provision of this Plan is held by a court of competent jurisdiction to be invalid or unenforceable, the remaining provisions shall continue in full force and effect. The provisions of this Plan shall be construed, administered, and enforced according to the laws of the State of Hawaii. Article 19. Gender. Wherever any words are used under the Plan in the masculine, feminine, or neuter gender, they shall be construed as though they were also used in another gender in all cases where they would so apply. IN WITNESS WHEREOF, the Company has caused this Plan to be executed by its duly authorized officers on this 26th day of March, 1998. MAUI LAND & PINEAPPLE COMPANY, INC. By /S/ GARY L. GIFFORD Its PRESIDENT By /S/ ADELE H. SUMIDA Its SECRETARY "Company" EX-13 11 MAUI LAND & PINEAPPLE COMPANY, INC ANNUAL REPORT 1997 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 Financial Condition and Results of Operations 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 of land on the Island of Maui, of which about 8,100 acres are used directly or indirectly in the Company's operations. The Company employed approximately 2,270 people in 1997 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 that 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 (excluding certain exhibits) may write to: Corporate Secretary Maui Land & Pineapple Company, Inc. P. O. Box 187 Kahului, Hawaii 96733-6687 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.pineapplehawaii.com 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
1997 1996 1995 (Dollars in Thousands Except Per Share Amounts) REVENUES Pineapple $ 90,949 $ 95,700 $ 81,052 Resort 40,338 35,676 34,330 Commercial & Property 5,065 4,850 10,123 Corporate 146 109 72 Total 136,498 136,335 125,577 NET INCOME (LOSS) 863 (747) (1,559) NET INCOME (LOSS) PER COMMON SHARE $ .48 $ (.42) $ (.87) AVERAGE COMMON SHARES OUTSTANDING 1,797,125 1,797,125 1,797,125 TOTAL ASSETS $ 134,714 $ 132,851 $137,085 CURRENT RATIO 2.20 2.23 2.78 LONG-TERM DEBT and CAPITAL LEASES $ 29,435 $ 28,898 $ 36,227 STOCKHOLDERS' EQUITY 58,896 58,033 58,870 STOCKHOLDERS' EQUITY PER COMMON SHARE $ 32.77 32.29 $ 32.76 EMPLOYEES 2,270 2,160 1,990
TO OUR SHAREHOLDERS AND EMPLOYEES Nineteen ninety-seven was a year of progress for Maui Land & Pineapple Company, Inc. A net profit was posted for the first time since 1991. In many ways however, operating results did not reflect the substantial progress that has been made in the Company's operations over the last three years and, in this respect, the magnitude of the net profit was disappointing. Through the end of the third quarter, the Company posted a net profit of $2.6 million. The fourth quarter net loss of $1.8 million reduced the net profit for the full year to $863,000. The fourth quarter loss was primarily attributable to the Resort segment experiencing a decline in occupancy, golf rounds and merchandise sales as well as bad debts due to tenant turnover and a decline in electricity revenue in the Commercial segment. The focus and concentrated effort of our strategic planning program has led to the development of new products, to the creation of two new joint venture affiliations and to planning for a number of near-term development projects that are promising. The sales volume and profits from new product opportunities, projects and new lines of business have not developed as fast as we would have liked. Last year, we referred to a number of fundamental improvements that will have long-term positive impact on our businesses, such as the repositioning of the Kapalua Bay Hotel. Although the Company did not benefit from the full profit impact of these fundamental improvements in 1997, we are confident it will in the future. The 1997 net profit of $863,000 was an improvement over the 1996 net loss of $747,000 and a further improvement from the 1995 loss of $1.6 million. The 1997 results include the profit recognized from three land sale transactions concluded in the second and third quarters, equivalent to $3.3 million on an after- tax basis. Further information on these land sales transactions is provided in the Resort and Commercial & Property sections of this report. Revenues in 1997 were almost identical to 1996 revenues at approximately $136 million. The operating results from our major business segments, Pineapple, Resort and Commercial & Property, were a $3.7 million profit, a $4.8 million profit, and a $127,000 profit, respectively. This compares to operating results of a $4 million profit, a $2.2 million profit, and a $105,000 profit, respectively, for Pineapple, Resort and Commercial & Property segments in 1996. It should be noted that although Pineapple's operating results declined by approximately $300,000, the operating profit in 1997 was generated with sales of 6% fewer cases sold than 1996 while sales prices were only marginally better in 1997. Production of cases packed was 8% higher than 1996. These operating results show a substantially improved level of operating efficiency in the Pineapple division. The Kapalua Resort's improvement in operating profit of $2.6 million in 1997 is due entirely to results from development activities, specifically the sale of a one-half interest in the Kapalua Coconut Grove project. Despite increased real estate activity in 1997, resort ongoing operations experienced a decline in operating profit from $2 million in 1996 to $800,000 due to effects of the closure for renovation of the Kapalua Bay Hotel for a majority of the year and the continued weak level of visitor arrivals and visitor occupancy on Maui. The improved operating profit from Commercial & Property activities reflects two land sale transactions, which generated an operating profit of $1 million offset by the loss for the year from Kaahumanu Center as a result of continued poor retail economic conditions on Maui. We are concerned that three factors that had negative influences on the Company's operations and profitability in 1997 will persist without significant improvement in 1998. First, the poor performance of the Hawaii economy in the face of excellent business conditions in the rest of the U.S. and the lack of meaningful steps to reduce the costs of doing business in Hawaii need immediate attention. We have devoted considerable effort to participating in and supporting the initiatives of the joint public and private Economic Recovery Task Force as a starting point. These initiatives must be enacted by the State legislature. Progress beyond these initiatives must continue on a priority basis in terms of reducing the size and cost of our State government and in reducing the costs of doing business, such as health care, workers' compensation, insurance, torts and taxes. We hope the State legislators and administration take the necessary steps to improve this situation. Second, the extension of the runway at Kahului Airport from 7,000 feet to 9,600 feet has yet to be accomplished despite broad community and County government support. Lack of progress on this project remains the most serious impediment to the health of our key retail and visitor industries on Maui, and continues to limit sales of the Company's fresh pineapple products. Third, financial difficulties in the major Asian countries continue to have a negative impact on Maui's visitor and retail industries. It appears unlikely that we will see significant improvement in 1998 in these three key areas. Due to devaluation of foreign currencies, we would, under normal circumstances, expect to see some downward pressure in pineapple pricing; however, foreign suppliers are experiencing low inventories and pricing has remained steady. Notwithstanding the poor climate for business in Hawaii, progress was made in 1997. The Pineapple division completed a joint venture affiliation with the U.S. subsidiary of an Indonesian pineapple producer. The joint venture, Premium Tropicals International, LLC, markets pineapple products from Indonesia to U.S. grocery chain customers. This strategic alliance broadens the Company's product line and presents marketing opportunities that we were not able to take advantage of in prior years. Shipments by Premium Tropicals in 1997 and sales in early 1998, while lower than our expectations because a severe drought in Indonesia limited product availability, were well received by Premium Tropicals' customers. The volume of sales and profit contribution from Premium Tropicals should increase if drought conditions in Indonesia moderate and a greater volume of pineapple products become available. Progress also was made in the Pineapple division in developing additional markets for fresh whole pineapple, including both Jet Fresh pineapple grown and packed on Maui and pineapple grown in other countries and marketed through our wholly owned subsidiary, Royal Coast Tropical Fruit Company. We expect the volume of fresh whole pineapple and the contribution from these activities to grow in the future, subject to resolution of transportation and distribution issues, such as the Kahului Airport runway extension. Considerable progress was made in analyzing consumer preferences for fresh cut pineapple products and in analyzing and resolving production issues for this new product line. While sales and shipments of fresh cut products were lower than expected in 1997, we remain convinced that fresh cut pineapple is an excellent product opportunity for the Company and will represent an important and growing source of revenues and profits in the future. The Kapalua Resort also made progress in 1997. Kapalua Bay Hotel was placed under the management of Halekulani Corporation by its new owner, ERE Yarmouth. The hotel was closed for part of the year while a renovation costing some $16 million was completed. As a result, we did not receive any benefit from occupancy of the hotel by guests nor did we receive any rent under the ground lease of the hotel property. The hotel re-opened late in the year and accrual of rent under the ground lease was reinstated. In June of 1997, ERE Yarmouth purchased a 50% interest in the 12-acre parcel of land adjoining the hotel and a joint venture was formed with ERE Yarmouth for development of that parcel. Market studies indicate that demand for luxury condominiums on that site should be reasonably strong and we hope to proceed with that project in 1998. Real estate activity at Kapalua increased significantly in 1997, resulting in the sale of the final three lots owned by our joint venture, Plantation Club Associates. As a result, this partnership was dissolved as of year-end 1997. With the improvement in real estate activity at the resort, the Company has accelerated its planning efforts for future projects. The selection of Kapalua as the site for the prestigious PGA Tour Mercedes Championships for 1999 through 2002 should serve to enhance Kapalua's reputation as one of the leading golf resorts in the world. While the business outlook for 1998 is not expected to improve substantially, improved financial performance should result from repositioning the Kapalua Bay Hotel and the additional international recognition received by the resort. Results of the Company's Commercial & Property division are dominated by the Kaahumanu Center, which at 573,000 square feet of gross leaseable area is Maui's largest shopping center. High turnover of tenants and a lackluster level of sales resulting from a very competitive retail market on Maui negatively impacted 1997 results. Considerable progress was made in attracting new, high quality tenants to the Center and overall tenant sales volume increased approximately 5% over 1996 levels. Kaahumanu Center continues to demonstrate the ability to attract new tenants, which should result in improved financial performance for 1998. At the end of 1997, the Company's total debt, including capital leases, was $32.5 million, a $2.3 million increase from year-end 1996. While this level of debt is still above the target level of financial leverage for the Company, by year-end the Company had paid entirely its revolving loans from bank lenders. We are disappointed that 1997 did not result in a substantial level of net profit for the Company. We believe the progress made in 1997 has the effect of positioning Maui Land & Pineapple Company, Inc. for substantially improved results under better economic conditions. Thank you for your continued support. /S/ MARY C. SANFORD Mary C. Sanford Chairman /S/ GARY L. GIFFORD Gary L. Gifford President & CEO February 6, 1998 PINEAPPLE In 1997, Maui Pineapple Company, Ltd. reported operating profits before allocated interest and corporate expenses of $3,749,000, $258,000 lower than 1996. This was the second year of profitability after three years of net losses. Pineapple's revenue for 1997 was $91 million, down 5% from 1996 levels. Total canned pineapple case sales volume was down 6%. Canned fruit, our largest category, experienced an 8% case volume decline. Price increases partially offset the effect of lower sales volume. Case volume shortfalls in our domestic markets resulted from low inventory levels, which affected product delivery during the key Easter and Christmas holiday periods. Export case volume was down significantly due to poor economic conditions that continue to persist in the Asian markets. Canned juice case volume was down 2% compared with 1996, while pricing increased 5%. Supported by the State of California Women, Infants and Children Supplemental Nutritional Feeding Program contract, which we were awarded in 1997, volume and pricing for the grocery juice segment was ahead of 1996 levels by 5%. All other juice segments experienced case volume decreases. Pricing increased in the industrial, club, frozen juice, institutional and government segments. Due to consumers purchasing fewer canned juices, we expect the canned juice category to experience downward pricing pressure as sales continue to decline. Net sales of the fresh whole fruit segment increased 2% over 1996 levels as the number of tons sold increased. Growth in this category will be limited until the Kahului Airport runway is extended. The company expects to increase sales volume of its Jet Fresh fruit once the airport runway expansion is completed. The company had a very good pineapple crop in the second half of 1997, in contrast to the first half when we experienced weather- related fruit shortages and quality problems. Pineapple fruit and juice recovery was higher than 1996. These increases resulted in a higher pack than expected and provided an opportunity to improve our beginning inventory balances of canned pineapple for 1998. This past year was excellent for plant growth and fruit development. The company's plantings are in good condition for 1998 and beyond. Increased pack, good weather conditions and the company's continued emphasis on cost reduction contributed to lower operating costs. The company continues to closely monitor canned pineapple imports. Through November 1997, case volume of imported canned pineapple fruit and juice increased 6% and 2%, respectively, over 1996 levels. Juice concentrate import volume was down 7%. Antidumping duties on canned pineapple fruit from Thailand were in effect throughout 1997. The company does not expect any significant changes in these duties in 1998. This past year the company and the Department of Commerce each filed an appeal with the Court of Appeals for the Federal Circuit challenging a decision by the United States Court of International Trade. This decision required the Department of Commerce to recalculate the antidumping duties using accounting methods not normally used by Thai producers. This method understates how much dumping is occurring and the Company and the Department of Commerce believe the decision should be overturned by the Court of Appeals for the Federal Circuit. In the annual review process, the company is aggressively pursuing the issue of canned pineapple sales in the U.S. at prices below fair value by several Thai producers. Winter crop output in both Indonesia and Thailand has been poor, resulting in relatively firm marketplace pricing. Even though raw material costs in Thailand have fallen since last year's peak, the devaluation of the Thai baht continues to exert upward pressure on other Thai production costs. It is unclear what the long-term effect of the Thailand economic crisis will have on pricing or the antidumping duties. As part of the Company's strategic plan, we are continuing our efforts in new product and new business development. During 1997 we made steady progress, including gaining marketplace experience in developing a new fresh cut fruit program. Through our Royal Coast Tropical Fruit Company, Inc. subsidiary, we formed a joint venture with P.T. Great Giant Pineapple Co., an Indonesian pineapple grower and canner and one of the largest and lowest cost producers in the world. The joint venture company, Premium Tropicals International, LLC, will market and sell Indonesian canned pineapple in the United States. Sales through this joint venture began in 1998. Under the Royal Coast label, the company also sells fresh whole fruit from Central and South America in the U.S. market. From a profit standpoint, our financial results in both new businesses were less than expected. Assuming favorable market conditions, we have laid the groundwork for growth of these businesses in the coming years. The company continues to be a leader in environmental issues. This past fall, at a cost of $3.2 million, the cannery completed a water-recycling program. This new system provides cannery- processed water to Hawaiian Commercial & Sugar Company for seed cane irrigation. Both Haliimaile and Honolua plantations have been given Integrated Pest Management certification through the University of Hawaii. This program reduces the overall use of chemicals by using innovative agricultural practices to control pests. The company also remains committed to retaining the pristine condition of the Colin C. Cameron Puu Kukui Conservation Easement. The company's main focus over the next year is to improve profitability by continued emphasis on cost reductions in operations, maximizing yields and improving recovery. Significant resources will continue to be directed toward improving product quality and sales volume in the fresh cut categories where customer demand is growing. Sales and marketing objectives are to achieve the highest return from sales of "100% HAWAIIAN U.S.A.T" canned pineapple and to expand sales through the Royal Coast label and the Premium Tropicals International joint venture. We expect 1998 to be another challenging year as we continue to expand and improve our business. RESORT In 1997, Kapalua Land Company, Ltd. had a profit, before allocated interest and corporate expenses, of $4.8 million compared with a profit of $2.2 million in 1996. All of the increased profit was due to the $4.2 million gain on the sale of a 50% interest in a 12-acre oceanfront development parcel (Site 29) next to the Kapalua Bay Hotel. ERE Yarmouth, the owner of the Kapalua Bay Hotel, exercised its option to purchase an interest in Site 29 and, after closing the transaction in June of 1997, we formed Kapalua Coconut Grove LLC, a 50/50 limited liability corporation with Yarmouth. Preliminary development plans for approximately 40 luxury condominiums on Site 29 have been completed and an application for Special Management Area (SMA) approval is expected to be submitted in the first half of 1998. Overall, Hawaii's resort real estate market continued to show signs of strengthening. Resort residential property resale activity for all of Maui in 1997 increased 14% in total dollar volume with prices stabilized or up slightly. Kapalua's resale volume increased about 7% in 1997, mostly from residential property and land sales activity. In addition to the resale activity, the final three lots in Phase I of Plantation Estates closed escrow in 1997. Although there was significant cash generated by these sales, there was very little profit recognition. Following these sales, we concluded an agreement with our joint venture partner to dissolve Plantation Club Associates. As part of the distribution at year-end, Kapalua Land Company received ownership of the remaining development assets comprised of the 142-acre Plantation Estates Phase II. Our net cash proceeds from Plantation Club Associates in 1997 was approximately $1.5 million. We are proceeding with plans to reconfigure Plantation Estates Phase II into fewer, larger lots as an alternative residential product that would complement the two-acre single family lot product in Phase I and the overall resort master plan for Kapalua. The sale of a 75-acre portion of Phase II, which was placed in escrow last year subject to a number of contingencies, is tentatively scheduled to close escrow in 1998. Results for our real estate brokerage operation, Kapalua Realty, continued to improve in 1997 with a 50% increase in total commission income and a dominant market share of both listings and sales for the resort. In addition to Site 29, our primary planning focus has been on the near-term development of the 55-acre Central Resort area of Kapalua. Significant progress has been made in finalizing conceptual plans that include a new golf clubhouse and practice facility for the Village Course, a resort spa, villa reception center, Town Center and new villa product. We hope to obtain the approvals and appropriate financing necessary to begin construction of the Village Course redevelopment in 1998. Hawaii's visitor industry finished 1997 with lower hotel occupancy and growing concern over the trend in the declining number of eastbound visitors and their expenditures. The recent Asian financial crisis has added a new level of uncertainty and concern for Hawaii's visitor industry in 1998. Maui's hotel occupancy rate declined about 2 percentage points last year to 71.6%, mostly because of the loss of eastbound visitors to the Island of Hawaii which has benefited from the recently lengthened Keahole-Kona airport runway. Excluding the impact of closing the Kapalua Bay Hotel for renovation, our resort occupancy increased more than 11% in 1997. Excluding the sale of Site 29, our ongoing resort operations had an operating profit of approximately $800,000 in 1997 compared to $2 million in 1996. Total resort revenues from ongoing operations increased 2% to $36.1 million. Increased golf green fees from higher rates and increased Kapalua Club membership income were offset by lower merchandise sales and higher resort operating expenses. The closure of the Kapalua Bay Hotel for major renovations in 1997 had a much greater negative impact on our operations than we had anticipated and accounted for most of the decrease in profits. The hotel closed on April 1 and did not fully reopen until the fourth quarter. In addition to reduced hotel and commercial lease rents and lower retail revenues due to the closing of the hotel, we also incurred significant expense to settle a lawsuit related to the sale of the hotel. The agreement with Yarmouth to consolidate the short-term villa rentals under our villa operation (The Kapalua Villas) resulted in a significant and almost equal increase in both revenues and expenses for 1997. With an inventory of over 260 resort villas now under management by The Kapalua Villas, this operation clearly gives Kapalua a more unified and stronger market position that complements the resort's two hotels. Our resort marketing continues to emphasize golf, our unique resort environment and Kapalua special events. Beginning in January 1999, Kapalua and The Plantation Course will host the prestigious Mercedes Championships, which will be the season opening event for the PGA Tour. The Mercedes Championships replaces the Lincoln-Mercury Kapalua International and gives us a significant opportunity to further position Kapalua as one of the premiere golf resort communities in the world. Despite projections for another difficult year for Hawaii's tourism industry, our resort operations should show improved results in 1998 from having the Kapalua Bay Hotel reopened under the management of Halekulani Corporation. Development profit in 1998 is expected to be limited to the pending sale of a 75-acre parcel in Plantation Estates Phase II. With the planned development of Site 29 and continued improvement from resort operations, the longer-term outlook for Kapalua Land Company continues to be positive. COMMERCIAL & PROPERTY The Commercial & Property business segment produced slightly higher revenue and operating profits in 1997 compared to 1996. Revenue increased from $4.9 million in 1996 to slightly over $5.0 million in 1997. Operating profit, before allocation of interest and corporate expenses, was $127,000 in 1997 compared to $105,000 in 1996. Land sales arising from two transactions contributed a total of $1.3 million in cash flow and $1.0 million in operating profit for 1997. The two transactions involved the sale of an existing residence on a two-acre parcel of land along Kaluanui Road in Makawao to a private buyer and two parcels of land in West Maui to the County of Maui. Kaahumanu Center, Maui's largest shopping center, posted results lower than expected due mostly to higher than anticipated tenant turnover and the timing of new tenant installations. Kaahumanu Center continues to attract new quality tenants, including Sam Choy's Kahului, Spencer Gifts, Perfumania, Forever 21, PrimeCo, Madison Avenue, Cesia, Cinnabon, Hoaloha Heirlooms, Gold Mart and Papyrus. Traffic at Kaahumanu Center remained strong despite new competition. Tenant sales increased 5% over 1996. Recent exit surveys conducted at Kahului Airport indicated that Kaahumanu Center showed significant improvement in both eastbound and westbound tourist traffic in 1997. Kaahumanu Center continues to increase its entertainment component with the addition of new restaurants and a contemplated expansion of the existing multiplex cinema. Napili Plaza, a 44,000 square foot community center, showed improved results due to higher occupancy and tenant sales. New competition from Honokowai Marketplace, a 75,000 square foot center to be anchored by Star Market and currently under construction, may negatively impact Napili Plaza's results in the future. In 1997, the Land Management Division devoted significant time and effort to monitor various proposed legislation before the County of Maui and State of Hawaii that could potentially impact the ability of the Company to benefit from its land and water resources. The Land Management Division is nearing completion of a Land and Water Use and Development Plan and a Management Information System Database for our land and water resources. Once completed, the plan and database will ensure the effective management and development of the Company's land and water resources. In December of 1997, Change in Zoning, District Boundary Amendment and Special Management Area Permit applications were submitted to the County of Maui for the 45-lot Kapua Village Employee Subdivision in West Maui. Current plans are to commence construction of subdivision improvements during the last quarter of 1998. 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, 1997 and 1996, 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, 1997. 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 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, such consolidated financial statements present fairly, in all material respects, the financial position of the Companies as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. /S/ DELOITTE & TOUCHE LLP DELOITTE & TOUCHE LLP Honolulu, Hawaii February 6, 1998 (February 26, 1998 as to the seventh paragraph of Note 4) MAUI LAND & PINEAPPLE COMPANY, INC. & SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 1997 and 1996
1997 1996 (Dollars in Thousands) ASSETS CURRENT ASSETS Cash $ 1,611 $ 453 Accounts and notes receivable, less allowance of $567 and $698 12,748 14,343 Inventories Pineapple products 11,125 9,740 Real estate held for sale 1,349 339 Merchandise, materials and supplies 6,239 6,405 Prepaid expenses and other assets 4,076 4,028 Total Current Assets 37,148 35,308 NOTES RECEIVABLE--REAL ESTATE SALES 370 419 INVESTMENTS AND OTHER ASSETS 9,575 10,514 PROPERTY Land 4,614 4,605 Land improvements 42,761 42,184 Buildings 48,374 47,991 Machinery and equipment 98,700 93,472 Construction in progress 5,144 2,747 Total Property 199,593 190,999 Less accumulated depreciation 111,972 104,389 Net Property 87,621 86,610 TOTAL $134,714 $132,851 1997 1996 (Dollars in Thousands) LIABILITIES & STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current portion of long-term debt $ 2,043 $ 53 Current portion of capital lease obligations 1,009 1,201 Trade accounts payable 6,166 7,661 Payroll and employee benefits 4,637 4,235 Accrued interest 702 898 Other accrued liabilities 2,308 1,793 Total Current Liabilities 16,865 15,841 LONG-TERM LIABILITIES Long-term debt 28,257 27,347 Capital lease obligations 1,178 1,551 Accrued retirement benefits 21,571 21,983 Equity in losses of joint venture 6,655 6,256 Other noncurrent liabilities 1,292 1,840 Total Long-Term Liabilities 58,953 58,977 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 46,578 45,715 Stockholders' Equity 58,896 58,033 TOTAL $134,714 $132,851 See Notes to Consolidated Financial Statements
MAUI LAND & PINEAPPLE COMPANY, INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995 (Dollars in Thousands Except Per Share Amounts) REVENUES Net sales $101,421 $106,666 $ 91,227 Operating revenue 29,058 28,062 30,104 Other income 6,019 1,607 4,246 Total Revenues 136,498 136,335 125,577 COSTS AND EXPENSES Cost of goods sold 72,200 75,279 69,314 Operating expenses 26,027 24,030 24,315 Shipping and marketing 18,053 19,185 16,793 General and administrative 14,600 14,507 15,160 Equity in (earnings) losses of joint ventures 1,211 882 (4,001) Interest 3,045 3,575 7,021 Total Costs and Expenses 135,136 137,458 128,602 INCOME (LOSS) BEFORE INCOME TAXES 1,362 (1,123) (3,025) INCOME TAXES (CREDITS) 499 (376) (1,466) NET INCOME (LOSS) 863 (747) (1,559) RETAINED EARNINGS, BEGINNING OF YEAR 45,715 46,552 48,111 CASH DIVIDENDS -- (90) -- RETAINED EARNINGS, END OF YEAR 46,578 45,715 46,552 PER COMMON SHARE Net Income (Loss) .48 (.42) (.87) Cash Dividends $ -- $ .05 $ -- See Notes to Consolidated Financial Statements.
MAUI LAND & PINEAPPLE COMPANY, INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995 (Dollars in Thousands) OPERATING ACTIVITIES Net income (loss) $ 863 $ (747) $(1,559) Adjustments to reconcile net income (loss) to net cash provided by operating activities Depreciation 8,041 8,606 10,202 Undistributed equity in (earnings) losses of joint ventures 1,211 1,010 (3,850) Gain on property disposals (5,254) (812) (3,408) Deferred income taxes (313) (389) (1,471) (Increase) decrease in accounts receivable 1,446 (1,105) (723) (Increase) decrease in refundableincome taxes (38) (44) 1,392 (Increase) decrease in inventories (1,219) 3,191 862 Increase (decrease) in trade payables (1,356) 1,602 573 Net change in other operating assets and liabilities 72 442 124 NET CASH PROVIDED BY OPERATING ACTIVITIES 3,453 11,754 2,142 INVESTING ACTIVITIES Purchases of property (8,388) (5,284) (5,679) Proceeds from sale of property 5,882 845 3,469 Distributions from joint ventures 1,460 712 303 Contributions to joint ventures (1,030) -- -- Payments for other investments (1,815) (437) (3,563) Proceeds from surrender of insurance policies -- 3,125 -- Reimbursement from Kaahumanu Center Associates -- 328 11,843 NET CASH PROVIDED BY (USED IN) INVESTING A CTIVITIES (3,891) (711) 6,373 FINANCING ACTIVITIES Proceeds from long-term borrowings 23,891 18,800 16,388 Payments of long-term debt (20,991) (28,097) (25,515) Payments on capital lease obligations (1,304) (1,369) (1,491) Dividend paid -- (90) -- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 1,596 (10,756) (10,618) NET INCREASE (DECREASE) IN CASH 1,158 287 (2,103) CASH AT BEGINNING OF YEAR 453 166 2,269 CASH AT END OF YEAR $ 1,611 $ 453 $ 166 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) $ 3,235 $ 3,751 $ 7,339 Income taxes $ 335 $ 301 $(1,205) 2. Capital lease obligations of $739,000 in 1997 and $1,092,000 in 1996 were incurred for new equipment. 3. Effective December 31, 1997, the Company's investment in Plantation Club Associates (PCA) was liquidated and the Company assumed PCA's remaining assets totaling $1.4 million (see Note 3 to Consolidated Financial Statements). 4. 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). 5. 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). 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 generally 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 costs 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 INCOME (LOSS) PER COMMON SHARE Net income (loss) per common share is computed using the weighted average number of shares outstanding during the period. 2. INVENTORIES Pineapple product inventories were comprised of the following components at December 31, 1997 and 1996: 1997 1996 (Dollars in Thousands) Finished Goods $ 8,977 $ 7,306 Work In Progress 823 1,645 Raw Materials 1,325 789 Total $ 11,125 $ 9,740 The replacement cost of pineapple product inventories at year-end approximated $25 million in 1997 and $22 million in 1996. 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. 3. INVESTMENTS AND OTHER ASSETS Investments and Other Assets at December 31, 1997 and 1996 consisted of the following: 1997 1996 (Dollars in Thousands) Plantation Club Associates $ -- $ 2,961 Cash Surrender Value of Life Insurance Policies (net) 532 386 Deferred Costs 6,206 4,889 Other 2,837 2,278 Total $ 9,575 $10,514 Cash surrender values of life insurance policies are stated net of policy loans totaling $892,000 at December 31, 1997 and 1996. Deferred costs are primarily intangible predevelopment costs related to various projects at the Kapalua Resort, which will be allocated to future development projects. PLANTATION CLUB ASSOCIATES Plantation Club Associates (PCA) was an unincorporated joint venture in which Kapalua Land Company, Ltd. (Kapalua) was the managing venturer. Profits and losses of the joint venture were allocated based on the estimated distributions to the partners, which was 85% to Kapalua and 15% to the other partner. The partnership agreement required that all major decisions receive unanimous approval of the partners. In 1997 the three remaining lots in Plantation Estates Phase I were sold and the partners concluded an agreement to liquidate PCA as of December 31, 1997. After distribution of the joint venture's cash to the partners, Kapalua assumed PCA's remaining assets of $1.4 million, primarily land and planning costs for Plantation Estates Phase II. Summarized balance sheet information for PCA as of December 31, 1996 and operating information for the years ended December 31, 1997, 1996 and 1995 follows: 1996 (Dollars in Thousands) Real estate inventories $ 2,608 Other assets 1,351 Total Assets 3,959 Less: Total Liabilities 547 Partners' Capital $ 3,412 1997 1996 1995 Revenues $ 1,823 $ 560 $ 672 Costs and Expenses 1,850 397 481 Net Income (Loss) $ (27) $ 163 $ 191 Kapalua's pre-tax share of the joint venture's net income (loss) was $(56,000), $128,000 and $152,000 for 1997, 1996 and 1995, 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 $1,460,000, $850,000 and $465,000 in 1997, 1996 and 1995, 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 aggregating $4,990,000 recorded through December 31, 1994, were reversed in 1995 and recorded as a credit to equity in (earnings) losses of joint ventures. 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 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 manager the Company provides all on-site and administrative personnel and also incurs other costs and expenses, primarily insurance, which are reimbursable by KCA. The Company generates a portion of the electricity used by Kaahumanu Center. In 1997 and 1996 reimbursements from KCA for payroll and other costs and expenses totaled $2,240,000 and $2,391,000, respectively, and the Company charged KCA $2,574,000 and $2,621,000, respectively, 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, 1997 and 1996, $430,000 and $630,000, 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, 1997 and 1996 and operating information for the years ended December 31, 1997 and 1996, and for the eight months ended December 31, 1995 follows: 1997 1996 (Dollars in Thousands) Current assets $ 923 $ 701 Property and equipment, net 73,405 75,581 Other assets, net 5,627 5,461 Total Assets 79,955 81,743 Current liabilities 1,454 1,742 Noncurrent liabilities 62,376 63,226 Total Liabilities 63,830 64,968 Partners' Capital $ 16,125 $16,775 1997 1996 1995 Revenues $ 13,945 $13,677 $ 8,991 Costs and Expenses 16,255 15,697 11,272 Net Loss $ 2,310 $ 2,020 $ 2,281 The Company's share of losses from KCA was $1,155,000, $1,010,000 and $1,141,000, respectively, for 1997, 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, 1997, the accumulated unpaid preferred return was $6.3 million each for ERS and the Company. Pursuant to cash calls, the partners each contributed $830,000 to the partnership in 1997. The Company's investment in KCA is a negative $6.7 million at December 31, 1997. 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, 1997 were $2 million. These lines provide for interest at the prime rate (8.5% at December 31, 1997) plus 1/4% to 1%. There were no borrowings under these lines at December 31, 1997, but a $775,000 letter of credit has been reserved against these lines to secure the Company's portion of insurance claims administered by an insurance company. During 1997, 1996 and 1995, the Company had average borrowings outstanding of $32.8 million, $36.5 million and $67.6 million, respectively, at average interest rates of 8.8%, 8.9% and 9.7%, respectively. Long-term debt at December 31, 1997 and 1996 consisted of the following (interest rates represent the rates at December 31): 1997 1996 (Dollars in Thousands) Revolving credit agreement, 8.5% and 8.25% $ -- $ 2,400 Senior unsecured notes, 8.86% 20,000 20,000 Mortgage loan, 8.25% 4,948 5,000 Pacific Coast Farm Credit Services, 8.14% to 8.68% 4,335 -- Other 8.45% 1,017 -- Total 30,300 27,400 Less portion classified as current 2,043 53 Long-term debt $ 28,257 $27,347 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, 1999. 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. Commitment fees of 1/4% are payable on the unused portions of this credit line. At the Company's option, interest on advances is at the prime rate or based on a Eurodollar rate. The agreement contains certain financial covenants, including the maintenance of consolidated net worth and working capital at certain levels, limits on the incurrence of other indebtedness and capital expenditures and restrictions on the payment of dividends. The loan is collateralized by the Company's three golf courses at the Kapalua Resort. 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 financial covenants that are similar to the Company's revolving credit agreement, except that payment of dividends is restricted to 30% of cumulative net earnings after January 1, 1993. 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. In April 1997 the Company entered into a $5 million loan agreement with Pacific Coast Farm Credit Services. Advances under this loan are to be used to purchase assets for the Company's pineapple operations. The loan includes a revolving period of approximately two years and a final maturity date of January 1, 2002. At the Company's option, interest on advances is to be based on the prime rate, a Western Farm Credit Bank rate, or a Eurodollar rate. The agreement includes certain financial covenants that are similar to those in the Company's revolving credit agreement, plus a requirement for the maintenance of a minimum tangible net worth and debt coverge ration (as defined). The Company was not in compliance with the annual debt coverage ratio as of December 31, 1997. On February 26, 1998, the lender waived the covenant requirement with respect to the year ended December 31, 1997. Maturities of long-term debt during the next five years, from 1998 through 2002, are as follows: $2,043,000, $5,787,000, $5,396,000, $4,323,000, $4,168,000. 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 7.5% and 8% as of December 31, 1997 and 1996, respectively, and compensation increases ranging up to 4.5%. The expected long-term rate of return on assets was 8% for 1997 and 1996. The assets of the plans consist primarily of stocks, bonds, real estate and short-term investments. Net pension cost for 1997, 1996 and 1995 included the following components: 1997 1996 1995 (Dollars in Thousands) Service cost--benefits earned during the year $ 1,030 $ 982 $ 882 Interest cost on projected benefit obligation 2,161 2,190 2,076 Actual return on plan assets (5,742) (3,117) (5,294) Net amortization and deferral 2,708 258 2,863 Net pension expense $ 157 $ 313 $ 527 The following table sets forth the funded status of the pension plans and the amounts recognized in the balance sheets at December 31:
1997 1996 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 $ 26,132 $ 1,254 $ 25,086 $ 1,243 Nonvested benefits 378 55 256 79 Accumulated benefit obligation 26,510 1,309 25,342 1,322 Effect of assumed increase in compensation levels 2,842 354 2,670 320 Projected benefit obligation for services rendered to date 29,352 1,663 28,012 1,642 Assets of plans at fair value 36,679 851 32,216 776 Assets over (under) projected benefit obligation 7,327 (812) 4,204 (866) Unrecognized net (gain) loss (3,210) 155 (272) 168 Unrecognized net transition (asset) obligation (2,223) 393 (2,787) 421 Unrecognized prior service cost 245 60 298 67 Adjustment required to recognize minimum liability -- (253) -- (336) Pension asset (liability) recognized in balance sheets $ 2,139 $ (457) $ 1,443 $ (546)
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, and there have been no contributions paid to the ESOP since 1994. The Company has contributory, defined contribution plans covering all non-bargaining salaried employees and all bargaining unit employees of Maui Pineapple Company, Ltd. The participants may elect to make pretax contributions to the plans. The Company can also elect to contribute, but made no contributions to the plans in 1997, 1996 or 1995. 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 1997, 1996 and 1995 consisted of the following components:
1997 1996 1995 (Dollars in Thousands) Service cost $ 325 $ 328 $ 337 Interest cost 991 1,012 985 Net amortization and deferral (447) (371) (374) Net expense $ 869 $ 969 $ 948
The funded status of these plans as of December 31, 1997 and 1996 was as follows: 1997 1996 (Dollars in Thousands) Accumulated postretirement benefit obligation: Retirees $ 6,913 $ 6,901 Fully eligible active plan participants 2,410 2,576 Other active plan participants 4,817 4,136 Accumulated postretirement benefit obligation 14,140 13,613 Unrecognized prior service cost 1,471 1,619 Unrecognized net gain 3,772 4,033 Accrued postretirement benefit obligation recognized in balance sheets $ 19,383 $19,265
Measurements of the accumulated postretirement benefit obligation as of December 31, 1997 and 1996 were determined using discount rates of 7.5% and 8%, respectively, and compensation increases ranging up to 4.5%. The accumulated postretirement benefit obligation as of December 31, 1997 and 1996 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 $2,215,000 as of December 31, 1997 and the aggregate of the service and interest cost for 1997 by approximately $255,000 . 6. REAL ESTATE SALES Other income for 1997, 1996 and 1995 includes $5.2 million, $700,000 and $3.4 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 2002. At December 31, 1997 and 1996, property included capital leases of $6,013,000 and $5,842,000, respectively (accumulated depreciation of $2,403,000 and $1,756,000, respectively). Future minimum rental payments under capital leases aggregate $2,416,000 (including $229,000 representing interest) and are payable during the next five years (1998 to 2002) as follows: $1,123,000, $562,000, $298,000, $272,000 and $161,000. 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 $804,000 in 1997, $736,000 in 1996 and $818,000 in 1995. Future minimum rental payments under operating leases aggregate $2,409,000 and are payable during the next five years (1998 to 2002) as follows: $599,000, $484,000, $192,000, $122,000, $113,000, respectively, and $899,000 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: 1997 1996 1995 (Dollars in Thousands) Minimum rentals $ 1,575 $ 2,370 $ 4,569 Percentage rentals 1,140 738 1,235 Total $ 2,715 $ 3,108 $ 5,804 Property at December 31, 1997 and 1996 includes leased property of $19,043,000 and $18,886,000, respectively (accumulated depreciation of $8,770,000 and $8,176,000, respectively). Future minimum rental income aggregates $7,413,000 and is receivable during the next five years (1998 to 2002) as follows: $1,482,000, $1,043,000, $870,000, $563,000, $391,000, respectively, and $3,064,000 thereafter. 8. INCOME TAXES The components of the income tax provision (credit) were as follows: 1997 1996 1995 (Dollars in Thousands) Current Federal $ 931 $ 51 $ 32 State (119) (38) (27) Total 812 13 5 Deferred Federal (433) (379) (1,197) State 120 (10) (274) Total (313) (389) (1,471) Total provision (credit) $ 499 $ (376) $(1,466) Reconciliation between the total provision (credit) and the amount computed using the statutory federal rate of 34% follows: 1997 1996 1995 (Dollars in Thousands) Federal provision (credit) at statutory rate $ 463 $ (382) $(1,028) Adjusted for State income taxes-- net of effect on federal income taxes (5) (19) (192) Appreciated property donation -- -- (228) Other 41 25 (18) Total income tax provision (credit) $ 499 $ (376) $(1,466) Deferred tax assets and liabilities were comprised of the following types of temporary differences as of December 31, 1997 and 1996: 1997 1996 (Dollars in Thousands) Accrued retirement benefits $ 7,358 $ 7,440 Net operating loss carryforward 2,134 3,366 Minimum tax credit carryforward 3,641 2,709 Accrued liabilities 1,215 1,224 Allowance for doubtful accounts 211 264 Inventory 264 87 Total deferred tax assets 14,823 15,090 Deferred condemnation proceeds (6,397) (6,507) Property net book value (4,546) (4,729) Income from partnerships (1,363) (1,796) Charitable contributions (1,410) (1,357) Pineapple marketing costs (685) (624) Other (96) (64) Total deferred tax liabilities (14,497) (15,077) Net deferred tax asset $ 326 $ 13 At December 31, 1997 the Company had federal income tax net operating loss carryforwards of approximately $5 million, which expire in 2009. The Company also had federal minimum tax credit carryforwards of $3.6 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 presently predict the outcome of these examinations. 9. INTEREST CAPITALIZATION Interest cost incurred in 1997, 1996 and 1995 was $3,214,000, $3,633,000, and $7,043,000, respectively, of which $169,000, $58,000 and $22,000, respectively, was capitalized. 10. ADVERTISING AND RESEARCH AND DEVELOPMENT Advertising expense totaled $1,594,000 in 1997, $1,537,000 in 1996 and $1,254,000 in 1995. Research and development expenses totaled $601,000 in 1997, $543,000 in 1996 and $410,000 in 1995. 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. The Department of Health of the State of Hawaii (DOH) has cited the Company for improper disposal of its cannery cooling and processing wastewater. The Company is in negotiation with the DOH regarding the penalties it may impose on the Company. In addition, the Company is a party to litigation related to the County of Maui's claim against certain chemical manufacturers because of chemical contamination in certain water wells on Maui. Based on discussion with counsel, the Company believes that the final resolution of these matters will not have a material effect on the Company's financial position or results of operations. The Company has guaranteed the payment of up to $10 million of debt service for Kaahumanu Center Associates. The lender will release the guaranty when Kaahumanu Center attains a defined level of net operating income. Premium Tropicals International, LLC (PTI) is a joint venture between Royal Coast Tropical Fruit Company, Inc. (a wholly owned subsidiary of Maui Pineapple Company, Ltd.) and an Indonesian pineapple grower and canner. The joint venture will market and sell Indonesian canned pineapple in the United States. The Company is a guarantor of a $2 million line of credit, which supports letters of credit to be issued on behalf of PTI for import trading purposes. 12. CONCENTRATIONS OF CREDIT RISK A substantial portion of the Company's trade receivables results 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, 1997 and 1996 were as follows: 1997 1996 (Dollars in Thousands) Carrying Fair Carrying Fair Amount Value Amount Value Notes and Interest Receivable $ 954 $ 931 $ 739 $ 717 Long-Term Debt and Accrued Interest $31,859 $32,064 $29,189 $29,033
14. RECLASSIFICATIONS Certain amounts for prior years have been reclassified to conform to the presentation for the current year. 15. BUSINESS SEGMENTS The Company's reportable segments are Pineapple, Resort and Commercial & Property. Each segment is a line of business requiring different technical and marketing strategies. 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 covers non-resort real estate activities including Kaahumanu Center (investment in Kaahumanu Center Associates, effective May 1, 1995), Napili Plaza shopping center, non-resort property rentals and sales and the Company's land entitlement and management activities. The accounting policies of the segments are the same as those described in Note 1, Summary of Significant Accounting Policies. Commercial Pineapple Resort & Property Other Consolidated (Dollars in Thousands) 1997 Revenues (1)(4) $90,949 $ 40,338 $ 5,065 $ 146 $ 136,498 Operating profit (2) 3,749 4,758 127 -- 8,634 Interest expense (1,479) (1,102) (164) (300) (3,045) Corporate expense (1,670) (986) (606) (965) (4,227) Income (loss) before income taxes 600 2,670 (643) (1,265) 1,362 Depreciation 4,562 2,898 415 166 8,041 Equity in earnings (losses) of joint ventures -- (56) (1,155) -- (1,211) Investment in joint ventures 100 112 (6,655) -- (6,443) Segment assets (3) 63,760 52,437 6,922 11,595 134,714 Expenditures for segment assets 6,485 4,153 1,002 822 12,462 1996 Revenues (1)(4) 95,700 35,676 4,850 109 136,335 Operating profit (2) 4,007 2,190 105 -- 6,302 Interest expense (1,777) (1,381) (181) (236) (3,575) Corporate expense (1,323) (898) (613) (1,016) (3,850) Income (loss) before income taxes 907 (89) (689) (1,252) (1,123) Depreciation 4,943 3,050 415 198 8,606 Equity in earnings (losses) of joint ventures -- 128 (1,010) -- (882) Investment in joint ventures -- 2,961 (6,256) -- (3,295) Segment assets (3) 61,969 53,731 7,943 9,208 132,851 Expenditures for segment assets 4,657 2,309 289 707 7,962 1995 Revenues (1)(4) 81,052 34,330 10,123 72 125,577 Operating profit (loss)(2)(5) (3,548) 7,338 3,312 -- 7,102 Interest expense (2,232) (1,707) (2,795) (287) (7,021) Corporate expense (1,175) (760) (756) (415) (3,106) Income (loss) before income taxes (6,955) 4,871 (239) (702) (3,025) Depreciation 5,112 3,492 1,355 243 10,202 Equity in earnings (losses) of joint ventures (5) -- 5,142 (1,141) -- 4,001 Investment in joint ventures -- 3,683 (4,637) -- (954) Segment assets (5) 63,321 56,340 8,244 9,180 137,085 Expenditures for segment assets $ 1,537 $ 1,482 $ 1,301 $ 917 $ 5,237
(1) Amounts are principally revenues from external customers. Intersegment revenues and interest revenues were insignificant. Sales to any single customer did not exceed 10% of consolidated revenues. Revenues attributed to foreign countries were $3.4 million, $5.2 million and $5.4 million, respectively, in 1997, 1996 and 1995. Foreign sales are attributed to countries based on the location of the customer. (2) "Operating Profit (Loss)" is total revenues less all expenses except allocated corporate and interest expenses and income taxes. (3) Segment assets are located in the United States, primarily Maui. Other assets are corporate and non-segment assets. (4) Resort includes gains on land sales of $4.2 million in 1997. Commercial & Property includes gains on land sales of $1 million in 1997, $700,000 in 1996 and $3.4 million in 1995. (5) Resort operating profit for 1995 includes noncash profits of $4,990,000, representing the reversal of the Company's previous equity in losses of Kaptel Associates. COMMON STOCK In compliance with the terms of certain borrowing arrangements, the Company did not declare any dividends in 1997. The Company paid a dividend of five cents per share in the fourth quarter of 1996. At February 2, 1998, there were 379 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 1997 High 42.5 37 40.5 43.75 Low 35 34 36 40.5 1996 High 48 46.5 44.5 47 Low 46 43.5 43.5 40 SELECTED FINANCIAL DATA
1997 1996 1995 1994 1993 (Dollars in Thousands Except Per Share Amounts) FOR THE YEAR Summary of Operations Revenues` $136,498 $ 136,335 $ 125,577 $ 125,882 $ 131,172 Cost of goods sold 72,200 75,279 69,314 67,321 84,932 Operating expenses 26,027 24,030 24,315 23,853 22,577 Shipping and marketing 18,053 19,185 16,793 16,568 17,673 General and administrative 14,600 14,507 15,160 14,352 18,657 Equity in (earnings) losses of joint ventures 1,211 882 (4,001) 4,844 1,018 Interest expense 3,045 3,575 7,021 5,682 4,797 Income taxes (credits) 499 (376) (1,466) (2,829) (7,423) Net Income (Loss) 863 (747) (1,559) (3,909) (11,059) Per Common Share Net Income (Loss) .48 (.42) (.87) (2.18) (6.15) Other Data Cash dividends Amount -- 90 -- -- 1,348 Per common share -- .05 -- -- .75 Depreciation $ 8,041 $ 8,606 $ 10,202 $ 10,851 $ 10,315 Return on beginning stockholders' equity 1.5% (1.3%) (2.6%) (6.1%) (14.5%) Percent of net income (loss) to revenues .6% (.5%) (1.2%) (3.1%) (8.4%) AT YEAR END Current assets less current liabilities (1) $20,283 $ 19,467 $ 23,428 $ (1,097) $ 29,398 Ratio of current assets to current liabilities (1) 2.20 2.23 2.78 .97 2.47 Property, net of depreciation (2) $87,621 $ 86,610 $ 88,557 $ 180,194 $ 148,774 Total assets (2) 134,714 132,851 137,085 235,411 211,588 Long-term debt and capital leases (2) 29,435 28,898 36,227 99,180 96,108 Stockholders' equity Amount 58,896 58,033 58,870 60,429 64,321 Per common share $ 32.77 $ 32.29 $ 32.76 $ 33.63 $ 35.79 Common shares outstanding 1,797,125 1,797,125 1,797,125 1,797,125 1,797,125
(1) At December 31, 1994, current liabilities exceeded current assets because borrowings totaling $27.8 million on a revolving credit commitment were classified as current. After the amendment to the commitment in July of 1995, borrowings under this line have been classified as noncurrent. (2) 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 FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS 1997 vs. 1996 CONSOLIDATED The Company reported consolidated net income of $863,000 for 1997 compared to a net loss of $747,000 for 1996. The improved results were due to land sales that contributed $3.3 million to net income in 1997. In the second quarter of 1997, the Resort segment recorded the sale of a 50% interest in the 12-acre parcel of land adjacent to the Kapalua Bay Hotel. In the third quarter of 1997, the Commercial & Property division recorded the sales of two land parcels. General and administrative expenses increased by about 1% in 1997 compared to 1996 as increases due to wage adjustments and the use of outside consultants were partially offset by lower expenses for pensions, postretirement benefits and insurance. Interest expense decreased by 15% in 1997 compared to 1996. The decrease is a result of lower average borrowings in 1997 and lower average interest rates. The rate reduction is the result of moving borrowings into lower fixed rate loans at the end of 1996 and during 1997, and renewing the Company's revolving credit lines at lower rates in 1997. PINEAPPLE Revenues from Pineapple operations were $90.9 million in 1997 compared to $95.7 million in 1996. Operating profits from Pineapple were $3.7 million in 1997 compared to $4 million in 1996. Lower case sales volume (the number of cases sold) and a change in the mix of products sold (fruit, juice, concentrate) resulted in a $6.8 million decline in revenue from Pineapple operations. This decline was partially offset by higher average sales prices and higher fresh fruit and other sales. Pineapple cost of sales decreased with the reduction in sales volume. The average cost of sales per case sold in 1997 was higher than 1996 because in 1996 there was a partial liquidation of LIFO inventories that resulted in lower costs from prior years being included in cost of sales. Cost of sales for 1996 would have been higher by $1,281,000 based on current production costs for that year. In 1997 recoveries (the amount of saleable product per ton of fruit processed) were better than in 1996, resulting in a lower unit production cost of canned pineapple product. In 1996 unfavorable weather conditions resulted in poor yield (tons per acre) and lower recoveries and in turn, an increase in unit production costs. Pineapple shipping and marketing costs were lower in 1997 compared to 1996 as a result of the lower volume of cases sold and changes in marketing programs. RESORT Revenues from the Kapalua Resort operations were $40.3 million in 1997 compared to $35.7 million in 1996. Operating profits from this segment were $4.8 million in 1997 compared to $2.2 million in 1996. Revenues and operating profits for 1997 include the sale to the owners of the Kapalua Bay Hotel of a 50% interest in the 12-acre parcel of land that is adjacent to the Hotel. This transaction added $4.2 million to Resort revenues and operating profits. Operating profits from Resort ongoing operations declined in 1997 compared to 1996 from $2 million to $.8 million. Lower operating profits in 1997 largely reflect a 30% decline in income from commercial leases and an 8% reduction in merchandise sales. The most significant lease rent reduction was attributable to the Kapalua Bay Hotel, which was closed during part of 1997 for restoration work. The ground lease for the Kapalua Bay Hotel was renegotiated as of September 1996 to include a one year moratorium on ground rent and two years of reduced rents. Closure of the hotel also affected Kapalua's other operations, including merchandise sales and percentage rents from other commercial leases. The Kapalua Villas program contributed a 22% increase in revenue due to additional units in the program in 1997. Kapalua has managed approximately 55% more units within its villa program since September of 1996. The expansion of the Villas rental program resulted in significantly higher operating expenses in 1997, which offset increased revenue. Resort golf operations contributed a 5% increase in revenues in 1997 due to an increase in the number of paid rounds. Commission income from Kapalua Realty Company increased by 40% in 1997 and Resort membership income increased over 60%. However, these gains were more than offset by increased legal expenses, resort maintenance and repairs and administration costs. COMMERCIAL & PROPERTY Revenues from the Commercial & Property division were $5.1 million in 1997 compared to $4.9 million in 1996. Operating profits attributable to this segment were $127,000 in 1997 compared to $105,000 in 1996. Improved revenues and operating profits in 1997 were due to two land sales in the third quarter of 1997. Land sales in 1997 added $1 million to revenues and operating profits compared to $700,000 in 1996. Costs and expenses charged to Commercial & Property were $4.9 million in 1997 compared to $4.7 million in 1996. Included in costs and expenses is the Company's equity in the losses of Kaahumanu Center Associates, which was $1.2 million in 1997 compared to $1 million in 1996. Increased revenues at Kaahumanu Center were more than offset by higher expenses, most significantly higher payroll and related costs and bad debt expense. 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 (fruit, juice, concentrate), 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 that 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 Villas 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 revenues 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. 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 amend certain terms of the lease, including no minimum rent for the first seven years and no percentage rent for the first year. 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. LIQUIDITY, CAPITAL RESOURCES AND OTHER At December 31, 1997, the Company's total debt, including capital leases, was $32.5 million compared to $30.2 million at year-end 1996. Average debt outstanding during 1997 was approximately 10% lower than 1996. Unused short- and long-term lines of credit available to the Company at year-end 1997 totaled $21.9 million. These credit lines will be sufficient to fund seasonal cash requirements during 1998. The Company's capital expenditures and other cash requirements for 1998 are expected to be funded principally by operating cash flows. Consolidated capital expenditures are expected to be approximately $9 million in 1998. Pineapple capital expenditures are expected to be $6.2 million, of which approximately 54% is for replacement of existing equipment. Capital expenditures for the Resort segment are expected to be $2.5 million in 1998, of which about 79% is for equipment replacements. In addition to capital expenditures, the Company expects to expend approximately $2.1 million in 1998 for Resort development and planning. Duties up to 51% on canned pineapple fruit imported from Thailand into the United States were in effect throughout 1997 as a result of an antidumping petition in 1994 to which the Company was a party. In 1997 both the Company and the Department of Commerce appealed a November 1996 decision by the United States Court of International Trade (USCIT) regarding the appropriate method to allocate cost to canned pineapple. If the decision reached by the USCIT is upheld, the duties presently imposed on these imports could be substantially reduced. A final decision by the United States Court of Appeals for the Federal Circuit is not expected before mid-1998. The amount of duties on pineapple imports from Thailand is subject to annual administrative reviews by the Department of Commerce. These reviews can be called for by either the Company or the Thai producers. If the cost of production changes relative to the selling price of the product in the U.S., the duties would be adjusted. Based on results of the recently finalized first review, there were no significant adjustments to the duties. Results of the second review, which covers the period from July 1996 to June 1997, are pending. In 1997 approximately 85% of the canned pineapple sold in the United States was produced in foreign countries, most significantly, in Thailand, the Philippines and Indonesia. To the extent that devaluation of foreign currencies have the effect of lowering competitors' cost of production, the Company could be adversely affected. Approximately 20% of the visitors to Maui and 40% of the visitors to the State of Hawaii are eastbound. Continuation of the present Asian economic crisis could affect the financial results of Kapalua Resort because visitors from Asia, in particular Japan, represent a significant part of Kapalua's market for merchandise, golf, real estate and accommodations. In June of 1997, at a total cost of $3.2 million, the Company completed a system for disposal of its cannery cooling and processing wastewater. The system replaced the Company's previous system, which was cited by the Department of Health of the State of Hawaii (DOH) as not meeting certain regulations. The Company is in negotiation with the DOH regarding the penalties it may impose on the Company. In addition, the Company is a party to litigation related to the County of Maui's claim against certain chemical manufacturers because of chemical contamination in certain water wells on Maui. Presently, the Company cannot predict the outcome of these issues with certainty; however, based on discussions with counsel, the Company believes that there will be no material adverse effect on its financial position or results of operations. The Company is in the process of reviewing the corrective action necessary to enable all of its data processing systems and computer applications to properly identify dates after 1999. A significant number of the Company's data processing applications use software programs purchased from outside vendors. The vendors of the Company's core data processing applications have already provided or will have provided all necessary system modifications by the end of 1998. At this time it appears that the Company's current information services personnel will be able to modify the Company's other software programs without using outside resources. Currently, no material prospective expenditures for "Year 2000" compliance have been identified. 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). 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 is reflected at an amount below current cost. The replacement cost of pineapple inventory was $25 million at December 31, 1997, which was $14 million more than the amount reflected in the financial statements. 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 1998 profitability, the future of new products and new business development, distribution of pineapple through Premium Tropicals International LLC and under the Royal Coast label, the winter crop output in Thailand and Indonesia, the appeal of a decision affecting antidumping duties, development of the 12-acre site next to the Kapalua Bay Hotel, and the effects of changes involving 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 eastbound or westbound 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 Retired Financial Vice President & Treasurer Hawaiian Electric Industries, Inc. 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 Paul J. Meyer Vice President/Cannery Eduardo E. Chenchin Vice President/Plantations L. Douglas MacCluer Treasurer Darryl Y. H. Chai 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 Paul J. Meyer Vice President/Administration Caroline P. Egli Vice President/Development Robert M. McNatt Vice President/Resort Operations Gary M. Planos Vice President/Marketing Peter A. Sanborn Treasurer Darryl Y. H. Chai 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 EX-27 12
5 This schedule contains summary financial information extracted from the Maui Land & Pineapple Company, Inc. Balance Sheet as of December 31, 1997 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-31-1997 DEC-31-1997 1,611 0 13,315 567 18,713 37,148 199,593 111,972 134,714 16,865 29,435 0 0 12,318 46,578 134,714 101,421 136,498 72,200 98,227 0 0 3,045 1,362 499 863 0 0 0 863 .48 .48
EX-99.1 13 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, 1997 and 1996, and the related statements of operations, changes in partners' capital (deficit) and cash flows for each of the three years ended December 31, 1997. 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 audited 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, 1997 and 1996, and the results of its operations and its cash flows for each of the three years ended December 31, 1997 in conformity with generally accepted accounting principles. /S/ DELOITTE & TOUCHE DELOITTE & TOUCHE LLP Honolulu, Hawaii February 6,1998 KAAHUMANU CENTER ASSOCIATES BALANCE SHEETS DECEMBER 31, 1997 AND 1996 ASSETS 1997 1996 Current Assets Cash $ 552,879 $ 176,992 Accounts receivable - less allowance of $247,624 and $34,942 for doubtful accounts 318,404 480,147 Prepaid expenses 51,225 43,957 Total Current Assets 922,508 701,096 Property Land and land improvements 5,976,029 5,976,029 Building 76,983,144 76,955,082 Furniture, fixtures and equipment 4,381,473 4,293,164 Construction in process 646,626 188,359 Total Property 87,987,272 87,412,634 Accumulated depreciation 14,582,615 11,831,746 Net Property 73,404,657 75,580,888 Other Assets 5,627,540 5,460,955 Total Assets $79,954,705 $81,742,939 LIABILITIES & PARTNERS' CAPITAL Current Liabilities Current portion of long-term debt $ 803,142 $ 748,840 Accounts payable 188,426 317,636 Due to ML&P 429,675 630,418 Other current liabilities 32,274 45,116 Total Current Liabilities 1,453,517 1,742,010 Long-Term Liabilities Long-term debt 62,300,253 63,152,354 Other long-term liabilities 76,188 73,690 Total Long-Term Liabilities 62,376,441 63,226,044 Partners' Capital 16,124,747 16,774,885 Total Liabilities & Partners' Capital $79,954,705 $81,742,939 See notes to financial statements. KAAHUMANU CENTER ASSOCIATES STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 1997 1996 1995 Revenues Rental income - minimum $7,521,860 $7,721,398 $6,571,728 Rental income - percentage 874,362 672,790 819,960 Other operating income - primarily recoveries from tenants 5,548,824 5,283,092 4,825,309 Total Revenues 13,945,046 13,677,280 12,216,997 Costs and Expenses Utilities 2,689,715 2,707,707 2,540,736 Payroll and related costs 1,938,328 1,843,850 1,816,498 Depreciation and amortization 3,349,654 3,277,602 3,354,646 Interest 5,522,235 5,603,074 6,113,766 Repairs and maintenance 545,817 508,892 558,101 General excise taxes 547,949 538,472 470,808 Real property taxes 305,842 288,938 255,206 Insurance 320,284 281,276 263,168 Provision for doubtful accounts 360,788 33,868 184,940 Advertising and promotions 148,972 106,425 172,894 Management fee 262,380 262,319 163,633 Professional fees 191,915 174,779 159,528 Other expenses 71,305 70,298 69,402 Total Costs and Expenses 16,255,184 15,697,500 16,123,326 Net Loss $(2,310,138) $(2,020,220) $(3,906,329) See notes to financial statements. KAAHUMANU CENTER ASSOCIATES STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT) YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 State of Hawaii Maui Land & Employees' Pineapple Retirement Company, Inc. System TOTAL 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 Cash Calls 830,000 830,000 1,660,000 Net Loss - 1997 (1,155,069) (1,155,069) (2,310,138) Partners' Capital (Deficit), December 31, 1997 $(7,450,573) $23,575,320 $16,124,747 See notes to financial statements. KAAHUMANU CENTER ASSOCIATES STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 1997 1996 1995 Operating Activities: Net Loss $(2,310,138) $(2,020,220) $(3,906,329) Adjustments to reconcile net loss to cash provided by operating activities: Depreciation and amortization 3,349,654 3,277,602 3,354,646 Decrease in accounts receivable 161,743 336,498 225,457 Increase (decrease) in accounts payable (337,831) (359,679) 606,996 Increase in noncurrent accounts receivable (139,743) (359,705) (271,778) Net change in other operating assets and liabilities (9,734) 34,936 (257,585) Net Cash Provided by (Used in) Operating Activities 13,951 909,432 (248,593) Investment Activities: Purchases of property (692,995) (584,175) (4,356,375) Payments for deferred costs (651,939) (237,436) (2,124,624) (Increase) decrease in restricted cash 144,669 631,500 (1,503,926) Net Cash Used in Investment Activities (1,200,265) (190,111) (7,984,925) Financing Activities: Payments of long-term debt (797,799) (716,488) 45,571,361) Payment to ML&P for adjustment of prior year payable conversion -- (328,476) -- Proceeds from long-term debt -- -- 69,188,291 Increase (decrease) in amount due to ML&P -- -- (11,843,476) Cash distribution -- -- (4,851,487) Proceeds from cash calls 1,660,000 -- -- Net Cash Provided by (Used in) Financing Activities 862,201 (1,044,964) 6,921,967 Net Increase (Decrease) in Cash 375,887 (325,643) (1,311,551) Cash, Beginning of Year 176,992 502,635 1,814,186 Cash, End of Year $552,879 $176,992 $502,635 See notes to financial statements. KAAHUMANU CENTER ASSOCIATES NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 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, after deducting an estimated amount for amounts not recoverable. 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 is 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 AGREEMENTS 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 1997 the Partnership received cash of $1,660,000 from the partners pursuant to cash calls. 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, 1997 were $6.3 million each for ML&P and ERS. Management and Operations - The Partnership has an Operating 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. It provides for certain performance tests, which if not met could result in termination of the agreement. 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 paid during 1997, 1996 and 1995 was $5,522,000, $5,603,000 and $6,671,000, 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. RELATED PARTY TRANSACTIONS Pursuant to the Partnership Operating Agreement, the Partnership pays to ML&P an operator's fee equal to 3% of gross revenues, as defined. In 1997, 1996 and 1995, ML&P charged the Partnership $262,000, $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, which are reimbursable by the Partnership. In 1997, 1996, and 1995 ML&P charged the Partnership $2,240,000, $2,391,000 and $2,356,000, respectively, for payroll and other costs and expenses. Prior to 1997, real property taxes were paid on behalf of the Partnership by ML&P and were included in the reimbursable amounts. ML&P generates a portion of the electricity which is used by the Center. In 1997, 1996, and 1995 ML&P charged the Partnership $2,312,000, $2,359,000 and $2,214,000, respectively, for electricity. Amounts due to ML&P for management fees, electricity and reimbursable costs were $430,000 and $630,000 as of December 31, 1997 and 1996, respectively. OTHER ASSETS Other Assets at December 31, 1997 and 1996 consisted of the following: 1997 1996 Deferred costs $4,128,557 $3,957,047 Restricted cash 727,757 872,425 Noncurrent accounts receivable 771,226 631,483 Total Other Assets $5,627,540 $5,460,955 Deferred costs are net of amortization of $1,725,000 and $1,180,000 at December 31, 1997 and 1996, 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. 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. Scheduled principal maturities for the next five years from 1998 through 2002 are as follows: $803,000, $942,000, $1,011,000, 1,118,000 and $1,219,000. 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 aggregates $65,515,000 and is receivable during the next five years (1998 to 2002) as follows: $6,931,000, $6,868,000, $6,848,000, $6,709,000, $6,371,000, respectively, and $31,788,000 thereafter. COMMITMENTS At December 31, 1997, the Partnership had commitments under a signed lease of approximately $248,000 for tenant improvement costs. 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 is evaluated and under certain circumstances a security deposit is required. * * * * * -----END PRIVACY-ENHANCED MESSAGE-----