SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1995
Commission file number 0-4674
MAUI LAND & PINEAPPLE COMPANY, INC.
(Exact name of registrant as specified in its charter)
HAWAII 99-0107542
(State or other jurisdiction (IRS Employer Identification Number)
of incorporation or organization)
P.O. Box 187
120 Kane Street
KAHULUI, MAUI, HAWAII 96732-0187
(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. [ ]
The aggregate market value, as of February 1, 1996, of the voting stock
held by nonaffiliates of the registrant: $50,934,000.
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 1, 1996
Common Stock,
without Par Value 1,797,125 Shares
Documents incorporated by reference:
Parts I, II and IV -- Portions of the 1995 Annual Report to Stockholders.
Part III -- Portions of the Proxy Statement, dated March 29, 1996.
Exhibit Index--pages 17-20.
PART I
Item 1. Business
(a) General
Maui Land & Pineapple Company, Inc. is a Hawaii corporation, the
successor to a business organized in 1909. The Company consists of a land-
holding and operating parent company as well as its principal wholly-owned
subsidiaries, Maui Pineapple Company, Ltd., Kapalua Land Company, Ltd.,
Kapalua Investment Corp., Kapalua Waste Treatment Company, Ltd., Kapalua
Water Company, Ltd. and Honolua Plantation Land Company, Inc. Maui
Pineapple Company, Ltd. and Kapalua Land Company, Ltd. are the major
operating subsidiaries. The Company, as used herein, refers to the parent
and all of its subsidiaries.
(b) Financial Information About Industry Segments
The information set forth under Note 13 to Consolidated Financial
Statements on page 18 of the Maui Land & Pineapple Company, Inc. 1995
Annual Report to Stockholders is incorporated herein by reference.
(c) Narrative Description of Business
The Company's principal activities are Pineapple, Resort and
Commercial & Property.
(1) Pineapple
In 1995 Maui Pineapple Company, Ltd. recorded an operating loss
(before corporate expenses, interest expense and income taxes) of $3.5
million compared to an operating loss of $867,000 in 1994. During the year
we focused on meeting case sales volume, pricing objectives, recovery goals
and on lowering the unit cost per case. We did achieve higher pricing
levels than in 1994, but we were unable to meet our objectives in the other
three key measures of performance.
In 1995 the Island of Maui experienced a severe drought with
especially dry conditions on the Haliimaile plantation. Dry weather
reduced fruit size and caused sunburned, porous fruit. This in turn
lowered recovery in canned pineapple and juice products. The lower
recovery resulted in fewer cases packed than originally planned, which
raised per case production costs. We reduced some effects of the drought
by using drip irrigation systems; however, there was not enough water to
adequately irrigate the Haliimaile plantation.
The Company's overall case volume declined by 5% compared to 1994. In
total, canned fruit sales volume was unchanged compared with 1994. The
grocery and government segments showed modest gains. Institutional sales
moved down sharply due to several customers purchasing large inventories of
canned pineapple at the end of 1994.
Total juice sales volume declined by 11%. The grocery, government and
institutional juice segments declined 5%, 82% and 4% respectively. We
experienced the largest decline in the government segment due to the loss
of the USDA and Department of Defense bids; they were awarded to smaller
regional juice packers. Concentrate sales were down 26%, a planned volume
reduction. Although sales were down slightly for the year, we did retain
our customer base and were able to acquire a number of new customers late
in the year. Mainland Jet Fresh and local fresh fruit sales declined in
1995.
On May 30, 1995, the United States Department of Commerce announced
the results of the antidumping investigation and imposed duties of between
2% and 51% on imports by Thailand pineapple companies.
On June 30, 1995, the International Trade Commission ruled 6-0 in the
Company's favor on final injury determination. All four Thai respondents
have filed an appeal with the U.S. Trade Court in New York. They are
challenging the Department of Commerce's methodology in calculating the
duty. They make no challenge to the final determination on injury to the
domestic industry. The Company also has filed an appeal with the same
court to allow us to introduce new evidence to help the Department of
Commerce defend its decision. We do not expect a decision on the appeal
before December 1996. We believe the appeal by the Thai respondents adds a
degree of uncertainty to the marketplace, which will dampen price increases
until the matter is resolved.
Many Thailand producers shipped additional inventory into the U.S.
before the final antidumping determination. This oversupply of canned
pineapple continued to exert downward pressure on prices and volume during
the first half of the year. By year-end the situation had improved.
Drought-related crop conditions in the Far East and the favorable
antidumping decision reduced U.S. imports. As a result, most pineapple
producers announced moderate fruit price increases beginning in the third
quarter. These increases ranged from 8.5% for nationally branded products
to 20% for regionally distributed imports.
These conditions allowed Maui Pineapple Company to make its first
significant price increase in four years. The increase began to impact
revenues in the fourth quarter.
In 1994 we commenced a modest consumer-focused marketing effort to
promote awareness of Hawaiian pineapple. During 1995 we expanded on this
effort in selected geographical areas of the U.S., positioning our product
as the only 100% Hawaiian U.S.A. canned pineapple.
We are moving toward our diversification objectives. Soon we will
begin selling Costa Rican fresh pineapple to U.S. east coast customers
under the label of Royal Coast. This addition of fresh pineapple allows us
to provide a line extension to our existing east coast customer base. We
are continuing research and development on fresh chilled pineapple and
intend to enter this rapidly expanding market in 1996.
Maui Pineapple Company, Ltd. is the operating subsidiary for
pineapple. It owns and operates fully-integrated facilities for the
production of pineapple products.
Pineapple is cultivated on two company-operated plantations on Maui
which provided approximately 76% of the fruit processed in 1995. The
balance of fruit processed was purchased from independent 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. Warehouses are maintained at the cannery site for inventory
purposes.
The Company sells pineapple products under buyers' labels principally
to large grocery chains, other food processors, wholesale grocers, and to
organizations offering a complete buyers' brand program to affiliated
chains and wholesalers serving both retail and food service outlets. A
substantial volume of its pineapple products is marketed through food
brokers. Maui Pineapple Company, Ltd. is the sole supplier of private
label, 100% Hawaiian canned pineapple products to United States
supermarkets. In 1995, approximately 20 domestic customers accounted for
about 51% of pineapple sales.
Export sales, chiefly to Japan, Canada and Western Europe, amounted to
approximately 7.1%, 6.2% and 5.2% of total pineapple sales in 1995, 1994
and 1993, respectively. Sales to the U.S. government amounted to
approximately 13.1%, 11.8% and 8.5% of total pineapple sales in 1995, 1994
and 1993, respectively. The Company's pineapple sales office is in
Concord, California.
As a service to its customers, the Company maintains inventories of
its products in public warehouses in the continental United States. The
balance of its products are shipped directly from Hawaii to its customers.
The Company sells its products in competition with both foreign and
U.S. companies. Its principal competitors are two U.S. companies which
produce sizable quantities of pineapple, a significant portion of which is
produced in the Philippines. Producers in other foreign countries
(particularly Thailand) are also a major source of competition. Foreign
production has the advantage of lower hourly labor costs. 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.
To grow and harvest its crops, operate its cannery and sell and market
its product, the Company employed approximately 910 year-round employees
and hired approximately 590 seasonal workers in 1995.
(2) Resort
Kapalua Land Company, Ltd. had an operating profit (before corporate
expenses, interest expense and income taxes) of $7.3 million in 1995
compared with an operating loss of $2.2 million in 1994. Most of this
improvement was due to the reversal of previously allocated losses from
Kaptel Associates, The Ritz-Carlton Kapalua Hotel joint venture.
Development activities other than the Kaptel joint venture improved by
$900,000 over the previous year while profits from ongoing Resort
operations declined by $500,000.
Although The Ritz-Carlton Kapalua Hotel has consistently generated a
positive cash flow from operations, beginning in February 1995 Kaptel was
only able to make partial payment on its debt service and defaulted on its
loan. NI Hawaii Resort, Inc. (NI), the major general partner, commenced
negotiations with the lenders to acquire the loan and on October 31, 1995,
the partners concluded an agreement to dissolve the partnership.
As a result, we transferred our 25% ownership interest in the partnership
to NI and reversed all of the previously allocated losses. This represents
an increase in earnings of $5.0 million for 1995 compared to an allocated
loss of $4.1 million in 1994.
An amended management agreement was also negotiated with The Ritz-
Carlton Hotel Company as the hotel operator and a revised ground lease was
negotiated with us. Under the terms of the agreement, we retain ownership
of the land (subject to a $65 million first mortgage) with a reduced rent,
but with important controls related to the use of this property.
Additionally, $4.75 million of off-site construction loan debt is to be
repaid solely from ground rent and any balance remaining on the loan at
January 1, 1999 will be canceled. We will not recognize any ground rent
income until 1999.
Since April of last year, the owners of the Kapalua Bay Hotel actively
tried to sell the hotel, but were unsuccessful in their efforts. In
December 1995, the owners filed bankruptcy under Chapter 11 and are
presently still trying to conclude a sale. Under terms of our ground
lease, we have a right of first refusal regarding any potential sale. Our
primary interest is to make sure the hotel is properly positioned with
strong financial ownership and experienced quality management.
Other development activities at the Resort included the sale of one of
the remaining five lots in Plantation Estates Phase I. As a result,
Plantation Club Associates contributed $152,000 to operating profits. In
1994 the Resort's share of the loss from this joint venture was $766,000.
Real estate activity within the Resort slowed during 1995, but prices
remained stable.
Capital expenditures for the Resort water system and sewer capacity
decreased from $3.4 million in 1994 to $800,000 in 1995. Last year we
completed payment on water system improvements needed to comply with the
Environmental Protection Agency Safe Drinking Water Act. On December 12,
1995, the Public Utility Commission ruled favorably on our application for
a rate increase for our water and waste treatment companies. This increase
provides a fair return on our investment in water system infrastructure and
will have a positive impact on our operating results going forward. We
also continued our funding of the expansion of the Lahaina Sewage Treatment
Plant and expect to make our final payment in 1996. This investment
provides us with the required sewage capacity for future development.
Resort on-going operations posted a profit of $2.3 million in 1995
compared with a profit of $2.8 million in 1994. Resort revenues were $34.3
million in 1995 compared to $34.1 million in 1994. Cash flow from Resort
operations increased to $5.0 million from $4.4 million in 1994. Maui
destination resorts experienced a modest increase in occupancy in 1995.
Resort occupancy at Kapalua remained the same at 56%. This was well below
the average occupancy for Maui as competition in the over-built luxury
hotel market remains intense.
In our recreation departments, the number of paid golf rounds declined
by 2% from 1994 levels, but total golf and merchandise revenues were up
slightly. Tennis play was comparable with prior year levels and
profitability improved.
Our Kapalua villa program continues to grow with a 7% increase in the
number of units in the program, a 10% increase in the number of occupied
rooms and a 7% improvement in profitability. The addition of a sales
representative in February resulted in a noticeable impact on bookings late
in the year.
The Kapalua Resort development is a destination resort community in
West Maui. The resort borders the ocean and includes two hotels, 528
condominium units, three residential subdivisions, three championship golf
courses, two ten-court tennis facilities, a 22,000 square foot commercial
shopping center, restaurants, a water utility and a waste transmission
utility.
Kapalua Land Company, Ltd. is the development and operating subsidiary
for the Kapalua Resort. It operates the golf and tennis facilities, the
commercial shopping center, a short-term vacation rental program (The
Kapalua Villas) and certain retail outlets in the Kapalua Resort. It is
the provider of certain services to the resort including shuttle, security
and the maintenance of common areas. Kapalua Land Company, Ltd. also
receives rental income from the lease of certain properties to third
parties.
Kapalua Realty Company, Ltd. (a wholly-owned subsidiary of Kapalua
Land Company, Ltd.) is a general brokerage real estate company located
within the resort. Kapalua Water Company, Ltd. and Kapalua Waste Treatment
Company, Ltd. (wholly-owned subsidiaries of the Company) are public
utilities providing water and waste transmission services to the Kapalua
Resort.
Kapalua Land Company, Ltd. and Rolfing Partners formed a joint venture
in 1988 to finance and develop a third 18-hole golf course and Plantation
Estates Phase I and Phase II, two residential development projects at
Kapalua. Four lots in Plantation Estates Phase I and allocated planning
and offsite costs related to Plantation Estates Phase II remain in
inventory at December 31, 1995.
Kapalua Investment Corp. (KIC), a wholly-owned subsidiary of the
Company, 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.
The Kapalua Resort faces substantial competition from existing and
planned resort developments throughout Hawaii and the world. Kapalua is
adjacent to the Napili resort area and is approximately five miles from the
Kaanapali resort area.
The Company employed approximately 370 employees in its resort
operations at December 31, 1995.
(3) Commercial & Property
The Company's Commercial & Property business segment produced a
substantially lower operating profit in 1995 on about the same level of
revenues as compared to 1994. Revenues were $10.1 million compared to
$10.6 million in 1994. Operating profit (before corporate expenses,
interest expense and income taxes) was $3.6 million compared to $5.4
million in 1994. Land sales arising from four transactions contributed a
total of $3.4 million profit and cash flow in 1995. The largest of these,
the final payment from the State of Hawaii for the 50-acre parcel taken
under condemnation for the King Kekaulike High School, was received in June
and amounted to $1.8 million. Three other transactions involved the sale
of homes on Baldwin Avenue in Makawao which generated $1.6 million in
operating profit and cash flow.
Kaahumanu Center's results were lower than expected due to the
depressed level of retail sales on Maui caused by the relatively weak local
economy. Job layoffs in the sugar industry, a low level of construction
activity and continued weakness in the visitor industry all combined in
1995 to result in a poor business environment for retailers on the Island.
Kaahumanu Center, while achieving a dominant position as the largest retail
center, was negatively affected throughout the year by the weak economy.
While Kaahumanu Center's main market has been and will continue to be
Island residents, the Center has improved its attractions for Maui's
visitors. JTB, Japan's largest tour company, has signed a lease and
started construction of its "Oli Oli Station," a briefing and processing
facility for JTB's group tour business. Approximately 50,000 visitors are
expected to use this facility in its first year of operation. Kaahumanu
Center is also the terminus for the West Maui, South Maui and Airporter bus
systems, effectively Maui's only mass transportation system.
Commercial & Property includes Kaahumanu Center, Napili Plaza and
other non-resort property rentals and sales. Kaahumanu Center is a
regional shopping mall and office building located in Kahului on the Island
of Maui. On December 31, 1995, 94% of the available gross leasable area
was occupied by 114 tenants. The Center's primary competitor is the Maui
Mall which is located within one mile of Kaahumanu Center.
Napili Plaza is a 44,000 square foot retail and commercial office
center located in West Maui. The first tenants in Napili Plaza began
operation in January of 1992. As of December 31, 1995, 80% of the gross
leasable area was occupied by 18 tenants. Napili Plaza faces competition
from several other retail locations in the Napili area.
In June of 1993 Kaahumanu Center Associates (KCA) was formed to
finance the expansion of and to own and operate the 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. As of
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. The renovation which was completed in November of 1994,
expanded the Center from approximately 315,000 to 572,000 square feet of
gross leasable area.
(4) Other Information
The Company engages in continuous research to develop techniques to
reduce costs through crop production innovations. Improved production
systems have resulted in increased productivity by the labor force.
Research and development expenses approximated $410,000 in 1995, $375,000
in 1994 and $416,000 in 1993.
The Company has reviewed its compliance with Federal, State and local
provisions which regulate the discharge of materials into the environment.
It does not expect any material financial impact as a result of compliance
with these laws.
The Company's method of disposing of pineapple processing waste water
utilizes underground injection wells. In recent years, such methods have
come under the scrutiny of the regulatory agencies. The Company's capital
expenditure budget for 1996 includes $2 million for a system which will
totally replace the existing method of disposing of processing waste water.
In total, the Company employed approximately 1,940 people in 1995.
(d) Financial Information About Foreign and Domestic Operations and Export
Sales.
Export sales only arise through the pineapple company. Export sales
of pineapple products are made chiefly 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 the Island of
Maui. This land, most of which was acquired from 1911 to 1932, is carried
at cost. The Company believes it has clear and unencumbered marketable
title to all of the preceding property except for the following:
(1) a mortgage on the fee and leasehold interest of the 36-acre Ritz-
Carlton Kapalua Hotel site, which secures a loan to the ground lessee for
up to $65 million (See Note 3 to Consolidated Financial Statements in the
Maui Land & Pineapple Company, Inc. 1995 Annual Report to Shareholders.);
(2) a perpetual conservation easement granted to the State of Hawaii on a
13-acre parcel at Kapalua;
(3) certain existing easements and rights-of-way that do not materially
affect the Company's use of such property;
(4) a mortgage on the three golf courses at Kapalua, which secures the
Company's $22 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; and
(6) a small percentage of the Company's land in various locations on which
multiple claims exist and for which the Company has initiated quiet title
actions.
Approximately 22,400 acres of the Company's land are located in West
Maui, approximately 6,200 acres are located at its Haliimaile plantation in
central Maui, and approximately 28 acres are located in Kahului, Maui.
The 22,400 acres in West Maui comprise a largely contiguous parcel which
extends from the sea to an elevation of approximately 5,700 feet and
includes nine miles of ocean frontage with approximately 3,300 lineal feet
along sandy beaches, as well as agricultural and grazing lands, gulches and
heavily forested areas. The Haliimaile property is situated at elevations
between 1,000 and 3,000 feet above sea level on the slopes of Haleakala.
Approximately 6,400 acres of Company-owned land are used directly or
indirectly in the pineapple operations and approximately 1,500 acres are
designated for the Kapalua resort. The Kahului acreage includes offices, a
can manufacturing plant and pineapple processing cannery with
interconnected warehouses at the cannery site where finished product is
stored. The remaining land is primarily in pasture or forest reserve.
Approximately 3,000 acres of leased land are used in the Company's
pineapple operations. A major operating lease covers approximately 1,500
acres of land. The balance of the leased property is covered under eleven
leases expiring variously through 2012. The aggregate land rental for
these leases was $390,000 in 1995.
Item 3. LEGAL PROCEEDINGS
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDER
MATTERS
The information set forth under the caption "Common Stock" on page 19
of the Maui Land & Pineapple Company, Inc. 1995 Annual Report to
Stockholders 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. 1995 Annual Report to
Stockholders is incorporated herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
"Management's Discussion and Analysis of Results of Operations and
Financial Condition" on pages 21 through 23 of the Maui Land & Pineapple
Company, Inc. 1995 Annual Report to Stockholders is incorporated herein by
reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The "Independent Auditors' Report," "Consolidated Financial
Statements" and "Notes to Consolidated Financial Statements" on pages 7
through 18 of the Maui Land & Pineapple Company, Inc. 1995 Annual Report to
Stockholders 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 "Compliance with Section
16(a) of the Exchange Act" and "Election of Directors" on pages 6 through 8
of the Maui Land & Pineapple Company, Inc. Proxy Statement, dated March 29,
1996, is incorporated herein by reference. The Company has the following
executive officers:
Principal Occupation
Name During Last 5 Years
Gary L. Gifford President & Chief Executive Officer since April
(Age 48) 1995; Executive Vice President/Resort from 1987 to
1995.
Paul J. Meyer Executive Vice President/Finance since 1984;
(Age 48) Treasurer since 1994.
Douglas R. Schenk Executive Vice President/Pineapple since 1995;
(Age 43) Vice President/Pineapple from 1993 to 1995;
Cannery Manager of Maui Pineapple Company, Ltd.
from 1989 to 1993.
Donald A. Young Executive Vice President/Resort since April 1995;
(Age 48) 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 Vice President/Retail Property since 1995;
(Age 40) General Manager of Kaahumanu Center from 1989 to
1995.
Julie L. Salady Vice President/Human Resources since 1995;
(Age 32) Director of Human Resources from 1991 to 1995.
Warren A. Suzuki Vice President/Land Management since October 1995;
(Age 43) 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 11 of the Maui Land & Pineapple Company, Inc. Proxy
Statement, dated March 29, 1996, 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 29, 1996, 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 pages 13 to 14 of the Maui Land &
Pineapple Company, Inc. Proxy Statement, dated March 29, 1996, 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, 1995 and 1994
Consolidated Statements of Operations and Retained Earnings for
the Years Ended December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
(a) 2. Financial Statement Schedules
The Financial Statements of Kaahumanu Center Associates for the Years
Ended December 31, 1995, 1994 and Period from June 23, 1993 (Date of
Formation) Through December 31, 1993 are filed as exhibits.
The Financial Statements of Kaptel Associates for the Years Ended
December 31, 1994 and 1993 are filed as exhibits.
(a) (3) Exhibits
Exhibits are listed in the "Index to Exhibits" found on pages 17 to 20
of this Form 10-K.
(b) (3) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
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 29, 1996 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 29, 1996
Mary C. Sanford
Chairman of the Board
By /s/RICHARD H. CAMERON Date March 29, 1996
Richard H. Cameron
Vice Chairman of the Board
By /s/PAUL J. MEYER Date March 29, 1996
Paul J. Meyer
Exec. Vice Pres./Finance & Treasurer
By /s/TED PROCTOR Date March 29, 1996
Ted Proctor
Controller & Assistant Treasurer
By /s/PETER D. BALDWIN Date March 29, 1996
Peter D. Baldwin
Director
By /s/JOSEPH W. HARTLEY, JR. Date March 29, 1996
Joseph W. Hartley, Jr.
Director
By /s/RANDOLPH G. MOORE Date March 29, 1996
Randolph G. Moore
Director
By /s/FRED E. TROTTER III Date March 29, 1996
Fred E. Trotter III
Director
INDEX TO EXHIBITS
The exhibits designated by an asterisk (*) are filed herein. The exhibits
not so designated are incorporated by reference to the indicated filing.
All previous exhibits were filed with the Securities and Exchange
Commission in Washington D. C. under file number 0-4674.
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) Revolving and Term Loan Agreement, dated as of December 31, 1992.
Exhibit (10)A to Form 10-K for the year ended December 31, 1992.
(ii) First Loan Modification Agreement, dated and effective as of
March 1, 1993. Exhibit (10)A to Form 10-Q for the quarter ended
March 31, 1993.
(iii) Second Loan Modification Agreement, dated September 8, 1993.
Exhibit (10)B to Form 10-Q for the quarter ended September 30,
1993.
(iv) Third Loan Modification Agreement, dated September 30, 1994.
Exhibit (10)B to Form 10-K for the year ended December 31, 1993.
(v) Fourth Loan Modification Agreement, dated March 8, 1994. Exhibit
(10)A to Form 10-K for the year ended December 31, 1993.
(vi) Fifth Loan Modification Agreement, dated as of December 31, 1994.
Exhibit 10.1(vi) to Form 10-K for the year ended December 31,
1994.
(vii) Sixth Loan Modification Agreement, effective as of March 31,
1995. Exhibit (10) to Form 10-Q for the quarter ended June 30,
1995.
(viii)* Seventh Loan Modification Agreement, effective as of December 31,
1995.
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.
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.
(iv)* Subordination, Nondisturbance and Attornment Agreement (Ground
Lessor), dated February 24, 1996.
(v)* Hotel Ground Lease by and between Maui Land & Pineapple Company,
Inc. (Lessor) and NI Hawaii Resort, Inc. (Lessee), effective
January 1, 1996.
(vi)* Amendment Relating to Off-Site Loan, dated January 9, 1996 and
Effective January 1, 1995.
(vii)* Letter Agreement, dated January 1, 1996, Re: Nonrecourse Open
Account For Off-Site Improvements.
(viii)* Agreement with NI Hawaii Resort, Inc. (Ground Lease), dated
January 9, 1996.
(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.
(x)* Assignment Agreement (Assignment of Amended and Restated Tennis
Operating Agreement), dated January 9, 1996.
(xi)* Golf Course Use Agreement by and between Maui Land & Pineapple
Company, Inc. and NI Hawaii Resort, Inc. dated, January 9, 1996.
(xii)* Memorandum of Understanding between Maui Hotels, Kapalua
Investment Corp. and NI Hawaii Resort, Inc., effective October
31, 1995.
(xiii)* Supplemental Agreement, entered into among Maui Hotels, Kapalua
Investment Corp. and NI Hawaii Resort, Inc. as of February 15,
1996.
(xiv)* Release of Real Property Mortgage, Security Agreement and
Financing Statement, dated March 12, 1996.
10.5 Partnership Agreement of Plantation Club Associates, dated
November 10, 1988. Exhibit (10)A to Form 10-K for the year ended
December 31, 1988.
10.6 Fifteen million dollar ($15 million) Promissory Note, dated March
31, 1986, for the acquisition of Kaahumanu Center. Exhibit (10)C
to Form 10-K for the year ended December 31, 1986.
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) Remunerative agreement between Maui Land & Pineapple Company,
Inc. and Paul J. Meyer, Executive Vice President/Finance. Exhibit
(10)A to Form 10-Q for the quarter ended June 30, 1984.
(iv) Supplemental Executive Retirement Plan (effective as of January
1, 1988). Exhibit (10)B to Form 10-K for the year ended December
31, 1988.
10.8 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.
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. 1995 Annual Report.
21. Subsidiaries of registrant:
All of the following were incorporated in the State of Hawaii:
Maui Pineapple Company, Ltd.
Kapalua Land Company, Ltd.
Kapalua Investment Corp.
Kapalua Water Company, Ltd.
Kapalua Waste Treatment Company, Ltd.
Honolua Plantation Land Company, Ltd.
27.* Financial Data Schedule.
99. Additional Exhibits.
99.1* Financial Statements of Kaahumanu Center Associates for the years
ended December 31, 1995 and 1994 and period from June 23, 1993
(date of formation) through December 31, 1993.
99.2 Financial Statements of Kaptel Associates for the years ended
December 31, 1994 and 1993. Exhibit 99.1 to Form 10-K for the
year ended December 31, 1994.
SEVENTH LOAN MODIFICATION AGREEMENT
SEVENTH LOAN MODIFICATION AGREEMENT, effective as
of December 31, 1995 (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"), BANK OF AMERICA,
NATIONAL TRUST AND SAVINGS ASSOCIATION, a national banking
association ("BOA"), CENTRAL PACIFIC BANK, a Hawaii banking
corporation ("CPB" and, together, with BKOH, FHB, and BOA,
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 Revolving and Term Loan Agreement,
dated as of December 31, 1992, as amended by a First Loan
Modification Agreement, dated as of March 1, 1993, and sup-
plemented by letter agreements dated April 30, 1993 and June
24, 1993, and further amended by Second Loan Modification
Agreement, dated September 8, 1993, by a Third Loan Modifi-
cation Agreement, dated September 30, 1993, by a Fourth Loan
Modification Agreement, dated March 8, 1994, by a Fifth Loan
Modification Agreement, dated effective as of December 31,
1994, and by a Sixth Loan Modification Agreement, dated
effective as of March 31, 1995, each among the Borrower and
the Lenders (as so amended and supplemented, the "Loan Agree-
ment"), 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 Notes (as such
term is defined in the Loan Agreement) for the purposes of,
among other things, extending the maturity date of the Notes
and amending and 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 6 of this Amendment), Section
1.04a of the Loan Agreement is amended and restated in its
entirety to read as follows:
"1.04a 'Commitment Reduction Date' means each
of the following dates:
(i) the earlier of (a) January 1, 1996 and (b)
the date that the Aggregate Loan Commitment is reduced
to $22,000,000 or less (the earlier of such dates is
herein referred to as the 'First 1996 Commitment
Reduction Date');
(ii) December 31, 1996 (the 'Second 1996 Com-
mitment Reduction Date');
(iii) each date on which the Borrower or any
Subsidiary receives any amount in respect of the sale of
any of its real estate assets; and
(iv) each other date that the Aggregate Loan
Commitment is to be reduced pursuant to the provisions
of Section 2.06(A) of this Loan Agreement."
(b) Effective on and after the Effective Date,
Section 2.01 of the Loan Agreement is amended and restated in
its entirety to read as follows:
"2.01 General Terms. On the terms and pro-
visions and subject to the satisfaction of the condi-
tions stated in this Loan Agreement, each Lender hereby
severally agrees to make Loans to the Borrower, from
time to time from the date of this Loan Agreement to and
including June 30, 1997 (the 'Revolving Loan Period'),
each in a principal amount equal to such Lender's Indi-
vidual Loan Commitment Percentage of the total amount to
be borrowed on any occasion; provided, however, that (a)
subject to the provisions of Section 2.06(A) of this
Loan Agreement, the aggregate principal amount at any
one time outstanding of all Loans hereunder shall not
exceed the Aggregate Loan Commitment (i.e., $40,000,000
at any one time outstanding during the Initial Period
and, at any one time outstanding on and after each
Commitment Reduction Date and until the next Commitment
Reduction Date, if any, the Aggregate Loan Commitment
after giving effect to the reduction to occur on such
Commitment Reduction Date), (b) no lender shall be
obligated to make Loans to the Borrower which shall
exceed, in the aggregate principal amount at any one
time outstanding, such Lender's Individual Loan Commit-
ment, (c) each advance of Loan proceeds hereunder shall
be made by the several Lenders ratably, in a principal
amount equal to such Lender's Individual Loan Commitment
Percentage of the total amount to be borrowed on any
occasion, (d) no Lender shall have any obligation or
liability to the Borrower or any other Person as a
result of the failure of another of the Lenders to
observe any of its obligations under this Loan Agree-
ment, and (e) no Lender (in its capacity as such) shall
have any obligation or liability to the Borrower or any
other Person as a result of the failure of the Agent to
observe any of its obligations under this Loan Agreement
or the Agency Agreement. During the Revolving Loan
Period the Borrower may borrow, repay without penalty or
premium and reborrow hereunder, either the full amount
of the Aggregate Loan Commitment then in effect or any
lesser sum, provided that any borrowing hereunder shall
be in an amount not less than $500,000, and an integral
multiple of $100,000, and provided that any voluntary
prepayment hereunder shall be in an amount not less than
$250,000, and an integral multiple of $50,000. Interest
on the Loans shall be paid by the Borrower at the times
and in the manner stated in the Notes. All of the out-
standing principal balance of, and accrued but there-
tofore unpaid interest on, the Loans shall be paid in
full on June 30, 1997."
(c) Effective on and after the Effective Date,
Section 2.06(A) of the Loan Agreement is amended and restated
in its entirety to read as follows:
"A. Mandatory Reduction. On May 15, 1995,
the Aggregate Loan Commitment was reduced to
$23,000,000; and on each Commitment Reduction Date
thereafter, the Aggregate Loan Commitment shall be
reduced to the amount set forth below with respect to
such Commitment Reduction Date:
(1) At the close of business on the First
1996 Commitment Reduction Date, the Aggregate Loan Com-
mitment in effect at the opening of business on such
date shall be reduced to Twenty-two Million Dollars
($22,000,000.00);
(2) At the close of business on the Second
1996 Commitment Reduction Date, the Aggregate Loan Com-
mitment in effect at the opening of business on such
date shall be reduced by Three Million Dollars
($3,000,000.00);
(3) By the close of business on each date the
Borrower or any Subsidiary receives any net sales pro-
ceeds (i.e., gross sales proceeds less closing costs
acceptable to the Lenders) in respect of the sale of any
real estate assets referred to in clause (iii) of
Section 1.04a of this Loan Agreement, the Borrower shall
notify the Agent of such sale and the Borrower's receipt
of such net sale proceeds and shall pay to the Lenders
through the Agent 75% of the after-tax net proceeds so
received by the Borrower as a mandatory prepayment of
the outstanding principal amount of the Loans; and
(4) The Aggregate Loan Commitment in effect
shall be reduced by the close of business on the date of
the earlier of (x) the date of the sale of the Napili
Plaza project in an amount equal to the net sale
proceeds of such sale and (y) the date of any permanent
financing of the Napili Plaza project in an amount equal
to the net mortgage loan proceeds of such permanent
financing.
The Borrower shall pay to the Lenders through the Agent
no later than the close of business on each Commitment
Reduction Date, as a mandatory prepayment of the aggre-
gate outstanding principal amount of the Loans, an
amount equal to the difference between (I) the aggregate
outstanding principal amount of the Loans, minus (II)
the Aggregate Loan Commitment as so reduced."
(d) Effective on and after the Effective
Date, Section 5.01(F) of the Loan Agreement is amended
and restated in its entirety to read as follows:
"(F) The Borrower will maintain:
(1) At all times on and after January
1, 1994, a Current Ratio of not less than 1.90;
(2) A Recourse Debt/Net Worth Ratio of
not more than (a) 0.80 at December 31, 1995, March 31,
1996, and September 30, 1996, and (b) 0.70 at
December 31, 1996 and thereafter (for the purposes of
this covenant, KCA's debt approved by the Lenders pur-
suant to the last sentence in Section 5.02(I) of this
Agreement, and any KCA debt which is Nonrecourse to the
Borrower, shall be disregarded); and
(3) A minimum Net Worth of at least (a)
$57,000,000 at December 31, 1995, and (b) an amount
equal to the sum of (i) $57,000,000, plus (ii) the
cumulative net profits (but no the net losses) of the
Borrower, at January 1, 1996 and thereafter."
(e) 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
Expendituresand Investments made by the Borrower and
its Subsidiaries
in any such fiscal year, will exceed in the aggregate
the amount show 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 $ 9.5 Million
1997 and thereafter $ 9.0 Million"
(f) 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
principal amount as of December 31, 1993, and
(b) $63,000,000 in the aggregate
principal amount as of March 31, 1994, and
(c) $65,000,000 in the aggregate
principal amount as of June 30, 1994, and
(d) $69,000,000 in the aggregate
principal amount as of September 30, 1994, and
(e) $57,000,000 in the aggregate
principal amount as of December 31, 1994, and
(f) $58,000,000 in the aggregate
principal amount as of March 15, 1995, and
(g) $53,000,000 in the aggregate
principal amount as of May 5, 1995, and
(h) $50,000,000 in the aggregate
principal amount as of December 31, 1995, and
(i) $40,000,000 in the aggregate
principal amount as of December 31, 1996 and thereafter.
For the purposes of this Section 5.02(H), KCA's
debt approved by the Lenders pursuant to the last
sentence in Section 5.02(I) of this Agreement, and
any KCA debt which is Nonrecourse to the Borrower,
including that portion subject to Borrower's
Limited Payment Guaranty, shall not be deemed to
constitute indebtedness of the Borrower or any
Subsidiary."
SECTION 3. Amendments to Notes.
(a) Effective on and after the Effective Date,
Section 2 of each of the Notes is amended and restated in its
entirety to read as follows:
"2. Interest Rates. Outstanding balances of
principal under this Note, prior to the maturity
(whether by acceleration or otherwise) of the
indebtedness evidenced by this Note, shall bear interest
at
(i) during the period commencing on the date of
this Note to and including December 31, 1993, a
floating rate equal to the Base Rate in effect from
time to time,
(ii) 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,
(iii) during the period commencing on May 15, 1995,
to and including the earlier of (x) the date (the
"Interest Reduction Date"), if any, that the Aggre-
gate Loan Commitment is reduced to $15,000,000.00
and (y), if no Interest Reduction Date occurs prior
to maturity, the date that the Loans are paid in
full and the Aggregate Loan Commitment is termi-
nated, a floating rate equal to one-quarter of one
percentage point (0.25%), plus the Base Rate in
effect from time to time, and
(iv) if the Interest Reduction Date occurs prior to
maturity, during the period commencing on the
Interest Reduction Date, if any, to and including
the date that the Loans are paid in full, a
floating rate equal to the Base Rate in effect from
time to time,
computed in each case with daily adjustments, if
required, it being the intent that such interest rate
shall increase or decrease simultaneously with any
increase or decrease in the Base Rate."
(b) Effective on and after the Effective Date,
Section 4(a) of each of the Notes is amended by deleting
therefrom the date "June 30, 1996," and by inserting, in lieu
thereof, the date "June 30, 1997."
(c) Effective on and after the Effective Date,
Section 4(b) of the Note held by Bank of Hawaii is amended
and restated in its entirety to read as follows:
"(b) In addition to the payments of interest
mentioned above in paragraph 4(a) of this Note, (1) the
Maker shall, from time to time, make all principal pay-
ments or prepayments required to be made from time to
time pursuant to Section 2.06(A) of the Loan Agreement,
and (2) the Maker shall pay the entire outstanding
balance of principal hereunder on June 30, 1997."
(d) Effective on and after the Effective Date,
Section 4(b) of the Note held by First Hawaiian Bank is
amended and restated in its entirety to read as follows:
"(b) In addition to the payments of interest
mentioned above in paragraph 4(a) of this Note, (1) the
Maker shall, from time to time, make all principal pay-
ments or prepayments required to be made from time to
time pursuant to Section 2.06(A) of the Loan Agreement,
and (2) the Maker shall repay the entire outstanding
balance of principal hereunder on June 30, 1997."
(e) Effective on and after the Effective Date,
Section 4(b) of the Note held by Bank of America National
Trust and Savings Association is amended and restated in its
entirety to read as follows:
"(b) In addition to the payments of interest
mentioned above in paragraph 4(a) of this Note, (1) the
Maker shall, from time to time, make all principal pay-
ments or prepayments required to be made from time to
time pursuant to Section 2.06(A) of the Loan Agreement,
and (2) the Maker shall repay the entire outstanding
balance of principal hereunder on June 30, 1997."
(f) Effective on and after the Effective Date,
Section 4(b) of the Note held by Central Pacific Bank is
amended and restated in its entirety to read as follows:
"(b) In addition to the payments of interest
mentioned above in paragraph 4(a) of this Note, (1) the
Maker shall, from time to time, make all principal pay-
ments or prepayments required to be made from time to
time pursuant to Section 2.06(A) of the Loan Agreement,
and (2) the Maker shall repay the entire outstanding
balance of principal hereunder on June 30, 1997."
SECTION 4. 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
heretofore amended, as amended by this Amendment, and as may
be further amended, modified and supplemented from time to
time by written agreement between the parties hereto, (ii)
the Notes, are amended to mean and include the Notes, as
heretofore amended, 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 5. 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 heretofore amended and as
amended by this Amendment, and each of the Notes, as here-
tofore amended and as amended by this Amendment has been duly
authorized, executed and delivered by the Borrower and con-
stitutes the legal, valid and binding obligation of the Bor-
rower 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
Borrower is a party or by which the Borrower, or its proper-
ties 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 6. Effectiveness. Notwithstanding any-
thing herein to the contrary, the amendments to the Loan
Agreement, Notes and the other Loan Documents set forth in
Sections 2, 3 and 4 of this Amendment, shall amend the pro-
visions of the Loan Agreement, Notes and the other Loan
Documents as of December 31, 1995 (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
$25,000.
(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 7. Limitations. The amendments to the
Loan Agreement, the Notes and the other Loan Documents set
forth hereinabove in Sections 2, 3 and 4 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, the Notes or any
of the other Loan Documents. The Loan Agreement, the Notes
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 8. 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 9. 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 10. Headings. The section headings in
this Amendment have been inserted for convenience of refer-
ence only and shall in no manner affect the meaning or
interpretation of the various provisions hereof.
SECTION 11. 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
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this Amendment to be duly executed on the date first-above
written.
MAUI LAND & PINEAPPLE COMPANY, INC.
By: /S/ GLARY L. GIFFORD
Its: PRESIDENT
By: /S/ PAUL J. MEYER
Its: EXECUTIVE VICE PRESIDENT
BANK OF HAWAII, individually
and as Agent
By: /S/ GREGG E. LING
Its: VICE PRESIDENT
FIRST HAWAIIAN BANK
By: /S/ LISA U. KUSHI
Its: BRANCH MANAGER
BANK OF AMERICA, NATIONAL TRUST
AND SAVINGS ASSOCIATION
By: /S/ RICHARD E. BRYSON
Its: VICE PRESIDENT
CENTRAL PACIFIC BANK
By: /S/ ROBERT D. MURAKAMI
Its: VICE PRESIDENT
Second Amendment to Note Purchase Agreement
This Second Amendment to Note Purchase Agreement, dated as
of November 13, 1995 (this "Amendment"), is made between John
Hancock Mutual Life Insurance Company ("Purchaser") and Maui Land
& Pineapple Company, Inc., a Hawaii corporation ("Company").
WHEREAS, Company and Purchaser are parties to that certain
Note Purchase Agreement dated as of September 9, 1993, as amended
by that certain First Amendment to Note Purchase Agreement dated
as of March 30, 1994 (the "Note Purchase Agreement"); and
WHEREAS, Company has requested that certain provisions of
the Note Purchase Agreement be amended as set forth below; and
WHEREAS, subject to the fulfillment of certain conditions,
Purchaser is willing so to amend the Note Purchase Agreement;
NOW, THEREFORE, in consideration of the mutual conditions
and agreements set forth in this Amendment, Company and Purchaser
hereby agree as follows:
Section 1. Definitions
Capitalized terms used but not defined in this Amendment
shall have the meanings set forth in the Note Purchase Agreement.
Section 2. Amendment
Subject to the terms and conditions set forth below, the
Note Purchase Agreement is hereby amended, effective September
29, 1995, by deleting the definition of "Net Worth" in Section
11.1 and inserting the following definition in its place:
"Net Worth" shall mean, with respect to any Person, on the
date such determination is to be made, the sum of Assets less
Liabilities, provided, however, that in determining the Net Worth
of Company and its Subsidiaries, the amount of non-cash losses
incurred by Company and its Subsidiaries (without duplication)
from their partnership interest in Kaptel Associates between
January 1, 1995 and December 31, 1995 shall be added to the
amount of Net Worth as determined above.
Section 3. Conditions
The amendment contained in Section 2 shall not be deemed to
be of any force or effect unless and until the following
conditions have been satisfied:
3.1 Representations and Warranties. All of the
representations and warranties contained in Section 5 hereof are
complete and accurate in all material respects as of the date
hereof.
3.2 Guarantor Consents. Each of the Persons which executed
the Guaranty shall have executed a consent, in form and substance
satisfactory to Purchaser, in which each such Person consents to
this Amendment and confirms the effectiveness of the Guaranty.
Section 4. Termination
This Amendment shall terminate, and no agreements provided
for herein shall have any force or effect, if all of the
conditions set forth in Section 3 hereof are not satisfied on or
before November 17, 1995.
Section 5. Representations and Warranties
Company hereby represents and warrants to Purchaser that as
of the date hereof (and all such representations and warranties
shall survive the execution and delivery of this Amendment and
any investigation thereof by Purchaser):
5.1 Representations and Warranties; No Defaults. All of
the representations and warranties of Company set forth in the
Note Purchase Agreement are true and correct as of the date
hereof and, after giving effect to this Amendment, no Event of
Default or Unmatured Event of Default under the Note Purchase
Agreement has occurred and is continuing.
5.2 Authorization. The execution, delivery and performance
of this Amendment by Company is within its corporate powers and
has been duly authorized by all necessary corporate action.
5.3 Valid and Binding Obligation. This Amendment has been
duly executed by Company and constitutes the legal, valid and
binding obligation of Company, enforceable against Company in
accordance with its terms.
5.4 No Conflicts. The execution, delivery and performance
by Company of this Amendment will not (i) violate any provision
of any statute, regulation, ordinance, order, injunction, decree
or other requirement of any governmental legislative,
administrative or judicial body or agency, (ii)violate any
provision of Company's articles of incorporation or bylaws,
(iii)cause or result in a default under or breach of any
agreement, bond, note or indenture to which Company is a party or
by which it or any of its properties or assets is or may be
affected, or (iv)result in the creation or imposition of any Lien
of any nature whatsoever upon any of the properties or assets
owned or used by Company in the conduct of its business.
5.5 No Material Adverse Change. Since the date of the
latest financial statements of Company delivered to Purchaser
under the Note Purchase Agreement, no event has occurred
involving a Material Adverse Change.
5.6 No Fee, etc. No fee or other consideration of any type
is being paid by Company or any of its Subsidiaries to any other
Person in connection' with the amendment or waiver of its
agreements with such Person to reflect the change in definition
of Net Worth reflected herein or substantially reflected herein.
Section 6. Miscellaneous
6.1 Effect on Note Purchase Agreement. Except as expressly
amended hereby, all of the terms and conditions of the Note
Purchase Agreement are hereby ratified and confirmed in their
entirety and shall continue in full force and effect. Except as
specifically set forth herein, the execution, delivery and
effectiveness of this Amendment shall not operate as a waiver of
any right, power or remedy of Purchaser under the Note Purchase
Agreement or any of the Notes. On and after the date hereof. each
reference in the Note Purchase Agreement to this "Agreement,"
"hereunder," "hereof," "herein" or words of like import. and each
reference in the Guaranty or any of the Notes to the Note
Purchase Agreement, shall mean and be a reference to the Note
Purchase Agreement as amended hereby.
6.2 Headings. All titles and section headings used in this
Amendment are used for purposes of convenience of reference only,
and shall not be deemed to constitute a part hereof.
6.3 Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of Hawaii
applicable to contracts made and to be performed in Hawaii.
6.4 Counterparts. This Amendment may be executed in multiple
identical counterparts, and by the parties hereto in separate
counterparts. each of which shall be deemed an original, and all
of which together shall constitute one and the same agreement.
IN WITNESS WHEREOF, the undersigned have executed this
Second Amendment to Note Purchase Agreement as of the date first
set forth above.
MAUI LAND & PINEAPPLE COMPANY ,INC.
By: /S/ PAUL J. MEYER
Name: Paul J. Meyer
Title: Executive Vice President/Finance
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
By: /S/ DANA DONOVAN
Name: Dana Donovan
Title: Senior Investment Officer
LAND COURT SYSTEM
REGULAR SYSTEM
Return By: Mail ( )
Pickup ( ) To:
NI Hawaii Financial, Inc.
745 Fort Street, 8th Floor
Honolulu, Hawaii 96813
Tax Map Key: 4-2-004-021 (2)
Tax Map Key: 4-2-004-015 & 014 (2)
0129588.KYS
FIRST MORTGAGE, SECURITY AGREEMENT,
FINANCING STATEMENT AND ASSIGNMENT OF RENTALS
securing
Adjustable Interest Rate Loan
THIS FIRST MORTGAGE, SECURITY AGREEMENT, FINANCING STATEMENT
AND ASSIGNMENT OF RENTALS (this "Mortgage") made this 24TH
day of FEBRUARY , 1996, by and among the following parties:
A. The following parties, who are individually and
collectively referred to herein as the "Mortgagor":
1. MAUI LAND & PINEAPPLE COMPANY, INC., a Hawaii
corporation, whose principal place of business is 120
Kane Street, Kahului, Maui, Hawaii, and whose post
office address is P.O. Box 187, Kahului, Maui, Hawaii
96732, who owns the title to the property described in
ITEM ONE of EXHIBIT A attached hereto, hereinafter
sometimes separately referred to as the "Ground
Lessor" and the "Accommodation Mortgagor", and
2. NI HAWAII RESORT, INC., a Hawaii corporation
whose address is 745 Fort Street, Honolulu, Hawaii
96813, who owns the title to the property described in
ITEM TWO of EXHIBIT A attached hereto;
B. NI HAWAII RESORT, INC., a Hawaii corporation,
whose address is 745 Fort Street, 8th Floor, Honolulu,
Hawaii 96813, hereinafter referred to as the "Borrower",
in favor of and for the benefit of NI HAWAII FINANCIAL, INC., a
Delaware corporation, whose address is 745 Fort Street, 8th Floor,
Honolulu, Hawaii 96813, hereinafter called the "Mortgagee",
WITNESSETH THAT:
A. OBLIGATIONS AND LIABILITIES SECURED BY THIS MORTGAGE
1. THIS MORTGAGE DOES HEREBY SECURE the repayment of that
certain loan (the "Loan") made by the Mortgagee to the Borrower in
the principal amount of SIXTY FIVE MILLION AND NO/100 DOLLARS (U.S.
$65,000,000.00), and all renewals, extensions and modifications
thereof, together with interest thereon, and the payment
(including, but not limited to, all sums expended or advanced
pursuant to), the observance and the performance of, all covenants,
conditions and agreements required to be paid, observed and
performed by the Borrower under the following loan documents:
(1) This Mortgage covering the property located at 1
Ritz-Carlton Drive, Kapalua, Hawaii;
(2) That certain Promissory Note executed
concurrently herewith by the Borrower, as Maker, such note
and any renewals, extensions and modifications thereof
being hereinafter referred to as the "Note";
(3) That certain Security Agreement with a Financing
Statement (UCC-1) thereof covering all contracts, permits
and authorizations respecting the management and operation
of, and all furniture, furnishings, fixtures, equipment,
appliances and other personal property, located at 1 Ritz-
Carlton Drive, Kapalua, Hawaii and also covering that
certain Golf Course Agreement providing for the terms and
conditions for the use of the Bay Course, the Village
Course and the Plantation Course located at the Kapalua
Resort which is located at Kapalua, Maui, Hawaii and that
certain Amended and Restated Tennis Operating Agreement,
providing for the terms and conditions for the use of The
Village Tennis Center and the Tennis Garden located at the
Kapalua Resort which is located at Kapalua, Maui, Hawaii;
(4) That certain First Security Assignment,
Subordination, Nondisturbance and Attornment Agreement made
by Mortgagor and Kapalani L.P., a Delaware limited
partnership, covering that certain Amended and Restated
Operating Agreement covering the Ritz-Carlton, Kapalua
Hotel located at 1 Ritz-Carlton Drive, Kapalua, Hawaii; and
(5) Any other instruments or agreements executed by
any party concurrently herewith in connection with the loan
documents and securing the Loan,
all of the foregoing loan documents, together with all future
modifications thereof, being hereinafter collectively referred to
as the "Loan Documents";
2. THIS MORTGAGE DOES ALSO HEREBY SECURE the payment to the
Mortgagee of all other sums now or hereafter loaned or advanced by
the Mortgagee to the Borrower, expended by <PAGE>
the Mortgagee for the account of
the Borrower, or otherwise owing by the Borrower to the Mortgagee on any and
every account whatsoever related to this Mortgage; and
3. THIS MORTGAGE DOES ALSO HEREBY SECURE any judgment
issued by any Court in favor of the Mortgagee or the Mortgagee's
assigns against the Borrower related to or arising out of any
default of the Borrower under the Loan Documents.
B. GRANT OF MORTGAGE
1. THE GROUND LESSOR DOES HEREBY grant, bargain, sell,
assign and convey unto the Mortgagee, its successors and assigns,
all of the Ground Lessor's right, title and interest in and to the
following:
(1) All of the real property and lessor's interest in
the Hotel Ground Lease thereon (collectively the "Real
Property") described in ITEM ONE of EXHIBIT A, attached
hereto and made a part hereof by this reference, subject to
the encumbrances (the "Encumbrances"), if any, set forth on
such Exhibit; provided, however, that prior to any Event of
Default under this Mortgage, the Ground Lessor shall have
the right to collect and retain any rent, profits or
proceeds from the Real Property; and
(2) Any and all awards or payments, including
interest thereon, and the right to receive the same, which
may be made with respect to the Real Property and the
Premises and improvements as a result of (a) the exercise
of the right of eminent domain, (b) the alteration of the
grade of any street or (c) any other injury to or decrease
in the value of the Real Property or the Premises and
improvements to the extent of all amounts which may be
secured by this Mortgage at the date of receipt of any such
award or payment by the Mortgagee, and of the reasonable
counsel fees, costs and disbursements incurred by the
Mortgagee in connection with the collection of such award
or payment, the Ground Lessor agreeing to execute and
deliver, from time to time, such further instruments as may
be required by the Mortgagee to confirm such assignment to
the Mortgagee of any such award or payment, SUBJECT,
HOWEVER, to the provisions and limitations of Paragraph
H.12 of this Mortgage;
2. THE BORROWER DOES HEREBY grant, bargain, sell, assign
and convey unto the Mortgagee, its successors and assigns, all of
the Borrower's right, title and interest in and to the following:
(1) All of the lessee's interest in the Hotel Ground
Lease (the "Lease") described in ITEM TWO of EXHIBIT A,
attached hereto and made a part hereof by this reference,
together with the estate created thereby, subject to the
encumbrances (the "Encumbrances"), if any, set forth on
such Exhibit.
(2) All buildings and improvements now located on the
Real Property and the premises demised by the Lease (the
"Premises") and any and all buildings, improvements and
building materials that may be placed thereon during the
existence of this Mortgage and all rents, royalties,
profits, revenues, income and other benefits arising from
the use or enjoyment of all or any portion of such property
or any contract pertaining to the use or enjoyment thereof;
(3) All furniture, furnishings, machinery,
appliances, apparatus, equipment, inventory, fittings,
fixtures and articles of personal property of every kind
and nature whatsoever, other than consumable goods, now or
hereafter located in or upon the Real Property, the
Premises or any part thereof or wherever located
(hereinafter called "Equipment") and now owned or hereafter
acquired by the Borrower including all of the proceeds
deriving therefrom and all of the right, title and interest
of the Borrower in and to any Equipment which may be
subject to any retail installment contract, conditional
sale contract or security agreement superior in lien and
security interest to the lien and security interest of this
Mortgage, it being understood and agreed that all of the
Equipment is part and parcel of the improvements on the
Real Property and the Premises and appropriated to the use
thereof, and whether affixed or annexed or not, shall for
the purpose of this Mortgage be deemed conclusively to be
conveyed hereby, the Borrower agreeing to execute and
deliver, from time to time, such further instruments as may
be requested by the Mortgagee to confirm the lien and
security interest of this Mortgage on the Equipment;
(4) Any and all awards or payments, including
interest thereon, and the right to receive the same, which
may be made with respect to the Real Property and the
Premises and improvements as a result of (a) the exercise
of the right of eminent domain, (b) the alteration of the
grade of any street or (c) any other injury to or decrease
in the value of the Real Property or the Premises and
improvements to the extent of all amounts which may be
secured by this Mortgage at the date of receipt of any such
award or payment by the Mortgagee, and of the reasonable
counsel fees, costs and disbursements incurred by the
Mortgagee in connection with the collection of such award
or payment, the Borrower agreeing to execute and deliver,
from time to time, such further instruments as may be
required by the Mortgagee to confirm such assignment to the
Mortgagee of any such award or payment;
(5) All right, title and interest of the Borrower in
and to any and all rental agreements, contracts for use and
all rights to rents, royalties, profits, revenues, income
and other benefits arising from the use or enjoyment of all
or any portion of the Real Property, the Premises or any
part thereof or any contract pertaining to the use or
enjoyment thereof;
(6) All right, title and interest of the Borrower in
and to:
(a) all leases, partial assignments, subleases
and other contracts of conveyance covering all or any
portion of the Real Property, the Premises or the
Equipment, and any and all modifications and
extensions thereof;
(b) all binders or policies of insurance of any
kind covering all or any portion of such real property
or the Equipment, and any riders, amendments,
extensions, renewals, supplements or revisions
thereof;
(c) any and all accounts (as defined in Section
490:9-106, Hawaii Revised Statutes) which may in any
way pertain to the business of the Borrower; and
(d) any and all general intangibles (as defined
in Section 490:9-106, Hawaii Revised Statutes)
including contracts, permits, licenses, certificates,
authorizations, refunds, rebates, security deposits,
trademarks and trade names, which may in any way
pertain to business of the Borrower;
the items of collateral described in this subparagraph
being hereinafter called the "Collateral";
(7) All right, title and interest of the Borrower in
and to any and all Agreements of Sale or similar
instruments which may hereafter arise out of or attach to
the Real Property, the Premises or any part thereof;
(8) All of the estate, right, title and interest of
the Borrower, both at law and in equity, therein and
thereto, and in and to:
(a) any deposit of cash, securities or other
property which may be held at any time and from time
to time by the lessor under the Lease to secure the
performance by the Borrower of the covenants,
conditions and agreements to be performed by the
Borrower thereunder, and
(b) any option to purchase the fee simple title
to the Real Property, the Premises, or any greater
interest therein than the Borrower now owns; and
(c) any and all other, further or additional
title, estate, interest or right which may at any time
be acquired by the Borrower in or to the Premises,
the Borrower hereby agreeing that if the Borrower shall, at
any time prior to payment in full of all indebtedness
secured hereby, acquire the fee simple title or any other
or greater estate than the Borrower now owns in the
Premises, then, and in that event, the lien of this
Mortgage shall attach, extend to, cover and be a lien upon
such fee simple title or other greater estate, and that the
Borrower will execute, acknowledge and deliver such
instruments as the Mortgagee may reasonably require to
accomplish such result; and
(9) All rights of the Borrower and the Borrower's
bankruptcy trustee to deal with the Lease, which rights may
arise as a result of the commencement of a proceeding under
the federal bankruptcy laws by or against (a) the Borrower
or (b) the lessor under the Lease, including, without
limitation, the right to assume or reject, or compel the
assumption or rejection of the Lease pursuant to 11 U.S.C.
Sec. 365(a) or any successor law, the right to seek and obtain
extensions of time to assume or reject the Lease, and the
right to elect whether to treat the Lease as terminated by
the lessor's rejection of the Lease or to remain in
possession of the Mortgaged Property and offset damages
pursuant to 11 U.S.C. Sec. 365(h)(1) or any successor law,
the items of collateral described in this paragraph being
hereinafter called the "Collateral";
TO HAVE AND TO HOLD all of the above-described Real
Property, Equipment, Collateral, awards, payments and other
property together with all rights, privileges and appurtenances
thereto belonging (all of such property being hereinafter referred
to as the "Mortgaged Property") unto the Mortgagee, for the
unexpired term or extended term of the Lease (or if the Borrower
shall acquire the fee simple title, then, absolutely and forever);
SUBJECT, HOWEVER, to the Encumbrances, if any.
C. THIS MORTGAGE IS GRANTED UPON THE FOLLOWING CONDITIONS:
(1) These presents shall be void:
(a) if the Borrower shall well and truly pay, or
cause to be paid, to the Mortgagee the principal amount of
the Note, with interest, fees, charges and premium, if any,
according to its provisions and effect, and if the Borrower
shall discharge, or cause to be discharged, any and all
obligations that now or hereafter may be or become owing,
directly or contingently, by the Borrower to the Mortgagee
under the Loan Documents, whether or not the same are
mature, of which obligations the books of the Mortgagee
shall be prima facie evidence; and
(b) if the Borrower shall observe and perform, or
cause to be observed or performed, all of the covenants,
conditions and agreements to be observed and performed by
the Borrower under this Mortgage and under the other Loan
Documents; and
(c) if the Borrower shall pay, or cause to be paid,
the costs of release.
(2) Subject to the terms hereof, until the happening of an
Event of Default, as hereinafter defined, the Mortgagor shall be
permitted to use and possess the Mortgaged Property and to use and
receive the rents, issues, profits, revenues and other income
thereof.
D. EVENTS OF DEFAULT
The occurrence of any one or more of the following events
shall constitute events of default ("Events of Default"):
(1) Default shall be made by the Borrower in the payment
of principal, interest, fees or charges when due on the Note or any
other obligation secured hereby; or
(2) Default shall be made by the Borrower in the due and
punctual observance or performance of any other covenant,
agreement, obligation or condition required to be observed or
performed by the Borrower under this Mortgage or the Note or any of
the other Loan Documents and such default shall not have been
remedied within twenty (20) days after the occurrence of the
default; or
(3) The Borrower shall become insolvent or shall be
voluntarily or involuntarily dissolved or shall admit in writing
the Borrower's inability to meet the Borrower's debts as they
become due, or the Borrower shall file a voluntary petition in
bankruptcy, or make an assignment for the benefit of creditors, or
consent to the appointment of a receiver or trustee for all or a
substantial part of the Borrower's properties, or file a petition,
answer or other instrument seeking or acquiescing to the
arrangement of the Borrower's debts, or other relief under the
federal bankruptcy laws or any other applicable law for the relief
of debtors of the United States of America or any state or
territory thereof; or
(4) A decree or order of a court having jurisdiction in the
Mortgaged Property shall be entered (i) adjudging the Borrower to
be bankrupt or insolvent, or (ii) appointing a receiver or trustee
or assignee in bankruptcy or insolvency of the Borrower or the
Borrower's properties, or (iii) directing the winding up or
liquidation of the Borrower's affairs; or
(5) Any representation or warranty made by the Borrower
herein or otherwise in connection with the Loan shall be untrue in
any material respect; or
(6) The Borrower shall default in any other obligation
secured hereby, and such default shall continue for a period of
twenty (20) days after the same shall become due and payable; or
(7) The forfeiture or seizure by any governmental authority
under 18 U.S.C. Sec. 981, or under any other federal, state, or other
law, of any of the Mortgaged Property or any of the properties
which are covered by the security instruments which are part of the
Loan Documents; or
(8) The failure of the Borrower to file cash transaction
receipts as required by federal law; or
(9) The failure of the Borrower to observe any state,
federal, or other law, including but not limited to 18 U.S.C.
Sec. 1956(a)(3).
E. REMEDIES FOR DEFAULT
UPON THE OCCURRENCE OF ANY ONE OR MORE OF EVENTS OF DEFAULT,
THEN, AND IN ANY SUCH EVENT, BUT SUBJECT TO THE RIGHT OF THE LESSOR
UNDER THE LEASE TO CURE ANY DEFAULT UNDER THE PROVISIONS OF SECTION
5.9 OF THE LEASE,
(1) The Mortgagee may, without notice, presentment or
demand, declare the unpaid principal amount of the Note and any
interest thereon accrued and unpaid to be immediately due and
payable, and such principal amount and interest shall thereupon
become and be immediately due and payable, and shall thereafter
bear interest until fully paid at the rate specified in the Note to
be paid in the event of a default;
(2) The Borrower, upon demand of the Mortgagee, shall
forthwith surrender, or cause to be forthwith surrendered, to the
Mortgagee the actual possession of the Mortgaged Property and, to
the extent permitted by law, the Mortgagee itself or such officers
or agents as the Mortgagee may appoint:
(a) may enter and take possession of the Mortgaged
Property, together with the books, papers and accounts of
the Mortgagor relating thereto;
(b) may exclude the Mortgagor, and the Mortgagor's
agents and servants therefrom;
(c) may hold, operate and manage the same and from
time to time make all needful repairs and such alterations,
additions, advances and improvements as the Mortgagee shall
deem appropriate; and
(d) may receive tolls, rents, revenues, issues,
income, product and profits thereof and out of the same may
pay all proper costs and expenses of so taking, holding and
managing the same, including reasonable compensation to the
Mortgagee's agents, attorneys and counsel, and any taxes
and assessments and other charges prior to the lien and
security interest of this Mortgage, which the Mortgagee
shall deem necessary or desirable to pay, and all expenses
of such repairs, alterations, additions and improvements,
and other disbursements made by the Mortgagee pursuant to
the terms hereof, and may apply the remainder of the monies
so received by the Mortgagee to the payment of any sums
secured hereby, including but not limited to, the unpaid
principal of, and interest on, the Note;
(3) The Mortgagee may, either with or without first taking
possession, proceed by action or actions at law or in equity, or by
any other appropriate remedy, to enforce payment of the Note or
performance of any other obligation secured hereby, and to
foreclose this Mortgage, and to sell, in whole, or to the extent
permitted by law, in part, the Mortgaged Property under the
judgment or decree of a court or courts of competent jurisdiction;
(4) Upon the institution of judicial proceedings to enforce
its rights hereunder, the Mortgagee, to the extent permitted by
law, shall be entitled as a matter of right to the ex parte
appointment (without bond) of a receiver or receivers of the
Mortgaged Property, and of the tolls, rents, revenues, issues,
income, product and profits thereof, pending such proceedings, with
such powers as the court making such appointment shall confer; and
(5) The Mortgagee shall have the right to enforce one or
more remedies hereunder, or any other remedy the Mortgagee may have
under the other Loan Documents, successively or concurrently,
including, but not limited to, the right to foreclose this Mortgage
with respect to any portion of the Mortgaged Property, if the
operation of the remaining portion thereof is not thereby rendered
unlawful under the then applicable laws, rules and regulations of
the governmental authorities having jurisdiction in the premises,
without thereby impairing the lien of this Mortgage on the
remainder of the Mortgaged Property or affecting the remedies of
the Mortgagee available with respect thereto, subject, however, to
any limitations on any such remedies as may be specifically
provided in the Lease.
(6) Notwithstanding any provision to the contrary in this
Mortgage, the Mortgagee shall not transfer, sell or convey the
Mortgaged Property at public auction in a judicial foreclosure,
unless such transfer, sale or conveyance includes both the fee and
leasehold interest described in ITEM ONE and ITEM TWO,
respectively, of EXHIBIT A attached hereto.
(7) The Mortgagee shall also not transfer, sell or convey
the buildings and improvements located on the Real Property unless
such transfer, sale or conveyance also includes the leasehold
interest described in ITEM TWO of EXHIBIT A attached hereto.
F. JUDICIAL SALE OF MORTGAGED PROPERTY
1. Acceleration. Upon any sale under judgment or decree
in any judicial proceedings for foreclosure for enforcement of this
Mortgage, the unpaid principal amount of the Note, the unpaid
interest thereon, and all other obligations hereby secured, if not
previously due, shall at once become and be immediately due and
payable.
2. The Mortgagee's Right to Bid and Purchase. Upon any
such sale, the Mortgagee may bid for and purchase the Mortgaged
Property or any part thereof, and, upon compliance with the terms
of sale, may hold, retain and possess and dispose of such property
in its absolute right without further accountability, and the
Mortgagee, at any such sale may, if permitted by law, after
allowing for the proportion of the total purchase price required to
be paid in cash for the costs and expenses of the sale,
commissioner's compensation and other charges, in paying the
purchase money, turn in the Note, including interest thereon, in
lieu of cash, up to the amount which shall, upon distribution of
the net proceeds of such sale, be payable thereon. The Mortgagee
shall be permitted to bid at any public auction held to sell the
Mortgaged Property without payment of a deposit or down payment of
any kind. The Mortgagee shall not be required at confirmation of
any public auction sale to extend credit or financing of any kind
to the Borrower or any other party that may acquire the Mortgaged
Property.
3. Borrower or Affiliates Prohibition From Being a
Purchaser. Notwithstanding Paragraph F.2, above, the Borrower and
its Affiliates shall not directly or indirectly be a purchaser at
any foreclosure sale of this Mortgage.
4. Application of Proceeds. Upon the judicial foreclosure
sale of both the fee estate and the Lease (Item One and Item Two of
EXHIBIT A attached hereto), the Court shall apply the proceeds of
any such sale, as follow:
First, to the costs and expenses of such sale and all
proceedings in connection therewith, including, but not
limited to, counsel fees;
Next, to the payment of any unreimbursed disbursements
made by the Mortgagee for taxes or assessments, rents or
other payments under the Lease, or other charges prior to
the lien of this Mortgage;
Next, to the payment of all other unreimbursed
disbursements and expenses and unpaid charges and fees due
and owing to the Mortgagee under the provisions of this
Mortgage or any of the other Loan Documents (excluding any
late fees under the Note);
Next, to the payment of the unpaid principal sum (in
a principal amount not to exceed $65,000,000.00) of and
interest computed on the non-default interest rate on the
Note (i.e. at the contract rate);
Next, to the Ground Lessor to the extent of the
appraised fair market value of the Ground Lessor's fee
estate in the Premises as of the date the Mortgagee
commenced the foreclosure. The appraised fair market value
of the Lessor's fee estate in the Premises shall be as
determined by the court appointed appraiser pursuant to the
judicial foreclosure proceedings;
Next, to the Ground Lessor in an amount equal to all
accrued and unpaid lease rents and other amounts owed under
the Lease;
Next, to the Mortgagee for any interest computed at
the default interest rate provided in the Note, less the
contract interest distributed above, and any late fees due
under the Note, and
The remainder, to the Borrower.
It is understood and agreed that following the occurrence of an
Event of Default hereunder and/or in the payment of rent under the
Lease, if the Borrower shall pay amounts under the indebtedness
secured by any junior mortgage lien on the Mortgaged Property, all
such payments shall, for purposes of computation of the
distributions above, be deemed to have been paid under the Note.
5. Perpetual Bar of the Mortgagor's Title. Any such sale
shall, to the extent permitted by law, be a perpetual bar, both at
law and in equity, against the Mortgagor and all persons,
partnerships, corporations and other entities lawfully claiming by
or through or under the Mortgagor; and the Mortgagee is hereby
irrevocably appointed the true and lawful attorney of the
Mortgagor, in the Mortgagor's name and stead, for the purpose of
effectuating any such sale, to execute and deliver all necessary
deeds, conveyances, assignments, bills of sale and other
instruments with power to substitute one or more persons,
partnerships, corporations or other entities with like power;
provided, that the Mortgagor shall ratify and confirm any such sale
or transfer if required by the Mortgagee by delivering all proper
conveyances or other instruments to such persons, partnerships,
corporations or other entities as may be designated in any such
request.
6. No Hindrance. In case of the occurrence of any Event
of Default, neither the Mortgagor nor anyone claiming by, through
or under the Mortgagor, to the extent the Mortgagor may lawfully so
agree, shall or will set up, claim or seek to take advantage of any
appraisement, valuation, stay, extension or redemption laws now or
hereafter in force in any locality where any of the Mortgaged
Property is situated, in order to prevent or hinder the enforcement
or foreclosure of this Mortgage, or the absolute sale of the
Mortgaged Property, or the final and absolute putting into
possession thereof, immediately after such sale, of the purchasers
thereof; and the Mortgagor, for the Mortgagor and all who may claim
under the Mortgagor, hereby waives, to the full extent that the
Mortgagor may lawfully so do, the benefit of all such laws, and any
and all right to have the estate comprised in the security intended
to be created hereby marshalled upon any foreclosure of the lien
hereof and agrees that the Mortgagee or any court having
jurisdiction to foreclose such lien may sell the Mortgaged Property
as an entirety.
7. Abandonment of Proceedings. In case the Mortgagee shall
have proceeded to enforce any right hereunder and such proceedings
shall have been discontinued or abandoned for any reason, then in
every such case, the Mortgagor and the Mortgagee shall be restored
to their former positions and rights hereunder with respect to the
Mortgaged Property, and all rights, remedies and powers of the
Mortgagee shall continue as if no such proceedings had been taken.
No remedy herein reserved to the Mortgagee is intended to be
exclusive of any other remedy, but each and every such remedy shall
be cumulative and shall be in addition to any other remedy given
hereunder or now or hereafter existing at law or in equity, or by
statute.
8. No Impairment. Nothing in this Mortgage, the Note or
any of the other Loan Documents shall affect or impair the right,
which is unconditional and absolute, of the holder of the Note to
enforce payment of the principal of, and interest and other charges
on, the Note at or after the date therein expressed as the date
when the same shall become due, or the obligation of the Borrower,
which is likewise unconditional and absolute, to pay such amounts
at the respective times and places therein expressed.
G. THE BORROWER'S WARRANTIES.
1. The Borrower's Warranties on Title to Lease and the
Premises. The Borrower hereby warrants and represents that:
a. the Mortgagor is the lawful owner of the Mortgaged
Property and has good right to assign the same as
aforesaid;
b. the rentals now accrued and due under the Lease
are fully paid and the Lease is on the date hereof in all
respects in good standing under the terms thereof and valid
and in full force and effect;
c. the Mortgagor's interest in and to Mortgaged
Property is free and clear from all encumbrances and liens,
except for the Encumbrances, if any;
d. the Borrower will WARRANT AND DEFEND the Mortgaged
Property unto the Mortgagee forever against the lawful
claims and demands of all persons whomsoever, except for
the Encumbrances, if any; and
e. the Mortgaged Property is free of any flammable
explosives, radioactive materials, asbestos, organic
compounds known as polychlorinated biphenyls, chemicals
known to cause cancer or reproductive toxicity, pollutants,
contaminants, hazardous wastes, toxic substances or related
materials, including, without limitation, any substances
defined as or included in the definition of "hazardous
substances," "hazardous wastes," "hazardous materials," or
"toxic substances" (collectively, "Hazardous Materials")
under any federal, state or local laws, ordinances or
regulations, now or hereafter in effect, relating to
environmental conditions, industrial hygiene or Hazardous
Materials on, under or about the Mortgaged Property,
including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of
1980, as amended, 42 U.S.C. Section 9601, et seq., the
Resource Conservation and Recovery Act, 42 U.S.C. Section
6901, et seq., the Hazardous Materials Transportation Act,
49 U.S.C. Section 1801, et seq., the Clean Water Act, 33
U.S.C. Section 1251, et seq., the Clean Air Act, 42 U.S.C.
Section 7401, et seq., the Toxic Substances Control Act, 15
U.S.C. Sections 2601 through 2629, the Safe Drinking Water
Act, 42 U.S.C. Sections 300f through 300j, and any similar
state and local laws and ordinances and the regulations now
or hereafter adopted, published and/or promulgated pursuant
thereto (collectively, the "Hazardous Materials Laws").
The Mortgaged Property is not currently used in a manner,
and no prior use (by the Mortgagor, prior owners or any
tenant) has occurred, which violates any Hazardous
Materials Laws. Neither the Mortgagor nor any tenant has
received any notice from a governmental agency for
violation of Hazardous Materials Laws.
2. The Borrower's Warranties on Title to Equipment and
Collateral. The Borrower further warrants and represents that:
a. the Mortgagor is the lawful and absolute owner of
the Equipment and Collateral and has good right to transfer
the same as security under this Mortgage, subject to the
Encumbrances, if any;
b. the Equipment and Collateral is free and clear of
all defects of title, security interests, liens and
encumbrances, except for the Encumbrances, if any; and
c. the Borrower will WARRANT AND DEFEND the Equipment
and Collateral against the claims and demands of all
persons, whomsoever, except for the Encumbrances, if any.
H. THE BORROWER'S COVENANTS. The Borrower hereby covenants and
agrees with the Mortgagee as follows:
1. Payment of Secured Obligations. The Borrower will pay,
or cause to be paid, to the holder of the Note the principal and
interest due thereunder, and all fees, charges and other sums
payable under the Loan Documents, all according to the provisions
thereof, and will also pay and discharge, or cause to be paid and
discharged, any and all obligations that are now or hereafter may
be or become owing by the Borrower to the Mortgagee under the Loan
Documents and on any and every other account related to this
Mortgage, together with interest, fees, charges and other sums
payable thereon as may be specified with respect thereto.
2. Payment of Real Property Taxes, Assessments, etc. The
Borrower will punctually pay and discharge, or cause to be paid and
discharged, from time to time as the same shall become due, all
real property taxes, rates, assessments, impositions, duties, water
rates, sewer rates and other charges of every description to which
the Mortgaged Property, or any part thereof, or any improvements
thereon, may during the term of this Mortgage become liable by
authority of law, the payment of which shall be secured by this
Mortgage; PROVIDED, HOWEVER, that real property taxes may be paid
in semiannual installments and improvement or betterment
assessments may be paid in annual installments, upon condition
that, in each case, the same are not allowed to become delinquent,
and that Borrower will, upon request of the Mortgagee, deposit or
cause to be deposited a copy of the receipts therefor with the
Mortgagee not later than the final date such taxes, assessments and
charges may be paid without penalty.
3. Observance of Laws. The Borrower will duly observe and
conform to all current and future laws, rules and regulations made
by any governmental authority, and all valid requirements of any
regulatory body which may have or acquire jurisdiction
(collectively the "Laws"), which apply or relate to the Mortgaged
Property, or the Mortgagor's activities at the Mortgaged Property,
including, but not limited to (a) the construction and maintenance
of such facilities for parking of vehicles as may from time to time
be required in order to comply with any applicable Laws and (b) all
Laws which now or hereafter require retrofitting or alterations or
additions to the Mortgaged Property. The Borrower shall indemnify
the Mortgagee, its directors, officers, employees, agents,
successors and assigns from and against, any loss, damage, cost,
expense or liability directly or indirectly arising out of or
attributable to the Borrower's failure to comply with the
provisions of this paragraph or any other provision of this
Mortgage concerning compliance with Laws including, without
limitation: (i) all foreseeable and unforeseeable consequential
damages; (ii) the costs of any required or necessary remediation or
compliance; and (iii) all reasonable costs and expenses incurred by
the Mortgagee in connection with clauses (i) and (ii), including,
without limitation, reasonable attorneys' fees. The
indemnification provision of this paragraph shall survive (a) the
repayment of the Note secured by this Mortgage, (b) any foreclosure
of this Mortgage, and (c) any deed or assignment of the Mortgaged
Property in lieu of foreclosure.
4. Maintenance and Inspection. The Borrower will keep and
maintain, or cause to be kept and maintained, all buildings,
structures and improvements now located or hereafter constructed on
the Mortgaged Property in good repair, working order and condition.
The Mortgagor will permit the Mortgagee and any persons authorized
by the Mortgagee to enter and inspect the Mortgaged Property at all
reasonable times.
5. Waste, Unlawful Use, etc. The Borrower will absolutely
not commit or suffer, or will prevent the committing or suffering
of, any strip or waste, or unlawful, improper or offensive use of
the Mortgaged Property, or any act or negligence whereby such
property or any interest therein shall become liable to seizure or
attachment or mesne or final process of law or whereby the lien
provided hereby shall be impaired.
6. Sale, Transfer, Lease, etc.
a. The Borrower will absolutely refrain from leasing, or
will prevent the leasing of, the Mortgaged Property or any interest
therein without first obtaining the prior written consent of the
Mortgagee, except for leases of portions of the Mortgaged Property
to tenants in the ordinary course of the Borrower's business. The
Borrower shall furnish, or cause to be furnished, to the Mortgagee
promptly upon execution thereof copies of all leases executed by
the Borrower as sublessor covering any portion or portions of the
Mortgaged Property.
b. In the event of a sale (including a sale by way of an
Agreement of Sale or similar instrument), assignment, conveyance or
other transfer of any of the Borrower's interest in the Mortgaged
Property secured by this Mortgage (a "Transfer"), at the closing of
such Transfer or on the effective date of such Transfer, whichever
occurs first, the Borrower shall pay, or cause to be paid, to the
Mortgagee all amounts due and owing under the Note and the Loan
Documents up to the date of such closing or Transfer, including
principal and interest. The provisions of this paragraph shall
constitute a continuing covenant or condition, and any failure on
the part of the Mortgagee to exercise the Mortgagee's option to
declare all indebtedness due and payable on the occurrence of any
one event hereinabove mentioned shall not prejudice the right of
the Mortgagee to declare the indebtedness hereby secured at once
due and payable on the occurrence of any other event hereinabove
mentioned.
7. Compliance with and Preservation of the Lease.
a. The Borrower will:
(1) pay, or cause the payment of, the rent reserved
by the Lease as the same becomes due and payable;
(2) promptly perform and observe, or cause the
observance and performance of, all of the covenants,
conditions and agreements required to be performed and
observed by the lessee under the Lease, and do all things
necessary to preserve and keep unimpaired its rights
thereunder;
(3) promptly notify, or cause the notification of,
the Mortgagee in writing of any default by the Borrower in
the performance or observance of any of the covenants,
conditions and agreements on the part of the lessee to be
performed or observed under the Lease or of the occurrence
of any event which, regardless of the lapse of time, would
constitute a default thereunder;
(4) promptly notify, or cause the notification of,
the Mortgagee in writing of the giving of any notice by the
lessor under the Lease of the default of the lessee
thereunder in the performance or observance of any of the
covenants, conditions and agreements on the part of the
lessee to be performed or observed under the Lease and
promptly deliver, or cause to be delivered, to the
Mortgagee, a copy of each such notice given by the lessor
to the lessee under the Lease;
(5) promptly notify, or cause the notification of,
the Mortgagee in writing of the commencement of a
proceeding under the federal bankruptcy laws by or against
the Borrower or the lessor under the Lease;
(6) if any of the indebtedness secured hereby remains
unpaid at the time when notice may be given by the lessee
under the Lease of the exercise of any right to renew or
extend the term of the same, promptly give notice, or cause
the giving of notice, to the lessor under the Lease of the
exercise of such right of extension or renewal;
(7) in case any proceeds of insurance upon the
Mortgaged Property or any part thereof are deposited with
any person other than the Mortgagee pursuant to the
requirements of the Lease, promptly notify, or cause the
notification of, the Mortgagee in writing of the name and
address of the person with whom such proceeds have been
deposited and the amount so deposited;
(8) promptly after the execution and delivery of this
Mortgage, notify, or cause the notification of, the lessor
under the Lease in writing of the execution and delivery
hereof and of the name and address of the Mortgagee and
deliver a copy of this Mortgage to the lessor; and
(9) promptly notify, or cause the notification of,
the Mortgagee in writing of any request made by either
party to the Lease to the other party thereto for
arbitration or appraisal proceedings pursuant to the Lease,
and of the institution of any arbitration or appraisal
proceedings and promptly deliver, or cause to be delivered,
to the Mortgagee a copy of the determination of the
arbitrators or appraisers in each such proceeding.
b. The Borrower will not (i) surrender the Lease and/or the
Borrower's leasehold estate and interest therein, (ii) voluntarily
terminate or cancel the Lease, or (iii) without the prior written
consent of the Mortgagee, modify, change, supplement, alter or
amend the Lease, either orally or in writing.
c. As further security for the repayment of the
indebtedness secured hereby and for the performance of the
covenants, conditions and agreements contained in this Mortgage and
in the Lease, the Borrower hereby assigns to the Mortgagee all of
its rights, privileges and prerogatives as lessee under the Lease
to terminate, cancel, modify, change, supplement, alter or amend
the Lease and any such termination, cancellation, modification,
change, supplement, alteration or amendment of the Lease, without
the prior written consent thereto by the Mortgagee, shall be void
and of no force and effect.
d. Without limiting the generality of the foregoing, the
Borrower will not reject, or will prevent the rejection of, the
Lease pursuant to 11 U.S.C. Sec. 365(a), as amended, or any successor
law, or allow the Lease to be deemed rejected by inaction and lapse
of time, and will not elect, or will prevent the election, to treat
the Lease as terminated by the lessor's rejection of the Lease
pursuant to 11 U.S.C. Sec. 365(h)(1), as amended, or any successor law,
and as further security for the repayment of the indebtedness
secured hereby and for the performance of the covenants, conditions
and agreements contained in this Mortgage and in the Lease, the
Borrower hereby assigns to the Mortgagee all of the rights,
privileges and prerogatives of the Borrower and the Borrower's
bankruptcy trustee to deal with the Lease, which rights may arise
as a result of the commencement of a proceeding under the federal
bankruptcy laws by or against the Borrower under the Lease, and any
exercise of such rights, privileges or prerogatives by the Borrower
or the Borrower's bankruptcy trustee without the prior written
consent thereto by the Mortgagee shall be void and of no force and
effect.
e. So long as there is no breach of, or default under, any
of the covenants, conditions or agreements contained in this
Mortgage to be performed by the Borrower, or in the performance by
the Mortgagor of any of the covenants, conditions and agreements in
the Lease to be performed by the lessee thereunder, the Mortgagee
shall have no right to terminate, cancel, modify, change,
supplement, alter or amend the Lease.
f. No release or forbearance of any of the Borrower's
obligations as lessee under the Lease, whether pursuant to the
Lease or otherwise, shall release the Borrower from any of its
obligations under this Mortgage, including, but not limited to, the
Borrower's obligations with respect to the payment of rent as
provided for in the Lease and the observance and performance of all
of the covenants, conditions and agreements contained in the Lease
to be observed and performed by the lessee thereunder.
g. Unless the Mortgagee shall otherwise expressly consent
in writing, the fee title to the Premises demised by the Lease and
the leasehold estate thereunder shall not merge but shall always
remain separate and distinct, notwithstanding the union of such
estates either in any Mortgagor or in a third party by purchase or
otherwise.
8. Restoration of Improvements. The Borrower will promptly
restore, replace, rebuild or reinstall, or cause to be restored,
replaced, rebuilt or reinstalled, any part of the buildings,
structures, improvements, and Equipment now or hereafter
constructed, placed, built or installed on the Mortgaged Property,
which may be damaged or destroyed by any casualty whatsoever.
9. Future Liens and Mortgages.
a. No Liens. The Borrower will absolutely not create,
suffer to be created or permit to remain, or will prevent the
creation, the suffering of the creation, or the permitting to
remain, upon the Mortgaged Property, or any part thereof, or the
income therefrom, any mechanics', materialmen's, laborers', tax,
statutory or other lien or charge, except the Encumbrances, and
liens for taxes and assessments not yet payable or payable without
penalty so long as payable; provided that nothing contained in this
paragraph shall be deemed to require the Borrower to pay, or cause
to be paid, any tax, assessment or charge, or to satisfy any
involuntary lien, so long as the Borrower in good faith by
appropriate action diligently pursued shall contest, or cause to be
contested, the validity thereof (provided the security afforded by
this Mortgage shall not thereby be subjected to any sale,
forfeiture or loss, or reasonable probability thereof).
b. Future Mortgages of the Borrower. The Borrower will
absolutely not, without the prior written consent of the Mortgagee,
create, suffer to be created or permit to remain upon the Mortgaged
Property, or any part thereof, or the income therefrom, any junior
or subordinate mortgage lien.
c. Future Mortgages of the Ground Lessor. The Ground
Lessor may, without any consent of the Mortgagee, mortgage or
further encumber the Real Property.
10. No Impairment of Value of Mortgaged Property. No
building, improvements, Equipment, or other property now or
hereafter covered by the lien of this Mortgage shall be removed,
demolished or altered in such manner as to diminish materially the
value of the Mortgaged Property, without the prior written consent
of the Mortgagee. The Borrower will absolutely refrain from
initiating, joining in or consenting to, or shall prevent the
initiation of, joinder of or consent to, any change in any private
restrictive covenant, land use classification, zoning ordinance or
other public or private restrictions limiting or defining the use
which may be made of the Mortgaged Property or any part thereof.
11. Insurance.
a. The Borrower shall, during the term of this Mortgage,
at the Borrower's sole cost and expense and for the mutual benefit
of the Borrower and the Mortgagee:
(1) keep, or cause to be kept, any structures,
buildings and other improvements now located or hereafter
constructed on the Mortgaged Property and all Equipment and
the interests and liabilities incident to the ownership
thereof, insured against loss, destruction and damage by
fire and all causes of loss by effecting and maintaining,
or causing to be effected and maintained, a commercial
property insurance policy or policies written on the
Insurance Service Office (commonly referred to as "ISO")
"Special Form" used in the State of Hawaii or its
equivalent, with an amount of coverage equal to 100% of the
replacement cost of such structures, buildings and
improvements, and including the following endorsements: (i)
replacement cost coverage, (ii) agreed amount, and (iii)
building ordinance coverage insuring against contingent
liability from the operation of federal, state or county
laws, statutes, ordinances or regulations concerning the
buildings, structures or improvements on or about the
Mortgaged Property, demolition of such buildings,
structures or improvements and increased cost of
construction of such buildings, structures or improvements.
Additionally, the Borrower shall procure, or cause to be
procured, a difference-in-conditions policy to include
flood, earthquake, wind, backup of sewers, broad collapse
coverage, and building ordinance coverage with a limit of
liability determined to be prudent by the Mortgagee. If
the Mortgaged Property is located in an identified flood
hazard area as now or hereafter designated by the United
States Department of Housing and Urban Development, the
Borrower shall also procure flood insurance required under
the provisions of the Flood Disaster Protection Act;
(2) effect and maintain, or cause to be effected and
maintained, to the extent reasonably available, commercial
general liability insurance (occurrence form), including
coverage for premises/operations, independent contractors,
contractual liability, personal injury, employees as
additional insureds, broad form property damage, with
combined single limits of liability for bodily injury and
property damage of at least $1,000,000.00 per occurrence
and $2,000,000.00 general aggregate or such higher limits
as the Mortgagee may from time to time require.
(3) effect and maintain, or cause to be effected and
maintained, rental (business interruption) insurance in
such amounts as may be required by Mortgagee;
(4) effect and maintain, or cause to be effected and
maintained, all such other insurance insuring all insurable
properties constituting part of the Mortgaged Property, and
all insurable activities of the Borrower in connection with
the Mortgaged Property, against all other risks usually
insured against by persons owning and operating like
properties in the locality where the Mortgaged Property is
located; and
(5) all such other forms of insurance as shall
reasonably be required from time to time by Mortgagee or by
governmental authority or regulation.
b. All insurance required under subparagraph a, above,
shall be kept, effected and maintained in such manner, form and
amount as shall be approved by the Mortgagee, and the Borrower
shall deposit a copy of the policy or policies therefor with the
Mortgagee. In the event of foreclosure or sale of the Mortgaged
Property, all interest of the Borrower in such insurance and the
policies therefor and the monies payable thereunder shall pass to
the purchaser or assignee of the Mortgaged Property. All insurance
required under subparagraph a, above, shall be effected and
maintained under valid and enforceable policies issued by insurance
companies authorized to do business in the State of Hawaii. All
such policies or other contracts for such insurance issued by the
respective insurers shall, to the extent obtainable, be without
contribution and contain an endorsement or agreement of the insurer
that the policy or other contract shall not be cancelled or
materially changed without at least thirty (30) days' prior written
notice to the Mortgagee.
c. All losses and monies payable to the Borrower under the
insurance required under subparagraph a, above, shall be payable to
the Mortgagee pursuant to a standard mortgage clause and lender's
loss payable clause and shall be applied by the Mortgagee, at its
option, either to rebuilding or repair of the loss, destruction or
damage, or in the reduction of any indebtedness hereby secured.
Any other insurance procured on such structures or improvements
shall be payable as directed, and shall be claimable by, the
Mortgagee. The Mortgagee's right to apply the proceeds is subject
to the requirements of Hawaii law.
d. The Mortgagee shall not be responsible for such
insurance or for the collection of any insurance proceeds, or for
the insolvency of any insurer or insurance underwriter.
e. All such policies or other contracts for such insurance
shall provide that the insurance shall not be invalidated as to the
interest of the Mortgagee by any act or neglect of any person
owning the property insured, or by any foreclosure or other
proceedings, or notice of sale, or by any change in the title or
ownership of the insured properties, or by occupation of any
insured structures for purposes more hazardous than permitted by
such policy or contract.
f. Upon the execution of this Mortgage and thereafter not
less than ten (10) days prior to the expiration date of the
expiring policies or contracts, the originals or certified copies
of all policies or contracts for insurance (or certificates
therefor) of the character described in subparagraph a, above,
shall be deposited with the Mortgagee.
g. In the event of loss or physical damage to the Mortgaged
Property, the Borrower shall give, or cause to be given, immediate
notice thereof to the Mortgagee, and the Mortgagee may make proof
of loss if the same is not made promptly by the Borrower.
h. All insurance coverage required under this Mortgage
shall be subject to availability with responsible insurance
companies authorized to do business in the State of Hawaii. Where
such coverage is not (or is no longer) available, the Borrower
shall purchase, effect and maintain, or cause to be purchased,
effected and maintained, such other insurance coverage as is
acceptable to the Mortgagee.
i. If the Borrower fails to effect and maintain, or fails
to cause to be effected and maintained, insurance coverage as
described above, the Mortgagee may, at the Mortgagee's option,
obtain insurance coverage to protect the Mortgagee's rights in the
Mortgaged Property as described in this Mortgage.
12. Condemnation.
a. If the Mortgaged Property or any part thereof shall be
condemned, the Mortgagee may appear and defend any such suit and
the Mortgagee is hereby irrevocably authorized to collect all of
the proceeds and apply the same upon any obligation secured hereby.
All costs, expenses and attorneys' fees paid or incurred by the
Mortgagee in the course of such proceedings shall constitute an
advance hereunder.
b. Notwithstanding any taking by eminent domain, alteration
of the grade of any street or other injury to or decrease in value
of the Mortgaged Property by any public or quasi-public authority
or corporation, the Borrower will continue to pay, or cause to be
paid, interest on the entire principal sums hereby secured until an
award or payment from such authority or corporation shall have been
actually received by the Mortgagee, and any reduction in the
principal sum resulting from the application by the Mortgagee of
such award or payment as hereinafter set forth shall be deemed to
take effect only on the date of such receipt. Subject to the
rights of the lessor under the Lease to receive or direct the
disposition of condemnation proceeds in Paragraph 12.c, below, any
such award or payment shall be applied in such proportions and
priority as the Mortgagee, in the Mortgagee's sole discretion, may
elect, to the payment of principal and interest on the Note,
whether or not then due and payable, or any sums secured by this
Mortgage, or to the payment to the Borrower, on such terms as the
Mortgagee may specify, to be used for the sole purpose of altering,
restoring or rebuilding any part of the Mortgaged Property which
may have been altered, damaged or destroyed as a result of any such
taking, alteration of grade or other injury to the Mortgaged
Property. If, prior to the receipt by the Mortgagee of such award
or payment, the Mortgaged Property shall have been sold on
foreclosure of this Mortgage, the Mortgagee shall have the right to
receive such award or payment to the extent of the mortgage debt
remaining unsatisfied after such sale of the Mortgaged Property,
with legal interest thereon and reasonable attorneys' fees, costs
and disbursements incurred by the Mortgagee in connection with the
collection of such award or payment. Should all or any part of the
Mortgaged Property be taken by eminent domain, the Borrower hereby
assigns to the Mortgagee, and forthwith upon payment thereof will
cause to be deposited with the Mortgagee, the award for any
Mortgaged Property so taken, excluding, however, any portion of any
award to which the lessor under the Lease may be entitled provided
in Subparagraph 12.c, below.
c. The portion of the condemnation proceeds allocated to
the fee simple interest shall be allocated between the Ground
Lessor and the Borrower in accordance with the allocation made by
an appraisal made by an appraiser mutually chosen by the Ground
Lessor, the Borrower and the Mortgagee. If such choice is not made
within thirty (30) days of the initial demand by any of such
parties for a choice of appraiser, the appraisal shall be made in
accordance with the provisions for appraisal set forth in Section
12.1(b) of the Lease.
13. Notice of Deposit of Insurance or Condemnation
Proceeds. The Borrower will, in case any proceeds of insurance
upon the Mortgaged Property or any part thereof, or the proceeds of
any award for the taking in eminent domain of the Mortgaged
Property or any part thereof, are deposited with any person other
than the Mortgagee, promptly notify, or cause the notification of,
the Mortgagee in writing of the name and address of the person with
whom such proceeds have been deposited and the amount so deposited.
14. Application of Payments. The Mortgagee shall have the
right and is hereby expressly authorized to apply any rents,
issues, profits and any other payments collected and received
pursuant to the provisions of this Mortgage to the payment of any
indebtedness of the Borrower to the Mortgagee hereby secured in any
order which the Mortgagee may determine, and any such application
shall in all respects be binding upon the Borrower.
15. The Mortgagee's Right of Set-Off. Upon the happening
of any event entitling the Mortgagee to foreclose this Mortgage, or
if the Mortgagee shall be served with garnishee process in which
the Borrower shall be named as defendant, whether or not the
Borrower shall be in default hereunder at the time, the Mortgagee
may, but shall not be required to, set off any indebtedness owing
by the Mortgagee to the Borrower against any indebtedness secured
hereby, without first resorting to the Mortgaged Property and
without prejudice to any other rights or remedies of the Mortgagee
or the lien of the Mortgagee on the Mortgaged Property.
16. Possession by the Borrower After Sale. In the event
of a sale of the Mortgaged Property, or any part or parts thereof,
under and by virtue of the provisions of this Mortgage, the
purchaser or purchasers thereof shall have immediate and peaceable
possession of the same, and if the Borrower shall remain in
possession after the effective date of such sale, such possession
shall be construed as a tenancy at sufferance only, giving unto the
purchaser all remedies, by way of summary possession or otherwise,
conferred by law in such case.
17. Acknowledgment of Mortgaged Indebtedness. Within five
(5) days after request by the Mortgagee in writing, the Borrower
will furnish, or caused to be furnished, to the Mortgagee or to any
proposed assignee of this Mortgage a written statement, duly
acknowledged, of the amount due under this Mortgage and whether any
offsets, counterclaims or defenses exist against the mortgaged
indebtedness.
18. Further Instruments. The Borrower will, upon
reasonable request of the Mortgagee, execute and deliver, or cause
the execution and delivery of, such further instruments and do such
further acts as may be necessary or proper to carry out more
effectively the purpose of this Mortgage and to subject the
Mortgaged Property to the lien hereof, and any renewals, additions,
substitutions, replacements or betterments thereto.
19. Right of the Mortgagee to Prevent or Remedy Default.
If the Borrower shall fail to observe or perform, or cause to be
observed or performed, any of the terms, covenants and conditions
required to be observed and performed by the Borrower under this
Mortgage, unless the Borrower shall be engaged in good faith by
appropriate action diligently pursued in contesting, or causing to
be contested, the existence of such default and the security
afforded by this Mortgage shall not thereby be subjected to any
sale, forfeiture or loss, or reasonable probability thereof, the
Mortgagee may (but shall not be obligated to): (i) take any action
the Mortgagee deems necessary or desirable to prevent or remedy any
such default by the Borrower, or to otherwise protect the security
of this Mortgage, and (ii) enter in and upon the Mortgaged Property
or any part thereof to such extent and as often as the Mortgagee,
in its sole discretion, deems necessary or desirable in order to
prevent or to remedy any such default by the Borrower or otherwise
to protect the security of this Mortgage, and the Mortgagee may pay
and advance for the account of the Borrower such sums of money as
the Mortgagee, in Mortgagee's sole discretion, deems necessary for
any such purpose.
20. Right of the Mortgagee to Participate in Action
Affecting Security. The Mortgagee may appear in and defend in any
action or proceeding at law or in equity affecting the Lease or
purporting to affect the security of this Mortgage, and in such
event (except where the effect on the Lease or the purported defect
affecting the security hereof arises or results exclusively from
any act or omission of the Mortgagee), the Mortgagee shall be
allowed and paid, and the Borrower hereby agrees to pay, or cause
the payment of, all of the Mortgagee's costs, charges and expenses,
including cost of evidence of title and reasonable attorneys' fees,
incurred in such action or proceeding in which the Mortgagee may
appear.
21. Right of the Mortgagee to Extend Time of Payment,
Substitute, Release Security, etc. Without affecting the liability
of any person, including the Borrower, for the payment of any
indebtedness secured hereby, or the lien or security interest of
this Mortgage on the Mortgaged Property (or the remainder thereof),
for the full amount of any indebtedness unpaid, the Mortgagee may
from time to time, without notice and without affecting or
impairing any of its rights under this Mortgage:
a. release any person liable for the payment of any of the
indebtedness;
b. extend the time or otherwise alter the terms of payment
of any of the indebtedness or accept a renewal note or notes to
evidence such an extension or alteration;
c. accept payments or prepayments of principal without
reducing the aggregate amount secured by this Mortgage, and make
subsequent advances to the Borrower up to the amount described
herein; provided, however, that the principal amount outstanding
under the Note shall not exceed SIXTY FIVE MILLION AND NO/100
DOLLARS (U.S. $65,000,000.00) at any time;
d. accept additional security therefor of any kind,
including (but not limited to) deeds of trust, mortgages and
security agreements;
e. alter, substitute or release any property securing the
indebtedness; provided, however, that the Mortgagee shall not
release the leasehold interest from this Mortgage unless the fee
interest is also released;
f. resort for the payment of the indebtedness secured
hereby to any securities therefor in such order and manner as it
may see fit;
g. join in granting any easement or creating any
restriction thereon; and
h. join in any extension or subordination or other
agreement affecting this Mortgage or the lien or charge thereof.
22. The Mortgagee's Expenses for Protection of Security.
The Borrower shall pay, or cause to be paid, to the Mortgagee, upon
demand, all advances, costs, expenses (including, without
limitation, rents and other payments under the Lease) and
attorneys' fees which the Mortgagee may make, pay or incur under
any provision of this Mortgage for the protection of the security
of the Mortgagee, or any of the rights of the Mortgagee in
connection with the Mortgaged Property, or in foreclosure
proceedings commenced and subsequently abandoned, or in any dispute
or litigation in which the Mortgagee or the holder of the Note may
become involved by reason of or arising out of this Mortgage, or
the other Loan Documents. Such amounts shall bear interest until
paid at the rate specified in the Note to be paid in the event of
a default, shall be additional charges upon the Mortgaged Property,
shall be equally secured hereby and shall be a lien on the
Mortgaged Property prior to any rights or claims upon the Mortgaged
Property subordinate to the lien of this Mortgage.
23. Partial Releases. The Borrower agrees that the
Mortgagee may release, for such consideration or none, as the
Mortgagee may require, any portion of the Mortgaged Property
without, as to the remainder of the Mortgaged Property, in any way
impairing or affecting the lien, security interest and priorities
herein provided for the Mortgagee compared to any subordinate lien
holder or secured party; provided, however, that the Mortgagee
shall not release the leasehold interest from this Mortgage unless
the fee interest is also released.
24. Reserve Fund. If requested by the Mortgagee, the
Borrower will pay, or cause to be paid, to the Mortgagee, together
with and in addition to the monthly payments of interest and/or
principal payable under the terms of the Note, until all
obligations secured hereby are fully paid, a sum equal to the real
property taxes, assessments, rentals and insurance premiums
applicable to the Mortgaged Property (all as estimated by the
Mortgagee), less all sums already paid therefor, divided by the
number of months to elapse before one month prior to the date when
such taxes, assessments, rentals and premiums will become due and
payable. Such sums shall be held by the Mortgagee, without
interest, to pay such taxes, assessments, rentals and premiums as
and when the same shall become due and payable. If the total of
such payments shall exceed the amount necessary to pay such taxes,
assessments, rentals and premiums, such excess may, at the
Mortgagee's option, be released to the Borrower or applied on any
indebtedness secured hereby or be credited by the Mortgagee on
subsequent payments to be made by the Borrower. If, however, the
total of such payments shall not be sufficient to pay such taxes,
assessments, rentals and premiums when the same shall become due
and payable, then the Borrower shall pay, or cause to be paid, to
the Mortgagee any amount necessary to make up the deficiency on or
before the date when payment of such taxes, assessments, rentals
and premiums shall be due. If at any time the Borrower shall
tender to the Mortgagee, in accordance with the provisions hereof,
full payment of the entire indebtedness secured hereby, the
Mortgagee shall, in computing the amount of indebtedness, credit to
the account of the Borrower any balance remaining in the funds
accumulated under the provisions of this paragraph. If there be a
default under the provisions of this Mortgage or any of the other
Loan Documents, and thereafter a sale of the Mortgaged Property in
accordance with the provisions hereof, or if the Mortgagee,
acquires the property otherwise after default, the Mortgagee, at
the Mortgagee's option, and at the time of the commencement of such
proceeding, or at the time the property is otherwise acquired, may
apply the balance then remaining in the funds accumulated under the
provisions of this paragraph as a credit against any sums or
charges secured hereby, including, but not limited to, the amount
of principal, interest, charges and fees then remaining unpaid
under the Loan Documents.
25. Loss, Destruction, etc. of the Note. The Borrower
will, in the event of the Note shall be mutilated, destroyed, lost
or stolen, deliver to the Mortgagee, in substitution therefor, a
new Note containing the same terms and conditions as the old Note
with a notation thereon of the unpaid principal and accrued unpaid
interest. The Borrower shall be furnished with satisfactory
evidence of the mutilation, destruction, loss or theft of the Note.
26. Governmental Approvals. The Borrower will, at all
times during the continuance of the Mortgage, maintain or cause to
be maintained in full force and effect all governmental and
municipal approvals and permits which are required to comply with
all environmental, ecological and other governmental requirements
relating to the Mortgaged Property or to the occupancy thereof.
27. Documentary Stamps. If at any time the State of Hawaii
or the United States of America shall require internal revenue
stamps to be affixed to the Note or this Mortgage, the Borrower
will pay for, or cause to be paid for, the same with any interest
or penalties imposed in connection therewith.
28. Tax on Mortgage or Debt. In the event of the adoption
or amendment of any law of the State of Hawaii after the date of
this instrument, other than a law providing for the imposition of
a tax on, according to, or measured by income, which shall in any
way change the manner of taxation or of the collection of taxes on
mortgages or debts secured by mortgages, to the end that, directly
or indirectly, the Mortgagee shall be required to pay on account of
this Mortgage or the indebtedness secured hereby, any tax other
than taxes of the kind or character now imposed thereon by the laws
of the State of Hawaii, and other than a tax on, according to or
measured by income, the holder of this Mortgage, at any time after
such adoption or amendment of such law, may give written notice to
Borrower that such holder elects to have the indebtedness secured
by this Mortgage become due and payable. If such notice be given,
the said indebtedness shall become due, payable and collectible at
the expiration of thirty (30) days; PROVIDED, HOWEVER, that such
requirement of payment shall be ineffective if the Borrower is
permitted by law to pay the whole of such tax in addition to all
other payments required hereunder, without any penalty accruing to
the holder of the Note, and if the Borrower in fact pays such tax
prior to the date upon which payment is required by such notice.
29. Hazardous Materials. The Borrower will keep and
maintain, or cause to be kept and maintained, the Mortgaged
Property, including, without limitation, the groundwater on or
under the Mortgaged Property, in compliance with, and shall not
cause or permit the Mortgaged Property to be in violation of, any
Hazardous Materials Laws. The Borrower shall not use, generate,
manufacture, treat, handle, refine, produce, process, store,
discharge, release, disposed of or all to exist, or shall prevent
the using, generating, manufacturing, treating, handling, refining,
producing, processing, storing, discharging, releasing, disposing
of or allowing to exist, on, under or above the Mortgaged Property,
any Hazardous Materials. The Borrower shall immediately advise, or
cause the immediate advising of, the Mortgagee in writing of (a)
any and all enforcement, clean up, removal, mitigation, or other
governmental or regulatory action instituted, contemplated or
threatened pursuant to any Hazardous Materials Laws affecting the
Mortgaged Property, (b) all claims made or threatened by any third
party against Borrower or the Mortgaged Property relating to
damage, contribution, cost recovery, compensation, loss or injury
resulting from any Hazardous Materials (the matters set forth in
clauses (a) and (b) above are hereinafter referred to as "Hazardous
Materials Claims") and (c) the Borrower's discovery of any
occurrence or condition on the Mortgaged Property or any real
property adjoining or in the vicinity of the Mortgaged Property
which could subject the Borrower or the Mortgaged Property to any
restrictions on ownership, occupancy, transferability or use of the
Mortgaged Property under any Hazardous Materials Laws. The
Borrower shall indemnify the Mortgagee, its directors, officers,
employees, agents, successors and assigns from and against, any
loss, damage, cost, expense or liability directly or indirectly
arising out of or attributable to the use, generation, manufacture,
treatment, handling, refining, production, processing, storage,
release, threatened release, discharge, disposal, or presence of
Hazardous Materials on, under or about the Mortgaged Property,
including, without limitation: (i) all foreseeable and
unforeseeable consequential damages; (ii) the costs of any required
or necessary repair, clean up or detoxification of the Mortgaged
Property, and the preparation and implementation of any closure,
remedial or other required plans; and (iii) all reasonable costs
and expenses incurred by the Mortgagee in connection with clauses
(i) and (ii), including, without limitation, reasonable attorneys'
fees. The indemnification provisions of this paragraph shall
survive (a) the repayment of the Note secured by this Mortgage, (b)
any foreclosure of this Mortgage, and (c) any deed or assignment of
the Mortgaged Property in lieu of foreclosure.
30. ADA Compliance. So long as this Mortgage remains
outstanding, the Borrower will, at the Borrower's own cost and
expense, in respect of the Mortgaged Property and in respect of the
Borrower's activities at or within the Mortgaged Property: (a)
comply with all requirements of the federal Americans with
Disabilities Act, including future amendments (the "ADA") and the
rules now or in the future promulgated under the ADA (the "Rules"),
to the extent applicable to the Borrower's ownership, management,
operation, leasing, use, construction, reconstruction, repair,
remodeling, rehabilitation or alteration of the Mortgaged Property,
or any part thereof; (b) immediately provide to the Mortgagee
written notice (and immediately provide to the Mortgagee copies) of
any and all notices of actual, potential or alleged violations of
the ADA or the Rules and any and all governmental investigations or
regulatory or private actions instituted or threatened, regarding
the ADA or the Rules; and (c) furnish to the Mortgagee, from time
to time whenever reasonably requested by the Mortgagee, an ADA
Compliance Assessment (the "ADA Compliance Assessment"), in form
reasonably acceptable to the Mortgagee, made by an architect or
engineer, or other professional acceptable to the Mortgagee in its
sole discretion, having a good repute for skill and experience in
the field of ADA compliance and otherwise reasonably acceptable to
the Mortgagee ("ADA Consultant"). If the ADA Compliance Assessment
shows that there are architectural barriers, including
communication barriers that are structural in nature within the
Mortgaged Property or the access to the Mortgaged Property, then
the Borrower, at the Mortgagee's request, shall also provide to the
Mortgagee a plan reasonably satisfactory to the Mortgagee, for the
removal of such barriers to the extent that such removal is readily
achievable. In no event shall the Mortgagee's acceptance of the
ADA Compliance Assessment or plan be deemed a representation by the
Mortgagee that such plan is in compliance with the ADA or the
Rules. Prior to undertaking any alterations or new construction on
the Mortgaged Property the Borrower, in addition to all other
requirements for such alterations or new construction contained in
the Mortgage or the other Loan Documents, shall provide to the
Mortgagee a certification by an ADA Consultant that the plans and
specifications for the alteration or new construction comply with
the ADA and Rules.
31. No Violation of Forfeiture Laws. The Borrower warrants
and covenants as follows:
a. The Borrower will not violate any federal, state, or
other governmental law, including but not limited to 18 U.S.C.
Sec. 1956(a)(3), that may in any way affect or impair the value of the
Mortgaged Property or the properties covered by the security
instruments which are part of the Loan Documents or the Mortgagee's
priority therein;
b. To the best of the Borrower's knowledge, there has been
no violation of any federal, state, or other law affecting or
impairing the value of the Mortgaged Property or the properties
covered by the security instruments which are part of the Loan
Documents; and
c. The Borrower shall make every good faith effort to
prevent any violation of any federal, state, or other governmental
law, including but not limited to 18 U.S.C. Sec. 1956(a)(3), that may
in any way affect or impair the value of the Mortgaged Property or
the properties covered by the security instruments which are part
of the Loan Documents or the Mortgagee's priority therein.
In the event that the Mortgagee has reasonable cause to
believe that any portion of the Mortgaged Property or any other
collateral securing the Loan might be or become subject to
forfeiture under any of the foregoing laws, the Borrower agrees
that the Mortgagee may, in its sole discretion, and addition to its
other remedies under this Mortgage and at law or in equity, refuse
to make any further disbursements of Loan proceeds, of any kind
whatsoever, until the Mortgagee no longer has any reasonable belief
that any portion of the Mortgaged Property or any other collateral
securing the Loan is subject to or may become subject to forfeiture
under any of the foregoing laws.
32. Accounts and Records. The Borrower will maintain a
standard modern system of accounting administered in accordance
with generally accepted accounting principles. The Mortgagee shall
have the right to examine the books of account of the Borrower to
the extent that they pertain to this Mortgage and the Mortgaged
Property, and to discuss the affairs, finances and accounts of the
Borrower to such extent, all at such reasonable times and intervals
as the Mortgagee may desire. The Borrower will furnish to the
Mortgagee, within ninety (90) days after the close of each fiscal
year, a balance sheet of the Borrower and a statement of earnings
of the Borrower as at the end of and for each year, prepared in
accordance with generally accepted accounting principles
consistently applied. Upon the request of the Mortgagee, the
Borrower will provide the Mortgagee with convenient facilities for
the audit of such data and information.
33. Reappraisals. The Mortgagee shall have the right to
obtain, at the Borrower's expense, reappraisals of the Mortgaged
Property from any licensed or certified appraiser designated by the
Mortgagee, from time to time (a) whenever such reappraisal may be
required by any law, rule or regulation applicable to the Mortgagee
or the conduct of the Mortgagee's business, or may be requested or
directed by any governmental authority charged with the
administration of such law, rule or regulation or the Mortgagee's
compliance therewith, whether or not such request or direction has
the force of law, or (b) whenever the Mortgagee has reasonable
cause to believe that the then-current loan-to-value ratio for (i)
the Loan or (ii) the aggregate of all loans or other obligations
secured by the Mortgaged Property exceeds the loan-to-value ratio
for (i) the Loan or (ii) such aggregate, originally required by the
Loan Documents or by the Mortgagee's commitment to make the Loan,
or (c) whenever reasonably deemed appropriate by the Mortgagee
following the occurrence or during the continuance of an Event of
Default.
I. ASSIGNMENT OF RENTALS. The Borrower does hereby assign,
transfer, deliver and set over unto the Mortgagee and its
successors and assigns, absolutely:
FIRST: All of the right, title and interest of the
Borrower in and to any and all subleases (the "Subleases")
now or hereafter executed covering portions of the
Mortgaged Property, and all extensions, renewals and
modifications of the Subleases;
SECOND: All rentals and other sums payable by the
lessees under the Subleases and all extensions, renewals,
supplements or modifications thereof;
THIRD: All rights, powers, security, privileges,
options, remedies and other benefits of the Borrower, as
lessor under the Subleases, including, but not limited to,
the right to demand, collect and receive all rentals and
all sums due and which may become due or payable to the
lessor thereunder, whether as rentals, the proceeds of
insurance or otherwise (all articles of property described
in Items FIRST, SECOND and THIRD being hereinafter
sometimes called the "Assigned Property");
TO HAVE AND TO HOLD the same unto the Mortgagee and its
successors and assigns, absolutely;
1. THE BORROWER'S WARRANTIES. The Borrower warrants and
represents as follows:
a. the Borrower is the lawful and absolute owner of
all of the Assigned Property leased or to be leased and has
good right to assign the sublessor's interest in the
Subleases and the rentals and other sums payable
thereunder;
b. the Subleases are, and future Subleases will be,
valid, legally binding upon the parties thereto and are
enforceable in accordance with its provisions;
c. the Subleases are in full force and effect, not in
default, and have not been amended or modified;
d. except for this Mortgage, the Borrower has not
sold, assigned, transferred, mortgaged, pledged or
otherwise encumbered the Subleases or the rentals, income
and profits due or to become due thereunder; and
e. there has been no prepayment or anticipation of
rentals provided for in the Subleases for a period in
excess of one (1) month; and that there are no offsets,
counterclaims or defenses to the Borrower's rights to the
rentals now due or to become due under the Subleases.
2. THE BORROWER'S COVENANTS. The Borrower hereby covenants
and agrees with and for the benefit of the Mortgagee as follows:
a. Absolute Assignment. This Mortgage is not an assignment
for security purposes, nor a pledge of rents for additional
security, but an outright, immediate and absolute assignment of the
Borrower's interest in the Subleases.
b. Preservation and Enforcement of Subleases. The Borrower
will fully and faithfully abide by, observe and perform each and
every covenant, condition and obligation to be observed and
performed by the lessor under the Subleases and, at the sole cost
and expense of the Borrower, shall enforce or secure the observance
and performance of each and every covenant, condition and
obligation to be observed and performed by the lessees under the
Subleases. Without the prior written consent of the Mortgagee, the
Borrower will absolutely refrain from modifying, altering, waiving,
cancelling or extending the term or any of the provisions of any
Lease or accept a surrender thereof; nor will the Borrower
anticipate for more than one (1) month the rents under the Lease,
or waive, excuse, condone or in any manner release or discharge the
lessee from any obligation thereunder, including, but not limited
to, the obligation to pay the rentals provided for thereunder in
the manner and at the place and time specified therein. If
requested by the Mortgagee, the Borrower shall deliver to the
Mortgagee estoppel certificates, in form and substance satisfactory
to the Mortgagee, duly executed by the lessees under the Subleases.
c. Legal Proceedings. The Borrower will, at the Borrower's
sole cost and expense, appear in and defend any action or
proceeding arising under, growing out of or in any manner connected
with any Lease or the obligations, duties or liabilities of the
lessor and lessee thereunder; PROVIDED, that the Mortgagee may
appear in and defend any such action or proceeding, and the
Borrower shall pay all costs and expenses of the Mortgagee,
including, but not limited to, attorneys' fees, in any such action
or proceeding in which the Mortgagee may appear.
d. Right of the Mortgagee to Prevent or Remedy Default.
If the Borrower fails to make any payment or to observe and perform
any of the covenants, conditions or obligations herein provided,
then the Mortgagee may, but without obligation so to do and without
notice to or demand on the Borrower and without releasing the
Borrower from any obligation hereunder, take any action the
Mortgagee deems necessary or appropriate to prevent or remedy such
default or otherwise to protect the Assigned Property, including,
but not limited to, (a) appearing in and defending any action or
proceeding purporting to affect any Lease, the rentals payable
thereunder or the rights or powers of the Mortgagee or (b)
observing and performing any covenant, condition or obligation of
the lessor under the Lease.
e. The Mortgagee's Expenses. The Borrower shall pay to the
Mortgagee upon demand, all advances, costs, expenses and attorneys'
fees which the Mortgagee may make, pay or incur under any provision
of this Mortgage for the protection of any of the rights of the
Mortgagee hereunder, or in any dispute or litigation in which the
Mortgagee may become involved by reason of or arising out of this
Mortgage. Such amounts shall bear interest until paid at the rate
provided in the Note to be paid in the event of a default
thereunder, shall be additional charges upon the Mortgaged
Property, shall be equally secured hereby and shall be a lien on
the Mortgaged Property prior to any rights or claims upon the
Mortgaged Property subordinate to the lien of this Mortgage.
f. Grant of License to the Borrower for Collection of
Rentals. The Mortgagee hereby grants to the Borrower a revocable
license to collect, but not more than one (1) month prior to
accrual, all rentals and other sums payable under the Subleases,
and to hold the same as a trust fund to be applied, first, to the
payment of any advances, costs, expenses and attorneys' fees made,
paid or incurred by the Mortgagee for the protection of its rights
and security under the Loan Documents; second, to the payment of
charges, interest and principal becoming due under the Note and to
the payment of all other sums now or hereafter loaned or advanced
by the Mortgagee to the Borrower and hereby secured, expended by
the Mortgagee for the account of the Borrower, or otherwise owing
by the Borrower to the Mortgagee on any and every account
whatsoever; third, to the satisfaction of any obligations owing by
the lessor to the lessee under any Lease; and the remainder, if
any, may be used for the Borrower's own purposes. The Mortgagee
may revoke this license at any time by written notice to the
Borrower (this license being automatically revoked without notice
upon the occurrence of a default under any of the Loan Documents).
g. Collection of Rentals by the Mortgagee. Upon the
revocation of the license granted by the Mortgagee to the Borrower
pursuant to the preceding paragraph I.2.f of this Mortgage, or upon
the occurrence of a default under any of the Loan Documents, the
lessees under the Subleases shall be required to pay all of the
rentals directly to the Mortgagee and such rentals shall be applied
by the Mortgagee, first, to the payment of any advances, costs,
expenses and attorneys' fees made, paid or incurred by the
Mortgagee for the protection of its rights and security under the
Loan Documents; second, to the payment of the unpaid charges,
interest and principal on the Note and to the payment of all other
sums now or hereafter loaned or advanced by the Mortgagee to the
Borrower, expended by the Mortgagee for the account of the
Borrower, or otherwise owing by the Borrower to the Mortgagee on
any and every account whatsoever; and the remainder, if any, shall
be paid to the Borrower.
h. The Mortgagee not Obligated to Perform Under Subleases;
Indemnity. The Mortgagee shall not be obligated to perform or
discharge, nor does the Mortgagee hereby undertake to perform or
discharge, any obligation, duty or liability under the Subleases,
or under or by reason of this Mortgage, and the Borrower shall and
does hereby agree to indemnify and to hold the Mortgagee harmless
from any and all liability, loss or damage (to the extent such
liability, loss or damage does not arise out of any wrongful act or
omission by the Mortgagee) which the Mortgagee may incur under any
Lease or under or by reason of this Mortgage and from any and all
claims and demands whatsoever which may be asserted against the
Mortgagee by reason of any alleged obligation or undertaking on the
Mortgagee's part to perform or discharge any of the covenants,
conditions or obligations contained in any Lease. Should the
Mortgagee incur any such liability, loss or damage in the defense
of any such claims or demands, the amount thereof, including, but
not limited to, costs, expenses and reasonable attorneys' fees, the
Borrower shall reimburse such amounts to the Mortgagee upon demand.
i. Future Subleases. Until every covenant, condition and
obligation of the Borrower under the Loan Documents shall have been
fully paid, observed and performed, the Borrower shall, and does
hereby, assign and transfer to the Mortgagee absolutely any and all
future leases demising part or all of the Mortgaged Property upon
the same or substantially the same terms and conditions as are
herein contained, and will make, execute, acknowledge and deliver
to the Mortgagee, upon demand, any and all instruments that may be
requested by the Mortgagee therefor.
j. Liens. The Borrower will maintain the valid security
interest of the Mortgagee in the Assigned Property and the sums due
thereunder, free and clear of all liens, claims and encumbrances
that may be made prior to or on a parity with the security interest
of the Mortgagee therein.
k. Reassignment. Upon the payment, observance and
performance by the Borrower of all of the obligations under the
Loan Documents, the Mortgagee shall reassign the Assigned Property
to the Borrower, without recourse; PROVIDED, HOWEVER, that the
Borrower shall pay for the costs of such reassignment.
J. MODIFICATIONS TO LEASE. It is understood and agreed by and
between the Ground Lessor and Mortgagee that, so long as this
Mortgage (and any renewal, extension, modification or amendment
thereof) shall remain in force and effect, certain terms and
provisions of that certain Lease described in ITEM TWO of EXHIBIT
A of this Mortgage (the "Lease") shall be superseded and/or
modified in the following respects:
1. The provisions of Sections 5.1 and 5.2(e) of the Lease
relating to a qualified purchaser are hereby amended to define the
term "qualified purchaser" in the case of a judicial foreclosure of
this Mortgage to mean a person who (i) shall not as its primary
business, own, lease or operate any casino or gambling facility if
such business, ownership, leasing or operation might reasonably
impair the ability of the Lessee under the Lease or the Hotel
Operator (as defined in the Lease), as applicable, to obtain or
retain any necessary regulatory approvals for the operation of the
Hotel (as defined in the Lease); (ii) may not own or operate a
distillery, winery or brewery or a distributorship of alcoholic
beverages if such ownership or operation might reasonably impair
the ability of the Lessee under the Lease or said Hotel Operator,
as applicable, to obtain or retain liquor licenses for said Hotel;
and (iii) shall have sufficient financial capability to carry out
its obligations under the Lease.
2. Section 5.2(c) is modified as follows:
a. The forty-five (45) day time period in the
paragraph is extended to sixty (60) days.
b. Subparts (i), (ii) and (iii) are modified such
that the determination of whether a default is susceptible
of being cured by the mortgagee shall be made by Mortgagee
in its sole discretion; provided, that the Mortgagee shall
give to the Ground Lessor a prompt written notice of such
determination after any such determination is made.
3. The following phrase shall be added to and modify the
end of the first sentence in Section 5.2(e):
", but only payable when due for those amounts thereafter
accruing."
4. The provisions of Section 5.7 of the Lease shall be
deleted in their entirety in the event that any purchaser under a
judicial foreclosure sale under this Mortgage shall acquire title
to the lessee's interest in the Lease.
5. As between Mortgagor and Mortgagee, the provisions set
forth above shall control in the event of any conflict between the
provisions of this Mortgage and the Lease, and with respect to
Paragraph J.4 above, as between the Lessee and the Ground Lessor
under the Lease.
K. MISCELLANEOUS PROVISIONS:
1. No Waiver. Any failure by the Mortgagee to insist upon
the strict performance by the Borrower or the Mortgagor of any of
the terms and provisions hereof shall not be deemed to be a waiver
of any of the terms and provisions hereof, and the Mortgagee,
notwithstanding any such failure, shall have the right thereafter
to insist upon the strict performance by the Borrower or the
Mortgagor of any and all of the terms and provisions of this
Mortgage to be performed by the Borrower or the Mortgagor.
2. Security Agreement and Financing Statement Under Uniform
Commercial Code. This Mortgage shall constitute a security
agreement and financing statement under the Uniform Commercial
Code, as enacted in Hawaii; and the Borrower, as debtor, hereby
grants to the Mortgagee, as secured party, a security interest in
any or all of the Mortgaged Property, including, but not limited
to, the Equipment and Collateral, in addition to a mortgage lien
upon the same as part of the realty. The Borrower will assist, or
cause the assistance, in the preparation of and will execute from
time to time, alone or with the Mortgagee, and deliver, file and
record, any financing or continuation statements, mortgages or
other instruments, and do such further acts as the Mortgagee may
request to establish, maintain and perfect the security interests
of the Mortgagee in the Mortgaged Property, including (but not
limited to) the Equipment, and all renewals, additions,
substitutions, improvements to the same and the proceeds thereof,
and otherwise to protect the same against the rights and interests
of third parties. The terms of this Mortgage shall be deemed
commercially reasonable within the meaning of the Uniform
Commercial Code.
3. Definitions. The terms "advances," "costs" and
"expenses" shall include, but shall not be limited to, reasonable
attorneys' fees whenever incurred. The terms "indebtedness" and
"obligations" shall mean and include, but shall not be limited to
all claims, demands, obligations and liabilities whatsoever,
however arising, whether owing by the Borrower, individually or as
a partner, or jointly or in common with any others, and whether
absolute or contingent, and whether owing by the Borrower as
principal debtor or as accommodation maker or as indorser,
liquidated or unliquidated, and whenever contracted, accrued or
payable.
4. Paragraph Headings. The headings of paragraphs herein
are inserted only for convenience and shall in no way define,
describe or limit the scope or intent of any provisions of this
Mortgage.
5. Parties in Interest. As and when used herein, the term
"Mortgagor" shall mean and include the Mortgagor above-named, their
respective successors and assigns; the term "Borrower" shall mean
and include the Borrower above-named, its successors and assigns;
the term "Mortgagee" shall mean and include the Mortgagee
above-named and its successors and assigns; and the use of any
gender shall include all genders.
6. Applicable Laws. This Mortgage shall be governed by and
shall be construed and interpreted under and pursuant to the laws
of the State of Hawaii. If any provision of this Mortgage is held
to be invalid or unenforceable, such will not affect the validity
or enforceability of the other provisions of this Mortgage.
7. Notices. All notices, demands or documents which are
required or permitted to be given or served under this Mortgage
shall be in writing and personally delivered or sent by registered
or certified mail addressed as set forth on page 1 of this
Mortgage. Such addresses may be changed by addressee by serving
notice as provided above. Service of any such notice shall be
deemed complete on the earlier to occur of the actual date of
delivery or three (3) days after mailing.
8. Additional Security for the Note. The Mortgagee may
have received additional mortgages and/or security instruments to
protect the Mortgagee against possible losses that might result if
the Note is not paid in full when due or otherwise paid in
accordance with its terms and provisions. In such event, the
Borrower agrees that if a default occurs under either the Note,
this Mortgage or such additional mortgages and/or security
instruments, such default shall be a default under all of such
instruments and that the Mortgagee is free to decide which mortgage
or security instrument to take action against first and which order
to take these actions. The Borrower waives any rights the Borrower
might have under the law to interfere with the Mortgagee's
decisions on the order of actions the Mortgagee takes against the
mortgages and/or security instruments.
9. Limitation of Liability of Accommodation Mortgagor.
a. In this Section, MAUI LAND & PINEAPPLE COMPANY, INC.,
a Hawaii corporation, whose principal place of business is 120 Kane
Street, Kahului, Maui, Hawaii, and whose post office address is
P.O. Box 187, Kahului, Maui, Hawaii 96732, shall be referred to as
the "Accommodation Mortgagor".
b. The Accommodation Mortgagor has executed this Mortgage
as an accommodation to the Borrower. The Accommodation Mortgagor
acknowledges that because of the Accommodation Mortgagor's benefits
arising out of the Loan, which provides the funds to refinance an
existing loan which is secured by the Accommodation Mortgagor's
interest in the Mortgaged Property, the Accommodation Mortgagor
will derive a substantial and valuable benefit from the Loan to the
Borrower; that the Accommodation Mortgagor is making this Mortgage
for the benefit of the Mortgagee as an essential inducement to the
Mortgagee to make the Loan to the Borrower; and that without this
Mortgage, the Mortgagee would not have made the Loan to the
Borrower.
c. The Accommodation Mortgagor's execution and delivery of
this Mortgage is not intended to, and shall not, make the
Accommodation Mortgagor personally liable or obligated to the
Mortgagee. The Accommodation Mortgagor is delivering this Mortgage
only to secure the Borrower's promises and performances under the
Note and any of the Loan Documents and not to become personally
liable or obligated under the Loan Documents.
d. Notwithstanding any provision to the contrary in this
Mortgage, it is agreed and understood that the Accommodation
Mortgagor is not personally liable under any covenants of the Note,
this Mortgage or other Loan Documents for the payment of any
indebtedness. In any action or proceeding brought on this Mortgage
in which a money judgment is sought, the Mortgagee will look solely
to the Borrower and to the Mortgaged Property for payment of the
obligations hereby secured and, expressly agrees to waive any right
to seek or obtain a deficiency judgment against the Accommodation
Mortgagor.
e. The Accommodation Mortgagor authorizes and directs the
Mortgagee to disburse 100% of the Loan proceeds solely to the
Borrower and to disburse none of the Loan proceeds to the
Accommodation Mortgagor.
f. Even though the Accommodation Mortgagor has not
received, and will not receive, any of the Loan proceeds, the
Accommodation Mortgagor understands and agrees that if a default
occurs under the Loan Documents, the Mortgaged Property which the
Accommodation Mortgagor has delivered to the Mortgagee under this
Mortgage may be sold to pay in full the amounts due and payable
under the Note and the Loan Documents.
g. The Accommodation Mortgagor agrees to waive any right
which the Accommodation Mortgagor may have to require the Mortgagee
to (a) demand payment of amounts due (known as "presentment"); (b)
give notice that amounts due have not been paid (known as "notice
of dishonor"); and (c) obtain an official certification of
nonpayment (known as "protest").
h. The Accommodation Mortgagor agrees to be bound by the
provisions of Paragraph 21 of Section H, above, and that the
Mortgagee may do any of the things set forth in those paragraphs
without affecting or diminishing any of the Mortgagee's rights
under this Mortgage.
i. The Borrower acknowledges that the execution and
delivery of this Mortgage by the Accommodation Mortgagor is being
made strictly as an accommodation to the Borrower.
10. Counterpart Signatures. This Mortgage may be executed
in counterparts, each of which shall be deemed an original
regardless of the date of its execution
and delivery. All of such counterparts together shall constitute
one and the same document, binding all of the parties hereto,
notwithstanding all of the parties are not signatory to the
original or the same counterparts. For all purposes, including,
without limitation, recordation, filing and delivery of this
document, duplicate unexecuted and unacknowledged pages of the
counterparts may be discarded and the remaining pages assembled as
one document.
IN WITNESS WHEREOF, the parties hereto have executed these
presents as of the day and year first above written.
MAUI LAND & PINEAPPLE COMPANY, INC.
By /S/ DON YOUNG
Don Young
Its Executive Vice President
By /S/ PAUL J. MEYER
Paul J. Meyer
Its Executive Vice President/Finance
"Mortgagor, Ground Lessor
and
Accommodation Mortgagor"
NI HAWAII RESORT, INC.
By /S/ TORU OKUYAMA
Toru Okuyama
Its Vice President
"Mortgagor and Borrower"
NI HAWAII FINANCIAL, INC.
By /S/ TORU OKUYAMA
Toru Okuyama
Its Vice President
"Mortgagee"
STATE OF HAWAII )
) SS:
COUNTY OF MAUI )
On this 24TH day of FEBRUARY , 1996, before me
appeared DON YOUNG and PAUL J. MEYER, to me personally known, who,
being by me duly sworn, did say that they are the Executive Vice
President and Executive Vice President/Finance, respectively, of
MAUI LAND & PINEAPPLE COMPANY, INC., a Hawaii corporation; that
said instrument was signed in the name and on behalf of said
corporation by authority of its Board of Directors; and said
officers acknowledged that they executed said instrument as the
free act and deed of said corporation.
/S/ DEBRA A. MAHON
Notary Public, State of Hawaii
My Commission expires:
OCT. 1, 1996
STATE OF HAWAII )
) SS:
COUNTY OF MAUI )
On this 24TH day of FEBRUARY , 1996,
before me appeared TORU OKUYAMA, to me personally known, who, being
by me duly sworn did say that he is the Vice President of NI HAWAII
RESORT, INC., a Hawaii corporation; that said instrument was signed
in the name and on behalf of said corporation by authority of its
Board of Directors; and said officer acknowledged that said officer
executed said instrument as the free act and deed of said
corporation.
/S/ DEBRA A. MAHON
Notary Public, State of Hawaii
My Commission expires:
OCT. 1, 1996
STATE OF HAWAII )
) SS:
COUNTY OF MAUI )
On this 24TH day of FEBRUARY , 1996,
before me appeared TORU OKUYAMA, to me personally known, who, being
by me duly sworn did say that he is the Vice President of NI HAWAII
FINANCIAL, INC., a Delaware corporation; that said instrument was
signed in the name and on behalf of said corporation by authority
of its Board of Directors; and said officer acknowledged that said
officer executed said instrument as the free act and deed of said
corporation.
/S/ DEBRA A. MAHON
Notary Public, State of Hawaii
My Commission expires:
OCT. 1, 1996
LAND COURT SYSTEM
REGULAR SYSTEM
Return By: Mail ( )
Pickup ( ) To:
Diana S. Barber, Esq.
The Ritz-Carlton Hotel
Company, L.L.C.
3414 Peachtree Road, N.E.
Suite 300
Atlanta, Georgia 30326
Tax Map Key: 4-2-004-021 (2)
Tax Map Key: 4-2-004-015 & 014 (2)
0129600.KYS
SUBORDINATION, NONDISTURBANCE AND ATTORNMENT AGREEMENT
(GROUND LESSOR)
THIS SUBORDINATION, NONDISTURBANCE AND ATTORNMENT AGREEMENT
(hereinafter referred to as this "Agreement"), made and entered
into as of the 24TH day of FEBRUARY , 1996, but effective January
1, 1996, by and among NI HAWAII RESORT, INC., a Hawaii corporation
(hereinafter referred to as "Owner"), KAPALANI, L.P., a Delaware
limited partnership (hereinafter referred to as "Operator"), and
MAUI LAND & PINEAPPLE COMPANY, INC., a Hawaii corporation
(hereinafter referred to as "Ground Lessor") (which terms "Owner",
"Operator" and "Ground Lessor" shall include the successors and
assigns of the respective parties).
WITNESSETH THAT:
WHEREAS, Ground Lessor has leased to Owner that certain real
property described on EXHIBIT A, attached hereto and incorporated
herein by this reference (such real property and the improvements
located or to be located thereon are hereinafter collectively
referred to as the "Property") pursuant to that certain Hotel
Ground Lease dated January 9, 1996, but effective as of January 1,
1996 (the "Lease Agreement"); and
WHEREAS, Owner and Operator have entered into that certain
Amended and Restated Operating Agreement, effective January 1, 1996
(hereinafter referred to as the "Operating Agreement") providing
the terms, conditions and limitations under which Operator will
manage a luxury hotel located upon the Property on behalf of Owner;
and
WHEREAS, Operator desires that Ground Lessor recognize
Operator's rights under the Operating Agreement in the event of
enforcement of Ground Lessor's rights under the Lease Agreement,
and Operator is willing to subordinate the Operating Agreement to
the Lease Agreement and to attorn to a transferee of the Property,
if any, upon enforcement of Ground Lessor's rights under the Lease
Agreement if such transferee will recognize Operator's rights under
the Operating Agreement.
NOW, THEREFORE, for and in consideration of the premises and
the mutual promises and covenants of the parties hereunder, and
other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as
follows:
1. The Operating Agreement and the rights of Operator
thereunder are and shall at all times be subordinate to the Lease
Agreement and to any and all renewals, modifications,
consolidations, replacements and extensions thereof, subject to the
terms and conditions set forth in this Agreement.
2. So long as the Operating Agreement is in full force and
effect and Operator is not in default under Article 11 thereof
(beyond any periods given Operator to cure such default),
Operator's rights and privileges under the Operating Agreement
shall not be terminated, disturbed, diminished or interfered with
by any steps or proceedings taken by Ground Lessor in the exercise
of any of Ground Lessor's rights under the Lease Agreement.
3. If the interest of Ground Lessor in the Property shall
be transferred by any reason whatsoever and so long as the
Operating Agreement is in full force and effect and Operator is not
in default under Article 11 thereof (beyond any periods given
Operator to cure such default), the Operating Agreement and all
rights of Operator thereunder shall continue in full force and
effect and shall not be terminated, disturbed, diminished or
interfered with by the transferee of said interest of Ground Lessor
except in accordance with the terms of the Operating Agreement and
in such event, Operator shall be bound to such transferee (which
may include, without limitation, Ground Lessor) under all of the
terms, covenants and conditions of the Operating Agreement for the
remainder of the Operating Term (as defined in the Operating
Agreement) and any extensions thereof with the same force and
effect as if such transferee were the "Owner" under the Operating
Agreement; provided, however, that Operator shall be under no
obligation to pay any sums to such transferee or otherwise perform
under the Operating Agreement until (x) Operator receives written
notice from Ground Lessor that such transferee has succeeded to the
interest of Owner under the Operating Agreement or the Lease
Agreement as the case may be, and (y) such transferee shall have
agreed to be bound to Operator under the terms, covenants and
conditions of the Operating Agreement, except that such transferee
shall not be (i) liable for any liability, obligation, act or
omission of any prior owner of the Property (including Ground
Lessor and Owner) or (ii) bound by any sums which Operator might
have paid to any prior owner of the Property (including Ground
Lessor and Owner) or (iii) bound by any amendment or modification
of the Operating Agreement made without the consent of Ground
Lessor.
4. Any notice or other communication which is provided for
or required by Ibis Agreement must be in writing and may be
delivered in person to any party or may be sent by courier or
registered or certified U.S. mail, with postage prepaid, return
receipt requested. Any such notice or other written communication
shall be deemed received by the party to whom it is sent
(i) in the case of personal delivery, on the date of delivery to
the party to whom such notice is addressed as evidenced by a
written receipt signed on behalf of such party, (ii) in the case of
courier delivery, the date receipt is acknowledged by the party to
whom such notice is addressed as evidenced by a written receipt
signed on behalf of such party, and (iii) in the case of registered
or certified mail the date receipt of acknowledgement on the return
receipt for such notice. For purposes of notices, the addresses of
the parties hereto shall be as follows, which address may be
changed at any time by written notice given in accordance with this
provision:
If to Owner:
NI Hawaii Resort, Inc.
c/o 745 Fort Street
8th Floor, Hawaii Tower
Honolulu, Hawaii 96813
Attention: _________________________________________
If to Operator:
Kapalani, L.P.
c/o The Ritz-Carlton Hotel Company, L.L.C.
3414 Peachtree Road
300 Monarch Plaza
Atlanta, Georgia 30326
Attn: General Counsel
If to Ground Lessor:
Maul Land & Pineapple Company, inc.
120 Kane Street
Post Office Box 187
Kahului, Maui, Hawaii 96732
Attention: Executive Vice President
Failure of, or delay in delivery of any copy of a notice or other
written communication shall not impair the effectiveness of such
notice or written communication given to any party to this
Agreement as specified herein. The parties agree that upon giving
any notice or other written communication in accordance with the
foregoing procedure they snail each then use their reasonable
efforts to advise the other party by telephone that a written
communication has been sent under this Agreement; such telephonic
advice shall not impair the effectiveness of any written
communication otherwise given in accordance with this Section.
5. This Agreement may not be altered, modified or amended
except in writing signed by all of the parties hereto.
6. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and
assigns.
7. This Agreement may be executed in counterparts, each of
which shall be deemed an original regardless of the date of its
execution and delivery. All of such counterparts together shall
constitute one and the same document, binding all of the parties
hereto, notwithstanding all of the parties are not signatory to the
original or the same counterparts. For all purposes, including,
without limitation, recordation, filing and delivery of this
document, duplicate unexecuted and unacknowledged pages of the
counterparts may be discarded and the remaining pages assembled as
one document.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their duly authorized officers as of
the date and year first above written.
OWNER:
NI HAWAII RESORT, INC., a Hawaii
corporation
By /S/ TORU OKUYAMA
Toru Okuyama
Its Vice President
OPERATOR:
KAPALANI, L.P., a Delaware limited
partnership
By CORPORATE GENERAL, INC., a Delaware
corporation, as General Partner
By /S/ J. RICHARD STEPHENS
J. Richard Stephens
Its Executive Vice President
GROUND LESSOR:
MAUI LAND & PINEAPPLE COMPANY, INC.
By /S/ DON YOUNG
Don Young
Its Executive Vice President
By /S/ PAUL J. MEYER
Paul J. Meyer
Its Executive Vice President/Finance
<PAGE>
STATE OF HAWAII )
) SS:
COUNTY OF MAUI )
On this 24TH day of FEBRUARY , 1996 before me
appeared TORU OKUYAMA, to me personally known, who, being by me
duly sworn did say that he is the Vice President of NI HAWAII
RESORT, INC., a Hawaii corporation; that said instrument was signed
in the name and on behalf of said corporation by authority of its
Board of Directors; and said officer acknowledged that said officer
executed said instrument as the free act and deed of said
corporation.
/S/ DEBRA A. MAHON
Notary Public, State of Hawaii
My Commission expires:
OCT. 1, 1996
STATE OF CALIFORNIA )
) SS.
COUNTY OF )
On this 26TH day of FEBRUARY ,
1996, before me appeared J. RICHARD STEPHENS, to me personally
known, who, being by me duly sworn, did say that he is the
Executive Vice President of CORPORATE GENERAL, INC., a Delaware
corporation, the general partner of KAPALANI, L.P., a Delaware
limited partnership, and that said instrument was signed in the
name and on behalf of said corporation by authority of its Board of
Directors and said officer acknowledged said instrument as the free
act and deed of said corporation as such general partner of said
general partnership.
/S/ RENE R. RUSSELL
Notary Public, State of California
My Commission expires:
02/05/00
STATE OF HAWAII )
) SS:
COUNTY OF MAUI )
On this 24TH day of FEBRUARY , 1996,
before me appeared DON YOUNG and PAUL J. MEYER, to me personally
known, who, being by me duly sworn, did say that they are the
Executive Vice President and Executive Vice President/Finance,
respectively, of MAUI LAND & PINEAPPLE COMPANY, INC., a Hawaii
corporation; that said instrument was signed in the name and on
behalf of said corporation by authority of its Board of Directors;
and said officers acknowledged that they executed said instrument
as the free act and deed of said corporation.
/S/ DEBRA A. MAHON
Notary Public, State of Hawaii
My Commission expires:
OCT. 1, 1996
HOTEL GROUND LEASE
(THE RITZ-CARLTON, KAPALUA)
BETWEEN
MAUI LAND & PINEAPPLE COMPANY, INC. (LESSOR)
AND
NI HAWAII RESORT, INC. (LESSEE)
HOTEL GROUND LEASE
THIS HOTEL GROUND LEASE is made this 9th day of January,
1996 but effective as of January 1, 1996 (the "Effective Date"),
except for Sections 3.1 and 3.4(a) which shall be effective
January 1, 1995, by and between MAUI LAND & PINEAPPLE COMPANY,
INC., a Hawaii corporation, whose principal place of business is
120 Kane Street, Kahului, Maui, Hawaii, and whose post office
address is P.O. Box 187, Kahului, Maui, Hawaii 96732, hereinafter
called the "Lessor", and NI HAWAII RESORT, INC., a Hawaii
corporation whose address is 745 Fort Street, Honolulu, Hawaii
96813, hereinafter called the "Lessee". This instrument is
sometimes referred to herein as "this Lease", and may be referred
to as the "Lease."
W I T N E S S E T H:
In consideration of the respective and mutual covenants of
Lessor and Lessee and the rent set forth in this Lease below,
Lessor and Lessee hereby agree to all of the following terms,
conditions and covenants.
ARTICLE I
Definitions
1.1 Use of Defined Terms. For purposes of construing and
interpreting this Lease, the terms defined in Section 1.2 and 1.3
when written with initial capital letters in this Lease shall
have the meaning given such terms in those sections. The terms
defined in Sections 1.2 and 1.3 may be used in the singular or
plural or in varying tenses or forms, but such variation shall
not affect the meaning of such terms set forth in those sections
so long as those terms are written in initial capital letters.
When such terms are used in this Lease but are written without
initial capital letters, such terms shall have the meaning they
have in common usage; provided, however, that where legal,
technical or trade terms are used and the context in which such
terms are used indicates that such terms are to be given their
legal, technical or trade usage meanings, such terms shall be
given such legal, technical or trade usage meanings.
1.2 Term. "Term" shall mean the term of this Lease which
shall commence as of the Effective Date of this Lease, except for
Sections 3.1 and 3.4 which shall be effective January 1, 1995,
and terminate at midnight on December 31, 2094.
(a) Affiliated Concessionaires. An "Affiliated
Concessionaire" is a Concessionaire in which any one of (i)
Lessee, (ii) Lessee's general or limited partners, if any, (iii)
Affiliates of Lessee or Lessee's general or limited partners,
(iv) any shareholder of Lessee, of Lessee's general or limited
partners or an Affiliate of Lessee or its general or limited
partners holding alone or in the aggregate more than twenty-five
percent (25%) of the stock of any one such entity, (v) employees
or agents of Lessee, Lessee's general or limited partners or
Affiliate of Lessee or Lessee's general or limited partners, or
(vi) immediate family members of officers of Lessee, Lessee's
general or limited partners, or any Affiliates of Lessee or its
general or limited partners, (vii) immediate family members of
shareholders owning alone or in the aggregate more than twenty-
five percent (25%) of the stock of any one of Lessee, Lessee's
general or limited partners or any Affiliate of Lessee or
Lessee's general or limited partners or (viii) Affiliates of the
persons or entities set forth in clauses (i) through (vii) above,
have an ownership-interest, whether equitable or otherwise.
(b) Affiliates. An "Affiliate" of a person or entity is a
person or entity that directly or indirectly controls, is
controlled by, or is under common control with, such person or
entity. The term "control", as used in the immediately preceding
sentence means, with respect to an entity that is a corporation,
the right to the exercise, directly or indirectly, of more than
fifty percent (50%) of the voting rights attributable to the
shares of the controlled corporation, and with respect to a
person or entity that is not a corporation, the possession,
directly or indirectly, of the power to direct or cause the
direction of the management or policies of the controlled person
or entity.
(c) AIA General Conditions. The "AIA General Conditions"
shall mean the standard general conditions of the standard form
AIA construction agreement.
(d) Amendment and Restatement of Tennis Operating
Agreement. The "Amendment and Restatement of Tennis Operating
Agreement" shall mean the unrecorded agreement effective as of
January 1, 1996, and any amendment thereto, between Kapalua Land
Company, Ltd. and Lessee with respect to tennis play.
(e) Commencement of Construction. "Commencement of
Construction" shall mean "visible commencement of operations" as
that term is defined in Section 507-41 of the Hawaii Revised
Statutes in effect on the date of this Lease.
(f) Completed. A structure, improvement, building or room
which is "Completed" is a structure, improvement, building or
room for which a "certificate of occupancy" has been issued by
the appropriate governmental authority. The "Completion" of a
structure, improvement, building or room shall mean the issuance
of a "certificate of occupancy" by the appropriate governmental
agency for such structure, improvement, building or room.
(g) Concessionaire. "Concessionaire" shall mean a person
or entity, including without limitation a shopkeeper, retailer or
provider of services which has entered into a sublease,
concession agreement, contract, license or similar agreement with
Lessee for the transaction of business on or from the Premises or
the operation of the Hotel.
(h) Declaration of Covenants, Conditions, and Restrictions.
"Declaration of Covenants, Conditions, and Restrictions" shall
mean the Declaration described in Exhibit "A".
(i) Estimated Monthly Percentage Rent. "Estimated Monthly
Percentage Rent" shall be the amount computed by multiplying the
Gross Revenues for the month by the percentage rate under Section
3.4.
(j) Golf Course Use Agreement. The "Golf Course Use
Agreement" shall mean the unrecorded agreement effective January
1, 1996, and any amendment thereto, between Lessor and Lessee,
with respect to golf course use.
(k) Gross Annual Percentage Rent. "Gross Annual Percentage
Rent" shall have the definition set forth in Section 3.4.
(l) Gross Revenues. "Gross Revenues" shall have the
definition set forth in Section 3.2.
(m) Hotel. "Hotel" shall mean the hotel known as of
January 1, 1996 as The Ritz-Carlton, Kapalua, together with
lobbies, kitchens, dining rooms, bars, swimming pool,
landscaping, parking areas, roadways, walkways and all other
facilities and improvements now or hereafter constructed and
situated on the Premises.
(n) Hotel Operating Agreement. ".Hotel Operating
Agreement" shall mean an agreement between Lessee and Hotel
Operator for the operation and management of the Hotel.
(o) Hotel Operator. "Hotel Operator" shall mean Kapalani,
L.P., a Delaware limited partnership, or its successor or
successors as permitted by Section 8.8(b).
(p) Hotel Room. "Hotel Room" shall mean the smallest room
or combination of rooms in the Hotel which may be rented to
overnight guests.
(q) Kapalua Resort Area. The "Kapalua Resort Area" shall
mean the existing and proposed development of the Kapalua area on
Maui, more particularly set forth in the Kapalua Master Plan as
filed with the County of Maui Planning Department and amended
from time to time.
(r) Land. Land" shall mean the land included in the
Premises exclusive of any improvements existing at any time on
such land.
(s) Lease Year, Rental Year and Year. The terms Lease
Year," "Rental Year," and "Year" as used herein shall mean a time
period of 12 calendar months.
(t) Lessor's Cost of Money. "Lessor's Cost of Money" for
any period during the Term shall mean an annual rate of interest
equal to the lesser of: (i) two percent (2%) over the prime
interest rate for such period of time, which shall be the prime
interest rate then in effect or announced by Manufacturers
Hanover Trust Company or any successor thereto or other major
national bank directed by Lessor if such bank ceases to announce
a prime rate, or (ii) the maximum per annum rate of interest
permitted to be charged by then applicable law.
(u) Person. "Person" shall mean an individual,
partnership, corporation, trust, unincorporated association,
joint stock company, or other entity or association.
(v) Preconditions for Construction. The "Preconditions for
Construction" shall mean all of the conditions set forth in
subsections 4.2(a) through 4.2(d).
(w) Premises. The "Premises" shall mean the land described
in Exhibit "A" (including the Tennis Site) attached hereto and
incorporated herein by reference and all rights, easements,
privileges and appurtenances belonging or appertaining to such
land on the date hereof or at any time thereafter.
(x) Qualified Purchaser. Qualified Purchaser" shall have
the definition set forth in Section 11.7(a).
(y) Quiet Hours. "Quiet Hours" shall mean the hours
between 10 p.m. and 7 a.m. each day.
(z) Record and File. To "Record" a document shall mean to
record such document in the Bureau of Conveyances of in the State
of Hawaii. To "File" a document shall mean to file such document
in the Office of the Assistant Registrar of the Land Court of the
State of Hawaii.
(aa) Tennis Center. "Tennis Center" shall mean the
approximate ten-court tennis center on the Tennis Site.
(ab) Tennis Site. "Tennis Site" shall mean that portion of
the Premises on which the Tennis Center is built.
ARTICLE II
Demise and Quiet Enjoyment;
Interrelationship of Interests
2.1 Demise. In consideration of the Lessee's agreement to,
and acceptance of, the terms, conditions and covenants of this
Lease and the rent set forth in this Lease below, Lessor hereby
leases the Premises to Lessee for the Term, subject to all of the
terms and conditions of this Lease.
<PAGE>
2.2 Quiet Enjoyment. Upon observance and performance by
Lessee of the covenants and conditions of this Lease and the
Declaration of Covenants, Conditions and Restrictions, Lessor
hereby covenants with the Lessee that the Lessee shall peaceably
hold and enjoy the Premises for the Term without hindrance or
interruption by the Lessor or any other person or persons
claiming by, through, or under Lessor except as in this Lease
expressly provided.
2.3 Interrelationship of Interests. The Lessor and the
Lessee covenant and agree that the interest of the Lessee in the
Hotel on the Premises and the interest of the Lessee in this
Lease are not separately transferable by the Lessee. Thus, under
no circumstances, may the Hotel be separated from the leasehold
interest in the Premises; and the Hotel may only be transferred
or encumbered together with the leasehold interest in the
Premises. During the Term of this Lease, Lessee shall own all
right, title, and interest in and to all improvements on the
Premises and shall retain all rights to depreciation deductions
and tax credits arising from the ownership of such improvements.
However, upon termination of this Lease, title to all
improvements in the Premises shall thereupon revert to the Lessor
subject to Section 10.1.
ARTICLE III
Rental
3.1 Lessee to Pay Net Rent. Throughout the Term, Lessee
shall pay to Lessor the annual minimum and percentage rents set
forth in Sections 3.3 and 3.4 in the manner set forth in this
Article, net of any and all taxes, rates, assessments, charges,
impositions, and expenses payable under this Lease and without
deductions of any kind whatsoever. Minimum and percentage rent
shall not be reduced or abated except as expressly provided in
this Lease.
3.2 Gross Revenues, Defined. The term "Gross Revenues"
shall mean all revenues, receipts and income of any kind derived
directly or indirectly by the Lessee in the form of cash,
property or services (i.e., barter, "contra," accounts, and such
alternatives to cash payments, which together with property and
services, shall be valued at their fair market value) from or in
connection with the Hotel or the Tennis Center (including any
loss of income insurance proceeds paid to the Lessee or the
Lessor in the event of casualty to the Hotel, or as a result of
the occurrence of any other event making use of all or a portion
of the Hotel impossible or impractical), and rentals or other
payments under the Amendment and Restatement of Tennis Operating
Agreement and/or the Golf Course Use Agreement, and from any
condominium units managed by the Lessee in the Kapalua Resort
Area, and from Concessionaires (but not including their gross
receipts), whether on a cash basis or credit, paid or collected,
determined in accordance with generally accepted accounting
principles and Uniform System; excluding, however: (i) funds
furnished by the Owner under the Hotel Operating Agreement, (ii)
interest accrued on amounts in the reserve under the Hotel
Operating Agreement, (iii) federal, state and municipal excise,
sales, use and room taxes collected directly from patrons and
guests or as part of the sales price of any foods, services or
displays, such as gross receipts, admissions, cabaret or similar
or equivalent taxes and paid over to federal, state or municipal
governments, (iv) gratuities, (v) proceeds of insurance
(excluding loss of income insurance proceeds which shall be
included as a part of Gross Revenues) and condemnation, (vi)
value of free or any discounted portion of rooms or services
under the Amendment and Restatement of Tennis Operating Agreement
and/or the Golf Course Use Agreement or complimentary policies of
the Hotel approved by the Lessor, (vii) any loan proceeds, and
(viii) proceeds from the sale of the Hotel or the improvements
and furniture, fixtures and equipment owned by the Lessee.
When there are Affiliated Concessionaires operating at the
Hotel, if the rental rate to any Affiliated Concessionaire is
lower than the rental rate which is being charged another third
party, non-Affiliated Concessionaires operating a business
similar to those of the Affiliated Concessionaires in a location
at the Hotel similar to that of the Affiliated Concessionaire,
the Gross Revenues from such Affiliated Concessionaire shall be
deemed to be the same as the rental rate being charged such other
Concessionaire, and Gross Revenues shall be computed as so
determined. If there is no third party non-Affiliated
Concessionaire operating a similar business in a similar location
to that of an Affiliated Concessionaire, then for purposes of
determining Gross Revenues, the Gross Revenues from such
Affiliated Concessionaire shall be determined according to rental
rates that would have been charged to a non-Affiliated
Concessionaire in an "arm's length" negotiation to acquire the
same concession for the same business in the same location as
given such Affiliated Concessionaire.
Gross Revenues shall be reduced for actual bad debts
reasonably determined to be uncollectible by the Lessee, which
reduction shall not include payments for any bad debt reserve or
sinking fund or similar fund or reserve, for bad debts. If any
debts previously deducted as uncollectible shall subsequently be
collected, such collected amounts shall be included in Gross
Revenues in the fiscal year collected after deducting reasonable
collection expenses actually incurred.
"Gross Revenues" shall be determined on an annual basis,
except that in computing Estimated Monthly Percentage Rent, Gross
Revenues shall be determined either just for that month or on a
quarterly basis, as the case may be.
3.3 Minimum Rent. Commencing January 1, 1996, and
continuing through the Term of this Lease, the Lessee shall pay a
minimum rent of the higher of $5,000 per year, payable in
arrears, or the percentage rent payable under Section 3.4, below.
3.4 Percentage Rent.
(a) For each calendar year or portion thereof during the
period from January 1, 1995 through December 31, 1998, the
percentage rent shall be an amount equal to 2.5% of the Gross
Revenues for that year, or a prorated amount for any portion of
such year.
(b) For each year during the period from January 1, 1999,
through December 31, 2094, the percentage rent shall be an amount
equal to 1% of Gross Revenues for that year; provided, however,
if the total Gross Revenues for any twelve (12) consecutive
calendar months during this period exceeds $60,000,000, the
percentage rent for the remainder of the Term shall increase,
effective the first month following such twelve (12) consecutive
months, to an amount equal to 1.5% of Gross Revenues.
(c) Records and Annual Statement. Lessee shall maintain
and keep full and accurate records on the Premises of all
business under the control of Lessee done or transacted in, upon
or from the Premises which may reasonably assist Lessor in
determining the percentage rent to be paid by Lessee under this
Lease, and shall retain and preserve such records on the
Premises(or the Island of Maui) for at least five (5) years after
submission of the annual audited statement provided for in this
paragraph and permit Lessor upon reasonable advance notice to
inspect such records at any and all reasonable times during
business hours. Lessor shall also be given access at the Hotel
upon reasonable advance notice at any and all reasonable times
during business hours to any other books or records of Lessee,
and to any other books or records of Concessionaires, including
but not limited to Affiliated Concessionaires, that may be
necessary to enable Lessor to make a full and proper audit of the
Gross Revenues derived from all business done in, upon or from
the Premises. The Lessee shall submit to the Lessor on or before
the expiration of ninety (90) days following the end of each
calendar year of the Term after the commencement of the 1st
Rental Year of the Term, a complete statement (the "Annual
Statement") audited and signed by a certified public accountant
firm of recognized national and industry stature, entirely at
Lessee's sole expense; provided, however, Lessor and Lessee agree
and acknowledge that Lessee may fulfill such requirement for an
audited Annual Statement if Lessee provides to Lessor the audited
and signed Annual Statement given by the then current Hotel
Operator to Lessee pursuant to the terms of any hotel operating
agreement by and between the then current Hotel Operator and
Lessee. The Annual Statement shall be certified and signed by an
officer of Lessee, showing in reasonable detail satisfactory to
the Lessor Gross Revenues, prior to the deductions and exclusions
from Gross Revenues permitted under Section 3.2, and a reasonably
detailed statement of the deductions and exclusions from Gross
Revenues claimed by the Lessee, for the preceding year, and the
amount of Gross Annual Percentage Rent due under this Lease for
such year. The Lessor agrees to treat all such information,
records and reports as confidential and, except in response to a
valid court subpoena or proceeding, shall not divulge any of the
same to third parties without the prior written consent of the
Lessee, which consent may be unreasonably withheld. In addition
to the Annual Statement, Lessor shall have the right to audit, at
Lessor's expense except as provided in the immediately following
sentence, all records of Lessee and Concessionaires relating to
the Hotel and the concessions, and statements furnished by the
Lessee for purposes of determining percentage rent. If such an
audit shall reveal errors or improper entries or similar facts
which result in a difference in annual percentage rent exceeding
two percent (2%), all costs of such audit shall be borne by the
Lessee. The Lessor's right to audit shall include the right to
take such steps as are generally deemed proper in auditing
practices and shall include the right to audit Concessionaires,
including but not limited to Affiliated Concessionaires. Lessee
shall cooperate in any audit made by Lessor. After completion of
the audit, whichever party is then owing money for an adjusting
refund to the other by the audit shall pay the amount shown to be
due for such refund by the within fourteen (14) days after
completion of the audit by cash payment to Lessor (together with
interest in accordance with Section 11.13 from the date the
moneys should have been paid) or by credit against the next
monthly rents due if to Lessee. Completion of the audit shall be
deemed to occur at the time of delivery of the auditor's report
to both Lessor and the Lessee. If the Lessor is due an adjusting
refund, the Lessee shall pay the same in cash to the Lessor
(together with interest in accordance with Section 11.13 from the
date the rent adjustment should have been paid) at the time of
delivery of the Annual Statement.
(d) Accounting Method. Lessee shall keep its books of
account in accordance with generally accepted accounting
principles.
3.5 Access to Guest Lists. Lessee understands that Lessor
may desire from time to time to distribute information with
respect to the Kapalua Resort Area ("KRA Advertising") to former
guests of the Hotel. Lessor understands that (i) Lessee is
vitally interested in the image of the Hotel and the Kapalua
Resort Area presented to former and prospective guests of the
Hotel, and (ii) Lessee's guest lists constitute valuable and
confidential trade secrets of Lessee. Accordingly, Lessor shall
not be entitled to such guest lists but may require Lessee to
distribute, at Lessor's cost, any KRA Advertising to the persons
listed on Lessee's guest lists provided that such KRA Advertising
consists of advertising and promotion of the Kapalua Resort Area
or projects located therein, is of a first-class nature and
quality consistent with the Kapalua luxury resort image, and does
not refer to any hotel other than the Hotel or to any villa,
condominium and/or apartment rental program other than that
operated by Lessee. Any questionnaires must be general without
naming the Hotel.
3.6 Gross Excise Tax. In addition to the rents, taxes and
all other charges of every description payable hereunder, the
Lessee shall pay the Lessor, as additional rent, together with
each payment of rent or any other payment required hereunder, an
amount equal to the amount of excise taxes payable by the Lessor
pursuant to the State of Hawaii General Excise Tax Law, as it may
be amended from time to time, or any successor or similar law,
assessed or based on gross income of every description actually
or constructively received (to the extent taxed) by the Lessor
under this Lease, including without limiting the generality of
the foregoing: (i) the rents payable hereunder; (ii) any amount
directly or constructively received by the Lessor (to the extent
so taxed) by reason of payment by the Lessee to the Lessor,
governmental agency or others of real property taxes, insurance
premiums or any other charges or costs hereunder, (iii) amounts
paid to Lessor pursuant to this provision. Said amount payable
to Lessor shall take the character of the gross income on which
it is based and shall be an amount which, when added to such
rental or other payment, shall yield to the Lessor, after
deduction of all such tax payable by the Lessor with respect to
all such rent and other payments, a net amount equal to that
which the Lessor would have realized from such payments had no
such tax been imposed.
3.7 Payment.
(a) Percentage Rent. Annual percentage rent for each year
for which such rent is due as provided in Section 3.4 shall be
paid in monthly installments of "Estimated Monthly Percentage
Rent", computed for each month of such year, due on the 12th day
of the month after the month for which the Estimated Monthly
Percentage Rent is computed. Any adjusting payments required
will be made at the calendar year end at the time of delivery to
Lessor of the Annual Statement. If the Lessee is due an
adjusting refund from the Lessor, the Lessor will make a like
credit against the next monthly rents unless the Lessor disputes
the Annual Statement. If the Lessor is due an adjusting refund,
the Lessee shall pay the same in cash to the Lessor (together
with interest in accordance with Section 11.13 from the date the
rent adjustment should have been paid) at the time of delivery of
the Annual Statement.
(b) Currency; Agent. All rent and all other charges
payable by Lessee under this Lease shall be paid in lawful
currency of the United States of America to the Lessor or to such
agent as shall be designated by the Lessor in written notice to
the Lessee at least twelve (12) days prior to any rent payment
due date.
3.8 Late Payment. If Lessee fails to pay the percentage
rent within ten (10) days after such rent is due, Lessor shall be
entitled to a "late charge" equal to four percent (4%) of the
rent due to compensate Lessor for the administrative burden of
handling the late payment of rent. In addition, interest shall
be charged on such rent in accordance with Section 11.13.
3.9 Off-Site Improvements; Loan; Employee Housing.
(a) Lessor has completed all off-site improvements
described in Exhibit "B" attached hereto and incorporated herein
by reference (the "Off-Site Improvements"), all in accordance
with applicable government requirements. Lessor and Lessee
shall, subject to Lessor's and Lessee's approval, join in any
grant of easements which may be necessary to bring any utility
services from the boundaries of the Land to the improvements
thereon. Lessor expressly acknowledges and agrees that it shall
maintain, at Lessor's sole expense, all Off-Site Improvements
owned by Lessor.
(b) Lessor borrowed a principal amount of FOUR MILLION
SEVEN HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS ($4,750,000) for
the costs of the Off-Site Improvements (the "Off-Site
Improvements Loan"). The rights of the Lender under the Off-Site
Improvement Loan are held by Lessee. The Off-Site Improvements
Loan is evidenced by that certain non-recourse open account as
provided in Exhibit "C" which is attached hereto and incorporated
herein by this reference. The Off-Site Improvements Loan is
secured by the rent under this Lease and shall be repaid by
Lessee offsetting rent under this Lease in accordance with the
terms set forth in Exhibit "C." Until the earlier to occur of 1)
such Off-Site Improvements Loan being paid in full or deemed paid
in full; or 2) January 1, 1999, Lessee shall have a first
priority claim on all such rent for the purpose of effecting such
offset, and Lessee agrees not to assign, pledge or otherwise
encumber its right to such rents without making any such
assignment, pledge or other encumbrance expressly subject to the
first priority of such offset. The Lessee may offset rent under
this Lease in whole or in part against any payments due
thereunder.
ARTICLE IV
Construction of Improvements
4.1 Construction Requirements. Prior to Commencement of
Construction on the Premises of any construction for material
extension and/or alterations on the outside dimension of the
Hotel in excess of ONE MILLION AND NO/100 DOLLARS ($1,000,000)
("Construction"), Lessee shall comply with all of the conditions
set forth in Sections 4.1(a) and 4.1(b) and all of the other
conditions (the "Preconditions for Construction") set forth in
Sections 4.2(a) through 4.2(d); provided, however, this section
4.1 shall not apply to any interior additions and/or improvements
to the Hotel of THREE MILLION AND NO/100 DOLLARS ($3,000,000) or
less, interior renovations, any exterior maintenance, and any
furniture, fixtures, and equipment.
(a) Lessor's Approval. Lessee shall inform Lessor of the
nature of any Construction which Lessee is then planning to
construct on the Premises prior to Commencement of Construction
thereof. Lessee shall, prior to commencing any Construction,
submit a copy of the layout, location, elevation and renderings
("Plans") for such Construction for Lessor's approval, which
shall not be unreasonably withheld. Lessor shall approve or
disapprove the Plans within thirty (30) days after Lessee
delivers them to Lessor. If Lessee does not receive written
disapproval of the Plans within such thirty (30) day period, the
Plans shall be deemed approved by the Lessor. If Lessor
disapproves in writing of such Plans, Lessor shall, within such
thirty (30) day period, give the Lessee in reasonable detail the
reasons why.
All such Plans shall also conform to the provisions of the
Declaration of Covenants, Conditions and Restrictions pertaining
to the Premises.
(b) Lessee's Notification of Architect and Contractor. The
Lessee shall notify the Lessor of the identity of the architect
and contractor to be utilized for the Construction.
4.2 Pre-Conditions for Construction. Prior to construction
on the Premises of any Construction, Lessee shall comply with all
of the conditions set forth in Sections 4.2(a) through 4.2(d)
(the "Preconditions for Construction").
(a) Performance and Payment Bonds. Lessee shall deposit
with the Lessor certificates or other satisfactory evidence that
the contractor has procured one or more customary payment and
performance bonds for a total amount not less than one hundred
percent (100%) of the total cost of the Construction, naming the
Lessor and Lessee as co-obligees, in customary form and content
and with a surety or sureties approved by Lessor and authorized
to do business in Hawaii, guaranteeing the full and faithful
performance of the construction contract for such construction
free and clear of all mechanics' and materialmen's liens and the
full payment of all subcontractors, labor and materialmen.
(b) Governmental Approvals. Lessee shall furnish Lessor
with evidence (which may be in form of an opinion of counsel
reasonably satisfactory to Lessor) that all governmental
approvals necessary to commence the construction have been
obtained including without limitation the issuance of a building
permit for such construction.
(c) Financing Commitments. Lessee shall provide Lessor
with a construction budget for proposed construction projects and
evidence that there are funds available and committed to Lessee
sufficient to pay for one hundred percent (100%) of the total
direct and indirect costs of construction of the entire
construction. Such evidence may include, but not be limited to,
an executed copy of the building loan agreement or its
equivalent, and an executed copy of Acceptable Loan Commitments
for interim financing for such construction and any permanent
financing necessary to permit the Lessee to finance the repayment
of the interim loan. If any financing which is proposed under
Section 5.7 permits secondary financing, such fact shall be
grounds for disapproval of such proposed financing by Lessor.
(d) Construction Liability Insurance. In addition to the
requirements of part A of Article VI and the requirements of
parts B and C of Article VI, beginning with the Commencement of
Construction and continuing until all construction is completed,
Lessee shall maintain a comprehensive general liability insurance
policy in customary form and content and with an insurance
company authorized to do business in Hawaii and insuring the
Lessor and Lessee against at least all of the following: loss or
damage to third parties or their property from excavation, pile
driving, loss of subterranean support, boiler explosion as well
as all other hazards normally insured against in the construction
industry. Prior to the Commencement of Construction, Lessee
shall deliver to Lessor certificates of insurance certifying that
such insurance is in full force and effect.
4.3 Change Orders.
(a) Throughout the course of any Construction for which
Lessee is required under this Lease to comply with the
requirements of Sections 4.1(a) and 4.1(b) above, any proposed
substantial and material variation in such Plans previously
approved by Lessor shall be made pursuant to supplemental plans
and specifications and "change orders", as that term is defined
in the AIA General Conditions, and Lessee shall submit for the
Lessor's approval in the same manner as in Section 4.1(a) and
retention copies of any and all such supplemental plans and
specifications and proposed change orders and obtain such
approval before undertaking any such Construction.
(b) If the Lessee proposes to enter into an "additive
change order" as that term is used in the AIA General Conditions,
which additive change order would have the effect of depleting
entirely the amount provided for contingencies in the
construction budget, then prior to the execution of such additive
change order, Lessee shall make funding arrangements reasonably
satisfactory to Lessor to fund the additional sums required to
cover the amount by which the construction budget, after all
contingencies have been depleted or committed, is increased by
the additive change order. Lessee must make such funding
arrangements reasonably satisfactory to lessor prior to the
execution of any such additive change order.
4.4 Force Majeure. If any performance or condition
required to be completed by Lessor or Lessee under the terms of
this Lease is delayed by war, riots, insurrection, earthquake,
fire, flood, Acts of God, or other similar disaster, by
governmental ruling, regulation or law, by strike in the State of
Hawaii or on the Island of Maui, or by general transportation or
shipping strikes, or by strikes or shortages which affect the
delivery of materials critical to construction on the Premises,
which conditions are not within such party's control and are not
such party's fault, then the time for the completion of such
performance or such condition shall be extended by a time period
equal to the duration of such delay; provided, however, that the
Lessee's obligations to pay any and all sums due under this
Lease, including but not limited to percentage rent, shall not be
affected by any such extension and the time for payment of such
sums shall not be so extended; and provided further, that in no
event shall the Term be so extended.
4.5 Minimum Interference During Construction.
(a) During the portion of the Term while any construction
on the Premises is underway, Lessee shall take all steps and
precautions reasonably possible to provide that Lessee's
construction activities do not interfere with the operation of
the Kapalua Resort Area or result in inconvenience to guests,
tenants and residents in the Kapalua Resort Area, including but
not limited to the following:
(i) Except under emergency conditions, Lessee shall
obtain the Lessor's approval, which approval will not be
unreasonably withheld, for any anticipated disruption of water,
electricity, sewerage, traffic or other utility services to such
guests, tenants or residents at least fourteen (14) days prior to
such disruption. Lessee shall minimize the frequency and
duration of such disruptions and shall notify (through the Hotel
Operator, if a hotel, and through the condominium association, if
a condominium project) all affected utility users at least ten
(10) days prior to such disruption.
(ii) If Lessee's construction activities result in
damage to water or sewer lines, electrical systems, streets or
other utility systems, Lessee shall immediately notify Lessor of
such damage. If such damage occurs, Lessor may either (1)
require that Lessee immediately repair such damage at Lessee's
sole expense or (2) repair such damage and require that Lessee
pay all of Lessor's reasonable expenses. Lessor and Lessee agree
that in addition to repair or payment of expenses as set forth in
the immediately preceding sentence, if such damage to any utility
facilities results in an interruption in utility services not
approved and announced as provided in clause (i) above, Lessee
shall also pay for such interruption any actual damages incurred.
(iii) If piles must be driven during any construction
on the Premises, Lessee shall take all reasonable precautions to
reduce noise and shall use the quietest pile driving equipment
reasonably available in Hawaii under the then current state of
technology and shall engage in such activity only between the
hours of 9 o'clock a.m. and 4 o'clock p.m.
(iv) Lessee shall institute noise and dust controls at
all times during the construction to minimize the emission of
noise and dust on or from the Premises, including but not limited
to observing and requiring compliance with the Lessor's Quiet
Hours.
Lessee shall incorporate appropriate provisions in its
construction contract to implement the conditions set forth in
subsections (i) through (iv) above, including without limitation,
a provision requiring that Lessee's contractor comply with
Lessee's noise and dust controls. Lessee agrees that Lessee's
covenant to indemnify Lessor set forth in Section 11.9 below
shall include the indemnification of Lessor for any liability or
expenses arising from dust, noise, or utility interruptions
caused by construction on the Premises.
(b) If Lessor has any construction activities of its own
which affect the Premises, Lessor shall also comply with the
provisions of Section 4.5(a).
4.6 Risk of Obtaining Governmental Approvals for
Construction. It is specifically understood and agreed that the
risk of obtaining all governmental approvals needed for
construction, including but not limited to the risk of down-
zoning of the Premises, is on the Lessee. Failure to obtain such
approvals and Lessee's resulting inability to construct any
improvements shall in no event terminate the Lessee's obligation
to make the payments required in this Lease, including but not
limited to the obligation for rent, or extend the time for or
reduce the amount of any rental or other payment due under the
Lease.
4.7 Delivery of Plans and Specifications Upon Completion.
After completion of any construction on the Premises required to
be made under the Preconditions for Construction, Lessee shall
provide Lessor with a copy of a complete set of plans and
specifications for the entirety of such construction certified by
a licensed professional architect as showing the completed
construction "as built", all at Lessee's sole expense.
ARTICLE V
5.1 Right to Mortgage. Lessee may, from time to time, with
the consent of Lessor, which consent shall not be unreasonably
withheld, hypothecate, mortgage, pledge or alienate Lessee's
leasehold estate and rights hereunder as security for payment of
any indebtedness of Lessee to any bank, insurance company or
other established lending or financial institution or
institutions. The holder or holders of any such lien, as well as
any lenders of loans made pursuant to Section 5.7 hereof shall be
referred to herein as "Leasehold Mortgagees." A Leasehold
Mortgagee or its assignees may enforce such lien and acquire
title to the leasehold estate in any lawful way and, pending
foreclosure of such lien, the Leasehold Mortgagee or its assigns
may take possession of and operate the Premises, performing all
obligations to be performed by Lessee, and upon foreclosure of
such lien by power of sale or judicial foreclosure, the Leasehold
Mortgagee may sell and assign the leasehold estate hereby created
but any such purchaser or assignee must be a qualified assignee
within the meaning of Section 11.7(a) below ("Qualified
Purchaser"). Any Person acquiring such leasehold estate shall be
liable to perform the obligations imposed on Lessee by this Lease
only during the period such Person has ownership of said
leasehold estate or possession of the Premises.
5.2 Notice to and Rights of Leasehold Mortgages.
(a) When giving notice to Lessee with respect to any
default hereunder, Lessor shall also serve a copy of each such
written notice upon any Leasehold Mortgagee who shall have given
Lessor a written notice specifying its name and address. If
Lessee shall default in the performance of any of the terms,
covenants, agreements and conditions of this Lease on Lessee's
part to be performed, any Leasehold Mortgagee shall have the
right, within the grace period available to Lessee for curing
such default, plus such additional grace periods which may be
allotted to the Leasehold Mortgagee, to cure or make good such
default or to cause the same to be cured or made good whether the
same consists of the failure to pay rent or the failure to
perform any other obligation and Lessor shall accept such
performances on the part of any Leasehold Mortgagee as though the
same had been done or performed by the Lessee.
(b) In case of a default by Lessee in the payment of money,
Lessor will take no action to effect a termination of this Lease
by reason thereof unless such default has continued beyond forty
(40) days after Lessor shall have served a copy of such written
notice upon Lessee and any Leasehold Mortgagee, it being the
intent hereof and the understanding of the parties that any
Leasehold Mortgagee shall be allowed up to, but not in excess of,
forty-five (45) days to cure any default of Lessee in the payment
of rent or in the making of any other monetary payment required
under the terms of this Lease in addition to the ten (10) days
granted to Lessee to make such payments.
(c) In the case of any other default by Lessee, Lessor will
take no action to effect a termination of this Lease by reason
thereof unless Lessee or any Leasehold Mortgagee fails, within
forty-five (45) days after written notice from Lessor to any
Leasehold Mortgagee of Lessor's intention to terminate the Lease:
(i) to commence to cure such default, if such default
is susceptible of being cured by the Leasehold Mortgagee without
the Leasehold Mortgagee obtaining possession of the Premises;
(ii) to commence and diligently pursue efforts to
obtain possession of the Premises (including possession by a
receiver) and to cure such default in the case of a default which
is susceptible of being cured when the Leasehold Mortgagee has
obtained possession thereof; or
(iii) to institute foreclosure proceedings and to
complete such foreclosure proceedings or otherwise acquire
Lessee's interest under this Lease, or the right of possession
hereunder, with reasonable and continuous diligence in the case
of a default which is not so susceptible of being cured by the
Leasehold Mortgagee,
provided it is the intention hereof and the understanding of the
parties that any Leasehold Mortgagee shall be allowed up to, but
not in excess of, forty-five (45) days in addition to the time
period granted to Lessee pursuant to Section 9.1(b) to commence
action under this Section 5.2(c)(i)-(iii); and provided, further,
that a Leasehold Mortgagee shall not be required to continue such
possession or continue such foreclosure proceedings if the
default which prompted the service of such a notice has been
cured.
(d) The time available to a Leasehold Mortgagee to initiate
foreclosure proceedings as aforesaid shall be deemed extended by
the number of days of delay occasioned by judicial restriction
against such initiation or occasioned by other circumstances
beyond the Leasehold Mortgagee's control.
(e) During the period that a Leasehold Mortgagee shall be
in possession of the Premises and/or during the pendency of any
foreclosure proceedings instituted by a Leasehold Mortgagee, the
Leasehold Mortgagee shall pay or cause to be paid the rent
specified in Article III above and all other charges of
whatsoever nature payable by Lessee hereunder which have been
accrued and are unpaid and which will thereafter accrue during
said period. Following the acquisition of Lessee's leasehold
estate by the mortgagee or a Qualified Purchaser, either as a
result of foreclosure or acceptance of an assignment in lieu of
foreclosure, or the right of possession hereunder, the Leasehold
Mortgagee or party acquiring title to Lessee's leasehold estate
shall, as promptly as possible, commence the cure of all defaults
(other than money defaults, it being understood that any such
money defaults would have already been cured and that thereafter
all rent and other money items would be kept current) hereunder
to be cured and thereafter diligently process such cure to
completion, except such defaults which cannot in the exercise of
reasonable diligence be cured or performed by the Leasehold
Mortgagee or party acquiring title to Lessee's leasehold estate,
whereupon Lessor's right to effect a termination of this Lease
based upon the default in question shall be deemed waived. Any
default not susceptible of being cured by the Leasehold Mortgagee
or party acquiring title to Lessee's leasehold estate shall be,
and shall be deemed to have been waived by Lessor upon completion
of the foreclosure proceedings or acquisition of Lessee's
interest in this Lease by any Qualified Purchaser (who may, but
need not be, the Leasehold Mortgagee) at the foreclosure sale, or
who otherwise acquires Lessee's interest from the Leasehold
Mortgagee or by virtue of a Leasehold Mortgagee's exercise of its
remedies. Any such purchaser, or successor of purchaser, shall
be liable to perform the obligations imposed on Lessee by this
Lease incurred or accruing only during such purchaser's or
successor's ownership of the leasehold estate or possession of
the Premises.
(f) Nothing herein shall preclude Lessor from exercising
any of Lessor's rights or remedies with respect to any other
default by Lessee during any period of any such forbearance,
subject to the rights of any Leasehold Mortgagee as herein
provided.
(g) All notices by Lessor to Leasehold Mortgagees shall be
given by registered or certified mail, return receipt requested,
addressed to the Leasehold Mortgagees at the address last
specified to Lessor by the Leasehold Mortgagees, and any such
notice shall be deemed to have been given and served as provided
in Section 11.5.
(h) If two or more Leasehold Mortgagees each exercise their
rights hereunder and there is a conflict which renders it
impossible to comply with all such requests, the Leasehold
Mortgagee whose Leasehold Mortgage would be senior in priority if
there were a foreclosure shall prevail. If any Leasehold
Mortgagee pays any rental or other sums due hereunder which
relate to periods other than during its actual ownership of the
leasehold estate, such Leasehold Mortgagee shall be subrogated to
any and all rights which may be asserted against Lessor with
respect to such periods of time.
5.3 New Lease if No Bankruptcy. If this Lease is
terminated or cancelled for any reason where the Leasehold
Mortgagee has not been given an opportunity to cure pursuant to
Section 5.2 and if Section 5.8 below is not applicable, any
mortgagee shall have the right, within thirty (30) days after the
receipt of notice of such termination, to demand a new Lease
covering the Premises for a term to commence on the date of
procurement by Lessor of possession of the Premises and to expire
on the same date as this Lease would have expired if it had
otherwise continued uninterrupted until its scheduled date of
termination, and containing all of the same rights, terms,
covenants, considerations, unexpired options, and obligations as
set forth in this Lease. Such new lease shall be executed and
delivered by Lessor to the Leasehold Mortgagee within thirty (30)
days after receipt by Lessor of written notice from the Leasehold
Mortgagee of such election and upon payment by the Leasehold
Mortgagee of all sums owing by Lessee under the provisions of
this Lease (less any rent and other income actually collected by
Lessor in the meantime from subtenants or other occupants of the
Premises) and upon performance by the Leasehold Mortgagee of all
other obligations of Lessee under the provisions of this Lease
with respect to which performance is then due and which are
susceptible of being cured by a Leasehold Mortgagee. After such
termination of this Lease and prior to the expiration of the
period within which the Leasehold Mortgagee may elect to obtain
such new lease from Lessor, Lessor shall refrain from terminating
any existing subleases and from executing any new subleases
without the prior written consent of all Leasehold Mortgagees,
and Lessor shall account to the Leasehold Mortgagee for all rent
collected from subtenants during such period. Any new lease
granted to a Leasehold Mortgagee shall enjoy the same priority as
this Lease over any mortgage or other lien created by Lessor, in
its capacity as Lessor, before or after the date of such new
lease.
5.4 Consent of Mortgagee. Without the prior written
consent of all Leasehold Mortgagees, neither this Lease nor the
leasehold estate created by this Lease shall be surrendered,
cancelled, modified or amended (except with respect to
termination pursuant to any eminent domain proceedings concerning
the whole of the Premises, as provided in Article VII below),
unless the mortgagee has had an opportunity to cure any default
of Lessee pursuant to Section 5.2 and has failed to do so. No
agreement purporting to surrender, cancel, terminate, modify or
amend this Lease without such consent shall be valid or
effective.
5.5 No Merger. No merger of Lessee's leasehold estate into
Lessor's fee title shall result or be deemed to result by reason
of ownership of Lessor's or Lessee's estates by the same party or
by reason of any other circumstances, without the prior written
consent of the Leasehold Mortgagee, unless such merger results
from a default by Lessee where the Leasehold Mortgagee has been
given an opportunity to cure and has failed to do so.
5.6 Financing by Lessor. Any mortgage made by Lessor
(referred to herein as "Lessor Mortgage") covering its interest
in the Premises shall be subject to the rights of Lessee and any
Leasehold Mortgagees in the Premises, as set forth in this Lease.
Lessor agrees that any such Lessor Mortgage shall include a
clause stating that such Lessor Mortgage is so subject as set
forth above, but any such Lessor Mortgage shall automatically be
subject to this Lease regardless of whether or not any such
clause is in fact included in such Lessor Mortgage. The basic
substance of the foregoing provisions shall be included in the
short form Lease described in Section 11.23. If any proceedings
are brought for the foreclosure of, or in the event of exercise
of the power of sale under, any Lessor Mortgage or if Lessor
sells, conveys or otherwise transfers its interest in the
Premises, Lessee hereby agrees to attorn to whatever party
legally succeeds to the interest of Lessor in the Premises.
5.7 Subordination. Lessor agrees that it will, at Lessee's
request, and from time to time, subordinate all of Lessor's fee
estate in the Premises and all of Lessor's estate and interest in
this Lease to any first Leasehold Mortgage; provided, however,
that at no time shall Lessor be required to subordinate its
interests in either the fee estate or in this Lease to an
aggregate principal amount in excess of SIXTY-FIVE MILLION AND
NO/100 DOLLARS ($65,000,000.00). Any such Leasehold Mortgage
shall provide that Lessor shall have absolutely no liability or
obligation for the repayment of such loan or for the performance
of any obligations under any such Leasehold Mortgage and shall
further provide that Lessor shall have authority to cure any
default of Lessee prior to any foreclosure pursuant to provisions
of Section 5.9. Any foreclosure of any such Leasehold Mortgage
must be by judicial foreclosure. Lessee and its Affiliates shall
not directly or indirectly be a purchaser at any foreclosure sale
of any such Leasehold Mortgage. Lessor and Lessee agree that (i)
if any Leasehold Mortgage to which this Lease is made subordinate
under this Section 5.7 is foreclosed and the fee estate sold at
foreclosure and (ii) if proceeds in excess of the total amount
claimed by the Leasehold Mortgagee result from such sale and are
made available by the Leasehold Mortgagee to Lessor and Lessee
under the terms of the Leasehold Mortgage, then such excess
proceeds shall be made available first to Lessor to the extent of
the appraised fair market value of Lessor's fee estate in the
Premises as of the date the Leasehold Mortgagee commenced
foreclosure and the balance of such proceeds shall be made
available to Lessee. The appraised fair market value of the
Lessor's fee estate in the Premises shall be as determined by the
court appointed appraiser pursuant to the judicial foreclosure
proceedings which are required by this Section 5.7.
5.8 Option for New Lease if Bankruptcy.
(a) If there is an actual or deemed rejection of the Lease
(or of the new lease hereinafter described), under any provision
of the Bankruptcy Code (Title 11, United States Code) or any
successor law having similar effect, which results in a
termination of the Lease (or such new lease), Lessor agrees that
the senior leasehold mortgagee (the "Mortgagee") shall have the
right, for a period of sixty (60) days subsequent to such
termination, to demand from Lessor a new lease of the Premises
(the "New Lease"). The New Lease shall be for a term commencing
on the date the Lease was terminated and expiring on the date
stated in the Lease as the fixed date for the expiration thereof.
The rental and all provisions, covenants and conditions of the
New Lease shall be the same as the rental, provisions, covenants
and conditions of the Lease as of the date of termination
thereof, except that the liability of the Mortgagee under the New
Lease shall not extend beyond the period of its occupancy
thereunder. As the Lessee under the New Lease, the Mortgagee
(with respect to the Lessor) shall have the same right, title and
interest in and to the buildings and improvements on the Premises
as the Lessee had under the Lease immediately prior to its
termination.
(b) If the Mortgagee shall elect to demand such New Lease,
the Mortgagee shall, within such period, deliver written notice
to the Lessor of such election; and thereupon, within fifteen
(15) days thereafter, the Lessor and the Mortgagee shall execute
and deliver such New Lease upon said term, rental, provisions,
covenants and conditions, and the Mortgagee shall, at the time of
the execution and delivery of such New Lease, pay to the Lessor
all rental, charges, and taxes, owing by the Lessee to the Lessor
under the terms of the Lease immediately prior to the termination
of the Lease together with reasonable attorneys' fees and
expenses incurred by the Lessor in connection with the rejection
and termination of the Lease and the preparation, execution and
delivery of the New Lease, and all rentals, charges and taxes
owing by the Mortgagee, as lessee under such New Lease. The
Mortgagee shall also indemnify and hold the Lessor harmless from
and against all claims, damages, losses and expenses, including
reasonable attorneys' fees arising out of or in connection with
the termination of the Lease and the issuance of the New Lease.
The Lessor may, at its option, require the Mortgagee to obtain an
appropriate order from the Bankruptcy Court.
(c) The Lessor shall be under no obligation to accept rent
from or otherwise agree to an attornment from any subtenants of
the Premises whose rental agreements or subleases shall have
terminated upon the termination of the Lease. If the Mortgagee
demands such New Lease as provided herein, the New Lease will be
issued by Lessor subject to (and together with a quitclaim
assignment of Lessor's interests in) any and all subleases or
rights or tenants in possession and the Mortgagee shall have the
rights and obligations as landlord or sublessor with respect to
such sublessees or tenants and the same obligations to indemnify
and hold the Lessor harmless from any and all expenses connected
with and Claims from such sublessee or tenants, as the Lessee had
under the Lease (to the same extent and effect as if the Lease
had been assigned to the Mortgagee). The Mortgagee shall be
given credit for any net rents and income actually collected and
accepted by the Lessor from such sublessees or tenants of the
Premises.
(d) Any and all mortgages, or other lien, on the Lessor's
interest in the Premises, subsequent to the date of filing or
recording, to the extent permitted by law, shall be subject and
subordinate to this Lease. Any New Lease issued pursuant to the
provisions hereof, to the extent permitted by law, shall be
superior and prior to any such mortgage or other lien.
5.9 Lessor's Right to Cure Lessee's Mortgage Defaults.
(a) Every mortgage of the Lessee's interests under this
Lease shall provide that:
(i) In case of Lessee's default under such mortgage,
should the Leasehold Mortgagee determine to institute foreclosure
proceedings, the Leasehold Mortgagee shall give notice of such
intended foreclosure to the Lessor and Lessee, by registered mail
sent to Lessor's and Lessee's last known addresses, at least
sixty (60) days prior to the commencement of such foreclosure
proceedings (i.e., filing of the complaint for foreclosure with a
court of competent jurisdiction), and Lessor may, but shall not
be obligated to, cure any such default then capable of being
cured by Lessor in accordance with Section 5.9(b) below; and
(ii) If Lessor commences to cure all current defaults
of Lessee then curable by Lessor (including bringing all monetary
defaults immediately current to date) and diligently prosecutes
such cure, then Leasehold Mortgagee shall waive its right to
foreclose (including any right to accelerate the note secured by
the mortgage, it being understood that Lessor shall have the
foregoing right to cure all monetary and other defaults before
the Leasehold Mortgagee accelerates the note secured by the
mortgage) and any default under the mortgage shall be deemed
cured; and
(iii) If Lessor cures such default and succeeds to the
Lessee's right, title and interest in and to this Lease and the
Hotel in accordance with Section 5.9(b) below, then the Leasehold
Mortgagee shall thereafter, and without changing the terms and
conditions of the mortgage, treat Lessor as the mortgagor under
the mortgage and Lessor shall execute such reasonable documents
that the Leasehold Mortgagee may require.
(b) If the Lessor elects to cure such default, then:
(i) Lessor shall notify Lessee of Lessor's intent to
cure such default at least thirty (30) days prior to the
commencement of such cure;
(ii) If Lessee decides to contest in good faith the
Leasehold Mortgagee's foreclosure proceedings, Lessee shall
notify Lessor of such intent at least ten (10) days prior to the
commencement of such foreclosure proceedings; and
(iii) If Lessee fails to notify Lessor of Lessee's
intent to contest in good faith the Leasehold Mortgagee's
foreclosure proceedings in accordance with Section 5.9(b)(ii)
above, Lessor may, fifteen (15) days after the filing of the
complaint of foreclosure, commence to cure such default
(including bringing all monetary defaults immediately current to
date) and the Leasehold Mortgagee shall stipulate to a dismissal
of the foreclosure proceedings (including waiving any right to
accelerate the note secured by the mortgage because of such
default) and any default under the mortgage shall be deemed
cured; and
(iv) If Lessee fails to pay or otherwise cause to be
cured any final judgment filed against Lessee in a foreclosure
proceeding contested in good faith by Lessee within ten (10) days
after such final judgment is filed, Lessor may, fifteen (15) days
after the filing of such final judgment, commence to cure such
default (including bringing any monetary default immediately
current to date) and in such event and notwithstanding such final
judgment, the Leasehold Mortgagee shall waive any acceleration of
the note secured by the mortgage arising because of the default
and shall stipulate to a satisfaction of the final judgment and
any default shall be deemed cured; and
(v) If Lessor is entitled to cure Lessee's default
pursuant to this Section 5.9(b) and does cure such default, then
Lessor shall by written demand to Lessee require Lessee to pay to
Lessor all sums paid by Lessor to the Leasehold Mortgagee or
others to cure such default plus all costs and expenses,
including reasonable attorney's fees, paid or incurred by Lessor
in connection therewith, including but not limited to all costs
of Lessor's defense to such foreclosure proceeding or in any such
action as well as all costs for research regarding settlement or
other preventive measures which Lessor may take prior to the
filing of such an action, or to attempt to prevent the filing of
such an action, together with interest at Lessor's Cost of Money
from the date Lessor actually paid such sums; and
(vi) If payment is not made by Lessee to Lessor within
fourteen (14) days from the date of such written demand, then:
(1) Lessee shall be deemed to have assigned to Lessor
all the Lessee's right, title and interest in and to this
Lease, the Hotel and the Tennis Center subject to the
mortgage; and
(2) In such event, Lessor shall, in the name of the
Lessee (and for this purpose Lessor is hereby appointed the
attorney-in-fact of the Lessee and this power of attorney
shall be deemed to be a power of attorney coupled with an
interest), execute such documents as may be required to
assign all of the Lessee's right, title and interest in and
to this Lease, the Hotel, and the Tennis Center subject to
the mortgage (including all of the Hotel's and Tennis
Center's furniture, furnishings, equipment and at Lessor's
option, any sublease, license or contract related to the
Hotel including the Hotel Operating Agreement or to the
Tennis Center) to Lessor.
ARTICLE VI
A. Insurance of Buildings.
6.1 Fire and Hazard Insurance. In order to secure the
rents due the Lessor, the Lessee shall, at its own expense, at
all times during the Term keep all buildings, other improvements
and fixtures, by whomsoever installed or constructed, existing on
the Premises on the date of the Lease or at any time thereafter,
insured against (a) the "all risks" coverage (including, if
available and without exorbitant costs, earthquake, flood,
boiler, machinery, and war insurance), and (b) such other hazards
or risks which are covered by customary insurance by similar
hotels in the area (including the Kaanapali area of Maui). All
such insurance shall be in an amount equal to the full
replacement cost of such buildings, improvements and fixtures
without deduction for depreciation, with an "agreed amount
endorsement" and with an "inflation guard" endorsement. All such
insurance shall be with an insurance company or companies
authorized to do business in Hawaii, naming Lessor, any mortgagee
of Lessor, and any mortgagee of Lessee, as additional insureds as
their interests may appear. Loss shall be adjusted with Lessee.
6.2 Payment of Insurance proceeds. Every policy of the
insurance described in Section 6.1 shall be issued to cover and
insure all the several interests in the buildings, improvements,
fixtures and rent required to be insured in Section 6.1 of the
Lease, the Lessor and any Mortgagees under any mortgage of this
Lease, as their respective interests are defined in this section
below, and shall be made payable in case of loss or damage to the
respective parties as their interests may appear. The respective
interest of the Lessor, the Lessee and any Mortgagees in any
proceeds of the insurance required in Section 6.1 above payable
for insured loss or damage shall be fixed and determined as of
the date of such loss or damage.
6.3 Use of Insurance Proceeds. In case the buildings,
improvements or fixtures required to be insured in Section 6.1 or
any part thereof shall be destroyed or damaged by fire or such
other casualty required to be insured against, then and as often
as the same shall happen, all proceeds of such insurance shall be
available for and used with all reasonable dispatch by the Lessee
in rebuilding, repairing, replacing or otherwise reinstating the
buildings, improvements or fixtures so destroyed or damaged in a
good and substantial manner according to the plan and elevation
thereof, or according to such modified plan as shall be approved
under Section 4.2(a), and to pay the rent due the Lessor. If the
available insurance proceeds shall be insufficient for
rebuilding, repairing, replacing or otherwise reinstating such
buildings, improvements or fixtures in the manner provided in
this section above, then the Lessee shall provide the balance of
all funds required to completely rebuild, repair, replace or
otherwise reinstate such buildings, improvements or fixtures.
Lessee shall undertake promptly to reinstate the building or
buildings, or portions thereof, so destroyed or damaged according
to the original plan and elevation thereof, or according to such
modified plan as shall be approved by Lessor pursuant to Section
4.2(a). If a casualty under this Section 6.1 shall occur in the
last ten (10) years of the Term of this Lease, the Lessee shall
have the option of notifying the Lessor that the Lessee does not
intend to rebuild the buildings, improvements, or fixtures so
destroyed, but rather elects to terminate the Lease as of the
date of the casualty, by giving Lessor written notice at least
thirty (30) days after the date of the casualty, and then Lessee
will, at its own expense, pay all real property taxes and any
assessments then outstanding and shall pay over all insurance
proceeds to the Lessor, except if requested by Lessor, Lessee
shall use the insurance proceeds to promptly remove from the
Premises, all buildings, improvements and trade fixtures, and
restore the Land then remaining to good, orderly and sanitary
condition and even grade, and upon so doing the Lessee shall then
surrender any remaining balance of the insurance proceeds (if
any), surrender this Lease and Lessee shall be relieved of
further performance under this Lease. If the available insurance
proceeds shall be insufficient, then Lessee shall provide the
balance of all funds required to remove from the Premises, all
buildings, improvements and trade fixtures, and restore the Land
then remaining to good, orderly and sanitary condition and even
grade.
6.4 Uninsured Casualty and Abatement of Rent. If a portion
of the Hotel, as it exists from time to time, the value of which
exceeds ten percent (10%) of the value of the entire Hotel, shall
be rendered untenantable by casualty not required by this Lease
to be insured against, Lessee shall not have any obligation to
rebuild, repair or otherwise reinstate such buildings. If Lessee
shall undertake to reinstate the building or buildings, or
portions thereof, so destroyed or damaged according to the
original plan and elevation thereof, or according to such
modified plan, then such plans shall be subject to approval by
the Lessor pursuant to Section 4.1(a). If the Lessee does not
rebuild, repair or otherwise reinstate such buildings, Lessee
will at its own expense, pay all real property taxes and any
assessments then outstanding and, if requested by Lessor,
promptly remove from the Premises all buildings, improvements and
trade fixtures and restore the Land then remaining to good,
orderly and sanitary condition and even grade, and upon so doing
the Lessee shall then surrender this Lease and thereby be
relieved of further performance under this Lease.
B. Liability Insurance.
6.5 Lessee to Obtain Liability Insurance. The Lessee shall
maintain at its own expense during the Term a policy or policies
of comprehensive general liability insurance naming the Lessor
(and its wholly-owned subsidiaries) and the Lessee as insureds
thereunder with respect to liability for personal injury, death
and property damage arising from use, management, ownership or
occupation of the Premises in form and with coverage reasonably
satisfactory to and reasonably approved by the Lessor (including
a broad form CGL endorsement and full liquor law or dramshop
liability coverage as well as business automobile liability
coverage including non-owned and hired automobile liability
coverages), with minimum limits of not less than TWENTY-FIVE
MILLION DOLLARS ($25,000,000) for injury to more than one person
in any one accident, and for property damage in any one accident,
in any insurance company or companies authorized to do business
in Hawaii. Lessee shall periodically, but not less frequently
than annually, reevaluate the scope of the risks covered and the
liability limits of such insurance and, if necessary, increase
such coverage or liability limits in order to provide coverage of
risks and liability limits which a prudent businessman would
provide for property being put to uses similar to those of the
Premises.
C. General Insurance Requirements.
6.6 Policy Provisions. Each policy of comprehensive
general liability or hazard insurance required in parts A and B
of this Article above and in Section 4.2(d) of Article IV shall,
to the extent available and customary for hotels on Maui:
(a) provide that the liability of the insurer thereunder
shall not be affected by, and that the insurer shall not claim,
any right of setoff, counterclaim, apportionment, proration, or
contribution by reason of, any other insurance obtained by or for
Lessor, Lessee, or any person claiming by, through, or under any
of them;
(b) contain no provision relieving the insurer from
liability for loss occurring while the hazard to buildings,
improvements and fixtures is increased, whether or not within the
knowledge or control of, or because of any breach of warranty or
condition or any other act or neglect by, Lessor, Lessee, or any
person claiming by, through, or under any of them;
(c) provide that such policy may not be cancelled, changed
or modified (except to increase coverage), whether or not
requested by Lessee, except upon the insurer giving at least
thirty (30) days' prior written notice thereof to Lessor, Lessee,
every mortgagee of any interest in the Premises, and every other
person in interest who has requested such notice of the insurer;
(d) contain a waiver by the insurer of any right of
subrogation to any right of Lessor or Lessee against any of them
or any person claiming by, through, or under any of them; and
(e) in the case of hazard insurance, contain a standard
mortgagee clause which shall:
(i) provide that any reference to a Mortgagee in such
policy shall mean and include all holders of mortgages of any
interests in the Premises, in their respective order and
preference as provided in their respective mortgages;
(ii) provide that such insurance as to the interest of
any Mortgagee shall not be invalidated by any act or neglect of
Lessor, Lessee or any person claiming by, through, or under any
of them; and
(iii) waive any provision invalidating such Mortgagee
clause by reason of the failure of any Mortgagee or Lessor,
Lessee, or any person claiming by, through, or under any of them
to notify the insurer of any hazardous use or vacancy, any
requirement that any Mortgagee pay any premium thereon, or any
contribution clause.
6.7 Certificates of Insurance. Lessee shall deposit and
maintain with Lessor current certificates of insurance issued by
the insurance carriers certifying that Lessee has in effect all
the insurance required in parts A and B of this Article with
certificates of renewal delivered by Lessee to Lessor at least
thirty (30) days prior to the expiration date of such policies.
All such certificates shall specify that the Lessor (and where
applicable, its wholly-owned subsidiaries) is a named insured and
that the policies to which they relate cannot be cancelled or
modified on less than thirty (30) days (or ten (10) days in the
case of failure to pay premiums) prior written notice to Lessor.
ARTICLE VII
Condemnation
7.1 Total Condemnation. If at any time during the Term,
all of the Premises shall be taken or condemned by any authority
having the power of eminent domain, then the estate and interest
of the Lessee in the Premises shall at once cease and determine.
The Term of the Lease shall cease as of the day possession is
taken by such authority and all rents shall be paid up to that
date.
7.2 Partial Condemnation.
(a) If at any time or times during the Term any part of the
Premises shall be taken or condemned by any authority having the
power of eminent domain, then and in every such case the estate
and interest of the Lessee in any part of the Premises so taken
or condemned shall at once cease and determine, and this Lease
shall terminate as to the portion taken.
(b) Continued Operations. If after a partial condemnation,
this Lease is not terminated pursuant to Section 7.2(c), then:
(i) Taking or condemnation of a part of the Premises,
whether of the Land or any buildings or improvements on the Land,
shall not affect the provisions for determination or payment of
percentage rent set forth in this Lease.
(ii) If an economically viable hotel of the same
quality at the time of any condemnation can be restored, rebuilt
or otherwise repaired on the remaining portion of the Premises at
a cost not exceeding the condemnation award paid with respect to
buildings or improvements so taken or condemned, then all such
amounts shall be available for and used with all reasonable
dispatch by the Lessee in rebuilding, repairing or otherwise
reinstating or replacing such portion of such building or
improvement taken or condemned on the balance of the Land, to the
extent of such condemnation award, in a good and substantial
manner according to such plan as shall be approved by the Lessor
in accordance with Section 4.1(a). The provisions of this
paragraph relate only to the handling of condemnation proceeds
attributable to the partial taking of any building or
improvements and do not in any way alter the provisions of
Section 7.3(a) with respect to condemnation proceeds paid for the
taking of all or any portion of the Land.
(c) Termination of Lease. If only part of the Premises
shall be so taken or condemned, Lessee shall have the right and
option to terminate this Lease if:
(i) The balance of the Premises is unsuitable for
construction and operation of an economically viable hotel of the
same quality as the Hotel, or
(ii) a portion of the Hotel, as it exists from time to
time, the value of which exceeds twenty-five percent (25%) of the
value of the entire Hotel shall be taken or condemned.
If Lessee elects to terminate, Lessee will notify Lessor and upon
such notification Lessee's obligation to pay rent shall cease, and
Lessee shall pay all real property taxes and assessments then due
and, if requested by Lessor, remove all buildings and other
improvements then remaining on the Premises and restore the Land
then remaining to good and orderly condition and even grade, and
terminate this Lease. Upon such termination the Lessee shall be
relieved of all further obligations under this Lease, the Lessor
shall refund to the Lessee any unearned portion of the rent paid in
advance prior to the effective date of such termination and Lessee
shall receive the Lessee,s interest in such condemnation
compensation and damages.
7.3 Compensation and Damages.
(a) Land. In every case of taking or condemnation of all or
any part of the Premises, all compensation and damages payable for
or on account of the taking of all or any part of the Land shall be
payable to and be the sole property of the Lessor, and neither
Lessee nor any mortgagee of the Lessee's interest under this Lease
shall have any interest or claim to such compensation or damages or
any part thereof whatsoever.
(b) Improvements. Subject to this Section 7.3 all
compensation and damages payable for or on account of the taking of
all of any buildings and other improvements erected on the Land and
any plans and other preparations therefor shall be payable to the
Lessee and any mortgagee of the Lessee's interest under this Lease,
in accordance with their respective interests, after deducting the
Lessor's interest; provided, however, if the mortgage was approved
by the Lessor and comes under Section 5.7, the Mortgagee shall be
entitled to be paid the then outstanding balance of the mortgage
before deducting the Lessor's interest. The Lessor's interest
therein shall be a proportionate amount of such compensation and
damages in the ratio which the expired portion of the Term starting
with the Effective Date bears to the total Term (less the portion
prior to the Effective Date).
7.4 Condemnation of Leasehold Interest. In the event at any
time or times during the Term a leasehold interest in the Premises
or any part of such interest shall be taken or condemned, then and
in every such case, notwithstanding the foregoing provisions of
this Article VII, Lessee shall have the option to terminate and/or
be fully released and discharged from all further liabilities and
obligations under this Lease by paying to Lessor all compensation
and damages for the taking or condemnation of such leasehold
interest (exclusive of all compensation and damages for any taking
or condemnation of the Hotel), or, if Lessee does not elect to
terminate this Lease, then such taking or condemnation shall not
result in any reduction in minimum or percentage rent under this
Lease, nor excuse the Lessee from the full and faithful performance
of any or all of its covenants and obligations under this Lease for
the payment of money, nor excuse or relieve the Lessee from the
performance of its covenants and obligations under this Lease
except to the extent that, and for so long as, the performance of
such covenants and obligations shall be rendered impossible by
reason of the loss by the Lessee of possession of such part of the
Premises subject to such taking or condemnation. In every such
case of taking or condemnation of all or a part of the Lessee's
leasehold interest, the Lessee shall be entitled to claim and
recover from the condemning authority its damages sustained by
reason of such taking, and all compensation and damages payable for
or on account of such taking or condemnation of any part of such
leasehold interest shall be payable to and be the sole property of
the Lessee unless Lessee elects to terminate this Lease as set
forth above.
7.5 Loss of Business Damages. Notwithstanding the foregoing
provisions of this Article VII, if and only if such claim for
damages is not adverse to any interest of Lessor, the Lessee and/or
the Hotel Operator shall have the right to claim and recover from
the condemning authority but not from the Lessor, such compensation
as may be separately awarded or recoverable by the Lessee and/or
the Hotel Operator in its own right on account of any and all
damage to its business by reason of any condemnation and for or on
account of any cost or loss to which the Lessee and/or the Hotel
Operator might be put in removing its furnishings and equipment.
7.6 Conveyance as Condemnation. The term "condemnation" as
used in this Lease shall include any conveyance made under threat
or imminence of condemnation by any public or private authority
having the power of eminent domain.
ARTICLE VIII
Maintenance and Use of Premises
8.1 Taxes and Assessments. Lessee shall pay throughout the
Term, beginning as of the Effective Date of this Lease, directly to
the appropriate taxing or other applicable authority at least three
(3) days before the same become delinquent, all real property taxes
and assessments of every description attributable to the Premises
or any part thereof or improvement thereon, or for which the Lessor
or Lessee in respect thereof, are now or may during the term be
assessed or become liable, whether assessed to or payable by Lessor
or Lessee ( with the property taxes for the first and last Lease
years prorated if applicable); provided, however, that with respect
to any assessment made under any betterment or improvement law
which may be payable in installments, Lessee shall be required to
pay only such installments of principal and interest as shall
become due and payable during the Term. Lessee's covenant for the
payment of the taxes set forth in the preceding sentence shall
include the payment of any new tax (except federal or state net
income taxes) which supplements or replaces either the real
property tax or increases in real property taxes and is assessed
upon the Premises or any part thereof or upon the rents received
under this Lease by Lessor or upon Lessor in respect of any of the
preceding items. Lessee shall also pay the gross excise tax on
such taxes and assessments in accordance with Section 3.6. Subject
to all of the conditions set forth in this sentence, Lessee may
contest in good faith at Lessee's sole expense by appropriate
proceedings, as maybe allowed by law, the validity or amount of any
tax or assessment required in this paragraph to be paid by the
Lessee, which conditions are as follows: (a) such actions must be
commenced before any such tax or assessment becomes delinquent, (b)
the action commenced by the Lessee must be an action which either
stays the collectibility of such tax or prevents the sale of the
Premises in satisfaction of such tax or assessment or lien securing
such tax or assessment, or in the alternative to the previous two
types of actions, an action in which Lessee pays such tax or
assessment while such action ensues, (c) Lessee complies with all
requirements of such action, including but not limited to the
posting of bond or payment of such tax or assessment while such
action ensues, (d) Lessee gives notice to Lessor of Lessee's
intention to contest such tax or assessment not less than ten (10)
days before such taxes or assessments become delinquent, and (e)
prior to undertaking such action, Lessee gives security, reasonably
satisfactory to Lessor in both quality and quantity, to Lessor for
payment of such taxes; provided, however, that notwithstanding the
foregoing, Lessee shall pay all such taxes, rates, assessments or
charges, together with all interest, penalties or fines accrued
thereon or imposed in connection therewith, immediately upon the
commencement of proceedings to foreclose any lien which attached to
the Premises or any part thereof as security for such taxes, rates,
assessments or charges. If the Lessee shall fail to pay any taxes
or assessments as provided in this paragraph and elects not to
dispute such taxes or assessments in accordance with the provisions
above, then the Lessor may at any time thereafter pay the same,
together with any interest, penalties, fines and costs accrued
thereon or imposed in connection therewith, and Lessee shall repay
to the Lessor upon demand therefor the full amount so paid by the
Lessor, together with interest at Lessor's Cost of Money accruing
from the date such payments were due until Lessor is reimbursed for
such payments by Lessee.
8.2 Lessee to Pay All Rates and Charges. Lessee shall pay
directly before such charges and rates become delinquent, all
utility charges, water and sewer rates, garbage rates, Kapalua
Resort Association and Kapalua Marketing Association assessments,
and other charges and outgoings of every description attributable
to the Premises or any part thereof or improvement thereon, or for
which Lessor or Lessee in respect thereof may during the Term be
assessed or become liable, whether assessed to or payable by Lessor
or Lessee and whether such charges and rates are imposed by
governmental authority, public or private utility together with the
gross excise tax, if applicable, as required by Section 3.6.
Anything in this Lease to the contrary notwithstanding, Lessee
shall not be required to pay any tax or assessment in the nature of
an income, state, or inheritance tax imposed because of Lessor's
receipt of rental payments from Lessee or because of Lessor's
ownership of the fee title to the Premises or because of Lessor's
interest in the Lease or in the Premises.
8.3 Improvements Required by Law. The Lessee shall at its
own expense during the whole of the Term of this Lease make, build,
maintain and repair all fences, roads, curbs, sidewalks, sewers,
drains, parkways and parking areas and other improvements on the
Premises which may be required by law to be made, built, maintained
or repaired upon or adjoining or in connection with or for the use
of the Premises or any part thereof except for improvements which
are to be located on property owned or leased by others. Without
limiting the foregoing sentence, Lessee agrees that all such
improvements shall be subject to the Lessor's right of approval as
provided in Article IV above.
8.4 Repair and Maintenance. In order to preserve the high
aesthetic standards in the Kapalua Resort Area, the Lessee will at
its own expense keep the Premises, all landscaping, all structural
and non-structural portions of all buildings and other improvements
existing on the Premises at any time during the Term, in good
order, condition, maintenance and repair including without
limitation repainting the exterior of the Hotel as required to
maintain the appearance of the Hotel and complying with the
landscaping and other maintenance requirements and covenants
imposed upon the Lessor as Grantor under the Preservation and
Conservation Easement described in Exhibit "A" hereof. All repairs
which would constitute Construction shall be subject to the
Preconditions for Construction in Sections 4.2(a) and 4.2(b).
Repairs which constitute Construction but which return the Premises
to their original condition and aesthetic appearance as shown in
plans and specifications previously approved by Lessor shall not
require Lessor's prior consent but shall meet without limitation
the Preconditions for Construction. Any change of color of
exterior painting of the Hotel must be approved by Lessor,
8.5 Observance of Laws. The Lessee shall during the Term
keep the Premises in a strictly clean and sanitary condition and
observe and perform all laws, ordinances, rules and regulations
whether now or hereafter made by any governmental authority for the
time being applicable to the Premises or the use thereof, and
except with respect to the negligence or wilful misconduct of
Lessor or Lessor's agents, employees or contractors, Lessee shall
indemnify the Lessor against all actions, suits, claims and damages
by whomsoever brought or made by reason of the nonobservance or
nonperformance of such laws, ordinances, rules and regulations or
this covenant.
8.6 Inspection of Premises. The Lessee shall permit the
Lessor and its agents upon reasonable advance notice and at
reasonable times during the Term to enter and examine the state of
repair and condition of the Premises. If any significant safety
hazard defect comes to Lessor's attention, Lessor may give notice
of such defect to Lessee and within sixty (60) days after such
notice, Lessee shall repair and make good such defect if required
by the terms of this Lease to be repaired and made good by the
Lessee; provided, however, that if such repair or correction may be
made within a reasonable period of time but cannot reasonably be
made within sixty (60) days, then such repair or correction shall
be deemed to be made if begun within the sixty (60) day period and
thereafter continuously and diligently undertaken to completion by
Lessee. If the Lessee shall refuse or neglect to commence and
complete such repairs within the time period provided in the
preceding sentence, the Lessor may make such repairs or cause the
same to be made and shall not be responsible to the Lessee or any
persons claiming by or through Lessee for any loss or damage that
may be caused to the property or business of the Lessee or such
persons claiming by or through Lessee by reason of such repairs,
except for Lessor's negligence or willful misconduct and if the
Lessor shall make such repairs or cause the same to be made, the
Lessee shall pay forthwith on demand to the Lessor the cost of such
repairs, with interest at Lessor's Cost of Money.
8.7 Waste and Unlawful Use. The Lessee will not make or
suffer any strip or waste or unlawful, improper or offensive use of
the Premises or any part thereof.
8.8 Use of Premises.
(a) Operation of Hotel. The Lessee will use the Premises for
the purposes of, and for no other purpose than, maintaining and
operating the Hotel, the Tennis Center, and the rental and
management of villas, condominiums and apartments, including all
facilities and related commercial retail operations, operated by
Lessee or Concessionaires, reasonably related to a resort hotel
operation; provided, however, Lessee agrees not to engage in the
business of renting villas, condominiums and apartments so long as
Lessor is actually renting villas, condominiums and apartments in
the Kapalua Resort Area. Lessee agrees that Lessee will maintain
and operate a hotel at the Premises at quality standards generally
found in those full service resort hotels in the State of Hawaii
with at least a 4-Diamond rating from the American Automobile
Association as of January 1, 1996. Lessee covenants that it will
in good faith diligently and continuously operate the Hotel in
accordance with reasonable business practices. Any commercial
operations on the Premises, whether conducted by Lessee or a
Concessionaire, involving any unreasonably noisy, dangerous or
obnoxious activities or the leasing or rental of unreasonably
noisy, dangerous or obnoxious equipment, including without
limitation water ski rides or instruction and rental of "jet skis",
mopeds or similar items, shall require the prior written approval
of Lessor and Lessor may unreasonably withhold such approval or
require the termination of any such commercial operations then in
existence on the Premises. Since only a hotel operation is
intended as aforesaid, the area on the Premises occupied by
commercial retail operations (exclusive of the area occupied by any
and all restaurants, laundries, health clubs and other similar
facilities proximately related to the operation of a hotel to a
standard provided in this Lease) shall not exceed the initial area
(plus up to ten (10%) percent more) agreed upon in the initial
construction of the Hotel. The Lessee shall use its best efforts
to ensure that any concession, commercial activity, or other Hotel
activity shall be in keeping with the first-class image of the
Kapalua Resort Area.
(b) Hotel Operating Agreement. Lessee agrees that proper
management and operation of the Hotel is necessary to maximize
Lessor's percentage rent. Accordingly, Lessee shall enter into a
Hotel Operating Agreement for the management and operation of the
Hotel by Hotel Operator with the consent of Lessor, which consent
shall not be unreasonably withheld if the Hotel Operating Agreement
expressly provides that the Hotel Operator has read this Lease and
agrees to observe and where applicable perform the terms and
conditions of this Lease in connection with the operation of the
Hotel. Such agreement(s) shall be maintained for the term of the
Lease, with any successor Hotel Operator being subject to Lessor's
consent.
Hotel Operator shall have the right to assign its rights and
obligations under the Hotel Operating Agreement to The Ritz-Carlton
Hotel Company L.L.C., a Delaware limited liability company, or to
any assignee who (a) acquires all, or substantially all, of the
assets of The Ritz-Carlton Hotel Company, L.L.C. or Hotel Operator;
(b) assumes its obligations, including those pursuant to the Hotel
Operating Agreement; (c) enters into an agreement with Owner that
the assignee will continue to operate the Hotel as a luxury hotel
as part of the Ritz-Carlton chain or to the Ritz-Carlton Standards
as defined in the Hotel Operating Agreement or at quality standards
generally found in those full service resort hotels in the State of
Hawaii with at least a 4-Diamond rating from the American
Automobile Association as of January 1, 1996; and (d) has
sufficient financial capability and experience to carry out its
obligations under the Hotel Operating Agreement.
The following criteria shall be applied to determine the
reasonableness of Lessor in consenting to any Hotel Operator
selected by Lessee, or as to any Affiliate or any proposed assignee
selected by Hotel Operator: (a) whether as its primary business,
it owns, leases or operates any casino or gambling facility if such
business, ownership, leasing or operation might reasonably impair
the ability of the Lessee, the Hotel Operator or their respective
Affiliates, as applicable, to obtain or retain any necessary
regulatory approvals for the operation of the Hotel; (b) whether it
owns or operates a distillery, winery or brewery or a
distributorship of alcoholic beverages if such ownership or
operation might reasonably impair the ability of the Lessee, the
Hotel Operator or their respective Affiliates, as applicable, to
obtain or retain liquor licenses for the Hotel; (c) whether it has
sufficient financial capability and experience to carry out its
obligations under the Hotel Operating Agreement; and (d) whether it
has the capability to operate the Hotel to a quality standard
generally found in those full service resort hotels in the State of
Hawaii with at least a 4-Diamond rating from the American
Automobile Association as of January 1, 1996.
Hotel Operator acknowledges and agrees that any assignment,
sublease, transfer, alienation or attempts thereto, whether
voluntary, involuntary, or by operation of law in contravention to
this Lease, are void and is a forfeiture and termination of the
Hotel Operating Agreement and Owner may exercise any of the
remedies reserved to it under Article 11 of the Hotel Operating
Agreement. Hotel Operator may assign its rights to receive Fees or
portions thereof to any person as security for indebtedness.
(c) Prohibited Uses. Lessee shall not use the Premises for
commercial retail operations (except as otherwise provided in this
Lease), a realty sales office (except for a Kapalua Land Company
realty sales office) and shops selling items bearing the Kapalua
logo, which is a stylized butterfly with a pineapple in the center,
unless operated or licensed by Kapalua Land Company.
(d) Nuisance. At all times during the Term, but especially
during Quiet Hours, Lessee covenants that it will use its best
efforts to prevent the escape from the Premises of loud noises,
obnoxious bright lights, odors, dust, smoke or other noxious agents
which could disrupt the quiet, sleep and peaceful enjoyment of the
Kapalua Resort Area of guests of other hotels or other residents of
the Kapalua Resort Area.
8.9 Liens. Lessee shall keep the Premises at all times free
and clear of all liens, charges and encumbrances of every nature,
other than such mortgages as may be permitted under this Lease, and
will indemnify and save harmless the Lessor from all loss, cost and
expense, including reasonable attorneys' fees, with respect to any
such liens, charges and encumbrances.
8.10 Kapalua Resort Association. Lessee shall become a
member of the Kapalua Resort Association (the "KRA") in accordance
with KRA's articles and bylaws. As a member of KRA, Lessee shall
comply with the articles and bylaws of the KRA and pay a pro rata
portion of the annual KRA budget in monthly installments as
provided in the articles and bylaws of the KRA. Lessor reserves
all voting rights in KRA as it pertains to the Land and Lessee
shall have all voting rights in KRA as it pertains to the Hotel
(excluding the Land).
8.11 Kapalua Marketing Association. The Lessee shall become
a member of the Kapalua Marketing Association ("KMA") and shall pay
its pro rata share up to one-half percent (0.5%) of the Gross
Revenues for the applicable years as Lessee's contribution towards
KMA's annual budget so long as the Kapalua Bay Hotel is a member of
KMA and pays the same percentage of its gross revenues (as defined
under its lease).
8.12 Visitor Statistics. For purposes of Lessor's
forecasting and planning for the development of the Kapalua Resort
Area, on the 30th day of each month of the Term, Lessee shall
provide Lessor the following information regarding operation of the
Hotel for the preceding month:
(a) the number of available room days at the Hotel;
(b) the number of room days occupied broken down into
rented, complimentary and staff occupied categories;
(c) the average occupancy rate for the hotel rooms in
the Hotel;
(d) the average number of guests per room at the Hotel;
and
(e) the percentage of the total number of the Hotel's
guests who are in tour groups.
Lessor shall have the right to inspect Lessee's records to verify
the information set forth above, but shall not share this
information with any other hotel in the Kapalua Resort Area or with
any other third party without Lessee's consent (except the Hawaii
Visitors Bureau, Pannell, Kerr, Forster, and similar organizations
which compile visitor statistics but without identifying individual
properties), which consent may be unreasonably withheld by Lessee.
8.13 Covenant to Operate Hotel. Lessee understands that
Lessor's expectation of lease rent revenues, especially percentage
rent, is predicated on Lessee operating a successful hotel on the
Premises which maximizes long-term revenues. Accordingly, Lessee
covenants and agrees that it will in good faith diligently and
continuously operate (or cause to be operated) a hotel on the
Premises 365 days each year in accordance with reasonable business
practices and the standards of Section 8.8(a) with the goal of
maximizing long-term revenues. During the time of any failure to
operate continuously the Hotel, Lessor shall, in addition to any
other remedies available to it under this Lease, be entitled to
receive a rental which shall be no less than the average of that
payable during the preceding three full Rental Years.
Notwithstanding the foregoing, Lessee shall have the right from
time to time to close the Hotel or parts thereof for such
reasonable periods of time as may be required to make repairs,
alterations, remodeling, or for any reconstruction. Lessee will
use its best efforts to ensure that any such period of time will
not exceed six months with the exception of any reconstruction of
the Hotel as described in Sections 6.3, 6.4, and 7.2, subject to
any delay caused by force majeure.
8.14 Name of Hotel. Lessee will not change the name of the
Hotel without the prior written consent of Lessor, which consent
shall not be unreasonably withheld.
ARTICLE IX
9.1 Events and Consequences of Default. This Lease is
entered into upon the express condition that if any one or more of
the events of default set forth in Sections 9.1(a) through 9.1(d)
shall occur, the Lessor may, subject to requirements of notice and
opportunity to cure any default to be given to Mortgagees of the
Lessee's interests under this Lease and any subordination rights
under Section 5.1 and as provided in Section 5.3 and subject to the
limited liability provided in Section 9.3, upon the occurrence of
such event of default or at any time thereafter during the
continuance of such default, may then or at any time thereafter
bring an action for summary possession of the Premises or any part
thereof as provided by law, all without prejudice to any other
remedy or right of action which the Lessor may have for arrears of
rent or for any preceding or other breach of contract. If this
Lease is Filed or Recorded, such termination of this Lease may but
need not necessarily be made effective by Filing if the Lease is
Filed or Recording if the Lease is Recorded an order of a court of
the State of Hawaii cancelling this Lease. The events of default
are as follows:
(a) Failure to Pay Rent. (i) The Lessee shall fail to make
full payment of any payment of rent or any other payments required
under this Lease within ten (10) days after the date such payment
is due, whether such payment shall or shall not have been legally
demanded, and (ii) such payment shall not have been cured in full
together with the late payment due thereon under Section 3.8 and
the interest thereon due under Section 11.13, within ten (10) days
after written notice of such default by Lessor to Lessee; or
(b) Breach of Covenant. The Lessee shall fail to observe or
perform any of the covenants contained in this Lease and on the
part of the Lessee to be observed and performed, and such failure
shall continue for a period of thirty (30) days after written
notice of such failure given by the Lessor to the Lessee without
substantial action having been initiated by Lessee within such
period to diligently and continuously continue to remedy such
failure; or
(c) Abandonment. The Lessee shall abandon the Premises; or
(d) Bankruptcy, Insolvency or Taking. The making by Lessee
of any general assignment for the benefit of creditors; the filing
by or against Lessee of a petition to have Lessee adjudged a
bankrupt or the petition for reorganization or arrangement under
any law relating to bankruptcy unless, in the case of a petition
filed against Lessee, the same is dismissed within ninety (90)
days; the appointment of a trustee or receiver to take possession
of substantially all of Lessee's assets located at the Premises or
of Lessee's interest in this Lease, where possession is not
restored to Lessee within ninety (90) days; or the attachment,
execution or other judicial seizure of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in
this Lease where such seizure is not discharged within ninety (90)
days.
9.2 Acceptance of Rent Not Waiver. The acceptance of rent by
the Lessor or its agent shall not be deemed to be a waiver by
Lessor of any breach by the Lessee of any covenant contained in
this Lease or of the right of the Lessor to terminate this Lease
and reenter the Premises. The express waiver by the Lessor of any
breach shall not operate to extinguish the covenant or condition
the breach of which has been waived nor be deemed to be a waiver by
the Lessor of its right to declare a forfeiture of this lease for
any breach thereof.
9.3 Limited Liability of Lessee. Notwithstanding anything to
the contrary herein, from and after the Effective Date the Lessee
shall not be responsible for any liability under this Lease arising
after any termination under Section 9.1 or any foreclosure sale
pursuant to Section 5.1 other than to bring the rents and any other
money charges current up to that date plus one year's rent
(including one year's real property taxes) based on the rent paid
for the immediately preceding full Rental Year; or unless from and
after the Effective Date the Lessee shall give Lessor at least one
year's notice of its election to terminate this Lease, in which
case the Lessee shall pay the rent and other money charges due as
of that termination date and have no future liability under this
Lease. In either case, title to the improvements on the Premises
(including the Hotel, the Tennis Center and all of the Hotel's and
Tennis Center's furniture, furnishings, equipment and at Lessor's
option, any sublease, license or contract related to the Hotel
including the Hotel Operating Agreement or to the Tennis Center)
shall automatically revert to Lessor and if requested by Lessor,
the Lessee shall quitclaim any interest it has in any such
improvements on the Premises to the Lessor and if Lessee shall
refuse, then the Lessor is hereby appointed the attorney-in-fact of
the Lessee to execute such quitclaim documents in the name of the
Lessee to the Lessor, and such power of attorney shall be deemed to
be a power of attorney coupled with an interest; and, if a casualty
is involved, Lessee shall pay over any insurance proceeds to the
Lessor. If a termination of this Lease occurs in the last twenty
(20) years of the Term, Lessor shall have the option of requiring
the Lessee to remove the improvements pursuant to Section 10.1.
ARTICLE X
Surrender
10.1 Surrender. Subject to the terms of Section 6.4 dealing
with termination of the Lease in the event of an uninsured
casualty, and Article VII, dealing with termination of the Lease in
the event of condemnation under certain conditions, at the end of
the Term or sooner termination of this Lease, the Lessee shall
peaceably deliver to the Lessor possession of the Premises. Lessee
shall, at its expense and within ninety (90) days after the end of
said Term or other termination date, at Lessor's option, remove all
buildings, improvements located on the Premises and all debris
resulting from such removal and restore the Land to even grade and
good and orderly condition, with the Lessee receiving any salvage
value of the materials if Lessee's contractor does such removal.
ARTICLE XI
General Provisions
11.1 Breach. Lessee covenants and agrees that Lessee will,
at its cost and expense, keep the section of the Honokahua Beach
immediately fronting the Premises in a clean and orderly condition,
free of litter and rubbish to the water's edge.
11.2 Assumption of Risk. The Lessee shall and does hereby
assume all risk of loss or damage to furnishings, furniture,
fixtures, supplies, merchandise and other property, by whomsoever
owned, stored, placed or affixed in the Premises for events
occurring from the date hereof, including any damage from
construction, and does hereby agree that the Lessor shall not be
responsible for loss or damage to any such property, and except
with respect to the negligence or wilful misconduct of Lessor or
Lessor's agents, employees or contractors, the Lessee hereby agrees
to indemnify and save harmless the Lessor from and against any and
all claims for such loss or damage.
11.3 Holding Over. If the Lessee shall, without the consent
of the Lessor, remain in possession of the Premises after the
expiration of the Term without executing any extension or renewal
of this Lease, Lessee shall be deemed to occupy the Premises as a
tenant from month-to-month subject to all of the terms and
conditions of the Lease, to the extent such terms and conditions
are applicable to a month-to-month tenancy except that each month's
rent shall be one twelfth (1/12) of one thousand percent (1000%) of
the amount of the annual percentage rent, if any, paid for the year
preceding the expiration date. This section shall not apply to any
reasonable extension of the Lease required by Lessor's election to
require the Lessee to remove improvements pursuant to Section 10.1
or any other provision of this Lease.
11.4 Acceptance of Nearby or Adjacent Land Use.
(a) Pineapple and Similar Agricultural Operations. Lessee
understands and agrees that Lessor's subsidiary Maui Pineapple
Company, Limited, is engaged in the operation of a pineapple
plantation and similar agricultural operations within the areas
adjacent to the Premises and that the operations, milling and other
activities incident to a pineapple plantation or similar
agricultural activities may result in the creation of nuisances
during the Term and that Maui Pineapple Company, Limited holds a
perpetual right and easement over and upon the Premises for
nuisances of every description arising from activities incidental
to the operation of a pineapple plantation or similar agricultural
activities by Haul Pineapple Company, Limited, its successors and
assigns. The Lessee shall not hold or attempt to hold the Lessor
or Maui Pineapple Company, Limited responsible for the creation of
such nuisances, arising out of or in connection with such pineapple
or similar agricultural operations. Lessor will use its best
efforts to inform the Lessee, at Lessee's request, of any
harvesting schedule for such pineapple operations. All such
pineapple operations shall be done in accordance with applicable
state and federal regulations.
(b) Golf Courses. Lessee understands and agrees that the
Premises are adjacent to golf courses operated by Lessor or its
subsidiaries; that Lessee desired and sought such location with the
understanding that this location may result in nuisances or hazards
to persons and property on the Premises including without
limitation those caused by stray golf balls. Lessee covenants that
during the Term of this Lease, Lessee agrees to such nuisances and
hazards and shall assume all risks associated with such location,
including but not limited to the risk of property damage or
personal injury suffered by Lessee (but not by a guest) arising
from stray golf balls.
11.5 Notices. Any notice or demand to be given to or served
upon either the Lessor or the Lessee in connection with this Lease
shall be in writing and shall be given or served for all purposes
by being sent by certified mail, postage prepaid, return receipt
requested, addressed to such party at its post office address
specified above or at such other post office address as such party
may from time to time designate in writing to the other party, or
by being delivered personally to any officer of such party within
the State of Hawaii, and any such notice or demand shall be deemed
conclusively to have been given or served on the date indicated on
the return receipt or upon the date of such personal delivery.
11.6 Article and Paragraph Headings. The article and
paragraph headings in this Lease are inserted only for convenience
and reference and shall in no way define, limit or describe the
scope or intent of any provision of this Lease.
11.7 Assignments and Subleases.
(a) Except as otherwise herein provided in Section 5.1,
Lessee shall not assign, mortgage, pledge, hypothecate or encumber
this Lease or the leasehold estate hereby created or any interest
herein, or sublet the Premises or any portion thereof, or license
the use of all or any portion of the Premises, without the prior
consent of Lessor, which consent shall not be unreasonably
withheld. Subject to receipt of such consent, this Lease may be
assigned or transferred in whole or in part, by Lessee provided
that the provisions of Section 11.7(d) have been completed and
Lessor has elected not to proceed with the purchase of the Hotel
and/or this Lease; provided, however, any proposed assignee, during
the Term of this Lease, (i) may not as its primary business own,
lease or operate any casino or gambling facility if such business,
ownership, leasing or operating might reasonably impair the ability
of the Lessee or the Hotel Operator, as applicable, to obtain or
retain any necessary regulatory approvals for the operation of the
Hotel; (ii) may not own or operate a distillery, winery or brewery
or a distributorship of alcoholic beverages if such ownership or
operation might reasonably impair the ability of the Lessee or the
Hotel Operator, as applicable, to obtain or retain liquor licenses
for the Hotel; and (iii) must have sufficient financial capability
to carry out its obligations under this Lease. The consent by
Lessor to one assignment, subletting, mortgage, pledge,
hypothecation or encumbrance shall not be deemed to be a consent to
any further assignment, subletting, mortgage, pledge, hypothecation
or encumbrance. In the absence of an express agreement in writing
to the contrary and executed by Lessor or except as otherwise
provided herein, no assignment, mortgage, pledge, hypothecation,
encumbrance, subletting or license hereof or hereunder shall act as
a release of Lessee from any of the provisions, covenants and
conditions of this Lease on the part of Lessee to be kept and
performed, the assignor shall remain primarily liable hereunder and
any amendment of this Lease subsequent thereto shall not release
the assignor or sublessor from said liability. If the Lessee (or
a multiple Lessee) is a corporation, a change or changes in the
ownership, whether voluntary, involuntary, by operation of law, or
otherwise, which aggregates fifty percent (50%) or more of the
total capital stock of Lessee or fifty percent (50%) or more of the
voting capital stock of Lessee, shall be deemed an assignment of
this Lease. If the Lessee (or a multiple Lessee) is a partnership,
then any change of control, whether voluntarily, involuntarily, by
operation of law, or otherwise, including any addition or
withdrawal of a general partner of the partnership or of any
partnership which is a partner in the partnership (including in the
case of a corporate general partner, a change of control using the
test of the preceding sentence), shall be deemed an assignment of
this Lease. Any Person who satisfies the requirements for
assignment under Section 11.7(a) shall be considered a "Qualified
Purchaser."
(b) Lessee shall be entitled to assign and transfer this
Lease to any corporation or entity that is an Affiliate of Lessee
or (subject to obtaining consent required in connection with any
change of ownership or control that constitutes an assignment
pursuant to Section 11.7(a)) to the surviving corporation in the
event of a consolidation or merger to which Lessee shall be a
party; provided, however, that such subsidiary, affiliated firm or
surviving corporation shall in writing expressly assume all of the
provisions, covenants and conditions of this Lease on the part of
Lessee to be kept and performed; and provided, further, that no
such assignment or transfer shall act as a release of Lessee from
any of the provisions, covenants and conditions of this Lease on
the part of Lessee to be kept and performed.
(c) Except as provided in Section 5.1 or otherwise herein,
any assignment, mortgage, pledge, hypothecation, encumbrance,
subletting or license of this Lease, the leasehold estate hereby
created, or the Premises or any portion thereof, either voluntary
or involuntary, whether by operation of law or otherwise, without
the prior required written consent of Lessor, shall be null and
void, and shall at the option of Lessor terminate this Lease.
(d) If at any time Lessee intends to sell, assign or transfer
the Hotel and/or this Lease, or any portion which is fifty percent
(50%) or more thereof, Lessee shall give written notice of such
intention stating Lessee's intention to sell, assign or transfer
the Hotel and/or this Lease to (i) Maui Land & Pineapple Company,
Inc., so long as Maui Land & Pineapple Company, Inc., is the owner
of the Premises at such time written notice of such intention
stating Lessee's intention to sell, assign or transfer the Hotel
and/or this Lease is given and/or (ii) The Ritz-Carlton Company,
L.L.C. so long as Kapalani, L.P. or The Ritz-Carlton Company,
L.L.C. is the Hotel Operator at such time written notice of such
intention stating Lessee's intention to sell, assign or transfer
the Hotel and/or this Lease is given. Within fourteen (14) days of
receipt of such written notice from Lessee stating Lessee's
intention to sell, assign or transfer the Hotel and/or this Lease,
Maui Land & Pineapple Company, Inc. shall provide written notice of
its desire to negotiate with Lessee for the sale, assignment or
transfer of the Hotel and/or this Lease to Maui Land & Pineapple
Company, Inc. If no such written notice from Maui Land & Pineapple
Company, Inc. stating its desire to negotiate with Lessee for the
sale, assignment or transfer of the Hotel and/or this Lease is
received by Lessee in such fourteen (14) day period then Lessee
shall be entitled, at any time after such failure, to sell, assign
or transfer the Hotel and/or this Lease to any other party. Maui
Land & Pineapple Company, Inc. understands, acknowledges and agrees
that notwithstanding Maui Land & Pineapple Company, Inc.'s decision
to negotiate with Lessee for the sale, assignment or transfer of
the Hotel and/or this Lease, The Ritz-Carlton Company, L.L.C. will
have the same rights, including the same time period, to elect to
negotiate (perhaps in addition to Maui Land & Pineapple Company,
Inc.) with Lessee for the sale, assignment or transfer of the Hotel
and/or this Lease.
If Maui Land & Pineapple Company, Inc. elects to enter into
negotiations with Lessee for the sale, assignment or transfer of
the Hotel and/or this Lease and provides written notice to Lessee
within such fourteen (14) day period, the parties shall enter into
good faith negotiations for the sale, assignment or transfer of the
Hotel and/or this Lease. Within thirty (30) days from the date of
Maui Land & Pineapple Company, Inc.'s written notice to Lessee of
its desire to negotiate with Lessee for the sale, assignment or
transfer by Lessee of the Hotel and/or this Lease, Maui Land &
Pineapple Company, Inc. shall submit in writing to Lessee a firm
and binding offer by Maui Land & Pineapple Company, Inc. of the
terms and conditions of a proposed sale, assignment or transfer of
the Hotel and/or this Lease by Lessee to Maui Land & Pineapple
Company, Inc. (the "Maui Land & Pineapple Company, Inc.'s Offer").
Maui Land & Pineapple Company, Inc.'s Offer shall include, at a
minimum, (i) the purchase price of the proposed sale, assignment or
transfer which purchase price shall be paid by cash or cash
equivalent, (ii) closing date, (iii) due diligence period, (iv) any
and all contingencies or conditions which must be completed by
Lessee prior to the closing date or any date prior to the closing
date and (v) a representation that Maui Land & Pineapple Company,
Inc.'s Offer will remain firm and binding on Maui Land & Pineapple
Company, Inc. for a period of thirty (30) days from the day of
receipt of Maui Land & Pineapple Company, Inc.'s Offer. Maui Land
& Pineapple Company, Inc. understands, acknowledges and agrees that
notwithstanding Maui Land & Pineapple Company, Inc.'s Offer, The
Ritz-Carlton Company, L.L.C. will have the same rights, including
the same time period, to submit a firm and binding offer (the "RC's
Offer"). Lessee, in its sole and absolute discretion, shall
determine whether to accept Maui Land & Pineapple Company, Inc.'s
Offer. Lessee shall be under no obligation to accept either Maui
Land & Pineapple Company, Inc.'s Offer or RC's Offer. However, if
Lessee selects either Maui Land & Pineapple Company, Inc.'s Offer
or RC's Offer then the other party's offer is deemed reject by
Lessee.
If no written acceptance of Maui Land & Pineapple Company,
Inc.'s Offer is received by Maui Land & Pineapple Company, Inc. in
the thirty (30) day period following Lessee's receipt of Maui Land
& Pineapple Company, Inc.'s Offer, Lessee is deemed to reject Maui
Land & Pineapple Company, Inc.'s Offer. Upon the earlier of (i)
such thirty (30) day period or (ii) written notice by Lessee to
Maui Land & Pineapple Company, Inc. that Lessee rejects Maui Land
& Pineapple Company, Inc.'s Offer (the "Lessee's Review Period"),
Lessee may proceed to sell, assign or transfer the Hotel and/or
this Lease to any other party.
If Lessee rejects both Maui Land & Pineapple Company, Inc.'s
Offer and RC's Offer, Lessee may sell, assign or transfer or agree
to sell, assign or transfer to a third party provided that such
third party sale is completed within fifteen (15) months following
the end of the Lessee's Review Period, and provided, further, that
the purchase price paid by such third party (which shall be paid in
cash or cash equivalent) is no less than ninety-five percent (95%)
of the highest purchase price (based on present value determination
using a discount rate of ten percent (10%)) of either Maui Land &
Pineapple Company, Inc.'s Offer or RC's Offer (the "Best Offer").
If the cash or cash equivalent purchase price (based on
present value determination using a discount rate of ten percent
(10%)) of the third party is less than ninety-five percent (95%) of
the purchase price contained in the Best Offer, the entity offering
the Best Offer (the "Best Offer Entity") shall have the right
within thirty (30) days after receipt of written notice from Lessee
to elect to purchase the Hotel and/or Lease (as the case may be)
(the "Best Offer Entity Review Period") on terms identical to those
set forth in the third party offer as set forth in the notice from
Lessee, with no exception unless expressly agreed by Lessee in its
sole and absolute discretion; provided, however, that if any of the
terms and conditions of the proposed transfer are not reasonably
susceptible to performance by the Best Offer Entity (for example,
third party guarantees of debt, property exchanges, stock
exchanges, etc.), Lessee shall, in its notice to the Best Offer
Entity, propose alternative terms and conditions which are the
substantial economic equivalent of such terms and conditions and
which reasonably can be expected to be performed by the Best Offer
Entity. If the Best Offer Entity timely elects to purchase the
Hotel and/or Lease (as the case may be) within the Best Offer
Entity Review Period then upon acceptance, the Best Offer Entity
shall deposit, with an escrow company in the State of Hawaii
mutually acceptable to the Best Offer Entity and Lessee, a sum of
TEN MILLION DOLLARS ($10,000,000) which shall be nonrefundable if
the transaction with the Best Offer Entity fails to close as the
result of a breach by the Best Offer Entity of any term or
condition of the purchase agreement (or any alternate term or
condition as set forth above). In the event of such failure to
close by the Best Offer Entity, rights under this Section 11.7(d)
are null and void.
If the Best Offer Entity fails to give written notice of the
Best Offer Entity's election to purchase within the Best Offer
Entity Review Period or fails to provide a deposit of TEN MILLION
DOLLARS ($10,000,000) within the Best Offer Entity Review Period,
Lessee shall be entitled to sell, assign or transfer the Hotel
and/or this Lease to the third party to which Lessee's notice
applied and upon the terms and conditions set forth in such notice
within fifteen (15) months following the end of the Lessee's Review
Period. Lessee may not, however, sell or agree to sell during such
period to the third party on more favorable terms and conditions
without offering the more favorable terms and conditions to the
Best Offer Entity again under this paragraph.
If the third party transaction to which Lessee's notice to the
Best Offer Entity applied does not close for any reason then Lessee
shall have the remainder of the fifteen (15) months from the end of
Lessee's Review Period to sell, assign or transfer or agree to
sell, assign or transfer to another third party provided that such
third party sale is completed within fifteen (15) months following
the end of Lessee's Review Period, and provided, further, that the
purchase price paid by the third party (which shall be paid in cash
or cash equivalent) is no less than ninety-five percent (95%) of
the highest purchase price (based on present value determination
using a discount rate of ten percent (10%)) of the Best Offer
Entity. If no sale, assignment or transfer of the Hotel and/or
this Lease is completed within fifteen (15) months following the
end of Lessee's Review Period, then, subject to the above
provisions, the rights of Maui Land & Pineapple Company, Inc. and
The Ritz-Carlton Company, L.L.C. under this Section 11.7(d) shall
commence again if any time after the end of the fifteen (15) months
following the end of Lessee's Review Period, Lessee intends to
sell, assign or transfer the Hotel and/or the Lease or any portion
thereof.
Within five (5) days of executing a letter of intent with a
prospective purchaser, Lessee shall notify Maui Land & Pineapple
Company, Inc. of the identity of such prospective purchaser.
Maui Land & Pineapple Company, Inc. understands, acknowledges
and agrees that the provisions of this Section 11.7(d) are for the
benefit of only Maui Land & Pineapple Company, Inc. so long as Maui
Land & Pineapple Company, Inc. is the fee simple owner of the
Premises and/or The Ritz-Carlton Company, L.L.C. so long as
Kapalani, L.P. or The Ritz-Carlton Company, L.L.C. is the Hotel
Operator, and the provisions of this Section 11.7(d) shall not
inure to the benefit of its successors or assigns unless agreed to
otherwise by Lessee in its sole discretion.
(e) If the Lease is assigned or transferred in whole or in
part to an entity other than Lessee's Affiliate, Lessor shall not
be required to subordinate its interests in either the fee estate
or in this Lease pursuant to Section 5.7 if the consideration
received by Lessee for such assignment or transfer is ONE HUNDRED
TEN MILLION AND NO/100 DOLLARS ($110,000,000) or more. If Lessee
receives consideration for any assignment or transfer of ONE
HUNDRED TEN MILLION AND NO/100 DOLLARS ($110,000,000) or more,
Lessee shall obtain a release, in a form mutually acceptable to
Lessee and Lessor, for any existing amount to which Lessor has
subordinated its fee simple interest at the time of the assignment
or transfer and Section 5.7 shall be null and void for the
remaining Term of the Lease.
(f) Notwithstanding the foregoing, Lessee may, without the
consent of Lessor, operate the Hotel as a hotel and license,
sublease or enter into concession agreements for use of a portion
of the Premises for commercial use normally found in hotels in
accordance with this Lease but in compliance with Section 8.8(a).
11.8 Attorneys' Fees. If any action, suit or proceeding is
brought by any party hereto with respect to this Lease, the
prevailing party in any such action, suit or proceeding shall be
entitled to recover from the other party or parties, in addition to
such other relief as the court may award, all reasonable attorneys'
fees and costs of suit incurred by the prevailing party in
connection with such action, suit or proceeding.
11.9 Indemnity.
(a) Lessee shall defend, indemnify and hold the Lessor
harmless from and against any and all claims and demands for loss
or damage, including claims for property damage, personal injury or
wrongful death, arising out of or in connection with the use or
occupancy of the Premises by the Lessee or any other person
claiming by, through or under Lessee, or any accident or fire on
the Premises, or any nuisance made or suffered thereon, or any
failure of the Lessee to maintain the Premises in a safe condition,
and the Lessee shall reimburse the Lessor for all costs and
expenses, including reasonable attorneys' fees, paid or incurred by
the Lessor in connection with defense of any such claims, including
but not limited to all costs of Lessor's defense to any such claim
or in any such action as well as all costs for research regarding
settlement or other preventive measures which Lessor may take prior
to the filing of such action or to attempt to prevent the filing of
such an action.
(b) Lessor shall defend, indemnify and hold the Lessee
harmless from and against any and all claims and demands for loss
or damage, including claims for property damage, personal injury or
wrongful death, arising out of or in connection with the use or
occupancy of the Premises by the Lessor or any other person
claiming by, through or under Lessor, or any accident or fire on
the Premises, or any nuisance made or suffered thereon, or any
failure of the Lessor to maintain the Premises in a safe condition,
and the Lessor shall reimburse the Lessee for all costs and
expenses, including reasonable attorneys' fees, paid or incurred by
the Lessee in connection with defense of any such claims, including
but not limited to all costs of Lessee's defense to any such claim
or in any such action as well as all costs for research regarding
settlement or other preventive measures which Lessee may take prior
to the filing of such action or to attempt to prevent the filing of
such an action.
11.10 Multiple Lessees. If more than one Lessee is entering
into this Lease, then all such Lessees shall be jointly and
severally bound by the Lessee's covenants in this Lease and any
notice given to any one such Lessee by Lessor shall be deemed to be
notice upon all such Lessees.
11.11 No Increase of Lessee's Estate. Lessee hereby waives
and relinquishes any and all rights given to a lessee under Chapter
516 of the Hawaii Revised Statutes (1968), as amended from time to
time, or any similar law which may be enacted at any time during
the Term giving Lessee the right to expand Lessee's leasehold
estate under this Lease, which the Lessee would not have under the
terms of this Lease in the absence of such chapter or such law, it
being understood and agreed by and between Lessor and Lessee that
the provisions of such chapter or such law shall not apply to this
Lease. Any attempt by Lessee or any person claiming by or through
Lessee to expand its estate under this Lease pursuant to such
chapter or such law shall be a breach of this Lease.
11.12 Calendar Periods. Unless explicitly provided otherwise
in this Lease, all references in this Lease to periods of time,
including without limitation days, months, quarters, and years,
shall mean calendar periods of time.
11.13 Interest on All Late Payments. All payments required
to be made by Lessee to Lessor or by Lessor to Lessee under this
Lease which are not paid within ten (10) days of the due date for
such payments required in the Lease shall bear interest at a rate
equal to Lessor's Cost of Money accruing from the due date until
such overdue payments are paid in full.
11.14 Neither Lessor nor Lessee Deemed Drafter. All
provisions of this Lease have been negotiated by Lessor and Lessee
at "arm's length" and with full representation of their respective
legal counsel and Lessor and Lessee agree that neither party shall
be deemed to be the drafter of this Lease and further that in the
event that this Lease is ever construed by a court of law, such
court shall not construe this Lease or any provision of this Lease
against either party as the drafter of the Lease.
11.15 Successors and Assigns. All the terms, covenants and
conditions of this Lease shall inure to the benefit of and be
binding upon the successors and permitted assigns of the Lessor and
Lessee to the same extent as said terms, covenants and conditions
inure to the benefit of and are binding upon the Lessor and the
Lessee, respectively.
11.16 Lessor's Right to Sell Fee. Subject to the right of
first refusal contained in Section 12.1, Lessee agrees that nothing
in this Lease shall be construed to prevent the Lessor from
selling, assigning or otherwise transferring all or any part of the
Lessor's fee simple interest in the Premises subject to this Lease.
In the event of Lessor's transfer of all of Lessor's fee simple
interest in the Premises subject to this Lease, Lessee agrees that,
so long as the assignee assumes in writing this Lease, any and all
obligations of Lessor under this Lease not then accrued shall
terminate upon the effective date of such sale and Lessee hereby
releases Lessor from any-obligations or covenants under this Lease
which have not accrued prior to such effective date.
11.17 Entire Agreement. This Lease constitutes the full and
complete agreement of Lessor and Lessee and all other prior oral
and written agreements shall be deemed to have merged into this
Lease and have no further force or effect. This Lease may be
amended only in writing, signed by both Lessor and Lessee.
11.18 Consent. Where the consent or approval of the Lessor
or Lessee is required by any provision of this Lease, all such
approvals or consents shall be in writing and unless expressly so
provided to the contrary, such consent shall not be unreasonably
withheld or delayed.
11.19 Amendment. This Lease may only be amended in writing
executed by both Lessor and Lessee.
11.20 Estoppel Certificates. Within ten (10) days of written
notice from Lessor or Lessee, Lessor or Lessee shall execute,
acknowledge and deliver to the other a statement in writing (i)
certifying that this Lease is unmodified and in full force and
effect (or, if modified, stating the nature of such modification
and certifying that this Lease, as so modified, is in full force
and effect) and the date to which the rent and other charges are
paid in advance, if any, and (ii) acknowledging that there are not,
to the other's knowledge, any uncured defaults on the part of the
other hereunder, or specifying such defaults if any are claimed,
such statement may be conclusively relied upon by any prospective
purchaser or encumbrancer of the Premises.
11.21 Time of the Essence. Time is of the essence of this
Lease.
11.22 Conveyance and Hotel Room Taxes. Lessee shall be
responsible for paying any conveyance tax that maybe required to be
paid as a result of this Lease and any hotel room taxes (including
but not limited to taxes under the Hawaii Transient Accommodations
Tax Law).
11.23 Short-Form Lease. Lessor and Lessee shall execute and
Record or File a short form of this Lease at the same time as this
Lease is executed.
ARTICLE XII
Special Provisions
12.1 Lessee's Right of First Refusal.
(a) Sale of Fee Simple Title and/or Lease. If at any time
the Lessor shall receive an offer to purchase the fee simple title
to the Premises and/or its interest in this Lease, and the Lessor
intends to accept such offer, or Lessor otherwise intends to sell,
assign, or transfer the fee simple title and/or its interest in the
Lease (other than by way of Lessor's Mortgage, which pursuant to
Section 5.6 shall be subject to the rights of Lessee under this
Section 12.1), then the Lessor shall give Lessee written notice of
such offer or intention stating (i) Lessor's intention to sell,
assign or transfer the Premises and/or this Lease to such purchaser
and (ii) all of the terms and conditions of such offer, proposal or
agreement; if Lessor has a proposed written agreement or offer,
Lessor shall include a copy of such agreement or offer with such
notice to Lessee. If any of the terms and conditions of the
proposed transfer are not reasonably susceptible to performance by
Lessee (for example, third-party guarantees of debt, property
exchanges, stock exchanges, etc.), Lessor shall, in its notice to
Lessee, propose alternative terms and conditions which are the
substantial economic equivalent of such terms and conditions and
which reasonably can be expected to be performed by Lessee. Lessee
shall have the right within sixty (60) days after receipt of such
notice within which to elect to purchase the Premises and/or this
Lease (as the case may be) on terms identical (or alternate terms
and conditions as set forth above) to those set forth in the notice
from Lessor; with the only exception that the consummation of
Lessee's purchase from Lessor shall occur on the later of the
sixtieth day following the date of Lessee's acceptance or the date
set forth in Lessor's notice to Lessee. If Lessee fails to give
notice to Lessee's election to purchase within sixty (60) days of
receipt of Lessor's notice or elects not to so purchase, Lessor
shall be entitled, at any time after such failure or election, to
sell the Premises and/or this Lease (as provided in Lessor's notice
to Lessee) to the purchaser with respect to whom Lessor's notice to
Lessee applied and upon the terms and conditions set forth in such
notice within one hundred twenty (120) days after such failure of
or election by Lessee, subject to Lessee's consent as set forth
above. Lessor may not, however, sell or agree to sell during that
120-day period or thereafter to a purchaser on more favorable terms
and conditions without offering the more favorable terms and
conditions to Lessee again under this paragraph.
(b) Sale of Interests in Addition to Fee Simple Title and/or
Lease. Lessor agrees that if the offer to purchase and/or intent
to sell the fee simple title to the Premises and/or Lessor's
interest in this Lease is part of a transaction which includes the
sale, assignment, transfer or conveyance of any other interest
(whether real or personal property or intangible), Lessor will
offer the fee simple title to the Premises and/or Lessor's interest
in this Lease to Lessee as a separate and independent transaction
from any other interests which Lessor intends to sell, assign,
transfer or otherwise convey; provided, however, that neither this
Section 12.1(b) nor Section 12.1(a) shall apply if the fee simple
title to the Premises and/or Lessor's interest in this Lease is
sold, assigned, transferred or conveyed as part of a sale,
assignment, transfer or conveyance of the interests of Lessor
and/or its Affiliates in multiple parcels, and such transaction
involves in the aggregate one-half or more of the total number of
acres of real property within the Kapalua Resort Area to which Maui
Land & Pineapple Company and/or its Affiliates held fee simple
title as of December 31, 1995. The purchase price for the separate
and independent interest in the fee simple title to the Premises
and/or Lessor's interest in this Lease shall be the lesser of (i)
the price allocated by the proposed transaction to the fee simple
title to the Premises and/or Lessor's interest in this Lease as
part of an offer involving more than the sale of such interest or
(ii) the fair market value of the fee simple title to the Premises
and/or Lessor's interest in this Lease as determined by appraisal.
Lessee shall notify Lessor of its intent to proceed to appraisal,
and Lessor and Lessee shall each, within twenty (20) days of
Lessee's notification to Lessor of Lessee's intent to proceed to
appraisal, appoint an Appraiser who is a Member of the Appraisers'
Institute. The Appraiser appointed by Lessor shall be referred to
as "Lessor's MAI" while the Appraiser appointed by Lessee shall be
referred to as "Lessee's MAI." Lessor's MAI and Lessee's MAI shall
then determine the fair market value of Lessor's fee estate in the
Premises for the purpose set forth herein. If within fifteen (15)
days following the appointment of Lessor's MAI and Lessee's MAI,
Lessor's MAI and Lessee's MAI are unable to agree on the fair
market value of Lessor's fee estate in the Premises, then the
Lessor and Lessee shall within ten (10) days appoint a third
appraiser who is a Member of the Appraisers' Institute ("Joint
MAI"), and the majority of Lessor's MAI, Lessee's MAI, and Joint
MAI shall determine the fair market value of Lessor's fee estate in
the Premises within fifteen (15) days of the appointment of the
Joint MAI. If either the Lessor or the Lessee fails or refuses to
appoint their respective Appraiser within the time provided
aforesaid, the other party shall appoint the two Appraisers who
shall then determine the value of this Lease. If either the Lessor
or the Lessee fails or refuses to appoint a Joint MAI as aforesaid,
the Lessee shall apply to the Court having proper jurisdiction over
this subject matter for the appointment of such Joint MAI who shall
also be a Member of the Appraisers' Institute whereupon the
majority of the three so appointed shall determine the fair market
value of Lessor's fee estate in the Premises. The Appraisers shall
reduce to writing and deliver to each party a statement of the fair
market value of the Lessor's fee estate in the Premises and such
value shall serve as fair market value of the Lessor's fee estate
in the Premises for any excess proceeds. Lessor and Lessee shall
each pay for the cost of their respective appraiser and shall each
pay one-half (1/2) of the cost of the Joint MAI, if such appraiser
is needed.
For the purposes of this Section 12.1, any offer or sale,
assignment or transfer by Lessor to any Affiliate of Lessor shall
not be subject to Lessee's right of first refusal.
12.2 Noncompetition. Lessor shall not itself develop, or
permit a third party to develop, another luxury oceanfront hotel
within the Kapalua Resort Area within four (4) years and nine (9)
months after the Effective Date, except for: (a) the Kapalua Bay
Hotel site (including the existing hotel, any expansions,
replacements or the like), (b) the adjacent Site 29 property; and
(c) specialized housing such as for a health spa, international
center not containing a luxury oceanfront hotel, and similar
developments including condominium projects.
12.3 Signage. During the Term hereof, Lessor shall use its
best efforts to cause KRA (or where it is in Lessor's control) to
erect and maintain within the Kapalua Resort Area appropriate
directional signage for the Hotel as reasonably requested by the
Lessee. To the extent controllable by Lessor, such rights shall
not be subject to termination by a transfer of the rights of the
Lessor. Any such signage shall be in compliance with KRA
regulations and any applicable government rules and regulations and
shall be compatible With the signage theme in the Kapalua Resort
Area.
12.4 No License of Butterfly Logo. Lessor does not grant to
Lessee or the Hotel Operator any right or license, non-exclusive or
otherwise, to use the butterfly logo depicted on Exhibit "C" of the
Golf Course Use Agreement in connection with the operation,
advertising and promotion of the Hotel or any condominium units in
the Kapalua Resort Area owned or managed by the Lessee or the Hotel
Operator and/or the merchandising, manufacture, promotion, sale and
distribution of goods or services related thereto, at the Hotel or
such condominium units, or in connection with anything else. Any
such license shall be in the sole and absolute discretion of the
Lessor and neither the Lessee nor the Hotel Operator shall use the
butterfly logo without the prior written consent of the Lessor,
which consent may be unreasonably and arbitrarily withheld.
12.5 Subdivision of Easement. As described in Exhibit "A,"
Lessor agrees to use its good faith best efforts to accomplish a
subdivision of that certain portion of land owned by Lessor over
and across which Lessee is granted a right and license for access
purposes running from Easement Second as described in Exhibit "A"
to Lot 2-A-i-B-2 and being depicted on the sketch attached to, and
forming a part of, Exhibit "A." Upon accomplishing such
subdivision, Lessor shall grant a non-exclusive easement to Lessee
of such land for "access and utility purposes" (as that term is
defined in Exhibit "A" hereto) on terms and conditions consistent
with the terms and conditions of the "Easements" granted in Exhibit
"A."
IN WITNESS WHEREOF, the Lessor and Lessee have caused these
presents to be executed as of the day and year first above written.
MAUI LAND & PINEAPPLE COMPANY, NI HAWAII RESORT, INC.,
INC., a Hawaii corporation a Hawaii corporation
By /S/ DON YOUNG By /S/ TORU OKUYAMA
Its EXECUTIVE VICE-PRESIDENT Its
By /S/ PAUL J. MEYER
Its
"Lessor" "Lessee"
AMENDMENT RELATING TO OFF-SITE LOAN
THIS AMENDMENT RELATING TO OFF-SITE LOAN dated January 9,
1996, but effective as of January 1, 1995 and is made by and
between MAUI LAND & PINEAPPLE COMPANY, INC., a Hawaii corporation
(the "Borrower") having an office address at 120 Kane Street,
Kahului, Maui 96732 and NI HAWAII RESORT, INC., a Hawaii
corporation (the "Lender"), having a post office address at 745
Fort Street, 8th Floor, Honolulu, Hawaii 96813.
R E C I T A L S:
Borrower and KAPTEL ASSOCIATES, a Hawaii partnership
("Kaptel"), entered into that certain Loan and Security Agreement
dated September 26, 1990 (the "Loan Agreement"), a UCC-1 Financing
Statement, and a Letter Agreement dated September 26, 1990 relating
to Nonrecourse Open Account for Off-Site Improvements (the "Letter
Agreement") (the Loan Agreement, the UCC-1 Financing Statement and
the Letter Agreement are collectively referred to herein as the
"Loan Documents").
Borrower and Lender now desire to amend certain terms of the
Loan Documents.
NOW, THEREFORE, in consideration of these premises and other
good and valuable consideration, the Borrower and Lender hereby
agree as follows:
1. Amendment of Letter Agreement. The Letter Agreement is
deleted in its entirety and replaced with the Letter Agreement that
is attached hereto.
2. Conflict With Terms of Loan Documents. In the event of
any conflict between the terms of the Letter Agreement, as hereby
amended, and the Loan Documents, the terms of the Letter Agreement,
as amended, shall control. Borrower and Lender hereby confirm that
except as herein expressly amended, the terms of the Loan Documents
remain in full force and effect.
IN WITNESS WHEREOF, the Borrower and Lender have executed this
Amendment as of the day and year first above written.
MAUI LAND & PINEAPPLE COMPANY, INC.
/S/ DON YOUNG
By__________________________________
Name: DON YOUNG
Title: EXECUTIVE VICE PRESIDENT/
RESORT
/S/ PAUL J. MEYER
By__________________________________
Name: PAUL J. MEYER
Title: EXECUTIVE VICE PRESIDENT/
FINANCE
NI HAWAII RESORT, INC.
/S/ T. OKUYAMA
By__________________________________
Name: T. OKUYAMA
Title: VICE PRESIDENT-SECRETARY
By__________________________________
Name:
Title:
January 1, 1996
NI HAWAII RESORT, INC.
c/o 745 Fort Street, 8th Floor
Honolulu, Hawaii 96813
Re: Nonrecourse Open Account for Off-Site Improvements
Gentlemen:
The undersigned hereby promises to pay to NI HAWAII RESORT,
INC., a Hawaii corporation ("NI"), at its office located at 745
Fort Street, 8th Floor, Honolulu, Hawaii 96813, or such other
place as NI may from time to time designate in writing, in lawful
money of the United States, the principal sum of FOUR MILLION SEVEN
HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS ($4,750,000.00), or as
much thereof as is advanced and outstanding hereunder, together
with interest thereon at the rate of six percent (6%) per annum
commencing on January 1, 1995 and continuing thereafter until the
earlier to occur of: (1) January 1, 1999; or (2) termination or
assignment of the Hotel Ground Lease which is described below.
Interest shall be calculated, but not compounded, on the basis of
a 365-day year for a 366-day year as the actual case may be and the
actual number of days elapsed. Any principal, interest and other
amounts which may be due and owing hereunder on the earlier to
occur of: (1) termination or assignment of that certain Hotel
Ground Lease effective as of January 1, 1996, as amended, covering
the Ritz-Carlton, Kapalua; or (2) January 1, 1999, shall be
forgiven and the undersigned shall have no further obligation with
respect to such amounts. At such time and to evidence the
foregoing, NI shall execute and deliver to the undersigned such
documents and cancellations of documents as the undersigned may
reasonably require. "Assignment" as used herein shall be as
defined in item 5 of the Side Agreement by and between NI and the
undersigned dated January 1, 1996.
Principal and interest of this open account shall be paid by
offsetting any rents payable to the undersigned, as Lessor, by NI,
as Lessee, under that certain Hotel Ground Lease effective as of
January 1, 1996, as amended from time to time, covering the Ritz-
Carlton, Kapalua. All payments shall be applied first to the
payment of interest on the then unpaid balance, with any balance
used to reduce the principal.
There shall be no liability by the undersigned with respect to
this open account, or any payments of principal or interest
thereunder, it being a condition of this open account that it is
nonrecourse as to the undersigned and that NI must look solely to
said rents for any payments or other liabilities hereunder.
This open account may be prepaid in whole or in part without
penalty.
If there is any default hereunder, the undersigned further
promises to pay reasonable attorneys' fees and costs incurred by NI
in connection with any such default or in any action or other
proceeding brought to enforce any of the provisions of this open
account, subject to the above-nonrecourse provisions.
Please indicate your agreement with this letter by signing in
the space provided and returning an executed copy to the
undersigned.
MAUI LAND & PINEAPPLE COMPANY, INC.
/S/ DON YOUNG
By________________________________________
Name: DON YOUNG
Title: EXECUTIVE VICE PRESIDENT/RESORT
/S/ PAUL J. MEYER
By________________________________________
Name: PAUL J. MEYER
Title: EXECUTIVE VICE PRESIDENT/FINANCE
AGREED and ACKNOWLEDGED this
9TH day of January, 1996.
NI HAWAII RESORT, INC.
/S/ T. OKUYAMA
By________________________________________
Name: T. OKUYAMA
Title: VICE PRESIDENT-SECRETARY
By________________________________________
Name:
Title:
AGREEMENT WITH NI HAWAII RESORT, INC.
This Agreement with NI Hawaii Resort, Inc. (the "Agreement")
is entered on this 9TH day of January, 1996, by and between MAUI
LAND & PINEAPPLE COMPANY, INC., a Hawaii corporation, whose
principal place of business is 120 Kane Street, Kahului, Maui,
Hawaii and whose post office address is P.O. Box 187, Kahului,
Maui, Hawaii 96732 ("Maui Land") and NI HAWAII RESORT, INC., a
Hawaii corporation, whose post office address is 745 Fort Street,
Honolulu, Hawaii 96813 ("NI Hawaii").
WHEREAS, Maui Land and NI Hawaii have entered into that
certain Hotel Ground Lease dated 9TH day of January, 1996, but
effective as of January 1, 1996 (the "Lease") except as otherwise
provided in the Lease.
WHEREAS, Maui Land and NI Hawaii desire to enter into an
agreement to supersede and/or modify the terms and conditions of
the Lease.
NOW THEREFORE, it is agreed to by and between Maui Land and
NI Hawaii that, so long as NI Hawaii or its Affiliate (as such
term is defined in the Lease) is the Lessee under the Lease,
certain terms and provisions of the Lease shall be superseded
and/or modified in the following respects:
1. Section 4.2(c). Section 4.2(c) to the Lease is hereby
superseded and suspended in its entirety.
2. Section 4.3(b). Section 4.3(b) to the Lease is hereby
superseded and suspended in its entirety.
3. Section 5.1. Section 5.1 to the Lease is modified in
its entirety as follows:
Right to Mortgage. Lessee may, from time to time,
with the consent of Lessor, which consent shall not be
unreasonably withheld, hypothecate, mortgage, pledge or
alienate Lessee's leasehold estate and rights hereunder
as security for payment of any indebtedness of Lessee
to any bank, insurance company or other established
lending or financial institution or institutions;
provided, however, NI Hawaii Resort, Inc. shall be
permitted to hypothecate, mortgage, pledge or alienate
NI Hawaii Resort, Inc.'s leasehold estate and rights
hereunder to any Affiliate of NI Hawaii Resort, Inc. or
NI Hawaii Resort, Inc.'s shareholder. The holder or
holders of any such lien, as well as any lenders of
loans made pursuant to Section 5.7 hereof shall be
referred to herein as "Leasehold Mortgagees." A
Leasehold Mortgagee or its assignees may enforce such
lien and acquire title to the leasehold estate in any
lawful way and, pending foreclosure of such lien, the
Leasehold Mortgagee or its assigns may take possession
of and operate the Premises, performing all obligations
to be performed by Lessee, and upon foreclosure of such
lien by power of sale or judicial foreclosure, the
Leasehold Mortgagee may sell and assign the leasehold
estate hereby created but any such purchaser or
assignee must be a qualified assignee within the
meaning of Section 11.7(a) below ("Qualified
Purchaser"). Any Person acquiring such leasehold
estate shall be liable to perform the obligations
imposed on Lessee by this Lease only during the period
such Person has ownership of said leasehold estate or
possession of the Premises.
4. Section 8.8(b). Section 8.8(b) to the Lease is modified
in its entirety as follows:
Hotel Operating Agreement. NI Hawaii Resort, Inc.
agrees that proper management and operation of the
Hotel is necessary to maximize Lessor's percentage
rent. Accordingly, Lessee shall enter into a Hotel
Operating Agreement for the management and operation of
the Hotel by Hotel Operator, which shall not require
the consent or approval of Lessor if the Hotel
Operating Agreement expressly provides that the Hotel
Operator has read this Lease and agrees to observe and
where applicable perform the terms and conditions of
this Lease in connection with the operation of the
Hotel; provided, however, any Hotel Operator selected
by NI Hawaii Resort, Inc., during the Term of this
Lease, (i) may not as its primary business, own, lease
or operate any casino or gambling facility if such
business, ownership, leasing or operation might
reasonably impair the ability of the Lessee, the Hotel
Operator or their respective Affiliates, as applicable,
to obtain or retain any necessary regulatory approvals
for the operation of the Hotel and (ii) may not own or
operate a distillery, winery or brewery or a
distributorship of alcoholic beverages if such
ownership or operation might reasonably impair the
ability of the Lessee, the Hotel Operator or their
respective Affiliates, as applicable, to obtain or
retain liquor licenses for the Hotel.
5. Section 11.7(a). Section 11.7(a) to the Lease is
modified in its entirety as follows:
This Lease may be assigned or transferred in whole
or in part, by NI Hawaii Resort, Inc. provided that the
provisions of Section 11.7(d) have been completed and
Lessor has elected not to proceed with the purchase of
the Hotel and/or this Lease; provided, however, any
proposed assignee, during the Term of this Lease, (i)
may not as its primary business, own, lease or operate
any casino or gambling facility if such business,
ownership, leasing or operation might reasonably impair
the ability of the Lessee or the Hotel Operator, as
applicable, to obtain or retain any necessary
regulatory approvals for the operation of the Hotel;
(ii) may not own or operate a distillery, winery or
brewery or a distributorship of alcoholic beverages if
such ownership or operation might reasonably impair the
ability of the Lessee or the Hotel Operator, as
applicable, to obtain or retain liquor licenses for the
Hotel; and (iii) shall have sufficient financial
capability to carry out its obligations under this
Lease. In the event of NI Hawaii Resort, Inc.'s
transfer of all of NI Hawaii Resort, Inc.'s leasehold
interest in the Premises subject to this Lease, Lessor
agrees that, so long as the assignee assumes in writing
this Lease, any and all obligations of NI Hawaii
Resort, Inc. under this Lease not then accrued shall
terminate upon the effective date of such assignment
and Lessor hereby releases NI Hawaii Resort, Inc. from
any obligations or covenants under this Lease which
have not accrued prior to such effective date. If
Lessee is a corporation, a change or changes in the
ownership, whether voluntary, involuntary, by operation
of law, or otherwise, which aggregates fifty percent
(50%) or more of the total capital stock of Lessee or
fifty percent (50%) or more of the voting capital stock
of Lessee, shall be deemed an assignment of this Lease.
If Lessee is a partnership, then any change of control,
whether voluntarily, involuntarily, by operation of
law, or otherwise, including any addition or withdrawal
of a general partner of the partnership or of any
partnership which is a partner in the partnership
(including in the case of a corporate general partner,
a change of control using the test of the preceding
sentence), shall be deemed an assignment of this Lease.
6. Section 11.7(b). Section 11.7(b) to the Lease is hereby
superseded and suspended in its entirety.
7. Section 11.7(e). Section 11.7(e) to the Lease is
modified in its entirety as follows:
If the Lease is assigned or transferred in whole
or in part to an entity other than NI Hawaii's
Affiliate, the amount to which the Lessor may be
required to subordinate its interests in either the fee
estate or in this Lease pursuant to Section 5.7 shall
be as follows:
Consideration Received Aggregate Principal
Amount
By Lessee Subject to Subordination
$120,000,000.00 or more $0.00
$110,000,000.00 to
$119,999,999.99 $55,000,000.00
Less than $110,000,000.00 $65,000,000.00
If NI Hawaii or its Affiliate receives consideration
for any assignment or transfer of ONE HUNDRED TEN
MILLION AND NO/100 DOLLARS ($110,000,000.00) or more,
NI Hawaii or its Affiliate shall obtain a release (or
partial release), in a form mutually acceptable to NI
Hawaii or its Affiliate and Lessor, for the amount
required to be released pursuant to this Section
11.7(e) to which Lessor has subordinated its fee simple
interest at the time of the assignment or transfer.
8. Section 12.1(b). Section 12.1(b) to the Lease is
modified in its entirety as follows:
Lessor agrees that if the offer to purchase and/or
intent to sell the fee simple title to the Premises
and/or Lessor's interest in this Lease is part of a
transaction which includes the sale, assignment,
transfer or conveyance of any other interest (whether
real or personal property or intangible), Lessor will
offer the fee simple title to the Premises and/or
Lessor's interest in this Lease to NI Hawaii Resort,
Inc. as a separate and independent transaction from any
other interests which Lessor intends to sell, assign,
transfer or otherwise convey. The purchase price for
the separate and independent interest in the fee simple
title to the Premises and/or Lessor's interest in this
Lease shall be the lesser of (i) the price allocated by
the proposed transaction to the fee simple title to the
Premises and/or Lessor's interest in this Lease as part
of an offer involving more than the sale of such
interest or (ii) the fair market value of the fee
simple title to the Premises and/or Lessor's interest
in this Lease as determined by appraisal. NI Hawaii
Resort, Inc. shall notify Lessor of its intent to
proceed to appraisal, and Lessor and NI Hawaii Resort,
Inc. shall each, within twenty (20) days of NI Hawaii
Resort, Inc.'s notification to Lessor of NI Hawaii
Resort, Inc.'s intent to proceed to appraisal, appoint
an Appraiser who is a Member of the Appraiser's
Institute. The Appraiser appointed by Lessor shall be
referred to as "Lessor's MAI" while the Appraiser
appointed by NI Hawaii Resort, Inc. shall be referred
to as "NI Hawaii Resort, Inc.'s MAI." Lessor's MAI and
NI Hawaii Resort, Inc.'s MAI shall then determine the
fair market value of Lessor's fee estate in the
Premises for the purpose set forth herein. If within
fifteen (15) days following the appointment of Lessor's
MAI and NI Hawaii Resort, Inc.'s MAI, Lessor's MAI and
NI Hawaii, Resort, Inc.'s MAI are unable to agree on
the fair market value of Lessor's fee estate in the
Premises, then the Lessor and NI Hawaii Resort, Inc.
shall within ten (10) days appoint a third appraiser
who is a Member of the Appraisers' Institute ("Joint
MAI"), and the majority of Lessor's MAI, NI Hawaii
Resort, Inc.'s MAI, and Joint MAI shall determine the
fair market value of Lessor's fee estate in the
Premises within fifteen (15) days of the appointment of
the Joint MAI. If either the Lessor or NI Hawaii
Resort, Inc. fails or refuses to appoint their
respective Appraiser within the time provided
aforesaid, the other party shall appoint the two
Appraisers who shall then determine the value of this
Lease. If either the Lessor or NI Hawaii Resort, Inc.
fails or refuses to appoint a Joint MAI as aforesaid,
NI Hawaii Resort, Inc. shall apply to the Court having
proper jurisdiction over this subject matter for the
appointment of such Joint MAI who shall also be a
Member of the Appraisers' Institute whereupon the
majority of the three so appointed shall determine the
fair market value of Lessor's fee estate in the
Premises. The Appraisers shall reduce to writing and
deliver to each party a statement of the fair market
value of the Lessor's fee estate in the Premises and
such value shall serve as fair market value of the
Lessor's fee estate in the Premises for any excess
proceeds. Lessor and NI Hawaii Resort, Inc. shall each
pay for the cost of their respective appraiser and
shall each pay one-half (1/2) of the cost of the Joint
MAI, if such appraiser is needed. Lessor and NI
Hawaii Resort, Inc. each acknowledge and agree that the
intent of NI Hawaii Resort Inc.'s right of first
refusal in this Section 12.1 is to offer the fee simple
title to the Premises and/or Lessor's interest in this
Lease to NI Hawaii Resort, Inc. and NI Hawaii Resort,
Inc. shall not be obligated to purchase any additional
interests in order to purchase Lessor's fee simple
title to the Premises and/or Lessor's interest in this
Lease.
9. NI Hawaii shall provide Maui Land with notice of the
identity of any proposed Hotel Operator at least fourteen (14)
days prior to NI Hawaii executing a Hotel Operating Agreement
with the proposed Hotel Operator. NI Hawaii and Maui Land
acknowledge that Ritz Carlton Hotel Company is the current Hotel
Operator and no prior notice to Maui Land is required with
respect to Ritz Carlton Hotel Company as the existing Hotel
Operator.
10. Reference to NI Hawaii in this Agreement shall include
NI Hawaii and its Affiliates (as such term is defined in the
Lease).
11. As between Maui Land and its assigns and successors,
and NI Hawaii, the provisions set forth in this Agreement shall
control in the event of any conflict between the provisions of
this Agreement and the Lease.
Except as superseded and/or modified hereby, all other terms
and provisions of the Lease shall continue in full force and
effect. This Agreement shall immediately and automatically
terminate, without need for further action, at such time as NI
Hawaii or its Affiliates is no longer the Lessee under this
Lease.
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the day and year first above written.
MAUI LAND & PINEAPPLE NI HAWAII RESORT, INC.,
COMPANY, INC., a Hawaii a Hawaii corporation
corporation
By /S/ DON YOUNG By /S/ T OKUYAMA
Its EXECUTIVE VICE Its VICE PRESIDENT
PRESIDENT SECRETARY
AMENDMENT AND RESTATEMENT OF TENNIS OPERATING AGREEMENT
THIS AGREEMENT is made as of the 9th day of January, 1996, by
and between NI HAWAII RESORT, INC., hereinafter "Owner", and
KAPALUA LAND COMPANY, LTD., hereinafter "Operator", but which is
effective as of January 1, 1996, except for Section 5.1 hereof
which is effective as of January 1, 1995.
WHEREAS, the Kaptel Associates and Operator entered into that
certain Amendment and Restatement of Tennis Operating Agreement
dated October 29, 1992 (hereinafter the "Agreement"), covering the
Tennis Center at the Ritz-Carlton, Kapalua; and
WHEREAS, the parties hereto wish to amend and restate said
Agreement in its entirety.
NOW, THEREFORE, Owner and Operator hereby covenant and agree
to amend and restate said Tennis Operating Agreement as follows:
ARTICLE 1
DEFINITIONS, TERMS AND REFERENCES
1.1 Definitions. In this Agreement and any exhibits, addenda
or riders hereto, the following terms shall have the following
meanings:
Affiliate(s) shall mean a Person or Persons directly or
indirectly, through one or more intermediaries, controlling,
controlled by or under common control with the Person(s) in
question. The term "control", as used in the immediately preceding
sentence, means, with respect to a Person that is a corporation,
the right to the exercise, directly or indirectly, of more than 50%
of the voting rights attributable to the shares of the controlled
corporation and, with respect to a Person that is not a
corporation, the possession, directly or indirectly, of the power
to direct or cause the direction of the management or policies of
the controlled Person.
Affiliated Concessionaires shall mean a Concessionaire in
which any one of (i) Operator, (ii) Operator's general or limited
partners, if any, (iii) Affiliates of Operator or Operator's
general or limited partners, (iv) any shareholder of Operator or
Operator's general or limited partners, or an Affiliate of Operator
or its general or limited partners holding alone or in the
aggregate more than 25% of the stock of any one such entity, (v)
employees or agents of Operator, Operator's general or limited
partners or Affiliate of Operator or Operator's general or limited
partners, or (vi) immediate family members of officers of Operator,
Operator's general or limited partners, (vii) immediate family
members of shareholders owning alone or in the aggregate more than
25% of the stock of any one of Operator, Operator's general or
limited partners or any Affiliate of Operator or Operator's general
or limited partners or (viii) Affiliates of the persons or entities
set forth in clauses (i) through (vii) above, have an ownership
interest, whether equitable or otherwise, in Operator.
Agreement shall mean this Amendment and Restatement of
Tennis Operating Agreement, as it may be further amended or
supplemented from time to time.
Annual Operating Projection shall mean schedules
containing the annual operating projection for the Tennis Center
and certain other matters prepared and submitted by Operator to
Owner pursuant to Section 4.1.
Approval or Approved shall mean prior written approval.
Commencement Date shall mean January 1, 1996, except with
regards to Section 5.1 hereof for which the Commencement Date shall
be January 1, 1995.
Concessionaire shall mean a Person, including without
limitation a shopkeeper, retailer, or provider of services which
has entered into a sublease, concession agreement, contract,
license or similar agreement with Operator for the transaction of
business on or from the Premises or the operation of the Hotel.
Data Addendum shall mean the Data Addendum attached
hereto and by this reference made a part hereof.
Development Agreement shall mean that certain Development
Agreement of even date herewith between Owner and The Ritz-Carlton
Hotel Company covering the development of the Hotel and the Tennis
Center.
Event of Default shall mean any of the events described
in Article 10.
Fiscal Year shall mean a fiscal year which ends on
December 31. The first Fiscal Year shall be the period commencing
on the Commencement Date and ending on December 31 of the year in
which the Commencement Date occurs. The words "full Fiscal Year"
shall mean any Fiscal Year containing not fewer than 364 days. A
partial Fiscal Year after the end of the last full Fiscal Year and
ending with the expiration or earlier termination of the Operating
Term shall constitute a separate Fiscal Year.
Furniture and Equipment shall mean all furniture,
furnishings, fixtures and tennis equipment, and systems located at,
or used in connection with, the Tennis Center, together with all
replacements therefor and additions thereto.
Gross Revenue shall mean all revenues, receipts and
income of any kind derived directly or indirectly by Operator in
the form of cash, property or services (i.e., barter, "contra",
accounts, and such alternatives to cash payments, which together
with property and services, shall be valued at their fair market
value) from or in connection with the Tennis Center (including any
loss of income insurance proceeds paid to Operator or Owner in the
event of casualty to the Tennis Center, or as a result of the
occurrence of any other event making use of all or a portion of the
Tennis Center impossible or impractical, and any rentals from
tenants, lessees, licensees or concessionaires but not including
their gross receipts) whether on a cash basis or credit, paid or
collected, determined in accordance with generally accepted
accounting principles, excluding, however; (i) funds furnished by
Owner, (ii) federal, state and municipal excise, sales and use
taxes collected directly from patrons and guests or as part of the
sales price of any foods, services or displays, or similar or
equivalent taxes and paid over to federal, state or municipal
governments, (iii) gratuities, and (iv) proceeds of insurance
(excluding loss of income insurance proceeds which shall be
included as a part of Gross Revenues) and condemnation.
Gross Revenues shall be reduced for actual bad debts
reasonably determined to be uncollectible by Operator, which
reduction shall not include payments for any bad debt reserve or
sinking fund or similar fund or reserve for bad debts. If any
debts previously deducted as uncollectible shall subsequently be
collected, such collected amounts shall be included in Gross
Revenues in the Fiscal Year collected after deducting reasonable
collection expenses actually incurred.
Ground Lease shall mean that certain Hotel Ground Lease
dated January 9, 1996 but effective as of January 1, 1996, between
Maui Land & Pineapple Company, Inc., as Lessor, and NI Hawaii
Resort, Inc., as Lessee, covering the Premises, as the same may be
amended from time to time.
Hotel shall mean the hotel known as The Ritz-Carlton,
Kapalua as of January 1, 1996.
Hotel Guests shall mean the customers, guests and
invitees of the Hotel.
Hotel Premises shall mean the land on which the Hotel is
located.
Kapalua Property Owners means owners of residential
condominiums, homes, or residential lots at the Kapalua Resort.
Kapalua Resort means the existing and proposed
development of the Kapalua area on Maui, more particularly set
forth in the Kapalua Master Plan as filed with the County of Maui
Planning Department and amended from time to time.
Kapalua Tennis Club Members means Kapalua Property
Owners, Maui residents and non-resident "long term" visitors to
Kapalua.
Mortgage shall mean any mortgage or deed of trust
encumbering the Tennis Center.
Operator shall mean Kapalua Land Company, Ltd.
Operating Term shall mean the term of this Agreement as
established under Section 3.1.
Owner shall mean NI Hawaii Resort, Inc., a Hawaii
corporation.
Owner's Fee shall mean the amount to be paid to Owner by
Operator as described in Article 5.
Person shall mean an individual, partnership,
corporation, trust, unincorporated association, joint stock
company, or other entity or association.
Premises shall have the meaning ascribed to such term in
the Data Addendum. Vehicle access to the Tennis Center, which is
located on the Premises, shall be from Village Road, the same road
which provides access to the Village Course and golf pro shop.
Tennis Center shall mean the tennis court center (having
approximately ten tennis courts) with clubhouse to be developed by
Owner on the Premises pursuant to the Development Agreement, which
shall be named "The Village Tennis Center."
Tennis Club shall mean the combined operations of The
Village Tennis Center ("Tennis Center" herein) and the Tennis
Garden (commonly known as "The Tennis Garden").
Tennis Garden shall mean the tennis facilities commonly
known as "The Tennis Garden" at Kapalua.
Tennis Garden Gross Revenues means all revenues, receipts
and income of any kind derived directly or indirectly by Operator
in the form of cash, property or services (i.e., barter, "contra",
accounts, and such alternatives to cash payments, which together
with property and services, shall be valued at their fair market
value) from or in connection with the Tennis Garden (including any
loss of income insurance proceeds paid to Operator or Owner in the
event of casualty to the Tennis Garden, or as a result of the
occurrence of any other event making use of all or a portion of the
Tennis Garden impossible or impractical, and any rentals from
tenants, lessees, licensees or concessionaires but not including
their gross receipts) whether on a cash basis or credit, paid or
collected, determined in accordance with generally accepted
accounting principles, excluding, however; (i) funds furnished by
Owner, (ii) federal, state and municipal excise, sales and use
taxes collected directly from patrons and guests or as part of the
sales price of any foods, services or displays, or similar or
equivalent taxes and paid over to federal, state or municipal
governments, (iii) gratuities, and (iv) proceeds of insurance
(excluding loss of income insurance proceeds which shall be
included as a part of Tennis Garden Gross Revenues) and
condemnation.
Tennis Garden Gross Revenues shall be reduced for actual
bad debts reasonably determined to be uncollectible by Operator,
which reduction shall not include payments for any bad debt reserve
or sinking fund or similar fund or reserve for bad debts. If any
debts previously deducted as uncollectible shall subsequently be
collected, such collected amounts shall be included in Tennis
Garden Gross Revenues in the Fiscal Year collected after deducting
reasonable collection expenses actually incurred.
1.2 Terminology. All personal pronouns used in this
Agreement, whether used in the masculine, feminine or neuter
gender, shall include all genders; the singular shall include the
plural, and the plural shall include the singular. The Table of
Contents, and titles of Articles, Sections, Subsections and
Paragraphs in this Agreement are for convenience only and neither
limit nor amplify the provisions of this Agreement, and all
references in this Agreement to Articles, Sections, Subsections,
paragraphs, clauses, subclauses, exhibits, addenda or riders shall
refer to the corresponding Article, Section, Subsection, paragraph,
clause or subclause of, or exhibit, addendum or riders attached to
this Agreement, unless specific reference is made to the Articles,
Sections or other subdivisions of, or exhibits, addenda or riders
to, another document or instrument.
1.3 Exhibits, Addenda and Riders. All exhibits addenda and
riders attached hereto are by reference made a part hereof.
ARTICLE 2
ENGAGEMENT OF OPERATOR
2.1 Operation of Tennis Center. Owner hereby authorizes and
engages Operator to act as the exclusive operator and manager of
the Tennis Center during the Operating Term, with exclusive
responsibility and complete and full control and discretion in the
operation, direction, management and supervision of the Tennis
Center, subject only to the limitations expressed herein, and
Operator hereby accepts such engagement subject to the terms and
conditions expressed in this Agreement. Such authority of Operator
shall include, without limitation, the use of the Tennis Center for
all customary purposes, and without limiting the generality of the
foregoing, Operator is hereby authorized to:
(A) Determine all terms for admittance, charges and
prices for court times, retail merchandise, commercial space and
other amenities and services provided at or with respect to the
Tennis Center, provided, however, Hotel Guests shall be charged the
Resort Guest Court Fee for court times and retail prices for retail
merchandise sold in the pro shop shall be the same at the Tennis
Center and The Tennis Garden; and provided further that the Resort
Guest Court Fee shall be comparable to rates charged at similar
first class tennis facilities in the State of Hawaii, such as the
Mauna Lani Bay Hotel tennis facilities, the Racquet Club at Mauna
Lani, Mauna Lani Ritz-Carlton Hotel, Wailea Tennis Center, and
Mauna Kea Beach Hotel;
(B) Determine all credit policies with respect to the
operation of the Tennis Center, including entering into policies
and agreements with credit card organizations and the Hotel;
(C) Establish entertainment and amusement policies
(including pricing) with respect to the Tennis Center;
(D) Establish food and beverage policies (including
pricing) with respect to the Tennis Center;
(E) Determine all labor policies, including wages and
salary rates and terms, fringe benefits, pension, retirement, bonus
and employee benefit plans, collective bargaining agreements and
the hiring or discharge of all employees, with respect to the
Tennis Center;
(F) Arrange in Operator's name for utility, telephone,
extermination, detective agency protection, trash removal and other
services for the operation of the Tennis Center;
(G) Establish all advertising, public relations and
promotional policies with respect to the Tennis Center, including
the exclusive control over all paid advertising, press releases and
complimentary policies; provided, however, that Operator shall
provide complimentary tennis as requested for the Hotel's Executive
Committee members, department heads, and for persons visiting the
Hotel on a complimentary basis as part of the Hotel's marketing
program.
(H) Purchase on the credit of Operator all services and
merchandise as are necessary for the proper operation of the Tennis
Center;
(I) Enter into such leases, licenses, concession
agreements and other undertakings in the name of Operator as
Operator shall from time to time consider appropriate for the
operation of the Tennis Center, including leasing of commercial
space at the Tennis Center, subject to a right of first refusal in
favor of the Hotel to lease or operate any food service or
entertainment facilities at the Tennis Center and subject further
to the exclusive right reserved by Operator and its Affiliates to
sell merchandise with the butterfly logo in the Tennis Center;
(J) Hire such persons or organizations as Operator may
deem necessary to provide advice with respect to Operator's
performance hereunder, including attorneys, accountants and other
professionals and specialists;
(K) Cause all needed repairs and maintenance to be made
to the Tennis Center and cause all such other things to be done in
or about the Tennis Center as shall be necessary to comply with all
requirements of governmental authority, boards of fire underwriters
and other bodies exercising similar functions;
(L) Institute and defend such proceedings at law or in
equity in the name of either Operator or Owner, utilizing counsel
selected by Operator, which Operator shall deem reasonably
necessary or proper in connection with the routine operation of the
Tennis Center, including the institution of dispossessory, eviction
and trespass suits and proceedings for the collection of rents and
other amounts due for services rendered, property let or
merchandise sold; and
(M) Manage, operate, and/or market the Tennis Center
together with The Tennis Garden as a single operation to be known
as "The Tennis Club."
2.2 Employees of the Tennis Center. Operator shall have the
sole right to select, appoint and supervise the manager, a Director
of Tennis, and such other personnel as Operator may deem necessary
or desirable for the proper operation, maintenance and security of
the Tennis Center. The manager, Director of Tennis, and all other
personnel of the Tennis Center shall be employees of Operator and
the terms of their employment and all hiring and firing thereof
shall be at the sole discretion of Operator. Owner shall have no
right to supervise or direct the manager, Director of Tennis, or
any of such employees and covenants and agrees not to attempt to so
supervise or direct. Notwithstanding the above, Operator shall
submit to Owner the resumes of candidates Operator selects for
Director of Tennis at the Tennis Center, and Owner shall have the
right to a personal interview, prior to hiring, with any candidate
for Director of Tennis. Operator will consider Owner's input and
comments relating to any candidate for Director of Tennis at the
Tennis Center in making a final decision as to whether or not to
hire a candidate as Director of Tennis for the Tennis Center.
2.3 Limitations on Authority. Notwithstanding anything to
the contrary in Section 2.1, Operator shall not, without Owner's
Approval:
(A) Institute or defend legal proceedings of an unusual
nature or involving monetary claims in excess of $50,000.00 not
covered by insurance or as to which an insurer denies coverage or
"reserves rights" if Owner is a party to such proceedings; or
(B) Enter into any lease, license or concession
agreement for stores or tenant space at the Tennis Center unless
the term is one (1) year or less;
(C) Operate or enter into a lease covering food service
or entertainment facilities without first granting to the Hotel an
opportunity to operate any food service or entertainment
facilities.
2.4 Name. During the term of this Agreement, the Tennis
Center shall at all times be known and designated as "The Village
Tennis Center," or by such other name as from time to time may be
Approved by Owner and Operator. Operator shall make or cause to be
made any fictitious name filings or disclosures required by the
laws of the State with respect to the use of such name for or in
connection with the Tennis Center.
2.5 Operation at Operator's Expense. In performing its
duties hereunder Operator shall act solely for the account of
Operator and all expenses incurred by Operator in such performance
shall be borne exclusively by Operator. To the extent the funds
necessary therefor are not generated by the operation of the Tennis
Center, they shall be supplied by Operator. Operator shall be
required to advance any of its own funds for the operation of the
Tennis Center. All debts and liabilities to third persons incurred
by Operator in the course of its operation and management of the
Tennis Center shall be the debts and liabilities of Operator only,
and Operator shall be liable for such obligations by reason of its
management, supervision, direction and operation of the Tennis
Center.
2.6 Standards of Operation. Operator agrees:
(A) To operate the Tennis Center as a prestigious tennis
facility, luxurious in image, style, and quality consistent with
the image, style and quality of Kapalua and the Hotel.
(B) That the primary purpose of the Tennis Center is to
provide a convenient, pleasurable, and high quality experience for
Hotel Guests. If Operator fails to regularly comply with the
foregoing in the reasonable opinion of Owner, then Owner shall so
notify Operator, and Operator shall have reasonable time, such
reasonable time not to exceed sixty (60) days, to diligently
proceed and to return the operation to the standard as defined
above. Failing this, Owner may cancel this Agreement.
(C) Notwithstanding the above, it is the intent of Owner
and Operator that the tennis courts at the Tennis Center be fully
utilized and that a reasonable number of court hours, which will
not interfere with play by Hotel Guests, be available for play by
non-Hotel Guests. Owner and Operator agree to periodically review
the overall utilization of tennis courts by Hotel Guests and non-
Hotel Guests and to periodically revise the reservations policies
of the Tennis Center to comply with the above intent so long as
such revision will not be harmful to those Hotel Guests desiring to
utilize the tennis courts at the Tennis Center. Hotel Guests shall
have the right to make reservations for tennis court time between
48 and 24 hours in advance of playing time and such right shall be
superior to all other players. Hotel Guests also shall have the
right to make reservations 24 hours in advance of playing time,
which right shall be on an equal basis with other guests at the
Kapalua Resort. There shall be no limit to the number of court
hours that may be reserved by Hotel Guests in advance, subject to
capacity of the facility and scheduled tournaments or other events
at the Tennis Center as are permitted under this Agreement. Special
reservation arrangements in advance of the 48-hour reservation
right may be arranged for groups staying at the Hotel and which
require advance booking.
Notwithstanding the foregoing, Operator shall have the
right to combine operations and/or marketing of the Tennis Center
with The Tennis Garden (combined operation to be known as the
"Tennis Club"). In the event the Tennis Center is unable to
accommodate Hotel Guests, Operator shall have the right to
accommodate such Hotel Guests at The Tennis Garden provided that
notice is given to such Hotel Guests and they are willing to play
at The Tennis Garden.
(D) Operator shall have the right: (i) to schedule
tournaments at the Tennis Center, provided any reduction in playing
time for Hotel Guests at the Tennis Center is provided for
elsewhere to Owner's reasonable satisfaction; (ii) to charge lower
court time fees to Kapalua Property Owners, employees of Operator
and Maui Land & Pineapple Company, Inc., residents of Maui and
Kapalua Tennis Club Members; (iii) to grant special rates and
privileges to members of The Kapalua Tennis Club composed of
Kapalua Property Owners, Maui residents and non-resident "long
term" visitors to Kapalua; and (iv) to impose reasonable rules and
regulations (including dress codes and rules of conduct) on all
users of the Tennis Center.
2.7 Food Services. Operator hereby agrees to grant to Owner
a right of first refusal to operate any food service or
entertainment facility at the Tennis Center. Such right is subject
to Owner responding within thirty (30) days following receipt from
Operator of written notice of its intention to include food
services or entertainment facilities at the Tennis Center.
ARTICLE 3
OPERATING TERM; EXTENSION; TERMINATION
3.1 Operating Term. The Operating Term shall commence on the
Commencement Date and shall continue thereafter for a period of
twenty-five (25) years, subject to extension as provided in Section
3.2 below or early termination as provided in Section 3.3 hereof
(such term being herein referred to as the "Operating Term").
3.2 Extension. Upon the expiration of the initial Operating
Term, the Operating Term shall be extended for four (4) additional
ten (10) year periods if, not more than one (1) year and not less
than two hundred forty (240) days prior to the expiration of the
initial Operating Term or any previously extended Operating Term,
as the case may be, Operator has given written notice to Owner of
Operator's election to so extend. Any such extension shall be
automatically effective without any amendment hereto, but Owner and
Operator shall execute and deliver any supplements to this
Agreement which either shall reasonably request to evidence any
such extension.
3.3 Termination. This Agreement may be terminated prior to
the expiration of the then effective Operating Term upon the
occurrence of one or more of the following events:
(A) Upon any Event of Default, at the option of the non-
defaulting party exercised by written notice to the defaulting
party prior to the cure of such Event of Default.
(B) Upon any transfer not permitted by the terms of
Article 11, unless consented to in writing by the non-transferring
party, at the option of the non-transferring party exercised by
written notice to the other party given within ninety (90) days
after the non-transferring party learns of such transfer.
(C) Upon any damage to or destruction of all or any part
of the Tennis Center or the means of vehicular access thereto by
fire, casualty or other cause or condemnation or other taking of
all or any part of the Tennis Center which is not required to be
repaired or restored by Owner pursuant to Article 9, at the option
of either Owner or Operator by written notice to the other given
within sixty (60) days of the date of such damage or destruction or
condemnation or other taking; provided, however, that no
termination by Owner shall be effective, and if previously given,
may be nullified at the election of Operator by written notice to
Owner within thirty (30) days of receipt by Operator from Owner of
notice to restore or repair the Tennis Center if Owner, at any time
within three (3) years after such damage or destruction or
condemnation or other taking, has commenced to restore or repair
the Tennis Center for use as a tennis facility even if substantial
changes are made to the physical structure of the Tennis Center.
It is understood that the failure of Owner to repair or restore
when required to do so under Article 9 may become an Event of
Default, also allowing for the termination thereof.
3.4 Transition Procedures. Upon the expiration or
termination of the Operating Term, for whatever reason, Owner and
Operator shall do the following (and the provisions of this Section
3.4 shall survive the expiration or termination of this Agreement
until they have been fully performed).
3.4.1. Licenses. Operator shall execute all documents
and instruments necessary to transfer (if transferable) to Owner or
its nominee all governmental permits and licenses held by Operator
necessary to operate the Tennis Center.
3.4.2. Leases and Concessions. Operator shall assign to
Owner or its nominee, and Owner and its nominee, if any, shall
assume, all leases and concession agreements in effect with respect
to the Tennis Center then in Operator's, rather than Owner's, name,
except for blanket concessions affecting other concessions operated
by Operator or its Affiliates which shall at the option of Owner be
terminated.
3.4.3. Books and Records. All books and records for the
operation of the Tennis Center kept by Operator pursuant to Section
4.3 shall be turned over to Owner so as to insure the orderly
continuance of the operation of the Tennis Center, but such books
and records shall thereafter be available to Operator at all
reasonable times for inspection, audit, examination and
transcription for a period of seven (7) years and Operator may
retain any copies or computer records thereof which it desires.
3.4.4. Employees. Operator shall retain or terminate all
employees. The termination cost and expense of all employees shall
be borne by Operator.
3.4.5. Insurance. Operator shall transfer and assign to
the benefit of Owner or its nominee any and all appropriate
insurance policies relating to the Tennis Center.
3.4.6. Contracts. Operator shall assign and transfer to
the extent possible and without cost to Operator, all necessary
contracts, agreements and arrangements to Owner or its nominee,
which include but shall not be limited to, credit card agreements,
marketing or advertising agreement, association or organizational
memberships, equipment, furniture and fixture leases, service,
vendor and maintenance contracts.
ARTICLE 4
BUDGETARY AND ACCOUNTING PROCESSES
4.1 Annual Operating Projection. Not later than sixty (60)
days prior to the commencement of each Fiscal Year, Operator shall
submit the Annual Operating Projection to owner. The Annual
Operation Projection shall contain the following:
(A) Operator's reasonable estimate of Gross Revenues
(including tennis court rates and schedule of charges for
services.)
(B) A separate estimate of the Owner's Fees to be
paid to Owner for the forthcoming Fiscal Year.
(C) A narrative description of the program for
advertising the Tennis Center for the forthcoming Fiscal Year.
Such advertising program may include advertising in which the
Tennis Center participates with one or more other tennis facilities
operated by Operator.
(D) A schedule of any proposed tournaments.
(E) A schedule of proposed priority court time
procedures.
(F) A comprehensive report on proposed capital
improvements for the current Fiscal Year and projections for the
following three (3) Fiscal Years (the "Capital Budget") which shall
include but not be limited to the following:
(1) The purpose and nature for the capital
repairs as set forth in Section 6.1(A)
and maintenance as set forth in Section
6.1(B);
(2) The estimated cost for such repair and
maintenance;
(3) The process under which the repair and
maintenance shall be completed and the
critical dates by which funds from the Owner
need to be available for the respective
repairs and maintenance.
For purposes of the Capital Budget, the Capital Budget
shall include but is not limited to, the dates under which each
capital improvement project will commence, proceed and be
completed.
4.2 Books and Records. Operator shall keep full and adequate
books of account and other records reflecting the results of
operation of the Tennis Center on an accrual basis, all in
accordance with generally accepted accounting principles. The
books of account and all other records relating to or reflecting
the Gross Revenues from the operation of the Tennis Center shall be
kept either at the Tennis Center or at Operator's offices on Maui,
Hawaii, and shall be made available in the State of Hawaii to Owner
and its representatives and its auditors or accountants, at all
reasonable times for examination, audit, inspection.and
transcription.
4.3 Accounting. Operator shall deliver to Owner within
twenty (20) days after the end of each calendar month an interim
accounting showing the Gross Revenues from the operation of the
Tennis Center for such month, for the Fiscal Year to date and a
computation of Gross Revenues. Such interim accounting and the
annual accounting of Gross Revenues referred to below shall: (i) be
in form Approved by Owner; (ii) be taken from the books and records
maintained by Operator for the Tennis Center in the manner
hereinabove specified; (iii) follow the form of generally accepted
accounting principles; (iv) separately state the amount of Owner's
Fees and any other amounts payable or expenses reimbursable to
Owner or its Affiliates; and (v) be accompanied by a certificate of
Operator's chief accounting officer certifying that such statement
was prepared under such officer's direction and in such officer's
opinion is true and correct. Within sixty (60) days after the end
of each Fiscal Year, Operator shall deliver to Owner an annual
accounting of Gross Revenues, audited and certified by a nationally
recognized firm of certified public accountants having hotel
accounting experience selected by Operator, showing the Gross
Revenues and any other information necessary to make the
computations required hereby or which may be requested by Owner,
all for such Fiscal Year. If the Owner does not present objections
to the certified statements within one hundred eighty (180) days
following receipt by Owner, such certified statements shall be
deemed correct and conclusive for all purposes. The annual
accounting for any Fiscal Year shall be controlling over the
interim accounting for such Fiscal Year.
ARTICLE 5
OWNER'S FEE
5.1 Owner's Fee. The Owner's Fee shall be calculated on a
fiscal year basis, but payable monthly by Operator to Owner, on or
before the twentieth (20th) day of each calendar month for the
preceding calendar month, based upon Operator's reasonable estimate
of the amount due, as contained in the monthly reports to Owner.
No additional amount will be paid to cover any General Excise Tax
due. Any General Excise Tax is the responsibility of the Owner.
The Owner's Fee will be based upon a percentage of the
combined Gross Revenues and the Tennis Garden Gross Revenues as
follows:
Beginning January 1, 1995, the Owner's Fee shall be 1.0%
of the combined Gross Revenues and Tennis Garden Gross
Revenues; provided, however, if the combined Gross
Revenues and Tennis Garden Gross Revenues for any twelve
(12) consecutive calendar months during the Operating
Term exceeds $1.5 million, the Owner's Fee shall increase
to, and continue on at, an annual amount equal to one and
one-half percent (1.5%) of the combined Gross Revenues
and Tennis Garden Gross Revenues, effective the first
month following such twelve (12) consecutive calendar
months.
5.2 Annual Adjustments. At the end of each Fiscal Year
following the rendition of the annual certified statement of
operations, Owner and Operator shall promptly (and in all events
within thirty (30) days after rendition of such statement) make
such adjustments as necessary to insure that the proper amounts
have been paid as Owner's Fees.
ARTICLE 6
CAPITAL AND MAINTENANCE OBLIGATIONS
6.1 Owner's Obligations. Owner shall be responsible for the
following:
(A) All reasonable expenditures for major capital
repairs, maintenance and/or replacements related to the Tennis
Center, such as resurfacing of the tennis courts and major repairs
to or replacement of tennis court lights, poles, and the like as
agreed upon in the Capital Budget.
(B) Landscaping and grounds maintenance of all areas
outside of the tennis courts and pro shop in the Tennis Center as
part of the landscaping and grounds maintenance program for the
Hotel, including the reasonable costs of irrigation water, weeding,
cleaning watering, fertilizing, trimming and pruning of all
vegetation, walkways, and the like.
(C) Security for the Tennis Center, including the tennis
courts and pro shop, as part of the security program for the Hotel.
(D) Owner shall not be responsible, either financially
or otherwise, for the construction, improvement, maintenance, or
repair of The Tennis Garden. Operator, as the owner of The Tennis
Garden, will bear full responsibility.
6.2 Operator's Obligations. Operator shall be responsible
for:
(A) Normal, routine, day-to-day costs and expenses of
maintaining and operating the Tennis Center, including routine
maintenance and cleaning of the tennis courts, pro shop, and other
facilities of the Tennis Center (excluding landscaping and grounds
maintenance).
(B) Replacing any worn out, obsolete, or damaged
Furniture and Equipment, except computers and other similar
equipment which are interfaced or integrated with the front desk of
the Hotel.
(C) Normal, routine, day-to-day costs and expenses of
maintaining and operating the pro shop in the Tennis Center,
including the costs of any merchandise purchased for retail sale.
ARTICLE 7
INSURANCE
7.1 Owner's Insurance. Throughout the Operating Term, Owner
shall insure the Tennis Center, each of its component parts and all
Furniture and Equipment against damage from Standard All-Risk
including boiler and machinery (and if available and without
exorbitant cost, earthquake and flood insurance, but excluding, at
Owners's discretion, damage resulting from war, nuclear energy, and
wear, tear and inherent vice) in aggregate amounts which shall be
not less than one hundred percent (100%) of replacement costs
thereof (exclusive of foundations and footings). Owner shall carry
such other or additional insurance in such amounts and against such
risks as Owner shall reasonably deem necessary with respect to the
buildings, facilities and contents of the Tennis Center. Operator
agrees to cooperate with Owner and its insurance carriers in
complying with reasonable suggestions for reducing risks and losses
at the Tennis Center.
7.2 Operator's Insurance. Operator shall throughout the
Operating Term provide and maintain at Operator's sole cost and
expense:
(A) Comprehensive general public liability insurance
(including Broad Form CGL endorsement for Personal Injury,
Advertising Injury, Premises Medical Payment, and Incidental
Medical Malpractice Liability) covering operations of the Tennis
Center in amounts satisfactory to Owner, but in any event not less
than a combined single limit of not less than $5,000,000 for each
occurrence, for personal injury and death, and property damage,
which shall, among other risks, including coverage against
liability arising out of the ownership or operation of motor
vehicles (including business automobiles, covering non-owner and
hired auto liability) as well as coverage in such amount against
all claims brought anywhere in the world arising out of alleged (i)
bodily injury, (ii) death, (iii) property damage, (iv) assault or
battery, (v) false arrest, detention or imprisonment or malicious
prosecution, (vi) libel, slander, defamation or violation of the
right of privacy, (vii) wrongful entry or eviction, or (viii) Full
Liquor Liability or dram shop liability;
(B) Worker's compensation insurance or insurance
required by similar employee benefit acts as well as insurance
having a minimum per occurrence limit as Operator may deem
advisable against all claims which may be brought for personal
injury or death of Operator's employees, but in no event less than
amounts prescribed by applicable law; provided, however, that
Operator may be self-insured provided that Operator satisfies the
requirements of the Worker's Compensation Law in effect in the
State of Hawaii; and
(C) Fidelity bonds, with reasonable limits and
deductibles to be determined by Operator, covering Operator's
employees in job classifications normally bonded in other tennis
facilities it manages in the United States or otherwise required by
law, and comprehensive crime insurance to the extent that Operator
deems such to be necessary for the Tennis Center.
Owner may require Operator to increase the limits of the
above insurance coverage and may require Operator to carry other or
additional insurance as may be required by prudent insurance
practices. Operator may combine insurance coverages hereunder with
any other insurance policies or coverages or blanket policies or
coverages Operator may have with its Affiliates or with respect to
other tennis and other facilities in Kapalua.
7.3 Form of Policies. All insurance required by Sections 7.1
and 7.2 shall be in such form and with any insurance companies
authorized to do business in the State of Hawaii. Any insurance
may be provided under blanket policies of insurance. All property
damage insurance maintained by Owner pursuant to Section 7.1 shall,
so long as the Tennis Center is mortgaged pursuant to a Mortgage,
be subject to a standard mortgagee clause in favor of the holder of
the Mortgage and shall name Operator and Lessor under the Ground
Lease as an additional insured. All other insurance shall be in
the name of Owner and Operator and Lessor under the Ground Lease.
All policies of insurance shall provide that (i) the insurance
company will have no right of subrogation against the holder the
Mortgage, Owner, Operator or any of their respective Affiliates or
the agents or employees thereof, and (ii) that the proceeds thereof
in the event of loss or damage shall, to the extent payable to any
holder of a Mortgage, be payable notwithstanding any act of
negligence or breach of warranty by Owner or Operator which might
otherwise result in the forfeiture or non-payment of such insurance
proceeds.
7.4 Insurance Proceeds. Owner and Operator agree that, if
Owner shall be required to repair or restore the Tennis Center
after an insurable casualty, all proceeds of property damage
insurance required to be maintained by Owner under Section 7.1 when
and if collected shall be used to the extent necessary for the
restoration or reconstruction of the Tennis Center and any other
improvement or improvements on the Premises, together with
replacing any Furniture and Equipment required in the operation of
the Tennis Center, all such proceeds being pledged and dedicated by
the parties for that purpose, with any excess funds to be delivered
to Owner.
7.5 Certificates. Certificates of all policies shall be
delivered to the party hereunder who is not required to purchase
the insurance prior to the Commencement Date and thereafter
certificates of renewal shall be so delivered not less than thirty
(30) days prior to the expiration date of such policies. All such
certificates shall specify that the policies to which they relate
cannot be cancelled or modified on less than thirty (30) days'
prior written notice to such other party except for non-payment of
premiums which shall require ten (10) days prior written notice to
such other party.
ARTICLE 8
TAXES AND UTILITIES
8.1 Taxes. Owner shall pay, prior to delinquency all real
estate taxes, all personal property taxes and all betterment
assessments levied against the Tennis Center or any of its
component parts. Operator shall promptly deliver to Owner all
notices of assessments, valuations and similar documents to be
filed by Operator or Owner or which are received from taxing
authorities by Operator. Notwithstanding the foregoing obligations
of Owner, Owner may, at its sole expense, contest the validity or
the amount of any such tax or assessment, provided that such
contest does not materially jeopardize Operator's rights under this
Agreement. Operator agrees to cooperate with Owner and execute any
documents or pleadings required for such purpose, but Owner shall
reimburse Operator any such out-of-pocket costs incurred by
Operator in so doing.
8.2 Utilities. Etc. Operator shall promptly pay all fuel,
gas, light, power, water, sewage, garbage disposal, telephone and
other utility bills currently as they are incurred in connection
with the Tennis Center.
ARTICLE 9
DAMAGE OR DESTRUCTION; CONDEMNATION
9.1 Damage or Destruction. If the Tennis Center or any
portion thereof shall be damaged or destroyed at any time or times
during the Operating Term by fire, casualty or any other cause,
Owner will, subject to available insurance proceeds, at its own
cost and expense and with due diligence, repair, rebuild or replace
the same so that after such repairing, rebuilding, or replacing,
the Tennis Center shall be substantially the same as prior to such
damage or destruction. Owner shall undertake such work within
ninety (90) days after the proceeds of any insurance becomes
available to Owner for such repairing, rebuilding or replacing, and
shall complete the same diligently; the procedures contained in the
Development Agreement shall govern such work to the extent
applicable. Notwithstanding the foregoing, if the Tennis Center is
damaged or destroyed to such an extent that the cost of repairs or
restoration as reasonably estimated by Owner exceeds one-third of
the original cost of the Tennis Center, Owner shall have no
obligation to repair, rebuild or replace the Tennis Center.
9.2 Condemnation. If only a part of the Tennis Center shall
be taken or condemned in any eminent domain, condemnation,
compulsory acquisition or like proceeding by any competent
authority, and in the reasonable opinion of Owner, the Tennis
Center can be altered, restored or repaired so as to make it a
satisfactory architectural unit as a tennis facility of similar
type and class as prior to the taking or condemnation, Owner shall
so alter, restore and replace if the proceeds of such condemnation
will be sufficient to pay for the costs of same, Owner and Operator
agreeing to pledge so much of their awards as is necessary for such
purpose. Such work shall be commenced within ninety (90) days
after such proceeds become available and shall be diligently
pursued to completion; the procedures contained in the Development
Agreement shall govern such work to the extent applicable.
Notwithstanding the foregoing, if and only if such claim for
damages is not adverse to any interest of Owner or the Lessor under
the Ground Lease, the Operator shall have the right to claim and
recover from the condemning authority but not from the Owner or
Lessor under the Ground Lease, such compensation as may be
separately awarded or recoverable by the Operator in its own right
on account of any and all damage to its business by reason of any
condemnation and for or on account of discontinuing its operation
of the Tennis Facility.
ARTICLE 10
EVENTS OF DEFAULT; REMEDIES
10.1 Non-Payment. The failure of either party to pay any sum
of money to the other party when due and payable, if such failure
is not cured within ten (10) days after written notice specifying
such failure is received by the defaulting party from the non-
defaulting party.
10.2 Other Covenants. The failure of either party to perform,
keep or fulfill any of the other covenants, undertakings or
obligations set forth in this Agreement, if such failure is not
cured within thirty (30) days after written notice specifying such
failure is received by the defaulting party from the non-defaulting
party; provided, however, except a failure under Section 2.6, that
if such failure is incapable of cure within such period, and the
defaulting party commences to cure such default during such period
and thereafter prosecutes such cure to completion with all due
diligence, then no Event of Default shall exist unless such failure
remains uncured after one hundred twenty (120) days after receipt
of such notice.
10.3 Breach of Warranty. Any warranty or representation made
herein or in any document executed in connection herewith is
breached in any material respect.
10.4 Bankruptcy. The filing by Owner or Operator of a
voluntary petition in bankruptcy under Title 11 of the United
States Code, or the issuing of an order for relief against Owner or
Operator under Title 11 of the United States Code, or the filing by
Owner or Operator of any petition or answer seeking or acquiescing
in any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief for itself under any
present or future federal, state or other law or regulation
relating to bankruptcy, insolvency or other relief for debtors, or
Owner's or Operator's seeking or consenting to or acquiescing in
the appointment of any custodian, trustee, receiver, conservator or
liquidator of Owner or of all or any substantial part of the Tennis
Center or of any or all of the rents, issues, profits, revenues or
royalties thereof, or the making by Owner or Operator of any
general assignment for the benefit of creditors, or Owner's or
Operator's failure generally to pay its debts as such debts become
due, or Owner's or Operator's giving of notice to any governmental
body of insolvency or pending insolvency or suspension of
operations; or the entry by a court of competent jurisdiction of an
order, judgment or decree approving a petition filed against Owner
or Operator seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any
present or future federal, state or other law or regulation
relating to bankruptcy, insolvency or other relief for debtors,
which order, judgment or decree remains unvacated and unstayed for
an aggregate of ninety (90) days (whether or not consecutive) from
the date of entry thereof, or the appointment of any custodian,
trustee, receiver, conservator or liquidator of Owner or of all or
any substantial part of the Premises or of any or all of the rents,
issues, profits, revenues or royalties thereof without the consent
or acquiescence of Owner, which appointment shall remain unvacated
and unstayed for an aggregate of ninety (90) days (whether or not
consecutive).
Upon the occurrence of an Event of Default (in which case
the non-defaulting party may also terminate this Agreement as
provided in Section 3.3) the non-defaulting party may pursue any
and all remedies available to it at law or in equity.
ARTICLE 11
TRANSFER RESTRICTIONS
11.1 Ownership Transfer. Owner shall not directly or
indirectly sell, assign, transfer, mortgage, convey, charge or
otherwise encumber (or contract to do or permit any of the
foregoing, whether voluntarily or by operation of law), any or all
of its rights and obligations in, to and under this Agreement
without the prior written consent of Operator, which consent shall
not unreasonably be withheld. Notwithstanding the foregoing, the
shareholders of Owner may, without the consent of Operator,
transfer their stock in Owner, in whole or in part, to Nissho Iwai
Corporation, or an Affiliate thereof, provided (i) such Affiliate
(or any Affiliate thereof) does not, as its primary business, own,
lease or operate any casino or gambling facility and (iii) such
Affiliate (or any Affiliate thereof) does not own or operate a
distillery, winery, brewery or distributorship of alcoholic
beverages if such ownership or operation might reasonably impair
the ability of the Hotel operator (or its Affiliates) to obtain or
retain liquor licenses for the Hotel.
No such permitted transfer shall entitle the transferee
to any benefits or rights hereunder until the transferee agrees in
writing to assume and be bound by all the obligations of Owner
hereunder, whether arising prior to or from and after such
transfer.
11.2 Assignment by Operator. Operator shall have the right to
assign its rights and obligations under this Agreement without the
consent of Owner to any Affiliate. Any other assignment by
Operator shall require the Approval of Owner.
ARTICLE 12
MISCELLANEOUS
12.1 Further Assurances. Owner and Operator shall execute and
deliver all other appropriate supplemental agreements and other
instruments, and take any other action necessary to make this
Agreement fully and legally effective, binding and enforceable as
between them and as against third parties.
12.2 Waiver. The waiver of any of the terms and conditions of
this Agreement on any occasion or occasions shall not be deemed a
waiver of such terms and conditions on any future occasion.
12.3 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of Owner, its successors and
permitted assigns, and shall be binding upon and inure to the
benefit of Operator, its successors and permitted assigns.
12.4 Governing Law. This Agreement shall be governed by the
laws of the State of Hawaii.
12.5 Compliance with Mortgage and Ground Lease; Conflict and
No Merger. In carrying out their respective duties and obligations
under the terms of this Agreement, Owner and Operator shall take no
action that will constitute a default under the Ground Lease and
any Mortgage provided Operator shall promptly be delivered copies
of all Mortgages and any notices of any alleged defaults. In the
event of a conflict between any of the terms and conditions of this
Agreement and the terms and conditions of the Ground Lease, the
terms and conditions of the Ground Lease shall govern between the
conflicting terms and conditions. In the event of a termination of
the Ground Lease, or a merger of the ownership interests in Owner
into the Lessor under the Ground Lease, this Agreement shall remain
in full force and effect and the Lessor under the Ground Lease
shall become the Owner as defined herein.
12.6 Amendments. This Agreement may not be modified, amended,
surrendered or changed, except by a written instrument executed by
Owner and Operator.
12.7 Estoppel Certificates. Owner and Operator agree, at any
time and from time to time, as requested by the other party upon
not less than ten (10) days prior written notice, to execute and
deliver to the other a statement certifying that this Agreement is
unmodified and in full force and effect (or if there have been
modifications, that this Agreement is in full force and effect as
modified and stating the modifications) certifying the dates to
which required payments have been paid, and stating whether or not,
to the best knowledge of the signer, the other party is in default
in performance of any of its obligations under this Agreement, and
if so, specifying each such default of which the signer may have
knowledge, it being intended that any such statement delivered
pursuant hereto may be relied upon by others with whom the party
requesting such certificate may be dealing.
12.8 Inspection Rights. Owner shall have the right to inspect
the Tennis Center and examine the books and records of Operator
pertaining to Gross Revenues at the Tennis Center at all reasonable
times during the Operating Term upon reasonable notice to Operator,
and Owner, the Lessor under the Ground Lease and the holder of any
Mortgage shall have access to the Tennis Center and the books and
records pertaining to Gross Revenues at the Tennis Center at all
times during the Operating Term to the extent necessary to comply
with the terms of such Mortgage and the Ground Lease, all to the
extent consistent with applicable law and regulations and the
rights of guests, tenants and concessionaires of the Tennis Center.
12.9 Subordination. Operator agrees that, at the request of
the mortgagee under the Mortgage, this Agreement and any extension
hereof shall be subordinate to such Mortgage and any other mortgage
or similar security instrument hereafter affecting the Tennis
Center or the Premises held by such mortgagee and all renewals,
modifications, consolidations, replacements and extensions thereof.
Operator agrees to enter into any written instruments to effect
such subordination, or any non-disturbance agreements, reasonably
requested by such mortgagee.
12.10 Indemnity By Operator. Operator agrees to
indemnify, defend and hold harmless Owner, its directors, officers,
shareholders, employees, and agents from any and all demands,
claims, charges, actions, causes of action, suits, liabilities,
judgments, damages, costs and expenses, including attorneys fees
and costs, arising out of, or related to: (i) any negligence of
Operator, its agents, contractors, subcontractors and/or employees;
(ii) any malfeasance or misfeasance on the part of personnel hired
by Operator for the operation of The Tennis Center; (iii) any
willful breach of any representation or warranty of Operator herein
contained; (iv) any material violation or non-compliance with any
federal, state or local laws or ordinances arising out of the acts
or omissions of Operator; and/or (v) the intentional and/or
negligent exercise by Operator of the powers reserved to Operator
in Section 2.2., including, but not limited to, any decisions,
conduct, actions or inaction in connection with the selection,
hiring, discharge, supervision, and/or suspension of any employee
of Operator.
12.11 Indemnity By Owner. Owner agrees to indemnify, defend
and hold harmless Operator, its directors, officers, shareholders,
employees, and agents from any and all demands, claims, charges,
actions, causes of action, suits, liabilities, judgments, damages,
costs and expenses, including attorneys fees and costs arising out
of, or related to: (i) any negligence of Owner, its agents,
contractors, subcontractor and employees; (ii) any willful breach
or any representation or warranty of Owner herein contained; and/or
(iii) any material violation or non-compliance with any federal,
state or local laws or ordinances arising out of the acts or
omissions of Owner.
12.12 Partial Invalidity. In the event that any one or more
of the phrases, sentences, clauses or paragraphs contained in this
Agreement shall be declared invalid by the final and unappealable
order, decree or judgment of any court, this Agreement shall be
construed as if such phrases, sentences, clauses or paragraphs had
not been inserted, unless such construction would substantially
destroy the benefit of the bargain of this Agreement to either of
the parties hereto.
12.13 No Representation. In entering into this Agreement,
Operator and Owner acknowledge that neither Owner nor Operator have
made any representation to the other regarding projected earnings,
the possibility of future success or any other similar matter
respecting the Tennis Center, and that Operator and Owner
understand that no guarantee is made to the other as to any
specific amount of income to be received by Operator or Owner or as
to the future financial success of the Tennis Center.
12.14 Relationship. In the performance of this Agreement,
Operator shall act solely as an independent contractor. Neither
this Agreement nor any agreements, instruments, documents or
transactions contemplated hereby shall in any respect be
interpreted, deemed or construed as making Operator a partner or
joint venturer with Owner or as creating any similar relationship
or entity, and Owner agrees that it will not make any contrary
assertion, contention, claim or counterclaim in any action, suit or
other legal proceedings involving Operator and Owner.
12.15 Entire Agreement. This Agreement, together with the
Development Agreement, constitutes the entire agreement between the
parties relating to the subject matter hereof, superseding all
prior agreements or undertakings, oral or written.
12.16 Time of the Essence; Force Majeure. Time is of the
essence of this Agreement; provided, however, that time limitations
set forth in this Agreement, except with respect to monetary
obligations, shall be extended for the period of any delay due to
causes beyond the delayed party's control or which cannot be
reasonably foreseen or provided against, including, without
limitation, strikes, governmental regulations or orders, or events
of force majeure.
12.17 Interpretation. No provisions of this Agreement shall
be construed against or interpreted to the disadvantage of any
party hereto by any court or other governmental or judicial
authority by reason of such party having or being deemed to have
structured or dictated such provision.
12.18 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an
original and need not be signed by more than one of the parties
hereto and all of which shall constitute one and the same
agreement.
12.19 Consent and Approval. Except as herein otherwise
provided, whenever in this Agreement the Approval of Operator and
Owner is required, such Approval shall not be unreasonably withheld
or delayed.
12.20 Notices. Any notice, statement or demand required to be
given under this Agreement shall be in writing and be, and at the
option of the party giving notice, (i) personally delivered or (ii)
transmitted by postage prepaid certified first class mail, return
receipt requested, addressed, if to Owner to Suite 300, 3414
Peachtree Road, N.E., Atlanta, Georgia 30326, Attention: General
Counsel, with a copy to Maui Land & Pineapple Company, Inc.,
Attention: Joseph Hartley, 120 Kane Street, Kahului, Maui, Hawaii
96732, and if to Operator to P.O. Box 187, Kahului, Maui, Hawaii
96732, or to such other addresses as Operator or Owner shall
designate in the manner herein provided. Any such notice shall be
deemed to have been given (x) the date of receipt if delivered
personally or (y) the day five (5) days after it shall have been
posted if transmitted by mail, but the time period for any response
thereto or action in connection therewith shall not commence to run
until actual receipt or rejection or inability to deliver such
notice. Owner and Operator each agree that upon giving of any
notice, it shall use its best efforts to advise the other by
telephone that a notice has been sent hereunder. Such telephonic
advice shall not, however, be a condition to the effectiveness of
notice hereunder.
12.21 New Agreement. This Agreement amends and restates in
its entirety that certain Tennis Operating Agreement dated
September 26, 1990, by and between Kaptel Associates and Operator
and which Tennis Operating Agreement was subsequently amended and
restated in its entirety on or about October 29, 1992 by Kaptel
Associates and Operator, which Agreement is hereby superseded in
its entirety.
ARTICLE 13
REPRESENTATIONS AND WARRANTIES
13.1 Representation and Warranties of Owner. In order to
induce Operator to enter into this Agreement, Owner does hereby
make the following representations and warranties:
(A) the execution of this Agreement is permitted by the
Articles of Incorporation and By-Laws of Owner (or partnership
agreement or other organic instrument or document affecting Owner,
if Owner is not a corporation) and this Agreement has been duly
authorized, executed and delivered and constitutes the legal, valid
and binding obligation of Owner enforceable in accordance with the
terms hereof;
(B) there is no claim, litigation, proceedings or
governmental investigation pending, or as far as is known to Owner,
threatened, against or relating to Owner, the properties or
business of Owner or the transactions contemplated by this
Agreement which does, or may reasonably be expected to, materially
and adversely affect the ability of Owner to enter into this
Agreement or to carry out its obligations hereunder, and there is
no basis for any such claim, litigation, proceedings or
governmental investigation, except as has been fully disclosed in
writing to Operator; and
(C) neither the consummation of the actions completed by
this Agreement on the part of Owner to be performed, nor the
fulfillment of the terms, conditions and provisions of this
Agreement, conflicts with or will result in the breach of any of
the terms, conditions or provisions of, or constitute a default
under, any agreement, indenture, instrument or undertaking to which
Owner is a party or by which it is bound.
13.2 Representations and Warranties of Operator. In order to
induce Owner to enter into this Agreement, Operator does hereby
make the following representations and warranties:
(A) the execution of this Agreement is permitted by the
Articles of Incorporation and By-Laws of Operator and this
Agreement has been duly authorized, executed and delivered and
constitutes the legal, valid and binding obligation of Operator
enforceable in accordance with the terms hereof;
(B) there is no claim, litigation, proceedings or
governmental investigation pending, or as far as is known to
Operator, threatened, against or relating to Operator, the
properties or business of Operator or the transactions contemplated
by this Agreement which does, or may reasonably be expected to,
materially and adversely affect the ability of Operator to enter
into this Agreement or to carry out its obligations hereunder, and
there is no basis for any such claim, litigation, proceedings or
governmental investigation, except as has been fully disclosed in
writing to Owner; and
(C) neither the consummation of the actions completed by
this Agreement on the part of Operator to be performed, nor the
fulfillment of the terms, conditions and provisions of this
Agreement, conflicts with or will result in the breach of any of
the terms, conditions or provisions of, or constitute a default
under, any agreement, indenture, instrument or undertaking to which
Operator is a party or by which it is bound.
IN WITNESS WHEREOF, Operator and Owner, acting by and through
their proper and duly authorized officers or representatives, have
each duly executed this Agreement under seal the day and year first
above written.
OWNER:
NI HAWAII RESORT, INC., a
Hawaii corporation,
By /S/ T. OKUYAMA
Its VICE PRESIDENT-SECRETARY
OPERATOR:
KAPALUA LAND COMPANY, LTD.
By /S/ DON YOUNG
Its PRESIDENT
ASSIGNMENT AGREEMENT
(Assignment of Amended and Restated Tennis Operating Agreement)
This Agreement relates to the Assignment of the Amended and
Restated Tennis Operating Agreement ("Agreement") is made as of
this 9TH day of January, 1996, but effective January 1, 1996, by
and between KAPALUA LAND COMPANY, LTD., a Hawaii corporation,
("Operator") and NI HAWAII RESORT, INC., a Hawaii corporation,
("Owner").
WHEREAS, Owner has entered into that certain Amended and
Restated Tennis Operating Agreement ("Tennis Agreement") dated
effective January 1, 1996, with Operator to manage and operate
the Tennis Center;
WHEREAS, Operator and Owner desire to enter into an
agreement to supersede and/or modify the terms and conditions of
the Tennis Agreement.
NOW THEREFORE, it is agreed to by and between Owner and
Operator that, so long as Owner or its Affiliate (as defined in
the Tennis Agreement) is the Owner of the Ritz-Carlton Kapalua
Hotel, certain terms and provisions of the Tennis Agreement shall
be superseded and/or modified in the following respects:
1. The first sentence of Section 11.1 shall be superseded
and modified as follows:
"Any transfer or assignment by Owner of its rights and
obligations under this Agreement shall be subject to the
terms of Section 11.7 of that certain Amended and Restated
Hotel Ground Lease dated effective January 1, 1996 (the
"Ground Lease"), as modified by that certain Agreement with
NI Hawaii Resort, Inc. dated January 9, 1996. Any such
transfer or assignment shall be effected only after Owner
has completed and provided Kapalua Land Company, Ltd. with
rights similar to the rights of Maui Land & Pineapple
Company, Inc. which are set forth in Section 11.7(d) of the
Ground Lease."
2. As between Operator and its assigns and successors, and
Owner, the provisions set forth in this Agreement shall control
in the event of any conflict between the provisions of this
Agreement and the Tennis Agreement.
Except as superseded and/or modified hereby, all other terms
and provisions of the Tennis Agreement shall continue in full
force and effect. This Agreement shall immediately and
automatically terminate, without need for further action, at such
time as Owner or its Affiliates is no longer the Owner of the
Ritz-Carlton Kapalua Hotel.
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the day and year first above written.
KAPALUA LAND COMPANY, INC., NI HAWAII RESORT, INC.,
a Hawaii corporation a Hawaii corporation
By /S/ DON YOUNG By /S/ TORU OKUYAMA
Its PRESIDENT Its
GOLF COURSE USE AGREEMENT
This GOLF COURSE USE AGREEMENT (the "Agreement") is dated
January 9, 1996, but effective as of January 1, 1996 (the
"Effective Date"), by and among MAUI LAND & PINEAPPLE COMPANY, INC.
("Owner") and NI HAWAII RESORT, INC. ("NI").
W I T N E S S E T H:
R E C I T A L S:
1. Owner owns the Golf Courses at Kapalua Resort Area and the
fee interest in the Hotel Property.
2. Effective January 1, 1996, Kapalani, L.P., a Delaware
limited partnership ("Operator") manages and operates the Hotel
Property pursuant to that certain Amended and Restated Operating
Agreement by and between NI and Operator dated effective as of
January 1, 1996.
3. Owner and NI desire to continue to provide guests of the
Hotel with the use of the Golf Courses and Resort Club and agree to
amend and supersede that certain Supplemental Agreement dated
September 26, 1990, by and among Owner, Kaptel Associates and The
Ritz-Carlton Hotel Company with the terms set forth in this
Agreement.
NOW, THEREFORE, in consideration of the covenants and
agreements hereinafter set forth and for their mutual benefit,
Owner and NI hereby covenant and agree as follows:
ARTICLE I
Definitions. Terms and References
1.1 Definitions. In this Agreement and any exhibits hereto,
the following terms shall have the following meanings:
Affiliate(s) shall mean a Person or Persons directly or
indirectly, through one or more intermediaries, controlling,
controlled by or under common control with the Person(s) in
question. The term "control", as used in the immediately preceding
sentence, means, with respect to a Person that is a corporation,
the right to the exercise, directly or indirectly, of more than 50%
of the voting rights attributable to the shares of the controlled
corporation and, with respect to a Person that is not a
corporation, the possession, directly or indirectly, of the power
to direct or cause the direction of the management or policies of
the controlled Person.
Approval or Approved means prior written approval.
Golf Courses means the three 18-hole golf courses now
located at the Kapalua Resort Area, more particularly described and
depicted in Exhibits "A-1", "A-2," and "A-3" attached hereto, and
known as the Bay Course, the Village Course and the Plantation
Course, respectively.
Hotel means the hotel known as of January 1, 1996, as The
Ritz-Carlton, Kapalua.
Hotel Ground Lease means that certain Hotel Ground Lease
dated effective as of January 1, 1996, made by Owner, as Lessor,
and NI, as Lessee, covering the Hotel Property, as the same may be
amended from time to time.
Hotel Guests means the customers, guests and invitees of
the Hotel while they are overnight guests at the Hotel.
Hotel Property means the land described on Exhibit "B"
attached hereto, upon which the Hotel is located.
Kapalua Club Members means individuals and their
respective guests and invitees who have certain Golf Course and
Tennis Facilities privileges as a benefit of their membership in
the Kapalua Club.
Kapalua Property Owners means owners of residential
condominiums, homes, or residential lots at the Kapalua Resort
Area.
Kapalua Resort Area means the existing and proposed
development of the Kapalua area on Maui, more particularly set
forth in the Kapalua Master Plan as filed with the County of Maui
Planning Department and amended from time to time.
Non-Resort Players means individuals who may play golf on
the Golf Courses but who are not Resort Guests or employees of
Owner.
Officer of Owner means the President or Executive Vice
President/Resorts of Owner or an individual designated by either in
writing to Operator.
Owner means Maui Land & Pineapple Company, Inc., a Hawaii
corporation.
Operator means Kapalani, L.P., a Delaware limited
partnership, or its assigns or successor.
Person shall mean an individual, partnership,
corporation, trust, unincorporated association, joint stock
company, or other entity or association.
Resort Club means the pro shops and other facilities
presently made available to Resort Guests at the Golf Courses.
Resort Guests means individuals who are customers,
guests, or invitees of Owner or the hotel known as of January 1,
1996, as Kapalua Bay Hotel, or who are Kapalua Property Owners,
Resort Club members, Hotel Guests and their respective guests and
invitees.
Round means the normal play of 18 holes of golf by one
player on one of the Golf Courses.
Tee Time means the starting time for a Round on one of
the Golf Courses.
Term means the term of this Agreement which shall
commence as of the Effective Date herein and continue until
December 31, 2094, coterminous with the term of the Hotel Ground
Lease, except as otherwise provided for herein.
Tournament means a golf special event whereby one or more
of the Golf Courses will be closed to play except for the
participants of such golf special event for at least four (4)
consecutive days.
1.2 Parties. If any Golf Course or facility is managed or
operated by a subsidiary or an affiliate of Owner, such as Kapalua
Land Company, Ltd., Owner shall cause the subsidiary or affiliate
to do whatever is required to be done by Owner under this Agreement
with respect to that facility. The parties also recognize that NI
shall, in its sole discretion, have the right to appoint Operator
as its agent to act on behalf of NI or in conjunction with NI, and
be involved on a day-to-day basis with respect to matters covered
under this Agreement. Notwithstanding the above, NI owns the
rights and obligations under this Agreement which may be assigned
pursuant to Section 4.8 herein.
1.3 Duration. The Term of this Agreement shall commence on
the Effective Date herein and continue until December 31, 2094
coterminous with the term of the Hotel Ground Lease.
1.4 Rights and Use. The parties hereto understand and agree
that the Owner has entered into a similar golf use agreement with
the owner of The Kapalua Bay Hotel. Owner agrees that the rights
and benefits with respect to golf play on the Golf Courses as
enjoyed by The Kapalua Bay Hotel or any other Kapalua Resort Area
hotel, if any, shall not be more favorable to The Kapalua Bay Hotel
or any other Kapalua Resort Area hotel than the rights and benefits
enjoyed by the Hotel and that if such differences now or hereafter
arise, Owner shall promptly advise NI of such differences and the
parties shall then effect any changes to this Agreement required to
provide NI with rights and benefits no less favorable than those of
the Kapalua Bay Hotel or any other Kapalua Resort Area hotel.
ARTICLE 2
Golf
2.1 Use of Golf Courses. Owner grants to NI, for the Term of
this Agreement, the right to use and enjoy the Golf Courses and
Resort Club as set forth in this Article 2. Owner and NI agree
that Operator, as an agent for NI, shall have the benefit of using
such rights under this Agreement.
2.2 Reservations.
(a) Reservations. Except as provided in this Agreement,
use of the Golf Courses shall be available to Resort Guests and
Non-Resort Players as determined in Owner's discretion, which shall
be reasonable, on a "first come, first serve" reservation basis.
Hotel Guests shall have the right to make reservations for Tee
Times at least twenty-four (24) hours in advance of Non-Resort
Players; provided, however, that with respect to the Plantation
Course, Hotel Guests' reservations shall be subject to the
reservation and use privileges of Kapalua Club Members.
(b) Group Reservations. NI shall be entitled to make
reasonable Golf Group Reservations up to eighteen (18) months in
advance in connection with organized special golf events and/or
tournaments. Owner shall use its good faith efforts in providing
such Golf Group Reservations requested by NI. Golf Group
Reservations shall be made in connection with advance Hotel group
reservations (minimum fifteen (15) rooms) and a reasonable deposit
must be made to Owner at least six (6) months in advance. "Golf
Group Reservations" shall mean reservations for at least twenty-
four (24) players.
2.3 Over-Capacity. It is agreed that currently the Golf
Courses have the capacity to accommodate all of the Kapalua Resort
Area's present volume of golf play from the Kapalua Bay Hotel and
the existing 528 condominium villas plus projected volume of play
from the Hotel and some additional development. NI shall have 150
daily Rounds, which may be equally distributed among The Bay
Course, The Village Course and Plantation Course. If, in the
opinion of NI, it becomes difficult for Hotel Guests to regularly
obtain an adequate number of Rounds, NI shall then notify the Owner
of the problem. Adequate is defined as 150 Rounds per day. Owner
and NI will jointly examine the situation and will make every
reasonable effort to alleviate the problem to their mutual
satisfaction within a period of six (6) calendar months. Failing
this, NI shall notify Owner of the continuing problem, and NI may
then invoke the remedy as stated below:
1. NI shall have the right for and on behalf of Hotel
Guests to reserve up to 150 priority daily Rounds of golf
which shall be provided in good faith at Owner's discretion
with a reasonable allocation among the Golf Courses and which
will provide a proportionate number of Rounds in the morning
and afternoon periods as the total available Tee Times during
each period.
2. If the Tee Times for said priority Rounds are not
reserved by specific Hotel Guests by 6:00 p.m. on the third
day before the Tee Times, they shall be cancelled, except that
thirty (30) of said priority Rounds (determined at Owner's
discretion) shall continue to be reserved until noon on the
day before the Tee Time, at which time if such Tee Time is not
reserved by specific Hotel Guests, it shall be cancelled.
2.4 Tournaments. Owner shall have the right to schedule up
to three Tournaments per calendar year, reserving for itself and
its attendees at such Tournaments the exclusive rights to play on
two (2) of the Golf Courses (but not on all), provided that:
(a) Owner must give NI six (6) months' notice of any
such Tournament.
(b) Hotel Guests will maintain the same advance
reservation rights on the remaining Golf Course(s) not used
for the Tournament.
(c) No Tournament will be of a duration exceeding one
(1) week or as may be extended for ties or weather delays.
(d) Only one (1) Tournament may be scheduled during the
months of January, February and March of each year.
(e) No Tournament will be scheduled on or within two (2)
days of Christmas or New Year's Day.
(f) In addition to the foregoing and because Tournaments
are a mutually beneficial promotion of the Kapalua Resort
Area, NI and Owner agree that not less than six (6) months in
advance of the Lincoln Mercury Kapalua International or a
successor nationally televised tournament, the Tournament
sponsor or its designee may elect to reserve up to 100 rooms
(double occupancy) for up to one week (700 room nights) for
the use of Tournament participants, sponsors, officials and
staff, and Operator, as agent for NI, shall use its best
efforts to grant such reservations. These Tournament room
nights shall be provided at twenty-five percent (25%) of the
Hotel's then current published rates for such rooms, and
services shall be provided to the Tournament participants,
officials, sponsors and staff staying at the Hotel as are
customarily provided without additional charge to Hotel
Guests, except that food, beverages, and the like shall be
charged at prevailing rates.
2.5 Fee Structure. The fees to Hotel Guests for use of the
Golf Courses shall be on the same basis and at the same rates as
are regularly made available to the most favored Resort Guest of
the Kapalua Resort Area, except that it is understood that Kapalua
Property Owners, Kapalua Club Members and Owner's employees, and
their respective guests and invitees, and residents of Maui may be
charged lower fees and that Owner reserves the right to provide
complimentary Rounds at its discretion and that annual or other
periodic special fees may be charged to Kapalua Club Members. It
is agreed that Non-Resort Players shall be charged a higher fee
than Hotel Guests. At the discretion of Owner and as times are
available, NI shall be entitled to four (4) complimentary Rounds of
golf per day for use by VIPs, meeting planners, representatives of
travel agencies, and such other individuals who may be beneficial
to the promotion and marketing of the Hotel, as designated by NI.
NI is hereby granted a corporate membership in the Kapalua Club at
no cost or fees to NI, including no initiation fee or monthly fees
or dues; provided, however, that such corporate membership shall be
non-transferable and shall be valid only for such period as NI or
its Affiliate retains a majority-interest in ownership of the
Hotel.
2.6 Rules and Regulations. Notwithstanding anything herein,
the rights of NI and Hotel Guests under this Agreement shall be
subject to reasonable rules and regulations, including dress codes,
rules of conduct, and operation of golf carts, imposed by Owner on
all users of the Golf Courses.
2.7 Repairs. Nothing herein will prohibit Owner from
temporarily closing nine (9) or more holes of the Golf Courses for
maintenance or reconstruction purposes or to restore the same or to
permit the grass thereon to be replenished in accordance with
standard golf course management practices.
2.8 Use Only as Golf Courses. During the Term hereof, Owner
agrees the Golf Courses shall be used only for the operation of
three 18-hole golf courses and related facilities and improvements,
and that Owner shall continuously and at all times operate and
maintain such courses in a first class manner at a standard
comparable to the top resort golf courses in the State of Hawaii
and shall expeditiously repair any damage due to storm, flood, or
other casualty, provided that nothing herein shall restrict Owner
from temporarily closing any of the Golf Courses if weather or
other events beyond Owner's control render them unplayable.
2.9 Charge Rights. Hotel Guests shall have the right to
charge to their Hotel room account amounts for services at the Golf
Courses and the Resort Club. Such charges shall be forwarded to
the Hotel promptly and charges received between the first day of
each month and the fifteenth day of each month shall be paid to
Owner on or before the last day of such month, with charges
received between the sixteenth day and the last day of each month
being due and payable on or before the fifteenth day of the
following month. Operator, as agent for NI, shall not deduct any
service charge except that it may deduct a fee reasonably
equivalent to average amount of any credit card fees actually paid
by Operator. Bad debts or collection charges, if any, shall be the
responsibility of Operator, as agent for NI.
2.10 Record Memorandum. A memorandum referencing certain
golf provisions of this Article 2 shall be recorded in the Bureau
of Conveyances of the State of Hawaii in a form reasonably
satisfactory to Owner and NI.
ARTICLE 3
No License of Logo
3.1 No License. Owner does not grant to NI (or Operator as
NI's agent) any right or license, non-exclusive or otherwise, to
use the Butterfly Logo depicted on Exhibit "C" hereto in connection
with the operation, advertising and promotion of the Hotel or any
condominium units in the Kapalua Resort Area owned or managed by
Operator and/or the merchandising, manufacture, promotion, sale and
distribution of goods or services related thereto, at the Hotel or
such condominium units, or in connection with anything else. Any
such license shall be in the sole and absolute discretion of Owner
and neither NI (or Operator as NI's agent) shall use the Butterfly
Logo without the prior written consent of Owner, which consent may
be unreasonably and arbitrarily withheld.
ARTICLE 4
General Provisions
4.1 Notices. All notices, demands, requests, consents,
approvals or other communications required or permitted to be given
hereunder or which are given with respect to this Agreement shall
be in writing and shall be delivered personally or sent by
registered or certified mail, return receipt requested, postage
prepaid, addressed to the party to be notified at the following
address, or to such other address as such party shall have
specified most recent by like notice:
If to Owner, then to:
Maui Land & Pineapple Company, Inc.
Post Office Box 187
Kahului, Maui, Hawaii 96732
With a copy to:
William E. Atwater, Esq.
Carlsmith Ball Wichman Case and Ichiki
Pacific Tower, Suite 2200
1001 Bishop Street
Honolulu, Hawaii 96813
If to NI, then to:
NI Hawaii Resort, Inc.
c/o 745 Fort Street, Hawaii Building 8th Floor
Honolulu, Hawaii
With a copy to:
Alan M. Goda, Esq.
Kobayashi Sugita & Goda
745 Fort Street, 8th Floor
Honolulu, Hawaii 96813
Notices given as provided above shall be deemed given on
delivery or upon receipt if by personal delivery or the fourth
(4th) business day following the mailing thereof, as the case may
be.
4.2 Counterparts, Captions, Exhibits, Etc. This Agreement
may be executed in counterparts, each of which shall be deemed an
original, and all of which shall constitute one and the same
instrument. The captions are for convenience of reference only,
and shall not affect the meaning or construction to be given any of
the provisions hereof. All pronouns and any variations thereof
shall be deemed to refer to the masculine, feminine, or neuter,
singular or plural, as the identity of the parties may require.
Any references to Exhibits attached hereto shall be incorporated
herein by such reference.
4.3 Governing Law. This Agreement shall be governed by,
interpreted under, and construed and enforced in accordance with
the laws of the State of Hawaii applicable to agreements made and
to be performed wholly within the State of Hawaii. The venue for
any action with respect to this Agreement shall be the Circuit
Court of the First or Second Circuit of the State of Hawaii.
4.4 Entire Agreement; Successors and Assigns; Etc. This
Agreement contains the entire agreement between the parties with
respect to the subject matter of this Agreement and supersedes all
prior understandings, including the Supplemental Agreement dated
September 26, 1990, with respect thereto. This Agreement may not
be modified, changed, supplemented or terminated, nor may any
obligations hereunder be waived, except by written instruments
signed by the party to be charged or by its agent duly authorized
in writing or as otherwise expressly permitted herein. This
Agreement shall be binding upon and inure to the benefit of the
successors and permitted assigns of the parties hereto. The
parties do not intend to confer any benefit hereunder on any
person, firm or corporation other than the parties hereto.
4.5 No Waiver. No waiver of any breach of any agreement or
provision herein contained shall be deemed a waiver of any
preceding or succeeding breach thereof or of any other agreement or
provision herein contained. No extension of time for performance
of any obligations or acts shall be deemed an extension of the time
for performance of any other obligations or acts.
4.6 Attorney's Fees. If any action, suit or proceeding is
brought by any party hereto with respect to this Agreement, the
prevailing party in any such action, suit or proceeding shall be
entitled to recover from the other party or parties, in addition to
such other relief as the court may award, all reasonable attorneys'
fees and costs of suit incurred by the prevailing party in
connection with such action, suit or proceeding.
4.7 Interest on Late Payments. If any party hereto fails to
pay amounts due to another party in accordance with this Agreement
within the time period specified herein for such payment, in
addition to any other rights or remedies of such other party,
amounts not so paid shall bear interest at a rate equal to the
lesser of: (i) two percent (2%) plus the prime interest rate for
such period of time, which shall be the interest rate then charged
by the largest or second largest bank (as measured by total assets)
in the State of Hawaii, whichever charges the higher rate, to its
most responsible commercial borrowers on 90-day unsecured notes, or
(ii) the maximum per annum rate of interest permitted to be charged
by then applicable law.
4.8 Assignment. NI shall transfer or assign any and all
rights and obligations under this Agreement to its successors or
assigns, if any, pursuant to the terms of Section 11.7 of the Hotel
Ground Lease.
Owner shall assign its rights and delegate its duties under
this Agreement with respect to The Bay Course, The Village Course
and the Plantation Course to any purchaser, assignee or transferee
of any such property.
4.9 Agent. During the Term of this Agreement, NI shall have
the right to appoint, without the consent of Owner, an agent or
agents who shall have the rights and obligations of NI as set forth
in Article 2 herein. Rights and obligations of Operator or any
other agent designated by NI under this Agreement shall be limited
to Article 2 herein, unless expressly agreed to by Owner and NI.
NI shall provide written notice to Owner of the appointment or
withdrawal of such agent.
IN WITNESS WHEREOF, each party hereto has caused this
Agreement to be executed on the date first above written.
MAUI LAND & PINEAPPLE COMPANY, INC.,
a Hawaii corporation
By /S/ DON YOUNG
Name: DON YOUNG
Title: EXECUTIVE VICE PRESIDENT
"Owner"
NI HAWAII RESORT, INC., a Hawaii
corporation
By /S/ T. OKUYAMA
Name: T. OKUYAMA
Title: VICE PRESIDENT-SECRETARY
"NI"
MEMORANDUM OF UNDERSTANDING
THIS MEMORANDUM OF UNDERSTANDING (the "Agreement") effective
as of the 31st day of October, 1995 (the "Effective Date"), by and
between MAUI HOTELS ("Ritz-Carlton"), a Georgia Limited
Partnership, whose General Partner is Ritz-Carlton Hotel Company,
KAPALUA INVESTMENT CORP. ("Kapalua"), a Hawaii corporation, and NI
HAWAII RESORT, INC. ("NI Hawaii"), a Hawaii corporation, the
foregoing constituting all the general partners of KAPTEL
ASSOCIATES ("Kaptel"), a Hawaii General Partnership (for purposes
of this Agreement the respective partners are collectively referred
to as the "Partners");
WITNESSETH THAT:
WHEREAS, Kaptel is currently in default under that certain
Promissory Note in the amount of U.S.$186,250,000.00 dated
September 26, 1990 (the "Loan"), by and between The Long-Term
Credit Bank of Japan, Ltd. (the "Lender") and Kaptel and that
Lender is in a legal position to pursue any and all remedies
against Kaptel to cure said default;
WHEREAS, the Partners have authorized NI Hawaii to proceed
with negotiations with the Lender to purchase or discharge the Loan
and based on NI Hawaii's effort to negotiate with the Lender, Ritz-
Carlton and Kapalua agree to enter into a certain dissolution
agreement concerning the transfer of their respective interests in
Kaptel to NI Hawaii;
WHEREAS, the confirmation of the transfers of the respective
partnership interests in Kaptel by Ritz-Carlton and Kapalua are
subject to the successful negotiations between NI Hawaii with the
Lender which results in NI Hawaii's closing on the purchase or
discharge of the Loan;
WHEREAS, NI Hawaii agrees that in the event NI Hawaii, or
its affiliate, fails to purchase or discharge the Loan, Ritz-
Carlton and Kapalua shall have the right to renegotiate their
respective partnership interests in Kaptel;
NOW, THEREFORE, for mutual promises, obligations and good
and valuable consideration, the parties intending to be legally
bound, the parties hereby agree as follows:
1. Ritz-Carlton shall transfer its 25% interest in Kaptel
to NI Hawaii and Kapalua shall transfer its 25% interest in Kaptel
to NI Hawaii upon terms mutually agreed upon among the Partners in
writing.
2. Upon the delivery by NI Hawaii to Ritz-Carlton and
Kapalua of notice that it has completed the acquisition or pay off
of the Loan with LTCB or successfully negotiated the acquisition or
pay off of the Loan, such delivery shall constitute absolute and
irrevocable confirmation by Ritz-Carlton and Kapalua that they have
fully transferred their interest in Kaptel and have no further
rights pursuant to paragraph 3 below.
3. In the event NI Hawaii, or its affiliate, fails to
purchase or discharge the Loan and Lender does not release Kaptel
of all liabilities and obligations under the Loan by March 31,
1996, Ritz-Carlton and Kapalua shall have the right to renegotiate
their respective positions and interests in Kaptel. NI Hawaii
agrees to enter into good-faith negotiations with Ritz-Carlton and
Kapalua with respect to these matters.
4. Ritz-Carlton and Kapalua hereby waive any and all
claims, if any, against NI Hawaii arising from or connected with
the purchase or discharge of the Loan by NI Hawaii except for any
losses, claims, expenses, damages, liabilities or obligations
arising from or connected with NI Hawaii's willful misconduct in
negotiating the purchase or discharge of the Loan.
5. This Agreement and the rights and obligations of the
respective parties hereunder shall be governed by and interpreted
and enforced in accordance with the laws of the State of Hawaii.
6. This Agreement may be executed by each of the parties
hereto by facsimile with original copies to follow and upon such
execution shall be effective as of the Effective Date. This
Agreement may be executed in counterparts, each of which shall be
deemed an original, and all of which shall constitute one and the
same instrument.
7. This Agreement shall inure to the benefit of and shall
be binding upon each of the parties and their respective heirs,
executors, administrators, legatees, distributees, representatives,
assignees and other successors.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their duly authorized corporate
officers or their respective General Partners, each as of the day
and year first above written.
KAPALUA INVESTMENT CORP.
By /S/ DON YOUNG
Name: DON YOUNG
Office: PRESIDENT
"Kapalua"
MAUI HOTELS, a Georgia Limited Partnership
By THE RITZ-CARLTON HOTEL
COMPANY, Its General Partner
By /S/ J. RICHARD STEPHENS
Name: J. RICHARD STEPHENS
Office: EXECUTIVE VICE
PRESIDENT
"Ritz-Carlton"
NI HAWAII RESORT, INC.
By /S/ TORU OKUYAMA
Name: TORU OKUYAMA
Office: VICE PRESIDENT
"NI Hawaii"
SUPPLEMENTAL AGREEMENT
THIS SUPPLEMENTAL AGREEMENT (the "Agreement") entered into
as of the 15th day of February, 1996 (the "Effective Date"), by
and between MAUI HOTELS ("Ritz-Carlton") a Georgia Limited
Partnership, KAPALUA INVESTMENT CORP. ("Kapalua"), a Hawaii
corporation, and NI HAWAII RESORT, INC. ("NI Hawaii"), a Hawaii
corporation;
WITNESSETH THAT:
WHEREAS, that certain Amended and Restated Partnership
Agreement of Kaptel Associates (the "Partnership"), a Hawaii
general partnership, was entered into on September 26, 1990, with
Ritz-Carlton, Kapalua and NI Hawaii as the general partners;
WHEREAS, Kaptel is in default under that certain Promissory
Note in the amount of U.S.$186,250,000.00 dated September 26,
1990 (the "Loan"), by and between The Long-Term Credit Bank of
Japan, Ltd. (the "Lender");
WHEREAS, NI Hawaii, as newly appointed Managing Partner of
the Partnership, proceeded with negotiations with the Lender to
purchase or discharge the Loan for the benefit of the
Partnership;
NOW, THEREFORE, for mutual promises, obligations and good
and valuable consideration, the parties intending to be bound,
the parties hereby agree as follows:
1. In the event NI Hawaii consummates the purchase or
discharge of the Loan for the benefit of the Partnership, NI
Hawaii, Ritz-Carlton and Kapalua shall consent, approve, and
confirm the purchase or discharge of the Loan negotiated by NI
Hawaii for the benefit of the Partnership.
2. Ritz-Carlton and Kapalua confirm that they have no
intention of contributing toward any portion of the purchase or
discharge of the Loan.
3. On the closing date of the purchase or discharge of the
Loan, Ritz-Carlton and Kapalua shall confirm the transfer of
their respective interest in the Partnership to NI Hawaii and
approval for NI Hawaii to liquidate and terminate the
Partnership, in a form attached hereto as Exhibit "A". For
purposes of this Agreement, the Closing Date shall be defined as
the date upon which NI Hawaii, or its affiliate, remits
sufficient funds to either purchase or discharge the Loan and the
Lender releases Kaptel.
4. Maui and Kapalua hereby waive any and all claims, if
any, against NI Hawaii arising from or connected with the
purchase or discharge of the Loan, except for losses, claims,
expenses, damages, liabilities, or obligations arising from or
connected with NI Hawaii's willful misconduct in negotiating the
purchase or discharge of the Loan for the benefit of the
Partnership.
5. This Agreement and the rights and obligations of the
respective parties hereunder shall be governed by and construed
in accordance with the laws of the State of Hawaii.
6. This Agreement may be executed and deemed effective upon
the execution by each of the parties hereto by facsimile with
original copies to follow. This Agreement may be executed in
counterparts, each of which shall be deemed an original and all
which shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their duly authorized corporate
officers or their respective General Partners, each as of the day
and year first above written.
KAPALUA INVESTMENT CORP.
By /S/ DON YOUNG
Name: DON YOUNG
Office: PRESIDENT
"Kapalua"
MAUI HOTELS, a Georgia Limited Partnership
By THE RITZ-CARLTON HOTEL COMPANY, Its General Partner
By /S/ J. RICHARD STEPHENS
Name: J. RICHARD STEPHENS
Office: EXECUTIVE VICE PRESIDENT
"Maui"
NI HAWAII RESORT, INC.
By /S/ TORU OKUYAMA
Name: TORU OKUYAMA
Office: VICE PRESIDENT
"NI Hawaii"
EXHIBIT A
ACKNOWLEDGMENT AND CONFIRMATION
The undersigned parties acknowledge that they have
received written notice from NI Hawaii Resort, Inc., or its
affiliate, ("NI Hawaii") that it has closed on the purchase or
the discharge of that certain loan in the amount of
U.S.$186,250,000.00 dated September 26, 1990 (the "Loan"), by and
between The Long-Term Credit Bank of Japan, Ltd. (the "Lender")
and Kaptel Associates (the "Partnership"), a Hawaii general
partnership, and that the Lender has released Kaptel of any and
all liabilities and obligations under the Loan.
The undersigned parties hereby confirm that they do not
intend to contribute toward any portion of the purchase or
discharge of the Loan and hereby confirm the respective
conveyance of any and all interest they may have in the
Partnership to NI Hawaii and waive any and all rights to, or
claims of, any interest in the Partnership as of the date set
forth below. The undersigned parties further approve NI Hawaii
proceeding with winding up and liquidating the Partnership as of
the date set forth below.
IN WITNESS WHEREOF, the undersigned parties have
executed this Acknowledgment and Confirmation as of this _______
day of March, 1996.
MAUI HOTELS, a Georgia Limited Partnership
By THE RITZ-CARLTON HOTEL COMPANY, Its General Partner
By
Name:
Office:
KAPALUA INVESTMENT CORP.
By
Name:
Office:
LAND COURT REGULAR SYSTEM
AFTER RECORDATION, RETURN BY MAIL [ ] PICK-UP [X]
TMK: 4-2-004-021 (2)
TMK: 4-2-004-015 & 014 (2)
RELEASE OF REAL PROPERTY MORTGAGE,
SECURITY AGREEMENT AND FINANCING STATEMENT
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, THE LONG-TERM CREDIT BANK OF JAPAN, LTD. (LOS ANGELES
AGENCY), a Japan corporation, whose address is 444 South Flower
Street, Suite 3700, Los Angeles, California 90071-2938 ("LTCB") is
the mortgagee under the following instrument (the "Fee Mortgage"):
That certain Real Property Mortgage, Security Agreement
and Financing Statement, dated September 26, 1990,
entered into by and among Maui Land & Pineapple Company,
Inc. a Hawaii Corporation, as "Mortgagor" therein, Kaptel
Associates, a Hawaii general partnership, as "Borrower"
therein, and LTCB, as "Mortgagee" therein, recorded in
the Bureau of Conveyances of the State of Hawaii as
Document No. 90-149098; and
WHEREAS, LTCB desires to release the property encumbered under
the Fee Mortgage from the lien of the Fee Mortgage;
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, LTCB does
hereby remise, release, convey and quitclaim unto MAUI LAND &
PINEAPPLE COMPANY, INC., a Hawaii corporation, whose business and
post office address is 120 Kane Street, Kahului, Maui, Hawaii
96732, its successors and assigns, forever, all and singular,
all of the estate, right, title, interest, claim and demand
whatsoever at law or in equity which LTCB now has in the Fee
Mortgage and the collateral and/or property described in and/or
encumbered by the lien of the Fee Mortgage, and releases from the
Fee Mortgage the collateral described therein and property
encumbered thereby.
IN WITNESS WHEREOF, LTCB has caused these presents to be duly
executed on this 12th day of March , 1996.
THE LONG-TERM CREDIT BANK OF JAPAN, LTD.
(LOS ANGELES AGENCY)
By:/s/ MASAHIRO YOSHIOKA
Name: Masahiro Yoshioka
Its: Vice President
STATE OF CALIFORNIA )
) SS.
COUNTY OF LOS ANGELES )
On March 12, 1996 before me, the undersigned, Notary Public in and
for said State and County, personally appeared Masahiro Yoshioka,
personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person(s) whose name(s) is/are
subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized
capacity(ies), and that by his/her/their signature(s) on the
instrument the person(s), or the entity upon behalf of which the
person(s) acted, executed the instrument.
WITNESS my hand and official seal.
/s/ RALPH A. WHITE
Notary Public in and for said
County and State
(SEAL)
RALPH A. WHITE
Comm. #1018047
Notary Public - California
Los Angeles County
Comm. Expires Feb. 21, 1998
MAUI LAND & PINEAPPLE COMPANY, INC.
ANNUAL REPORT
1995
CONTENTS
Letter to Shareholders 2
Pineapple 4
Resort 5
Commercial & Property 6
Independent Auditors' Report 7
Consolidated Balance Sheets 8
Consolidated Statements of Operations and Retained Earnings 10
Consolidated Statements of Cash Flows 11
Notes to Consolidated Financial Statements 12
Common Stock 19
Selected Financial Data 20
Management's Discussion and Analysis of
Results of Operations and Financial Condition 21
Officers and Directors 24
THE COMPANY
Maui Land & Pineapple Company, Inc., a Hawaii corporation organized in
1909, is a land-holding and operating company with several wholly-owned
subsidiaries, including two major operating companies, Maui Pineapple Company,
Ltd. and Kapalua Land Company, Ltd. The Company, as used herein, refers to
the parent and its wholly-owned subsidiaries. The Company's principal
business activities are Pineapple, Resort and Commercial & Property.
The Company owns approximately 28,600 acres on the island of Maui, of
which about 7,900 acres are used directly or indirectly in the Company's
operations. Approximately 1,940 people were employed by the Company in 1995
on a year-round or seasonal basis.
Maui Pineapple Company, Ltd. is the operating subsidiary for Pineapple.
It is the sole supplier of private label, 100% Hawaiian canned pineapple
products to United States supermarkets. It also sells its products to food
service suppliers and food processors.
Kapalua Land Company, Ltd. is the development and operating subsidiary
for a destination resort community in West Maui. The Kapalua Resort is
located on approximately 1,500 acres bordering the ocean, including three
beaches.
Commercial & Property includes Kaahumanu Center, Napili Plaza and other
non-resort property rentals and sales.
10-K REPORT
Shareholders who wish to receive, free of charge, a copy of the Company's 10-K
Report to the U.S. Securities and Exchange Commission may write to:
Corporate Secretary
Maui Land & Pineapple Company, Inc.
P. O. Box 187
Kahului, Hawaii 96732-0187
ANNUAL MEETING
The Annual Meeting of Shareholders of the Company will be held at 9:00 a.m. on
Friday, May 3, 1996, in the Corporate Office courtyard of Maui Land &
Pineapple Company, Inc., 120 Kane Street, Kahului, Hawaii.
OFFICES
Corporate Offices Pineapple Marketing Office
Maui Land & Pineapple Company, Inc. Maui Pineapple Company, Ltd.
P. O. Box 187 P. O. Box 4003
Kahului, Hawaii 96732-0187 Concord, California 94524-4003
Telephone: 808-877-3351 Telephone: 510-798-0240
Fax: 808-871-0953 Fax: 510-798-0252
Maui Pineapple Company, Ltd.
P. O. Box 187
Kahului, Hawaii 96732-0187
Telephone: 808-877-3351
Fax: 808-871-0953
Kapalua Land Company, Ltd.
1000 Kapalua Drive
Kapalua, Hawaii 96761-9028
Telephone: 808-669-5622
Fax: 808-669-5454
Transfer Agent & Registrar
Chemical Mellon Shareholder Services
Shareholder Relations
P. O. Box 469
Washington Bridge Station
New York, New York 10033
Telephone: 800-356-2017
Independent Auditors
Deloitte & Touche LLP
1132 Bishop Street, Suite 1200
Honolulu, Hawaii 96813-2870
Telephone: 808-543-0700
<TABLE>
MAUI LAND & PINEAPPLE COMPANY, INC. & SUBSIDIARIES
FINANCIAL HIGHLIGHTS
<CAPTION>
1995 1994 1993
(Dollars in Thousands
Except Per Share Amounts)
<S> <C> <C> <C>
REVENUES
Pineapple $ 81,052 $ 81,044 $ 86,033
Resort 34,330 34,109 31,455
Commercial & Property 10,123 10,617 13,635
Corporate 72 112 49
-------- -------- --------
Total 125,577 125,882 131,172
======== ======== ========
NET LOSS (1,559) (3,909) (11,059)
======== ======== ========
NET LOSS PER COMMON SHARE $ (.87) $ (2.18) $ (6.15)
======== ======== ========
AVERAGE COMMON SHARES OUTSTANDING 1,797,125 1,797,125 1,797,125
TOTAL ASSETS $137,085 $235,411 $211,588
CURRENT RATIO 2.78 .97 2.47
LONG-TERM DEBT and CAPITAL LEASES $ 36,227 $ 99,180 $ 96,108
STOCKHOLDERS' EQUITY 58,870 60,429 64,321
STOCKHOLDERS' EQUITY PER COMMON SHARE $ 32.76 $ 33.63 $ 35.79
EMPLOYEES 1,940 2,020 2,280
</TABLE>
TO OUR SHAREHOLDERS AND EMPLOYEES
Nineteen ninety-five developed into a more difficult year for the
Company than we anticipated because of the continued highly competitive market
conditions for pineapple products and the relatively low level of pineapple
prices which prevailed for the first ten months of the year. Also, while we
experienced a modest increase in overall visitor occupancy on Maui, the
uncertainty surrounding the financial condition of the two hotels at Kapalua
and the continued competitive conditions in the luxury hotel room market
segment combined to restrain operating results at Kapalua. Lastly, 1995 was a
very difficult year for retailers throughout the U.S. and Maui was no
exception.
The Company's net loss of $1.6 million for the full year, however, is an
improvement from the losses suffered in 1994 of $3.9 million and in 1993 of
$11 million. We are convinced the fundamental improvements in operating
efficiency achieved over the last two years and improved business conditions
will lead to improved results in 1996.
In 1995, on revenues of $126 million, the Company incurred a pre-tax
loss of $3 million compared to a pre-tax loss of $6.7 million in 1994. After
an income tax credit of $1.4 million, the Company's net loss was $1.6 million
or $.87 per share. The operating results in 1995 from our major business
segments, Pineapple, Resort and Commercial & Property, were a $3.6 million
loss, a $7.3 million profit and a $3.6 million profit, respectively.
This compares to operating results of a $900,000 loss, a $2.2 million
loss and a $5.3 million profit, respectively, for Pineapple, Resort and
Commercial & Property in 1994. It should be noted that 1995 results for the
Resort division and for the Company overall include a $5 million reversal of
our share of non-cash, pre-tax losses from the partnership which owned The
Ritz-Carlton Kapalua Hotel attributable to prior years. Excluding the effects
of accounting for this entity, Resort's operating results were a $2.3 million
operating profit in 1995 compared to a $1.9 million operating profit in 1994.
Progress was made in 1995 in returning our pineapple business to
profitability. While we continued to experience very low price levels for our
products during most of the year, effects of the antidumping verdict against
Thai producers of pineapple products began to take effect late in the year.
More specifically, U.S. grocery prices for pineapple in the last four weeks of
the year were up approximately 11 percent for premium branded and private
label products and approximately 24 percent for other imported products
compared to the same period in 1994. Imports of foreign canned pineapple for
the full year of 1995 showed a 15 percent reduction in volume and a 5 percent
increase in average unit value compared to 1994. Imports in the month of
December of 1995 showed an increase of 31 percent in average unit value over
December of 1994. These volume and price developments experienced late in the
year are especially encouraging.
We are also encouraged by the results of our research on fresh chilled
pineapple products and our marketing efforts to promote consumer awareness of
our position as the only producer of a full line of 100% Hawaiian pineapple
products.
Unfortunately, a drought experienced on Maui for most of 1995 had a
significant negative effect on production, resulting in both higher costs and
lower production volume than in 1994. These extraordinarily dry conditions
tend not to occur for extended periods of time. Improved growing conditions
in 1996 should result in improved production volume and lower unit costs.
Perhaps more importantly, the Company should benefit from higher prices for
pineapple products.
Improving economic conditions in the U.S. and Japan have resulted in a
modest improvement for Hawaii's visitor industry. Maui destination resorts
also experienced a modest increase in occupancy for the year. Visitor
occupancy at Kapalua was at about the same level as 1994. This reflected,
among other things, competitive factors and the uncertainty surrounding the
financial conditions at The Ritz-Carlton Kapalua Hotel, which defaulted on the
terms of its mortgage loan early in the year, and at the Kapalua Bay Hotel,
which filed for Chapter 11 bankruptcy in December of 1995.
We are pleased to report that in March of 1996, NI Hawaii Resorts, Inc.,
our former partner, effectively repaid the existing bank mortgage on The Ritz-
Carlton Kapalua and provided it with alternative financing from related
companies. The bankrupt owner of the Kapalua Bay Hotel is continuing its
effort to sell that hotel. We are hopeful these efforts will result in an
acquisition of the hotel by a financially strong owner which will provide new
hotel management by a high quality operator.
Based on the first two and a half months of 1996 and the level of
advance reservations at Kapalua, we expect Maui's visitor industry and Kapalua
to show improved performance and financial results in 1996.
Resort development activity in 1995 continued to be depressed and
activity was modest at best in the resort second home market. We anticipate a
higher level of interest and activity in resort real estate over the next few
years and are planning accordingly.
Operating profit from the Company's Commercial & Property segment
declined from $5.3 million in 1994 to $3.6 million in 1995 due primarily to
losses incurred by Kaahumanu Center Associates because of increased interest
and depreciation expenses. Refinancing of Kaahumanu Center was concluded in
May. As a result, the Employees' Retirement System of the State of Hawaii
converted its construction loan into a 50
percent ownership position in Kaahumanu Center and a new $65 million mortgage
loan from a consortium of banks was funded. Nineteen ninety-five was the
first full year of operation for the redeveloped Center. With a gross
leasable area of 572,000 square feet, Kaahumanu Center is Maui's only regional
mall and is the largest center on the island. As of year-end, the mall shops,
not including Sears, Liberty House, J.C. Penney and Foodland, were 91 percent
leased and other new tenants have agreed to lease an additional 4 percent of
the mall space. Napili Plaza continued to show improvement in 1995 by
expanding its occupancy to 80 percent of available space, thus improving its
operating profit contribution from 1994.
A number of new tenants have expressed interest in or are negotiating
with us for space in Kaahumanu Center and Napili Plaza. We expect an
improving retail environment will result in improved occupancy and operating
results in 1996 for both properties, but the planned expansion of other retail
facilities on Maui will keep retail business conditions competitive.
At year-end 1995, the Company's consolidated debt, including capital
leases, stood at $37.5 million, a $91 million reduction from year-end 1994.
Of this reduction, $71.6 million is a result of the refinancing of the Center
and Kaahumanu Center Associates being accounted for by the equity method and
its debt no longer being reflected in the consolidated statements. While the
reduction in the debt level was dramatic and was one of our primary objectives
in 1995, we must accomplish further reductions before the Company reaches its
targeted level of financial leverage. Resumption of dividends, a key goal for
us, continues to depend on improved operating cash flow and debt coverage.
Overall we are pleased with the substantial and fundamental progress
made in our businesses in 1995. While it is disappointing that a number of
factors combined to produce a loss for the year, we are hopeful that with
improved economic conditions and our greater operating efficiency, the Company
will produce improved results over the next few years.
Thank you for your continued support.
/S/ MARY C. SANFORD /S/ GARY L. GIFFORD
MARY C. SANFORD GARY L. GIFFORD
Chairman President & CEO
February 2, 1996
PINEAPPLE
In 1995 Maui Pineapple Company, Ltd. recorded a $3.5 million operating
loss. After allocations for interest and corporate expenses, the loss totaled
$6.9 million. These results are worse than our prior year results and are
particularly disappointing because we anticipated improved financial
performance. During the year we focused on meeting case sales volume, pricing
objectives, recovery goals and on lowering the unit cost per case. We did
achieve higher pricing levels than in 1994, but we were unable to meet our
objectives in the other key measures of performance.
The major factors affecting our profits in 1995 were the continuing
competitive marketplace and the weather. The marketplace affected case sales
volume and the weather affected unit costs and pack.
In 1995 the Island of Maui experienced a severe drought with especially
dry conditions on the Haliimaile plantation. Dry weather reduced fruit size
and caused sunburned, porous fruit. This in turn lowered recovery in canned
pineapple and juice products. The lower recovery resulted in fewer cases
packed than originally planned, which raised per case production costs. We
reduced some effects of the drought by using drip irrigation systems; however,
there was not enough water to adequately irrigate the Haliimaile plantation.
Assuming we have normal rainfall this year, we do not expect effects of the
drought to negatively affect the 1996 crop.
The Company's overall case volume of sales declined by 5% compared to
1994. In total, canned fruit sales volume was unchanged compared with 1994.
The grocery and government segments showed modest gains. Institutional sales
moved down sharply due to several customers who purchased large inventories of
canned pineapple at the end of 1994.
Total juice sales volume declined by 11%. The grocery, government and
institutional juice segments declined 5%, 82% and 4% respectively. We
experienced the largest decline in the government segment due to the loss of
the U.S. Department of Agriculture and Department of Defense bids; they were
awarded to smaller regional juice packers. Concentrate sales were down 26%, a
planned volume reduction.
Although sales were down slightly for the year, we did retain our
customer base and were able to acquire a number of new customers late in the
year. Mainland Jet Fresh and local fresh fruit sales declined in 1995.
On May 30, 1995, the U.S. Department of Commerce announced results of
the antidumping investigation and imposed duties of between 2% and 51% on
imports by Thailand pineapple companies. These duties were much higher than
those announced in the January 1995 preliminary determination. This decision
affirmed our claims that Thai companies were selling canned pineapple below
their cost of production.
On June 30, 1995, the International Trade Commission ruled 6-0 in the
Company's favor on final injury determination. All four Thai respondents have
filed an appeal with the U.S. Trade Court in New York. They are challenging
the Department of Commerce's methodology in calculating the duty. They make
no challenge to the final determination on injury to the domestic industry.
The Company also has filed an appeal with the same court which allows us to
introduce new evidence to help the Department of Commerce defend its decision.
We do not expect a decision on the appeal before December 1996. We believe
the appeal by the Thai respondents adds a degree of uncertainty to the
marketplace, which will dampen price increases until the matter is resolved.
Many Thai producers shipped additional inventory into the U.S. before
the final antidumping determination. This oversupply of canned pineapple
continued to exert downward pressure on prices and volume during the first
half of the year. By year-end the situation had improved dramatically.
Drought-related crop conditions in the Far East and the favorable antidumping
decision reduced U.S. imports. As a result, most pineapple producers
announced moderate fruit price increases beginning in the third quarter.
These increases ranged from 8.5% for nationally branded products to 20% for
regionally distributed imports. These conditions allowed Maui Pineapple
Company to make its first significant price increase in four years. The
increase began to impact revenues in the fourth quarter. The full benefit
will be felt in 1996.
In 1994 we commenced a modest consumer-focused marketing effort to
promote awareness of Hawaiian pineapple. During 1995 we expanded on this
effort in selected geographical areas of the U.S., positioning our product as
the only 100% Hawaiian U.S.A. canned pineapple.
We are moving toward our diversification objectives. Soon we will begin
selling Costa Rican fresh pineapple to U.S. east coast customers under the
label of Royal Coast. This addition of fresh pineapple allows us to provide
a line extension to our existing east coast customer base. We are continuing
research and development on fresh chilled pineapple and intend to enter this
rapidly expanding market in 1996.
The outlook for 1996 continues to improve. We believe the effects of
the antidumping decision have only begun to be felt. We hope this decision
will establish a price level from which we can improve financially in 1996 and
beyond. We therefore are looking forward to a year of growth and improved
financial performance.
RESORT
Kapalua Land Company, Ltd. had a profit of $7.3 million in 1995 compared
with a loss of $2.2 million in 1994 before allocated interest and corporate
expenses. Most of this improvement was due to the reversal of previously
allocated losses from Kaptel Associates, The Ritz-Carlton Kapalua Hotel joint
venture. Development activities other than the Kaptel joint venture improved
by $900,000 over the previous year while profits from ongoing Resort
operations declined by $500,000.
Although The Ritz-Carlton Kapalua Hotel has consistently generated a
positive cash flow from operations, beginning in February 1995 Kaptel was only
able to make partial payment on its debt service and defaulted on its loan.
NI Hawaii Resorts, Inc. (NI), the major general partner, commenced
negotiations with the lenders to acquire the loan and on October 31, 1995 the
partners concluded an agreement to dissolve the partnership. As a result, we
transferred our 25% ownership interest in the partnership to NI and reversed
all of the previously allocated losses. This represents an increase in
earnings of $5.0 million for 1995 compared to an allocated loss of $4.1
million in 1994.
An amended management agreement was also negotiated with The Ritz-
Carlton Hotel Company as the hotel operator and a revised ground lease was
negotiated with us. We retain ownership of the land (subordinate to a $65
million first mortgage) with a reduced rent, but with important controls
related to the use of this property. Additionally, $4.75 million of off-site
construction loan debt is to be repaid solely from ground rent and any balance
remaining on the loan at January 1, 1999 will be canceled. We will not
recognize any ground rent income until 1999.
We believe this restructuring and commitment from NI gives The Ritz-
Carlton Kapalua Hotel the necessary financial foundation and quality
management to show continued long-term improvement.
The owners of the Kapalua Bay Hotel actively tried to sell the hotel
since April of last year, but have been unsuccessful in their efforts. In
December 1995, the owners filed bankruptcy under Chapter 11 and are presently
still trying to conclude a sale. Under terms of our ground lease, we have a
right of first refusal regarding any potential sale. Our primary interest is
to make sure the hotel is properly positioned with strong financial ownership
and experienced quality management.
Other development activities at the Resort included the sale of one of
the remaining five lots in Plantation Estates Phase I. As a result,
Plantation Club Associates contributed $152,000 to operating profits. In 1994
the Resort's share of the loss from this joint venture was $766,000. Real
estate activity within the Resort slowed during 1995, but prices remained
stable.
Capital expenditures for the Resort water system and sewer capacity
decreased from $3.4 million in 1994 to $800,000 in 1995. Last year we
completed payment on water system improvements needed to comply with the
Environmental Protection Agency Safe Drinking Water Act. On December 12,
1995, the Public Utility Commission ruled favorably on our application for a
rate increase for our water and waste treatment companies. This increase
provides a fair return on our investment in water system infrastructure and
will have a positive impact on our operating results going forward. We also
continued our funding of the expansion of the Lahaina Sewage Treatment Plant
and expect to make our final payment in 1996. This investment provides us
with the required sewage capacity for future development.
Resort on-going operations posted a profit of $2.3 million in 1995
compared with a profit of $2.8 million in 1994. Resort revenues were $34.3
million in 1995 compared to $34.1 million in 1994. Cash flow from Resort
operations increased to $5.0 million from $4.4 million in 1994.
Our financial performance was not helped by market conditions in the
visitor industry. Preliminary figures indicate that while the total number of
visitors to Hawaii increased 3% during 1995, Maui had fewer visitors. Resort
occupancy at Kapalua remained the same at 56%. This was again well below the
average occupancy for Maui as competition in the over-built luxury hotel
market remains intense.
While none of our operations exhibited strong growth during 1995, the
decline in profitability was largely due to non-recurring accounting
adjustments and administrative expenses coupled with a predicted decline in
initiation revenues from The Kapalua Club, our Resort membership program.
This program continued to make a significant financial contribution to overall
profitability during its second year of operation. More importantly, with
additional members and increased participation, The Kapalua Club is performing
its role as a catalyst for developing a feeling of community within the
Resort.
In our recreation departments, the number of paid golf rounds declined
by 2% from 1994 levels, but total golf and merchandise revenues were up
slightly. Tennis play was comparable with prior year levels and profitability
improved.
Our Kapalua villa program continues to grow with a 7% increase in the
number of units in the program, a 10% increase in the number of occupied rooms
and a 7% improvement in profitability. The addition of a sales representative
in February resulted in a noticeable impact on bookings late in the year.
The 1995 edition of the Lincoln-Mercury Kapalua International Golf
Tournament was the most successful ever and remains the cornerstone of our
marketing efforts.
While our financial progress exhibited over the previous three years
stalled in 1995, the company was making major strides in non-financial areas.
During the year, all company employees attended CARE training, a comprehensive
guest service and company standards training program. This program reinforces
our commitment to excellence, not only in our physical plant, but in the total
guest experience.
Last year we also established the Kapalua Nature Society, an
organization that will manage our environment-related Resort programs and
create an awareness of the environment, culture and history of the Kapalua
area.
For 1996, we expect moderate growth in the Hawaii visitor industry and
the Resort real estate market. We, therefore, look for modest improvement in
our financial performance and believe Kapalua remains well positioned to show
stronger long-term returns.
COMMERCIAL & PROPERTY
The Company's Commercial & Property business segment produced a
substantially lower operating profit in 1995 on about the same level of
revenues as compared to 1994. Revenues were $10.1 million compared to $10.6
million in 1994. Operating profit was $3.6 million compared to $5.4 million
in 1994. Land sales arising from four transactions contributed a total of
$3.4 million profit and cash flow in 1995. The largest of these, the final
payment from the State of Hawaii for the 50-acre parcel taken under
condemnation for the King Kekaulike High School, was received in June and
amounted to $1.8 million. Three other transactions involved the sale of homes
on Baldwin Avenue in Makawao which generated $1.6 million in operating profit
and cash flow.
Kaahumanu Center's results were lower than expected due to the depressed
level of retail sales on Maui caused by the relatively weak local economy.
Job layoffs in the sugar industry, a low level of construction activity and
continued weakness in the visitor industry all combined in 1995 to result in a
poor business environment for retailers on the island. Kaahumanu Center,
while it has achieved a dominant position as the largest retail center, was
negatively affected throughout the year by the weak economy. While Kaahumanu
Center's main market has been and will continue to be island residents, the
Center has improved its attractions for Maui's visitors.
JTB, Japan's largest tour company, has signed a lease and started
construction of its "Oli Oli Station," a briefing and processing facility for
JTB's group tour business.
Approximately 50,000 visitors are expected to use this facility in its first
year of operation. Kaahumanu Center is also the terminus for the West Maui,
South Maui and Airporter bus systems, effectively Maui's only mass
transportation system.
With an improving visitor market and an improving local economy,
Kaahumanu Center is in a position to show improved results in 1996. Napili
Plaza, the Company's 44,000 square foot neighborhood shopping center located
in west Maui, should benefit even more directly from improving resort
occupancy and visitor traffic due to its location.
Nineteen ninety-six will likely not produce the same levels of profits
and cash flow from land sales. However, the Company's commercial properties
should, for the reasons mentioned, show better financial results.
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, 1995
and 1994, 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, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We did not audit the financial statements of Kaptel Associates, the
Company's investment in which was previously accounted for by the equity
method. The Company's share of losses in excess of its investment in Kaptel
Associates of $4,990,000 as of December 31, 1994, and its share of losses from
Kaptel Associates of $4,119,000 and $871,000 for the years ended December 31,
1994 and 1993, respectively, are included in the accompanying financial
statements. The financial statements of Kaptel Associates were audited by
other auditors whose report has been furnished to us, and our opinion, insofar
as it relates to the amounts included for Kaptel Associates, is based solely
on the report of such other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, based on our audits and the report of the other auditors
for 1994 and 1993, such consolidated financial statements present fairly, in
all material respects, the financial position of the Companies as of December
31, 1995 and 1994, and the results of their operations and their cash flows
for each of the three years in the period ended December 31, 1995 in
conformity with generally accepted accounting principles.
/S/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Honolulu, Hawaii
February 2, 1996
<TABLE>
MAUI LAND & PINEAPPLE COMPANY, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
<CAPTION>
1995 1994
(Dollars in Thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 166 $ 2,269
Accounts and notes receivable 13,142 13,507
Refundable income taxes 518 1,910
Inventories
Pineapple products 13,920 15,261
Real estate held for sale 340 336
Merchandise, materials and supplies 5,415 4,940
Prepaid expenses and other assets 3,053 2,737
-------- --------
Total Current Assets 36,554 40,960
-------- --------
NOTES RECEIVABLE--REAL ESTATE SALES 541 541
-------- --------
INVESTMENTS AND OTHER ASSETS 11,433 13,716
-------- --------
PROPERTY
Land 4,469 6,936
Land improvements 41,671 50,386
Buildings 47,625 124,046
Machinery and equipment 90,240 92,442
Construction in progress 1,170 680
-------- --------
Total property 185,175 274,490
Less accumulated depreciation 96,618 94,296
-------- --------
Net Property 88,557 180,194
-------- --------
TOTAL $137,085 $235,411
======== ========<PAGE>
<CAPTION>
1995 1994
(Dollars in Thousands)
<S> <C> <C>
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ -- $ 27,951
Capital lease obligations 1,263 1,439
Trade accounts payable 5,761 5,596
Payroll and employee benefits 3,658 3,178
Accrued interest 1,030 2,379
Other accrued liabilities 1,414 1,514
-------- --------
Total Current Liabilities 13,126 42,057
-------- --------
LONG-TERM LIABILITIES
Long-term debt 34,500 96,138
Capital lease obligations 1,727 3,042
Deferred income taxes 504 1,847
Accrued retirement benefits 22,594 22,077
Other noncurrent liabilities 5,764 9,821
-------- --------
Total Long-Term Liabilities 65,089 132,925
-------- --------
COMMITMENTS AND CONTINGENT LIABILITIES
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 46,552 48,111
-------- --------
Stockholders' Equity 58,870 60,429
-------- --------
TOTAL $137,085 $235,411
======== ========
See Notes to Consolidated Financial Statements
</TABLE>
<TABLE>
MAUI LAND & PINEAPPLE COMPANY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
Years Ended December 31, 1995, 1994 and 1993
<CAPTION>
1995 1994 1993
(Dollars in Thousands Except Per Share Amounts)
<S> <C> <C> <C>
REVENUES
Net sales $ 92,758 $ 91,158 $ 96,208
Operating revenue 28,573 30,760 27,330
Other income 4,246 3,964 7,634
-------- -------- --------
Total Revenues 125,577 125,882 131,172
-------- -------- --------
COST AND EXPENSES
Cost of goods sold 70,935 67,623 84,932
Operating expenses 22,694 23,551 22,577
Shipping and marketing 16,793 16,568 17,673
General and administrative 15,160 14,352 18,657
Equity in (earnings) losses
of joint ventures (4,001) 4,844 1,018
Interest 7,021 5,682 4,797
-------- -------- --------
Total Costs and Expenses 128,602 132,620 149,654
-------- -------- --------
LOSS BEFORE INCOME TAX CREDIT (3,025) (6,738) (18,482)
INCOME TAX CREDIT (1,466) (2,829) (7,423)
-------- -------- --------
NET LOSS (1,559) (3,909) (11,059)
-------- -------- --------
RETAINED EARNINGS, BEGINNING OF YEAR 48,111 52,020 64,427
CASH DIVIDENDS DECLARED -- -- 1,348
-------- -------- --------
RETAINED EARNINGS, END OF YEAR 46,552 48,111 52,020
======== ======== ========
PER COMMON SHARE
Net Loss (.87) (2.18) (6.15)
======== ======== ========
Cash Dividends $ -- $ -- $ .75
======== ======== ========
See Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
MAUI LAND & PINEAPPLE COMPANY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1995, 1994 and 1993
<CAPTION>
1995 1994 1993
(Dollars in Thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Loss $ (1,559) $ (3,909) $(11,059)
Adjustments to reconcile net loss to cash
provided by operating activities
Depreciation 10,202 10,851 10,315
Deferred income taxes (1,471) (851) 1,066
Gain on property disposals (3,408) (2,966) (6,517)
Equity in (earnings) losses
of joint ventures (3,850) 4,844 1,018
Increase in accounts
and notes receivable (723) (469) (2,179)
Decrease (increase) in refundable
income taxes 1,392 6,054 (7,064)
Decrease in inventories 862 575 5,113
Increase (decrease) in
trade payables 573 (4,207) 2,821
Net change in other operating assets
and liabilities 124 1,614 4,126
-------- -------- --------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 2,142 11,536 (2,360)
-------- -------- --------
INVESTING ACTIVITIES
Purchases of property (5,679) (43,488) (30,211)
Proceeds from sale of property 3,469 3,062 6,866
Reimbursement from Kaahumanu
Center Associates 11,843 -- --
Payments for other investments (3,260) (137) (1,288)
-------- -------- --------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 6,373 (40,563) (24,633)
-------- -------- --------
FINANCING ACTIVITIES
Payments of long-term debt (25,515) (24,632) (16,490)
Proceeds from long-term borrowings 16,388 56,558 50,474
Payments of short-term borrowings -- -- (3,750)
Dividends paid -- -- (1,797)
Payments on capital lease obligations (1,491) (1,853) (1,526)
Contribution by joint venture partner -- -- 312
-------- -------- --------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (10,618) 30,073 27,223
-------- -------- --------
NET INCREASE (DECREASE) IN CASH (2,103) 1,046 230
CASH AT BEGINNING OF YEAR 2,269 1,223 993
-------- -------- --------
CASH AT END OF YEAR $ 166 $ 2,269 $ 1,223
======== ======== ========
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) $ 7,339 $ 5,753 $ 3,265
Income tax refunds $(1,205) $ (7,967) $ (851)
2. The $4.7 million loan from Kaptel Associates to the Company has been offset against
the cost of the related off-site improvements (see Note 3 to Consolidated Financial
Statements).
3. Effective April 30, 1995, the Employees' Retirement System of the State of Hawaii
converted its $30.6 million loan to an additional 49% ownership in Kaahumanu Center
Associates (see Note 3 to Consolidated Financial Statements).
4. Capital lease obligations of $1,343,000 in 1994 and $3,533,000 in 1993 were
incurred for new equipment.
See Notes to Consolidated Financial Statements.
</TABLE>
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 these policies.
Investments in joint ventures are accounted for using the equity method.
PROPERTY AND DEPRECIATION
Property is stated at cost. Major replacements, renewals and
betterments are capitalized while maintenance and repairs that do not improve
or extend the life of an asset are charged to expense as incurred. When
property is retired or otherwise disposed of, the cost of the property and the
related accumulated depreciation are written off and the resulting gains or
losses are included in income. Depreciation is provided over estimated useful
lives of the respective assets using the straight-line method.
POSTRETIREMENT BENEFITS
The Company's policy is to fund pension cost at a level at least equal
to the minimum amount required under federal law, but not more than the
maximum amount deductible for federal income tax purposes.
Deferred compensation plans for certain management employees provide for
specified payments after retirement. The present value of estimated payments
to be made are accrued over the period of active employment.
The estimated cost of providing postretirement health care and life
insurance benefits is accrued over the period employees render the necessary
services.
REVENUE RECOGNITION
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.
LEASES
Leases that transfer substantially all of the benefits and risks of the
ownership of the property are accounted for as capital leases. Amortization
of capital leases is included in depreciation expense. Other leases are
accounted for as operating leases.
INCOME TAXES
The Company's provision for income taxes is calculated using the
liability method. Deferred income taxes are provided for all temporary
differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Future actual amounts could differ from those estimates.
NET LOSS PER COMMON SHARE
Net loss per common share is computed using weighted average number of
shares outstanding during the period.
2. INVENTORIES
The replacement cost of pineapple product inventories at year-end
approximated $26 million in 1995 and 1994. In 1995 and 1993 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 loss for 1995 and 1993 would have
increased by $54,000 or $.03 per share and $515,000 or $.29 per share,
respectively.
3. INVESTMENTS AND OTHER ASSETS
Investments and Other Assets at December 31, 1995 and 1994 consisted of
the following:
1995 1994
(Dollars in Thousands)
Plantation Club Associates $ 3,683 $ 3,996
Cash Surrender Value of Life
Insurance Policies
(net of loans totalling $3,088,000) 1,172 761
Deferred Costs 4,617 7,344
Other 1,961 1,615
------- -------
Total $11,433 $13,716
======= =======
Deferred costs are primarily off-site construction costs incurred for
the Kapalua Resort, which will be allocated to future development projects.
At December 31, 1994, deferred costs also included tenant improvement
allowances for the Kaahumanu Center, which were being amortized over the life
of the related leases.
PLANTATION CLUB ASSOCIATES
Plantation Club Associates (PCA) is an unincorporated joint venture
between Kapalua Land Company, Ltd. (Kapalua) and Rolfing Partners (Rolfing).
It was formed in 1988 to finance and develop a third 18-hole golf course and
two residential development projects at the Kapalua Resort. Kapalua and
Rolfing each contributed $9.3 million in cash to the joint venture. Kapalua
also contributed the fee interest in approximately 230 acres of land to be
used for the residential projects. Kapalua's basis in the land was nominal
and PCA did not assign any cost to the land contributed. Profits and losses
of the joint venture are allocated based on the estimated distributions to the
partners, which are 85% to Kapalua and 15% to Rolfing. The partnership
agreement requires that all major decisions receive unanimous approval of the
partners.
Summarized balance sheet information for PCA as of December 31, 1995 and
1994 and operating information for the three years ended December 31, 1995
follows:
1995 1994
(Dollars in Thousands)
Real estate inventories $2,874 $3,207
Other assets 1,925 2,185
------ ------
Total Assets 4,799 5,392
Less: Total Liabilities 551 519
------ ------
Partners' Capital $4,248 $4,873
====== ======
1995 1994 1993
Revenues $ 672 $5,155 $ 1
Costs and expenses 481 5,965 174
------ ------ -----
Net Income (Loss) $ 191 $ (810) $(173)
====== ====== =====
PCA's real estate inventories as of December 31, 1995 consist of four
residential lots in Plantation Estates Phase I and allocated planning and off-
site costs related to Plantation Estates Phase II.
Kapalua's pre-tax share of the joint venture's net income (loss) was
$152,000, $(766,000) and $(147,000) for 1995, 1994 and 1993, respectively.
These amounts include expenses incurred by the Company related to the
investment (primarily amortization of capitalized interest cost).
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, commenced negotiations
with the lenders to acquire the indebtedness and on October 31, 1995, the
partners of Kaptel concluded an agreement to dissolve the partnership. KIC
transferred its interest in the partnership to NI.
Because of the dissolution agreement, the Company's equity in the losses
of Kaptel Associates recorded through June 30, 1995 were reversed in the third
quarter of 1995. The net reversal of these losses in 1995 of $4,990,000 was
recorded as a credit to equity in (earnings) losses of joint ventures. The
Company's share of the partnership's losses for 1994 and 1993 was $4,119,000
and $871,000, respectively.
Summarized balance sheet information for Kaptel Associates as of
December 31, 1994 and operating information for the years ended December 31,
1994 and 1993 follows:
1994
(Dollars in Thousands)
Current assets $ 3,507
Property and equipment, net 155,985
Other assets, net 14,681
--------
Total Assets 174,173
========
Current liabilities 8,355
Financing 185,786
--------
Total Liabilities 194,141
========
Partners' Deficit $(19,968)
========
1994 1993
Revenues $ 39,750 $ 33,434
Costs and expenses 56,226 51,435
-------- --------
Net Loss $ 16,476 $ 18,001
======== ========
The Company was leasing 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 has
been renegotiated with the hotel owner, effective January 1, 1996. The
Company's fee interest is subordinate to a $65 million first mortgage. Ground
rents will be applied against the off-site loan and any balance remaining on
the loan at January 1, 1999 will be canceled. For accounting purposes,
modification of the lease arrangement has resulted in the off-site loan being
offset against the cost of the off-site improvements.
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 existing shopping center, subject to the existing
first mortgage, and approximately nine acres of adjacent land. ERS
contributed $312,000 and made a $30.6 million loan to the partnership. The
remainder of the construction cost was funded principally by bank loans.
The expansion and renovation was substantially complete by the end of
November of 1994. Effective April 30, 1995, the ERS converted its $30.6
million loan to an additional 49% ownership in KCA. Effective with the
conversion of the ERS loan, the Company and ERS each have a 50% interest in
KCA.
The Company no longer consolidates KCA and is accounting for its
investment in KCA by the equity method. The Company has a long-term agreement
with KCA to manage the Kaahumanu Center. The Company generates the
electricity which is used by the Kaahumanu Center. For the eight months ended
December 31, 1995, the Company charged KCA $1,695,000 for management fees and
electricity. At December 31, 1995, $843,000 was due to the Company from KCA
for management fees, electricity and reimbursable costs.
Summarized balance sheet information for KCA as of December 31, 1995 and
operating information for the eight months ended December 31, 1995 follows:
Dollars in
Thousands
----------
Current assets $ 2,658
Property and equipment, net 77,793
Other assets, net 4,472
--------
Total Assets 84,923
========
Current liabilities 1,576
Noncurrent liabilities 64,019
--------
Total Liabilities 65,595
========
Partners' Capital 19,328
========
Revenues 8,991
Costs and expenses 11,272
--------
Net Loss $ 2,281
========
The Company's share of the losses from KCA for the eight months ended
December 31, 1995 was $1,141,000. ERS and the Company each have a 9%
cumulative, non-compounded priority right to cash distributions based on their
contributions to the partnership (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 May 1, 1995. The Company's preferred
return is subordinate to the ERS preferred return. As of December 31, 1995,
the accumulated unpaid preferred returns were $1.6 million each for ERS and
the Company.
The Company's investment in KCA is a negative $4.6 million and is
included in other noncurrent liabilities. The negative balance is a result of
recording the Company's initial contribution at net book value of the assets
contributed, reduced by the related debt.
4. BORROWING ARRANGEMENTS
Short-term bank lines of credit available to the Company at December 31,
1995 were $1.7 million. These lines provide for interest at the prime rate
(8.5% at December 31, 1995) plus 3/4% to 1%. There were no borrowings under
these lines at December 31, 1995.
During 1995, 1994 and 1993, the Company had average borrowings
outstanding of $67.6 million, $114.2 million and $80 million, respectively, at
average interest rates of 9.7%, 8.5% and 7.1%, respectively.
Long-term debt at December 31, 1995 and 1994 consisted of the following
(interest rates represent the rates at December 31):
1995 1994
(Dollars in Thousands)
Revolving credit agreement, 8.75% and 9% $14,500 $27,750
Mortgage loan, 10% (see below) -- 13,890
Kaptel Associates, 7.7% (see Note 3) -- 4,750
Employees' Retirement System of the
State of Hawaii, 9% (see below) -- 30,588
Senior unsecured notes, 8.86% 20,000 20,000
Construction Loan, 8.75% (see below) -- 27,111
------- -------
Total 34,500 124,089
Less portion classified as current -- 27,951
------- -------
Long-term debt $34,500 $96,138
======== =======
The Company has a revolving credit agreement with participating banks
under which it may borrow up to $22 million in revolving loans through
December 31, 1996. The commitment reduces to $19 million as of December 31,
1996 and terminates on June 30, 1997. In addition, the available commitment
is also reduced by 75% of the after-tax net proceeds from the sale of real
estate and by the addition of any permanent mortgage financing proceeds.
Commitment fees of 1/2% are payable on the unused portions of this credit
line. At December 31, 1995, the interest rate on this loan was prime plus
1/4%. The agreement provides for an interest rate reduction to the prime rate
if the available commitment is reduced to $15 million. The agreement contains
certain financial covenants, including the maintenance of consolidated net
worth and working capital at certain levels and limits on the incurrence of
other indebtedness and capital expenditures. The loan is collateralized by
the Company's three golf courses at the Kapalua Resort. The agreement
currently prohibits the Company from declaring any dividends.
The loan from Kaptel Associates was for the construction of certain off-
site improvements related to The Ritz-Carlton Kapalua Hotel (see Note 3).
The loan from the Employees' Retirement System of the State of Hawaii
(ERS) and the construction loan relate to the expansion and renovation of
Kaahumanu Center (see Note 3). After conversion of the ERS loan to equity in
KCA, the 10% mortgage loan and 8.75% construction loan were reflected on KCA's
separate financial statements.
In September 1993 the Company concluded a private placement of $20
million in ten-year, 8.86% senior unsecured notes. Mandatory annual principal
payments of 20% of the original principal amount will begin in 1999. The
agreement includes certain financial covenants which are similar to the
Company's revolving credit agreement.
Maturities of long-term debt during the next five years, from 1996
through 2000, are as follows: $14,500,000 in 1997, $4,000,000 in 1999 and
$4,000,000 in 2000.
5. POSTRETIREMENT BENEFITS
In 1979 the Company sold 205,533 shares of common stock to the Employee
Stock Ownership Trust (ESOT) for clerical personnel and regular non-bargaining
unit employees. Contributions to the ESOT were charged to expense as the
unallocated shares held by the ESOT were allocated to the participants'
accounts. As of December 31, 1993, there were no unallocated shares.
Contributions to the ESOT were based on the debt service requirements of the
ESOT acquisition loan. Contributions paid in 1994 and 1993 were $574,000 and
$571,000, respectively. The final employee benefit expense of $520,000 was
recorded in 1993.
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% and 8% as of December 31, 1995 and 1994, respectively, and compensation
increases ranging up to 4.5%. The expected long-term rate of return on assets
was 8% for 1995 and 1994. The assets of the plans consist primarily of
stocks, bonds, real estate and short-term investments.
Net pension cost for 1995, 1994 and 1993 included the following
components:
1995 1994 1993
(Dollars in Thousands)
Service cost--benefits earned during
the year $ 882 $1,078 $ 972
Interest cost on projected benefit obligation 2,076 1,963 1,955
Actual return on plan assets (5,294) 490 (2,403)
Net amortization and deferral 2,863 (3,070) (140)
------ ------ -------
Net pension expense $ 527 $ 461 $ 384
====== ====== =======
<TABLE>
The following table sets forth the funded status of the pension plans and the
amounts recognized in the balance sheets at December 31:
<CAPTION>
1995 1994
Assets Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed
Benefits Assets Benefits Assets
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations
Vested benefits $26,543 $ 1,215 $22,882 $ 1,038
Nonvested benefits 302 90 298 60
------- ------- ------- -------
Accumulated benefit
obligation 26,845 1,305 23,180 1,098
Effect of assumed increase in
compensation levels 3,825 284 2,577 255
------- ------- ------- -------
Projected benefit obligation for
services rendered to date 30,670 1,589 25,757 1,353
Assets of plans at fair value 29,996 663 26,374 533
------- ------- ------- -------
Assets over (under) projected
benefit obligation (674) (926) 617 (820)
Unrecognized net loss 4,290 176 3,836 20
Unrecognized net transition
(asset) obligation (3,350) 448 (3,913) 451
Unrecognized prior service cost 351 75 404 83
Adjustment required to
recognize minimum liability -- (415) -- (299)
------- ------- ------- -------
Pension asset (liability)
recognized in
balance sheets $ 617 $ (642) $ 944 $ (565)
======= ======= ======= =======
</TABLE>
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 1995, 1994 and 1993 consists of the
following components:
<TABLE>
<CAPTION>
1995 1994 1993
(Dollars in Thousands)
<S> <C> <C> <C>
Service cost $ 337 $ 433 $ 694
Interest cost 985 1,056 1,318
Actual return on plan assets -- 59 (36)
Net amortization and deferral (374) (219) 19
------ ------ ------
Net expense $ 948 $1,329 $1,995
====== ====== ======
<CAPTION>
The funded status of these plans as of December 31, 1995 and 1994 was as follows:
1995 1994
(Dollars in Thousands)
<S> <C> <C>
Accumulated postretirement
benefit obligation:
Retirees $ 6,970 $ 6,940
Fully eligible active
plan participants 3,159 3,027
Other active plan participants 4,897 4,335
------- -------
Total 15,026 14,302
Plan assets at fair value -- 63
------- -------
Accumulated postretirement benefit obligation
in excess of plan assets 15,026 14,239
Unrecognized prior service cost 1,766 1,913
Unrecognized net gain 2,272 2,559
------- -------
Accrued postretirement benefit obligation
recognized in balance sheets $19,064 $18,711
======= =======
</TABLE>
Plan assets at December 31, 1994 were related to life insurance plans
for retirees. The assumed rate of return on the plan assets was 8%.
Measurements of the accumulated postretirement benefit obligation as of
December 31, 1995 and 1994 were determined using discount rates of 7% and 8%,
respectively, and compensation increases ranging up to 4.5%.
The accumulated postretirement benefit obligation as of December 31,
1995 was determined using a health care cost trend rate of 10% in 1995,
decreasing by .5% each year from 1995 through 2004 and 5% thereafter. The
accumulated postretirement benefit obligation as of December 31, 1994 was
determined using a health care cost trend rate of 10% from 1994 through 2003
and 5% thereafter. The effect of a 1% annual increase in these assumed cost
trend rates would increase the accumulated postretirement benefit obligation
by approximately $2,571,000 as of December 31, 1995 and the aggregate of the
service and interest cost for 1995 by approximately $259,000.
As of December 1, 1994, certain reductions to the postretirement health
care benefit for the Company's prospective pineapple bargaining unit retirees
became effective. These benefit reductions resulted in a $1 million reduction
of the accumulated benefit obligation, which is being amortized over 14 years
beginning in 1994.
6. REAL ESTATE SALES
Other income for 1995, 1994 and 1993 includes $3.4 million, $3 million
and $6.8 million, respectively, attributable to real estate sales.
7. LEASES
LESSEE
Property at December 31, 1995 and 1994 includes capital leases of
$10,452,000 and $14,452,000, respectively (accumulated depreciation of
$5,840,000 and $6,886,000, respectively).
Total rental expense under operating leases was $818,000 in 1995,
$837,000 in 1994 and $1,109,000 in 1993. A major operating lease covers
approximately 1,500 acres used primarily for Pineapple operations.
Future minimum rental payments under operating leases aggregate
$2,636,000 and are payable during the next five years (1996 to 2000) as
follows: $625,000, $586,000, $482,000, $376,000, $57,000, respectively, and
$510,000 thereafter.
Future minimum rental payments under capital leases aggregate $3,301,000
(includes $311,000 representing interest) and are payable from 1996 to 1999 as
follows: $1,452,000, $1,102,000, $653,000 and $94,000, respectively.
LESSOR
The Company leases land, buildings and land improvements. Total rental
income under these operating leases were as follows:
1995 1994 1993
(Dollars in Thousands)
Minimum rentals $4,569 $5,323 $5,004
Contingent rentals
(based on sales volume) 1,235 2,048 1,590
------ ------ ------
Total $5,804 $7,371 $6,594
====== ====== ======
Property at December 31, 1995 and 1994 includes leased property of
$18,617,000 and $95,295,000, respectively (accumulated depreciation of
$7,402,000 and $12,193,000, respectively).
Future minimum rental income aggregates $61,672,000 and is receivable
during the next five years (1996 to 2000) as follows: $2,620,000, $2,524,000,
$2,296,000, $1,872,000, $1,504,000, respectively, and $50,856,000 thereafter.
8. INCOME TAXES
The components of the income tax provision (credit) were as follows:
1995 1994 1993
(Dollars in Thousands)
Current $ 5 $(1,978) $(8,489)
Deferred (1,471) (851) 1,066
------- ------- -------
Total $(1,466) $(2,829) $(7,423)
======= ======= =======
A reconciliation between the total provision (credit) and the amount
computed using the statutory federal rate of 34% follows:
1995 1994 1993
(Dollars in Thousands)
Federal provision (credit) at
statutory rate $(1,028) $(2,291) $(6,284)
Adjusted for
State income taxes (credits)--
net of effect on
federal income taxes (192) (350) (980)
Appreciated property donation (228) -- --
Other (18) (188) (159)
------- ------- -------
Total provision (credit) for
income taxes $(1,466) $(2,829) $(7,423)
======= ======= =======
Deferred tax assets and liabilities were comprised of the following
types of temporary differences as of December 31, 1995 and 1994:
1995 1994
(Dollars in Thousands)
Accrued retirement benefits $ 7,671 $ 7,967
Net operating loss carryforward 4,237 6,691
Minimum tax credit carryforward 2,552 2,515
Accrued liabilities 1,232 958
Allowance for bad debts 219 152
------- -------
Total deferred tax assets 15,911 18,283
------- -------
Inventory (461) (1,016)
Charitable contributions (1,311) (1,174)
Income from partnerships (2,095) (5,869)
Pineapple marketing costs (815) (755)
Deferred condemnation proceeds (6,580) (5,990)
Property net book value (4,983) (5,288)
Other (42) (38)
------- -------
Total deferred tax liabilities (16,287) (20,130)
------- -------
Net deferred tax liabilities $ (376) $(1,847)
======= =======
At December 31, 1995 the Company had federal income tax net operating
loss carryforwards of approximately $10 million, which expire in 2009. The
Company also had federal minimum tax credit carryforwards of $2.6 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 predict the outcome
of these examinations.
9. RESEARCH AND DEVELOPMENT
Research and development expenses totaled $410,000 in 1995, $375,000 in
1994 and $416,000 in 1993.
10. CONTINGENCIES & 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 Company has
guaranteed the payment of up to $10 million of debt service for Kaahumanu
Center Associates. The guaranty will be released by the lender when Kaahumanu
Center attains a defined level of net operating income. At December 31, 1995,
the Company had commitments under signed contracts of $3.2 million.
11. 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.
12. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments:
Notes and Interest Receivable:
The fair value of these assets was estimated based on rates currently
available for similar types of transactions.
Notes Payable, 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 of the Company's financial instruments at
December 31, 1995 and 1994 were as follows:
1995 1994
(Dollars in Thousands)
Carrying Fair Carrying Fair
Amount Value Amount Value
Notes and Interest Receivable $ 891 $ 830 $ 731 $ 606
Notes Payable, Long-Term Debt
and Accrued Interest $38,618 $36,935 $129,909 $122,918
13. BUSINESS SEGMENTS
The Company's principal activities are Pineapple, Resort and Commercial
& Property. Inter-segment sales were insignificant.
Pineapple includes growing pineapple, canning pineapple in tin-plated
steel containers fabricated by the Company, and marketing canned pineapple
products and fresh pineapple.
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 the Island of Maui. It also includes the Company's
investments in Plantation Club Associates and Kaptel Associates.
Commercial & Property includes Kaahumanu Center (investment in Kaahumanu
Center Associates, effective May 1, 1995), Napili Plaza shopping center and
other land development, property rentals and sales.
"Operating Profit (Loss)" is total revenues less all expenses except
corporate expenses, interest expense and income taxes. Assets identifiable by
activity are those assets that are used in the operations of each activity.
Neither total export sales nor sales to any single customer exceeded 10%
of consolidated revenues.
NOTES TO FINANCIAL STATEMENTS
1995 1994 1993
(Dollars in Thousands)
Revenues
Pineapple $ 81,052 $ 81,044 $ 86,033
Resort 34,330 34,109 31,455
Commercial & Property 10,123 10,617 13,635
Corporate 72 112 49
-------- -------- --------
Total Revenues 125,577 125,882 131,172
======== ======== ========
Operating Profit (Loss)
Pineapple (3,548) (867) (16,223)
Resort (1) 7,338 (2,203) (1,614)
Commercial & Property (2) 3,603 5,357 9,085
-------- -------- --------
Total Operating Profit (Loss) 7,393 2,287 (8,752)
-------- -------- --------
Corporate Expenses--Net (3,397) (3,343) (4,933)
Interest Expense (7,021) (5,682) (4,797)
-------- -------- --------
Loss Before Income Tax Credit (3,025) (6,738) (18,482)
======== ======== ========
Depreciation
Pineapple 5,112 5,561 4,957
Resort 3,492 3,689 3,839
Commercial & Property 1,355 1,309 1,111
Corporate 243 292 408
-------- -------- --------
Total Depreciation 10,202 10,851 10,315
======== ======== ========
Capital Expenditures
Pineapple 1,442 1,148 8,173
Resort 975 1,851 2,091
Commercial & Property 634 40,427 28,057
Corporate 243 75 507
-------- -------- --------
Total Capital Expenditures 3,294 43,501 38,828
======== ======== ========
Identifiable Assets
Pineapple 66,877 71,343 78,634
Resort 57,462 64,415 66,829
Commercial & Property 8,405 94,475 54,638
Corporate 4,341 5,178 11,487
-------- -------- --------
Total Assets $137,085 $235,411 $211,588
======== ======== ========
(1) Resort operating profit (loss) includes the Company's equity in the
earnings (loss) of Plantation Club Associates of $152,000 for 1995,
$(766,000) for 1994 and $(147,000) for 1993. Resort operating profit
(loss) also includes the Company's equity in the loss of Kaptel
Associates of $4,119,000 for 1994 and $871,000 for 1993 and the reversal
of previous equity in losses of $4,990,000 in 1995.
(2) Commercial & Property includes the Company's equity in the loss of
Kaahumanu Center Associates of $1,141,000 for the eight months ended
December 31, 1995.
COMMON STOCK
In compliance with the terms of a loan agreement the Company may not
declare any dividends in 1996.
At February 1, 1996, there were 411 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 and do not include retail markup, markdown or commission:
First Second Third Fourth
Quarter Quarter Quarter Quarter
1995 High 52 52 51 52
Low 40 38 39 30
1994 High 105 90 71 70
Low 90 65 63 40
<TABLE>
SELECTED FINANCIAL DATA
<CAPTION>
1995 1994 1993 1992 1991
(Dollars in Thousands Except Per Share Amounts)
<S> <C> <C> <C> <C> <C>
FOR THE YEAR
Summary of Operations
Revenues $125,577 $125,882 $131,172 $147,049 $132,560
Cost of goods sold 70,935 67,623 84,932 81,147 82,001
Operating expenses 22,694 23,551 22,577 20,762 19,149
Shipping and marketing 16,793 16,568 17,673 15,917 14,907
General and
administrative 15,160 14,352 18,657 16,578 14,314
Equity in (earnings) losses
of joint ventures (4,001) 4,844 1,018 11 (7,805)
Interest expense 7,021 5,682 4,797 4,031 4,253
Income Taxes (Credit) (1,466) (2,829) (7,423) 2,183 1,922
Income (loss) before cumulative effect of
accounting changes (1,559) (3,909) (11,059) 6,420 3,819
Cumulative effect of
accounting changes -- -- -- (7,673) --
Net Income (Loss) (1,559) (3,909) (11,059) (1,253) 3,819
Per Common Share
Income (loss) before cumulative effect of
accounting changes (.87) (2.18) (6.15) 3.57 2.13
Cumulative effect of
accounting changes -- -- -- (4.27) --
Net Income (Loss) (.87) (2.18) (6.15) (.70) 2.13
Pro Forma Amounts Assuming
Inventory Accounting Principle
was Applied Retroactively
Net Income (Loss) -- -- -- (2,138) 4,088
Net Income (Loss) Per
Common Share -- -- -- (1.19) 2.28
Other Data
Cash dividends
Amount -- -- 1,348 1,797 1,797
Per common share -- -- .75 1.00 1.00
Depreciation $ 10,202 $ 10,851 $ 10,315 $ 9,774 $ 9,215
Return on beginning
stockholders' equity (2.6%) (6.1%) (14.5%) (1.6%) 5.0%
Percent of net income (loss)
to revenues (1.2%) (3.1%) (8.4%) (0.9%) 2.9%
AT YEAR END
Current assets less
current liabilities (1) $ 23,428 $ (1,097) $ 29,398 $ 26,233 $ 20,158
Ratio of current assets
to current liabilities (1) 2.78 .97 2.47 2.33 2.28
Property, net of
depreciation (2) $ 88,557 $180,194 $148,774 $121,045 $117,077
Total assets (2) 137,085 235,411 211,588 177,544 162,434
Long-term debt and
capital leases (3) 36,227 99,180 96,108 60,569 57,971
Stockholders' equity
Amount 58,870 60,429 64,321 76,187 78,729
Per common share $ 32.76 $ 33.63 $ 35.79 $ 42.40 $ 43.81
Common shares outstanding 1,797,125 1,797,125 1,797,125 1,797,125 1,797,125
</TABLE>
(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. The commitment has since been
amended and borrowings under this line were classified as noncurrent at
December 31, 1995 (see Note 4)
(2) Property, net of depreciation, and Total assets decreased in 1995
primarily because, as of April 30, 1995, the Company no longer
consolidates Kaahumanu Center Associates (see Note 3).
(3) Long-term debt decreased in 1995 primarily because the debt related to
the renovation and expansion of Kaahumanu Center is reflected on the
separate financial statements of Kaahumanu Center Associates as of April
30, 1995 (see Note 3).
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
1995 vs. 1994
CONSOLIDATED
The Company reported a consolidated net loss of $1.6 million for 1995.
For 1994 the Company incurred a consolidated net loss of $3.9 million. The
primary reason for the reduced loss in 1995 was the reversal of the Company's
previous equity in losses of Kaptel Associates. In October 1995, the Company
transferred its interest in Kaptel to the major general partner and reversed
losses recorded through June 30, 1995 into income in the third quarter of 1995
(see Note 3 to Consolidated Financial Statements). Income from the reversal
of these losses was partially offset by higher operating losses from the
Company's Pineapple operations and lower operating profits from ongoing Resort
operations and the Commercial & Property segment.
General and administrative expenses increased by approximately 5.6%,
largely due to higher bad debt and workers compensation expenses. These
increases were partially offset by lower expenses for postretirement medical
costs, primarily as a result of changes in medical inflation assumptions.
Interest expense increased by 24% in 1995 compared to 1994. The
increase was primarily the result of a high debt level for the first four
months of 1995 arising from the Kaahumanu Center expansion project (see Note 3
to Consolidated Financial Statements) and higher average interest rates.
PINEAPPLE
Revenues from Pineapple operations were about the same in 1995 as in
1994. Higher average prices in 1995 were partially offset by lower case
volume of sales.
The operating loss from Pineapple operations increased from $867,000 to
$3.5 million. The higher operating loss in 1995 resulted from higher
production costs which increased cost of sales and from increased general and
administrative costs.
Shipping and selling expense for 1995 was about the same as in 1994 as
lower sales volume was offset by an increase in ocean freight rates.
Higher production costs in 1995 were largely due to hot, dry weather
conditions which resulted in smaller than normal, porous fruit. This lower
quality fruit reduced pineapple yields and recoveries, which in turn increased
per unit production costs. In 1995, there was a partial liquidation of LIFO
inventories, which resulted in lower costs from prior years being included in
cost of sales. Cost of sales for 1995 would have been higher by $104,000
based on current production costs.
RESORT
Revenues from the Kapalua Resort were $34.3 million in 1995 compared to
$34.1 million in 1994. The segment contributed an operating profit of $7.3
million in 1995 compared to an operating loss of $2.2 million in 1994.
Operating profit for 1995 includes $5 million representing the reversal of the
Company's equity in prior year losses of Kaptel Associates. The operating
loss for 1994 included $4.1 million of losses from Kaptel Associates.
Plantation Club Associates contributed $152,000 to operating profits for 1995
while for 1994 the Resort's share of the loss was $766,000.
Resort occupancies were about the same in 1995 compared to 1994.
Merchandise sales were lower by 2%. Revenues from the Resort membership
program decreased by 34% and real estate sales commissions declined by 45%.
These declines were offset by increased revenues from golf operations and The
Kapalua Villas. Paid rounds of golf decreased by 2%, but overall revenues
from golf operations increased because of higher average rates. The number of
occupied rooms at The Kapalua Villas increased by 10% and revenues increased
by 12%.
In total, Resort recreation and retail operations contributed lower
operating profits in 1995. Higher expenses related to commercial leases and
increased general and administrative expenses further reduced 1995 operating
profits.
COMMERCIAL & PROPERTY
Revenues of $10.1 million in 1995 from Commercial & Property was lower
by $.5 million compared to 1994. Operating profits for 1995 decreased by $1.8
million, from $5.4 million in 1994 to $3.6 million for 1995. Lower revenues
in 1995 were primarily the result of exclusion of Kaahumanu Center Associates
(KCA) from the Company's consolidated financial statements since May 1995.
Increased revenues from land sales in 1995 partially offset the decrease
attributable to KCA.
As of April 30, 1995, the Employees Retirement System of the State of
Hawaii converted its $30.6 million loan to KCA to an additional 49% equity
interest in the partnership. Accordingly, as of April 30, 1995, the Company
no longer consolidated KCA and, instead, accounted for the investment by the
equity method.
Lower operating profits in 1995 resulted from the Company's equity in
the losses of KCA for the last eight months of 1995. These losses are largely
attributable to higher interest and depreciation expenses related to the
expansion and renovation of Kaahumanu Center.
1994 vs. 1993
CONSOLIDATED
The Company reported a consolidated net loss for the year 1994 of $3.9
million. This compares to a consolidated net loss of $11 million for 1993.
The principal reason for the improved results was a decrease in the loss from
the Pineapple operations. These improved results more than offset increased
losses from joint venture investments at the Kapalua Resort and a lower amount
of income from land sales. Other income for 1994 includes $3 million from the
sale of land; other income for 1993 included $6.8 million attributable to land
sales.
General and administrative expenses decreased in 1994 by 23% as compared
to the year 1993. Company-wide cost reduction efforts were principally
responsible for this improvement. A large part of the decrease was
attributable to lower personnel costs, including a decrease in postretirement
medical benefits, a restructuring of the medical plans for current employees
and a decrease in the number of personnel through early retirements and job
consolidations. Also, there was no employee benefit expense associated with
the Company's ESOP in 1994 because all stock had been allocated to
participants' accounts as of December 31, 1993.
Interest expense increased in 1994 by 18% because of higher average
rates and higher borrowings. Borrowings and the amount of interest
capitalized increased in 1994 because of the expansion and renovation of
Kaahumanu Center. Construction at the Center was substantially completed by
the end of November 1994.
PINEAPPLE
Revenue from Pineapple operations decreased by 6% in 1994 and the
operating loss from Pineapple operations decreased from $16.2 million in 1993
to $867,000 in 1994. The improved results were principally due to cost
reductions.
Revenues decreased due to lower case volume of sales and to slightly
lower sales prices. Revenues from the fresh fruit operations increased in
1994 compared to 1993 due to higher sales volumes.
The number of cases packed in 1994 increased by approximately 2%, but
the per unit production cost decreased substantially. The cost reduction was
accomplished by job consolidations, reduced overtime, layoffs and other
measures to cut costs and to increase efficiency. In 1993 there was a partial
liquidation of LIFO inventories which resulted in lower costs from prior years
being included in cost of sales. Cost of sales for 1993 would have been
higher by $858,000 based on 1993 production costs.
Shipping and selling costs, which includes freight, brokerage and
warehousing costs, decreased by 17% due largely to lower case volume of sales.
Also, inventory levels at the end of 1992 were higher than normal which
resulted in higher warehousing and other holding costs in 1993.
RESORT
Revenues from the Kapalua Resort increased by 8%, from $31.5 million in
1993 to $34.1 million in 1994. The operating loss attributable to the Resort
increased from $1.6 million in 1993 to $2.2 million in 1994. The increased
loss was largely due to the Company's share of losses from joint ventures
which are accounted for on the equity method (see Note 3 to Consolidated
Financial Statements). Excluding these losses, Resort operations produced
operating profits in 1994 compared to operating losses for 1993.
Resort occupancies increased in 1994 as compared to 1993. The Kapalua
Villas contributed a 17% increase in revenues. Paid rounds of golf decreased
by approximately 3%, but revenues from the golf operations increased by 2% due
to higher average rates. Revenues attributable to merchandise sales increased
by 2%. In 1994 a new Resort membership program was initiated which also
contributed to the increase in revenues.
The improved results for the Resort's on-going operations were also
attributable to reductions in operating costs and improved retail margins.
COMMERCIAL & PROPERTY
Revenues from Commercial & Property decreased from $13.6 million in 1993
to $10.6 million for 1994 and operating profits decreased by $3.7 million from
$9.1 million to $5.4 million. The decreases were largely due to lower
revenues from land sales and condemnation proceeds which were included in
1993.
Decreased revenues from land sales and condemnations were partially
offset by higher revenues from Kaahumanu Center and Napili Plaza. Increased
revenues from Kaahumanu Center had a more pronounced effect in the third and
fourth quarters of 1994 compared to 1993 as the renovation work neared
completion and the space occupied by tenants increased. Revenues from Napili
Plaza also increased due to higher occupancies of leasable area.
LIQUIDITY, CAPITAL RESOURCES AND OTHER
At December 31, 1995, the Company's total debt, including capital
leases, was $37.5 million compared to $128.6 million at the end of 1994. The
decrease was primarily the result of Kaahumanu Center Associates (KCA) being
accounted for by the equity method and not being included in the Company's
consolidated financial statements at December 31, 1995 and the receipt of
reimbursements from KCA for construction costs. The removal of the Kaptel
Associates loan from the Company's balance sheet and positive cash flows from
operating activities also contributed to reducing the Company's debt.
In March 1996 the Company's $22 million revolving credit agreement was
extended to June 30, 1997. The commitment reduces to $19 million on December
31, 1996. In addition, the available commitment is also reduced by 75% of the
after-tax net proceeds from the sale of real estate and by the addition of any
permanent mortgage financing proceeds.
In 1996 capital expenditures are expected to be approximately $7
million. These expenditures are for new equipment and replacements considered
essential to the Company's current operations.
In addition to these capital expenditures the Company expects to
contribute approximately $1.2 million to the County of Maui for its share of
increased capacity in the West Maui sewer system. This expenditure represents
the balance of the $4.3 million total contribution to this project.
In June 1995 a final ruling by the International Trade Commission (ITC)
allowed import duties averaging 24.6% to be imposed on Thai pineapple
producers. The ruling was the result of an anti-dumping petition filed by
Maui Pineapple Company, Ltd. and the International Longshoremen's and
Warehousemen's Union in 1994 which alleged that Thailand's canned pineapple
producers were breaking United States and international trade laws by selling
in the U.S. below their production costs. Moderate price increases have
occurred in the marketplace since the ITC decision was announced. In
September 1995 Thai pineapple producers filed appeals with the U.S. Court of
International Trade. The Company does not expect any ruling on the appeal
until December 1996.
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 balance is below
current cost. The replacement cost of pineapple inventory was $26 million at
December 31, 1995.
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.
MAUI LAND & PINEAPPLE COMPANY, INC.
Officers
President & Chief Executive Officer
Gary L. Gifford
Executive Vice President/Finance & Treasurer
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/Human Resources
Julie L. Salady
Vice President/Land Management
Warren A. Suzuki
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
Joseph W. Hartley, Jr.
Retired President & CEO
Maui Land & Pineapple Company, Inc.
Randolph G. Moore
Chief Executive Officer
Kaneohe Ranch
Fred E. Trotter III
President
F. E. Trotter, Inc.
Mrs. J. Walter Cameron--Director Emeritus
Director
Maui Publishing Company, Ltd.
Andrew T. F. Ing--Director Emeritus
Chairman of the Board
Denis Wong and Associates
Audit and Compensation Committees
Peter D. Baldwin
Richard H. Cameron
Joseph W. Hartley, Jr.
Andrew T. F. Ing
Randolph G. Moore--Chairman, Audit
Mary C. Sanford
Fred E. Trotter III--Chairman, Compensation
PRINCIPAL SUBSIDIARIES
MAUI PINEAPPLE COMPANY, LTD.
Officers
President & Chief Executive Officer
Douglas R. Schenk
Executive Vice President/Sales & Marketing
James B. McCann
Executive Vice President/Finance & Treasurer
Paul J. Meyer
Vice President/Cannery
Eduardo E. Chenchin
Vice President/Plantations
L. Douglas MacCluer
Secretary
Adele H. Sumida
Controller
Stacey M. Jio
Assistant Treasurer
Ted L. Proctor
Directors
Mary C. Sanford--Chairman
Richard H. Cameron--Vice Chairman
Peter D. Baldwin
Douglas B. Cameron
Gary L. Gifford
Joseph W. Hartley, Jr.
Andrew T. F. Ing
Paul J. Meyer
Randolph G. Moore
Claire C. Sanford
Douglas R. Schenk
Douglas R. Sodetani
Fred E. Trotter III
Mrs. J. Walter Cameron--Director Emeritus
KAPALUA LAND COMPANY, LTD.
Officers
President & Chief Executive Officer
Donald A. Young
Executive Vice President/Finance & Treasurer
Paul J. Meyer
Vice President/Administration & Support Operations
Robert P. Derks
Vice President/Development
Robert M. McNatt
Vice President/Resort Operations
Gary M. Planos
Vice President/Marketing & Real Estate
Margaret A. Santos
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
Joseph W. Hartley, Jr.
Andrew T. F. Ing
Paul J. Meyer
Randolph G. Moore
Jared B. H. Sanford
Douglas R. Sodetani
Fred E. Trotter III
Donald A. Young
Mrs. J. Walter Cameron--Director Emeritus
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Maui
Land & Pineapple Company, Inc. Balance Sheet as of December 31, 1995 and the
Statement of Operations for the year then ended, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 166
<SECURITIES> 0
<RECEIVABLES> 13,142
<ALLOWANCES> 0
<INVENTORY> 19,675
<CURRENT-ASSETS> 36,554
<PP&E> 185,175
<DEPRECIATION> 96,618
<TOTAL-ASSETS> 137,085
<CURRENT-LIABILITIES> 13,126
<BONDS> 36,227
0
0
<COMMON> 12,318
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 137,085
<SALES> 92,758
<TOTAL-REVENUES> 125,577
<CGS> 70,935
<TOTAL-COSTS> 93,629
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,021
<INCOME-PRETAX> (3,025)
<INCOME-TAX> (1,466)
<INCOME-CONTINUING> (1,559)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,559)
<EPS-PRIMARY> (.87)
<EPS-DILUTED> (.87)
</TABLE>
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, 1995 and
1994, and the related statements of operations, changes in partners'
capital (deficit) and cash flows for the years ended December 31, 1995
and 1994 and the period from June 23, 1993 (date of formation) through
December 31, 1993. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of the partnership at December
31, 1995 and 1994, and the results of its operations and its cash flows
for the years ended December 31, 1995 and 1994 and the period from June
23, 1993 through December 31, 1993 in conformity with generally accepted
accounting principles.
/S/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Honolulu, Hawaii
February 2, 1996
<TABLE>
KAAHUMANU CENTER ASSOCIATES
Balance Sheets
December 31, 1995 and 1994
<CAPTION>
ASSETS
1995 1994
<S> <C> <C>
Current Assets
Cash $ 502,635 $ 1,814,186
Accounts receivable - less allowance of
$101,356 and $29,697 for doubtful accounts 816,645 1,313,880
Prepaid expenses 82,520 68,325
----------- -----------
Total Current Assets 1,401,800 3,196,391
----------- -----------
Property
Land and land improvements 5,787,383 5,687,452
Building 76,874,388 76,702,588
Furniture, fixtures and equipment 4,174,014 3,928,277
Construction in process 10,292 --
----------- -----------
Total Property 86,846,077 86,318,317
Accumulated depreciation 9,052,587 6,231,408
----------- -----------
Net Property 77,793,490 80,086,909
----------- -----------
Other Assets 5,976,139 2,608,015
----------- -----------
Total Assets $85,171,429 $85,891,315
=========== ===========
LIABILITIES & PARTNERS' CAPITAL (DEFICIT)
Current Liabilities
Current portion of long-term debt $ 661,888 $ 201,055
Accounts payable 277,145 92,761
Due to ML&P 842,934 1,743,802
Accrued interest -- 1,031,982
Other current liabilities 50,223 40,178
----------- -----------
Total Current Liabilities 1,832,190 3,109,778
----------- -----------
Long-Term Liabilities
Long-term debt 63,955,794 71,387,575
Due to ML&P -- 11,850,635
Construction and retainage payable -- 3,342,897
Rental deposits 55,026 34,134
----------- -----------
Total Long-Term Liabilities 64,010,820 86,615,241
----------- -----------
Partners' Capital (Deficit) 19,328,419 (3,833,704)
----------- -----------
Total Liabilities & Partners' Capital (Deficit) $85,171,429 $85,891,315
=========== ===========
See notes to financial statements.
</TABLE>
<TABLE>
KAAHUMANU CENTER ASSOCIATES
STATEMENTS OF OPERATIONS
Years Ended December 31, 1995 and 1994 and Period from
June 23, 1993 (Date of Formation) through December 31, 1993
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Revenue
Rental income - minimum $ 6,571,728 $2,805,574 $1,165,496
Rental income - percentage 819,960 877,437 490,723
Other operating income - primarily
recoveries from tenants 4,825,309 2,675,300 1,127,845
----------- ---------- ----------
Total Revenue 12,216,997 6,358,311 2,784,064
----------- ---------- ----------
Expenses
Utilities 2,540,736 1,345,027 542,864
Payroll and related costs 1,816,498 984,068 397,657
Depreciation and amortization 3,354,646 956,872 362,812
Interest 6,113,766 743,742 550,627
Repairs and maintenance 558,101 314,201 76,727
General excise taxes 470,808 251,388 108,600
Real property taxes 255,206 133,360 64,161
Insurance 263,168 91,315 38,073
Provision for doubtful accounts 184,940 43,944 25,618
Advertising and promotions 172,894 39,995 22,552
Management fee 163,633 -- --
Professional fees 159,528 32,443 15,941
Other expenses 69,402 43,021 61,798
----------- ---------- ----------
Total Expenses 16,123,326 4,979,376 2,267,430
----------- ---------- ----------
Net Income (Loss) $(3,906,329) $1,378,935 $ 516,634
=========== ========== ==========
See notes to financial statements.
</TABLE>
<TABLE>
KAAHUMANU CENTER ASSOCIATES
Statements of Changes in Partners' Capital (Deficit)
Years Ended December 31, 1995 and 1994 and Period from
June 23, 1993 (Date of Formation) through December 31, 1993
<CAPTION>
State of
Hawaii
Maui Land & Employees'
Pineapple Retirement
Company, Inc. System TOTAL
<S> <C> <C> <C>
Capital Contributions:
Property and other assets $ 10,788,190 $ -- $ 10,788,190
Cash -- 312,121 312,121
Assumption of loan (14,142,584) -- (14,142,584)
Cash Distribution (2,687,000) -- (2,687,000)
Net Income - 1993 511,468 5,166 516,634
------------ ----------- ------------
Partners' Capital (Deficit),
December 31, 1993 (5,529,926) 317,287 (5,212,639)
Net Income - 1994 1,365,146 13,789 1,378,935
------------ ----------- ------------
Partners' Capital (Deficit),
December 31, 1994 $ (4,164,780) $ 331,076 $ (3,833,704)
Capital Contributions:
Conversion of loan -- 30,587,879 30,587,879
Conversion of payable balance 1,332,060 -- 1,332,060
Cash Distribution -- (4,851,487) (4,851,487)
Net Loss - 1995 (2,749,360) (1,156,969) (3,906,329)
------------ ----------- ------------
Partners' Capital (Deficit),
December 31, 1995 $ (5,582,080) $24,910,499 $ 19,328,419
============ =========== ============
See notes to financial statements.
</TABLE>
<TABLE>
KAAHUMANU CENTER ASSOCIATES
Statements of Cash Flows
Years Ended December 31, 1995 and 1994 and Period from
June 23, 1993 (Date of Formation) through December 31, 1993
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Operating Activities:
Net Income (Loss) $(3,906,329) $ 1,378,935 $ 516,634
Adjustments to reconcile
net income to cash provided
by operating activities:
Depreciation and
amortization 3,354,646 956,873 362,812
Increase (decrease) in
accounts receivable 225,457 (948,086) (365,794)
Increase in accounts payable 606,996 1,433,272 403,291
Net change in other operating
assets and liabilities (529,363) 107,454 45,660
----------- ------------ ------------
Net Cash Flow Provided by
(Used in) Operating Activities (248,593) 2,928,448 962,603
----------- ------------ ------------
Investment Activities:
Purchases of property (4,356,375) (41,768,581) (25,780,691)
Payments for deferred costs (2,124,624) (1,449,395) --
Increase in restricted cash (1,503,926) -- --
----------- ------------ ------------
Net Cash Used in Investment
Activities (7,984,925) (43,217,976) (25,780,691)
----------- ------------ ------------
Financing Activities:
Proceeds from long-term debt 69,188,291 38,549,619 19,149,068
Payments of long-term debt (45,571,361) (181,998) (70,643)
Increase (decrease) in amount
due to ML&P (11,843,476) 2,940,635 8,910,000
Cash distribution (4,851,487) -- (2,687,000)
Capital contribution -- -- 312,121
----------- ------------ ------------
Net Cash Provided by
Financing Activities 6,921,967 41,308,256 25,613,546
----------- ------------ ------------
Net Increase in Cash (1,311,551) 1,018,728 795,458
Cash, Beginning of Period 1,814,186 795,458 --
----------- ------------ ------------
Cash, End of Period $ 502,635 $ 1,814,186 $ 795,458
=========== ============ ============
See notes to financial statements.
</TABLE>
KAAHUMANU CENTER ASSOCIATES
Notes to Financial Statements
Years Ended December 31, 1995 and 1994 and Period from
June 23, 1993 (Date of Formation) through December 31, 1993
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 566,000 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 amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during
the reporting periods. Future actual amounts could differ from
those estimates.
Property - Property which was contributed to the partnership by
ML&P is stated at ML&P's net book value at the date of
contribution; subsequent additions are stated at cost.
Depreciation is computed using the straight-line method.
Noncurrent Accounts Receivable - The excess of minimum rental
income recognized on a straight-line basis over amounts receivable
according to provisions of the lease are classified as noncurrent
accounts receivable.
Deferred Costs - Amounts expended by the Partnership for
construction of tenant improvements are classified as deferred
costs and are amortized over the terms of the respective leases.
Construction and Retainages Payable - Amounts due for construction
and retainages payable were classified as noncurrent in 1994
because such amounts were to be financed with proceeds from long-
term debt.
Income Taxes - The Partnership is not subject to federal and state
income taxes. The distributive shares of income or loss and other
tax attributes from the Partnership are reportable by the
individual partners.
PARTNERSHIP AGREEMENT
Capital Contributions - ML&P contributed the land and the shopping
center improvements as they existed prior to the expansion and
renovation project, subject to the existing first mortgage,
together with approximately nine acres of adjacent land which
became part of the expanded shopping center for a 99% interest in
the Partnership. In addition, on April 30, 1995, ML&P contributed
$1.3 million by conversion to capital of an amount owing to it.
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.
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 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,
1995 were $1,579,000 for both ERS and ML&P.
Management and Operations - ML&P as managing partner, is
responsible for the day-to-day management of the Partnership's
business affairs. Major decisions, as defined in the partnership
agreement, require the unanimous approval of the partners.
STATEMENTS OF CASH FLOWS
Supplemental Disclosure of Cash Flow Information and Non-Cash
Investing and Financing Activities:
1. Interest (net of amounts capitalized) paid during 1995, 1994,
and the period ended December 31, 1993 was $6,671,000,
$655,000 and $430,000, 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.
3. Property and other assets with a net book value of $10.8
million, subject to a loan of $14.1 million, were contributed
to the Partnership on July 1, 1993 by Maui Land & Pineapple
Company, Inc.
CAPITALIZED INTEREST
The Partnership incurred interest of $6,114,000 for 1995,
$5,178,000 for 1994 and $1,327,000 for 1993, of which $4,434,000
and $777,000, was capitalized, respectively, for 1994 and 1993.
RELATED PARTY TRANSACTIONS
The Partnership entered into an agreement with ML&P for the
operation of the Center. The operating agreement has an initial
term of 15 years, which commenced when ERS became a 50% partner,
with options to renew for four additional 10-year periods.
Pursuant to the agreement, the Partnership pays to ML&P an
operator's fee equal to 3% of gross revenues, as defined. In 1995,
ML&P charged the Partnership $164,000 for management fees.
Current amounts due to ML&P of $843,000 and $1,744,000 as of
December 31, 1995 and 1994, respectively, relate to operating costs
paid on behalf of the Center. Noncurrent amounts due to ML&P of
$11.9 million as of December 31, 1994 represented construction-
related costs funded for the Partnership by ML&P.
The Partnership does not have any employees. As such, all onsite
and administrative personnel are provided by ML&P. In 1995, 1994
and 1993, ML&P charged the Partnership $1,816,000, $984,000 and
$398,000, respectively, for payroll and labor-related costs.
ML&P generates the electricity which is used by the Center. ML&P
also incurs other costs and expenses, primarily insurance and real
property taxes, which are reimbursable by the Partnership. In
1995, 1994 and 1993 ML&P charged the Partnership $2,759,000,
$1,531,000 and $572,000, respectively, for electricity and other
costs and expenses.
OTHER ASSETS
Other Assets at December 31, 1995 and 1994 consisted of the
following:
1995 1994
Deferred costs $4,200,435 $2,608,015
Restricted cash 1,503,926 --
Noncurrent accounts receivable 271,778 --
---------- ----------
Total Other Assets $5,976,139 $2,608,015
========== ==========
Deferred costs are net of amortization of $669,605 and $169,276 at
December 31, 1995 and 1994, respectively. Restricted cash
represents proceeds from the mortgage loan which are reserved for
additional expansion costs (see BORROWING ARRANGEMENTS).
Noncurrent accounts receivable represent the excess of minimum
rental income recognized on a straight-line basis over amounts
receivable according to provisions of the lease.
BORROWING ARRANGEMENTS
<TABLE>
<CAPTION>
Long-term debt at December 31, 1995 and 1994 consisted of the
following:
1995 1994
<S> <C> <C>
Mortgage loan, 8.57%, due through 2005 $64,617,682 $ --
Mortgage loan, 10% (see below) -- 13,889,943
Employees' Retirement System of the
State of Hawaii, 9% (see below) -- 30,587,879
Construction Loan, 8.75% (see below) -- 27,110,808
----------- -----------
Total 64,617,682 71,588,630
Less portion classified as current 661,888 201,055
----------- -----------
Long-term debt $63,955,794 $71,387,575
=========== ===========
</TABLE>
As of April 30, 1995, the loan from ERS was contributed to the
Partnership in exchange for an additional 49% ownership interest in
the Partnership.
In May of 1995 the Partnership refinanced the 10% mortgage loan and
the 8.75% construction loan with a $65 million ten-year term loan
bearing interest at 8.57%. This financing arrangement, which is
collateralized by the Center, is nonrecourse except for the first
$10 million which is guaranteed by ML&P until the Center attains a
defined level of net operating income. Based on rates currently
available to the Partnership for debt with a similar term, the fair
value of this liability is estimated to be $71.1 million at
December 31, 1995.
Scheduled principal maturities for the next five years from 1996
through 2000 are as follows: $662,000, $792,000, $863,000,
$942,000 and $1,011,000.
LEASES
Tenant leases of the Center provide for monthly base rent plus
percentage rents and reimbursement for common area maintenance and
other costs. Future minimum rental income to be received under
non-cancelable operating leases of the Center aggregates
$66,818,000 and is receivable during the next five years (1996 to
2000) as follows: $6,616,000, $6,266,000, $6,113,000, $5,989,000,
$5,840,000, respectively, and $35,994,000 thereafter.
CONCENTRATION OF CREDIT RISK
The Partnership extends credit to its tenants in the course of its
leasing operations. The credit worthiness of existing and
potential tenants are evaluated and under certain circumstances a
security deposit is required.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Except for the mortgage loan (see BORROWING ARRANGEMENTS), the
Partnership believes the fair value of financial instruments
approximates carrying amounts.
