SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
Commission file number 0-6510
MAUI LAND & PINEAPPLE COMPANY, INC.
(Exact name of registrant as specified in its charter)
HAWAII 99-0107542
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
P.O. Box 187, KAHULUI, MAUI, HAWAII 96732
(Address of principal executive offices)
(808) 877-3351
(Registrant's telephone number, including area code)
NONE
Former name, former address and former fiscal year,
if changed since last report
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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at November 1, 1996
Common Stock, no par value 1,797,125 shares
<PAGE>
MAUI LAND & PINEAPPLE COMPANY, INC. AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets - September 30, 1996 (Unaudited)
& December 31, 1995 3
Condensed Statements of Operations and Retained Earnings,
Three Months Ended September 30, 1996 & 1995 (Unaudited) 4
Condensed Statements of Operations and Retained Earnings,
Nine Months Ended September 30, 1996 & 1995 (Unaudited) 5
Condensed Statements of Cash Flows
Nine Months Ended September 30, 1996 & 1995 (Unaudited) 6
Notes to Condensed Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 14
<PAGE>
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
MAUI LAND & PINEAPPLE COMPANY, INC. AND SUBSIDIARIES
CONDENSED BALANCE SHEETS
Unaudited
9/30/96 12/31/95
(Dollars in Thousands)
ASSETS
Current Assets
Cash $ 465 $ 166
Accounts and notes receivable 17,581 13,142
Inventories 24,547 19,675
Other current assets 3,989 3,571
-------- --------
Total current assets 46,582 36,554
Property 189,469 185,175
Accumulated depreciation (102,916) (96,618)
-------- --------
Property - net 86,553 88,557
Other Assets 10,365 11,974
-------- --------
TOTAL 143,500 137,085
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt 20,000 --
Trade accounts payable 5,731 5,761
Other current liabilities 7,645 7,365
-------- --------
Total current liabilities 33,376 13,126
Long-Term Liabilities
Long-term debt and capital lease obligations 21,653 36,227
Accrued retirement benefits 21,721 22,594
Other long-term liabilities 7,218 6,268
-------- --------
Total long-term liabilities 50,592 65,089
Stockholders' Equity
Common stock, no par value - 1,800,000
shares authorized, 1,797,125 issued and
outstanding 12,318 12,318
Retained earnings 47,214 46,552
-------- --------
Stockholders' Equity 59,532 58,870
-------- --------
$143,500 $137,085
TOTAL ======== ========
See accompanying Notes to Condensed Financial Statements.
MAUI LAND & PINEAPPLE COMPANY, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(UNAUDITED)
Three Months Ended
9/30/96 9/30/95*
(Dollars in Thousands
Except Share Amounts)
REVENUES
Net sales $30,435 $27,394
Operating income 6,229 6,031
Other income 340 660
------- -------
Total Revenues 37,004 34,085
------- -------
COSTS AND EXPENSES
Cost of goods sold 20,977 21,691
Operating expenses 6,258 5,930
Shipping and marketing 4,341 3,634
General and administrative 3,515 3,484
Equity in losses (earnings) of
joint ventures 88 (8,576)
Interest 937 1,149
------- -------
Total Costs and Expenses 36,116 27,312
------- -------
INCOME BEFORE INCOME TAXES 888 6,773
INCOME TAXES 370 2,454
------- -------
NET INCOME 518 4,319
RETAINED EARNINGS, BEGINNING OF PERIOD 46,696 44,046
------- -------
RETAINED EARNINGS, END OF PERIOD 47,214 48,365
======= =======
PER COMMON SHARE
Net Income $ .29 $ 2.40
======= =======
*Certain amounts have been restated to conform with the 1996
presentation.
See accompanying Notes to Condensed Financial Statements.
MAUI LAND & PINEAPPLE COMPANY, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(UNAUDITED)
Nine Months Ended
9/30/96 9/30/95*
(Dollars in Thousands
Except Share Amounts)
REVENUES
Net sales $74,750 $64,797
Operating income 19,161 21,563
Other income 1,224 3,882
------- -------
Total Revenues 95,135 90,242
------- -------
COSTS AND EXPENSES
Cost of goods sold 51,076 48,684
Operating expenses 17,566 18,329
Shipping and marketing 11,155 9,609
General and administrative 10,875 11,636
Equity in losses (earnings) of
joint ventures 646 (4,390)
Interest 2,708 5,952
------- -------
Total Costs and Expenses 94,026 89,820
------- -------
INCOME BEFORE INCOME TAXES 1,109 422
INCOME TAXES 447 168
------- -------
NET INCOME 662 254
RETAINED EARNINGS, BEGINNING OF PERIOD 46,552 48,111
------- -------
RETAINED EARNINGS, END OF PERIOD 47,214 48,365
======= =======
PER COMMON SHARE
Net Income $ .37 $ .14
======= =======
*Certain amounts have been reclassified to conform with the 1996
presentation.
See accompanying Notes to Condensed Financial Statements.
MAUI LAND & PINEAPPLE COMPANY, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
9/30/96 9/30/95
(Dollars in Thousands)
Net Cash From (Used In) Operating
Activities $(3,071) $ (4,897)
------- --------
Investing Activities
Purchases of property (3,288) (4,906)
Proceeds from disposal of property 789 3,056
Reimbursements from Kaahumanu
Center Associates -- 11,224
Proceeds from surrender of
insurance policies 3,246 --
Other 400 (2,682)
------- --------
Net Cash From (Used In) Investing
Activities 1,147 6,692
------- --------
Financing Activities
Payments of long-term debt & capital
lease obligations (10,177) (16,298)
Proceeds from long-term borrowings 12,400 13,288
Proceeds from short-term debt -- 113
------- -------
Net Cash From (Used In) Financing
Activities 2,223 (2,897)
------- -------
Net Cash Increase (Decrease) 299 (1,102)
Cash At Beginning of Period 166 2,269
------- -------
Cash At End of Period $ 465 $ 1,167
======= ========
Supplemental Disclosure of Cash Flow and Non-Cash Information -
Interest (net of amounts capitalized) of $ 3,276,000 and
$6,597,000 was paid during the nine months ended September 30,
1996 and 1995, respectively. Income taxes of $306,000 were paid
during the nine months ended September 30, 1996. Income tax
refunds (net of payments) of $1,509,000 were received during the
nine months ended September 30, 1995. Capital lease obligations
of $848,000 were incurred during the nine months ended September
30, 1996. See also Notes 4 and 5 to Condensed Financial
Statements.
See accompanying Notes to Condensed Financial Statements.
MAUI LAND & PINEAPPLE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. In the opinion of management, the accompanying condensed
financial statements contain all normal and recurring
adjustments necessary to present a fair statement of
financial position and results of operations for the interim
periods ended September 30, 1996 and 1995.
2. The Company's reports for interim periods utilize numerous
estimates of production, general and administrative
expenses, and other costs for the full year. Consequently,
amounts in the interim reports are not necessarily
indicative of results for the full year.
3. The effective tax rate for 1996 and 1995 differs from the
statutory federal rate of 34% primarily because of the state
tax provision and refundable state tax credits.
4. On October 31, 1995, the partners of Kaptel Associates,
which owns The Ritz-Carlton Kapalua Hotel, concluded an
agreement to dissolve the partnership. Effective October
31, 1995, the Company and The Ritz-Carlton Hotel Company
transferred their respective 25% interests in the
partnership to the remaining partner, NI Hawaii Resorts,
Inc. 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 reversal of these losses are reflected as decreases in
costs and expenses of $8.9 million and $5 million,
respectively, for the third quarter and the first nine
months of 1995.
5. Effective April 30, 1995, the Employees' Retirement System
of the State of Hawaii (ERS) converted its $30.6 million
loan to an additional 49% ownership in Kaahumanu Center
Associates (KCA). After the conversion, the Company no
longer consolidated KCA, but accounted for its investment in
KCA by the equity method. This resulted in a decrease in
the Company's consolidated assets and consolidated debt of
approximately $76 million.
6. The entire $20 million outstanding under the $22 million
revolving credit agreement has been reflected as a current
liability because maturity is currently scheduled for
June 30, 1997. The Company anticipates extending and
modifying the terms of this facility (see page 12).
7. Inventories as of September 30, 1996 and December 31, 1995
were as follows (in thousands):
9/30/96 12/31/95
(restated)
Pineapple products-
Finished goods $14,894 $11,631
Work in progress 2,315 1,088
Raw materials 926 1,201
Real estate held for sale 339 340
Merchandise, materials and supplies 6,073 5,415
------- -------
Total Inventories $24,547 $19,675
======= =======
8. Average common shares outstanding for the interim periods
ended September 30, 1996 and 1995 were 1,797,125.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
Consolidated
Consolidated net income for the nine months ended September 30,
1996 was $662,000 compared to $254,000 for the same period in 1995.
For the third quarter of 1996, net income was $518,000 compared to
$4.3 million for the third quarter of 1995.
Net income for the third quarter and first nine months of 1995
includes $5.7 million ($8.9 million before income taxes) and $3.2
million ($5 million before income taxes) of income attributable to
the reversal of the Company's equity in losses of Kaptel
Associates. These losses were reversed in the third quarter of
1995 because the Company disposed of its partnership interest in
Kaptel in October 1995 (see Note 4 to Condensed Financial
Statements).
Interest expense for the first nine months and for the third
quarter of 1996 was lower by 55% and 18%, respectively, than the
same periods in 1995. The decreases resulted from lower average
borrowings and the change in accounting for Kaahumanu Center
Associates effective as of April 30, 1995 (see Note 5 to Condensed
Financial Statements).
General and administrative expenses decreased by 7% for the first
nine months of 1996 compared to the first nine months of 1995. For
the third quarter of 1996 these expenses increased by less than 1%
compared to last year's third quarter. The decrease for the nine
month period was largely a result of the change in accounting for
Kaahumanu Center Associates effective as of April 30, 1995 (see
Note 5 to Condensed Financial Statements).
Pineapple
The Company's Pineapple segment contributed revenue of $66.4
million in the first nine months of 1996 compared to $57.4 million
in the same period for 1995. Operating profits for the first nine
months of 1996 were $4.1 million compared to an operating loss of
$1.8 million for the first nine months of 1995.
Higher average prices per case of canned pineapple sold accounted
for 58% of the $8.9 million net revenue increase and higher case
volume of sales accounted for 52% of that increase. Partially
offsetting the increase in average prices and volume were decreases
totaling 10% attributable to sales mix and fresh fruit sales.
Pineapple costs and expenses increased primarily as a result of the
higher volume of cases sold.
Pineapple operations contributed revenue of $27.7 million in the
third quarter of 1996 compared to $25 million in the third quarter
of 1995. Operating profit for the third quarter of 1996 was $2.5
million compared to an operating loss of $628,000 for last year's
third quarter. Approximately 83% of the $2.7 million net revenue
increase was due to improved prices. Other fluctuations in revenues
and costs and expenses were similar to the nine month periods.
Resort
The Company's Resort segment provided revenues of $25.1 million for
the first nine months of 1996 compared to $23.8 million for the
first nine months of 1995. Resort operating profits for the first
nine months of 1996 were $2.7 million compared to $7.4 million for
the nine month period in 1995. Operating profits for 1995 includes
income of $5 million representing the reversal of the Company's
equity in losses of Kaptel Associates (see Note 4 to Condensed
Financial Statements). Excluding the effect of this adjustment,
Resort operating profits improved by approximately $300,000 for the
first nine months of 1996 as compared to the same period in 1995.
These improved operating results from the Resort ongoing operations
was principally attributable to higher occupancies at the Kapalua
resort.
Merchandise sales accounted for 38% of the $1.2 million net revenue
increase. Approved rate increases for the Company's water and sewer
utilities accounted for 45%, the Kapalua villa rentals were
responsible for 35% of the increase, and other operations (net)
provided 19% of the increase. Reductions in lease revenues
primarily because of the revised ground lease on the Ritz-Carlton
Kapalua offset these increases by approximately 37%. Marketing
expenses increased because of two major advertising initiatives
which began in 1996. Other cost and expense increases for the first
nine months of 1996 compared to 1995 were largely commensurate with
the increase in revenues.
For the third quarter of 1996 the Resort segment contributed
revenues of $8 million compared to $7.7 million for the third
quarter of 1995. Resort operating profits were $546,000 for the
third quarter of 1996 compared to $9.2 million for last year's
third quarter. Operating profits for the third quarter of 1995
includes $8.9 million representing the reversal of the Company's
equity in losses of Kaptel Associates (see Note 4 to Condensed
Financial Statements). Excluding this adjustment, resort operating
profits for the third quarter of 1995 was $275,000. The principal
reasons for increases in revenues and operating profits from the
Resort ongoing operations were similar to those for the nine month
period.
<PAGE>
Commercial Property
The Commercial Property segment contributed revenues of $2.8
million and $5.7 million for the first nine months of 1996 and
1995, respectively. For the nine months ended September 30, 1996,
this segment produced an operating loss of $434,000 compared to an
operating profit of $427,000 for the same period in 1995.
Occupancies and tenant sales at the Napili Plaza and Kaahumanu
Center improved in the first nine months of 1996 compared to the
first nine months of 1995. The lower reported results for the
first nine months of 1996 reflect the Company's reduced ownership
in Kaahumanu Center Associates (KCA) and the change to the equity
method of accounting for this investment. The Company's investment
in KCA has been accounted for by the equity method since
April 30, 1995 because of the Company's reduced investment. Prior
to that, the financial statements of KCA were consolidated with the
Company (see Note 5 to Condensed Financial Statements).
For the third quarter of 1996 the Commercial Property segment
reported revenues of $1 million and an operating loss of $24,000.
Results for the comparable period a year ago were revenues of
$891,000 and an operating loss of $201,000. These improved results
principally reflect increased occupancies and tenant sales at
Napili Plaza and Kaahumanu Center.
Land Management
The Company's Land Management division produced revenues of
$956,000 for the first nine months of 1996 compared to $3.2 million
for the first nine months of 1995. Operating profits were $708,000
and $3.1 million, respectively, for the same periods. For the
third quarter of 1996 Land Management revenue was $268,000 compared
to $468,000 for the same period a year ago, and operating profits
were $86,000 compared to $449,000 for the third quarter of 1995.
The decrease in revenue and operating profit for the third quarter
and first nine months of 1996 results from fewer land sales.
LIQUIDITY AND CAPITAL RESOURCES
The Company's total debt at September 30, 1996, including capital
leases was $42.8 million compared to $37.5 million at December 31,
1995. The increase in debt for the first nine months of 1996 was
largely a result of seasonal negative cash flows from operating
activities. Peak pineapple canning during the summer months,
coupled with a lag in receivable collections, principally from the
U.S. Department of Agriculture, were the primary reasons for
negative cash flows from operating activities during this period.
The deficiency in cash flow from operating activities is expected
to reverse in the fourth quarter of 1996 and borrowings will be
reduced. The Company had approximately $3.5 million in unused
revolving credit lines available at September 30, 1996.
In November 1996 the Company expects to conclude a $5 million
mortgage financing arrangement on the Napili Plaza. Proceeds from
this loan will be used to reduce the $20 million balance under the
Company's $22 million revolving credit facility.
In the fourth quarter of 1996, the Company also expects to extend
and modify its $22 million revolving credit facility. It is
expected that this financing arrangement, which currently expires
on June 30, 1997, will be extended to December 31, 1997 and that
the available commitment will be reduced to $15 million.
The net effect of these financing arrangements will be to reduce
the Company's available credit lines by $2 million. The Company
believes that these credit facilities will be sufficient to meet
its seasonal cash requirements.
Capital expenditures for pineapple operations are expected to be
$4.3 million in 1996. Approximately 50% of these expenditures are
for equipment replacements. Resort capital expenditures for 1996
are projected to be $1.8 million. Approximately 55% of these
expenditures are for replacement of equipment used by the resort
recreation and retail operations. The corporate division expects
to have capital expenditures in 1996 of approximately $400,000
primarily for replacements and additions to the company's computer
system. Capital leases of approximately $1.1 million will be
incurred to finance some of the new equipment purchased in 1996.
The remainder is expected to be financed from operating cash flows.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
A. Antidumping Petition.
In June of 1994, Maui Pineapple Company, Ltd. and the
International Longshoremen's and Warehousemen's Union filed an
antidumping petition with the U. S. International Trade
Commission and the U.S. Department of Commerce. The petition
alleged that Thai producers of canned pineapple were violating
U.S. and international trade laws by selling their products in
the United States at less than fair value, and that such sales
were causing injury to the U.S. industry producing canned
pineapple.
On May 30, 1995, the U.S. Department of Commerce completed
it's portion of the investigation, concluding that imports of
canned pineapple from Thailand were being sold in the United
States at less than fair value. Thai producers investigated
included Dole Thailand, Ltd., The Thai Pineapple Public Co.,
Ltd., Siam Agro Industry Pineapple and Others Co., Ltd., and
Malee Sampran Factory Public Co., Ltd.
On June 30, 1995, the U.S. International Trade Commission
announced its unanimous determination that the domestic
industry producing canned pineapple was materially injured by
reason of the unfair imports of canned pineapple from
Thailand. As a result of the affirmative findings of both the
U.S. Department of Commerce and International Trade
Commission, antidumping duties were imposed on all imports of
canned pineapple fruit from Thailand into the United States,
with cash duty deposits ranging from 2 to 51 percent.
The Thai respondents have appealed the dumping calculations of
the Department of Commerce to the U.S. Court of International
Trade. Maui Pineapple has filed a cross appeal concerning one
element of the Department's determination. On August 19,
1996, the U.S. Court of International Trade heard arguments
from all parties to the appeals. As of this time, no decision
has been announced by the court.
In the third quarter of 1996, four Thai producers of canned
pineapple requested that the Department of Commerce conduct an
annual review of their records in order to ascertain whether
the current antidumping duties should be adjusted. The
reviews are expected to be completed by July 31, 1997.
B. Arosi Litigation.
On July 10, 1996, Arosi Hawaii, Inc. ("Arosi") filed a
complaint against Maui Land & Pineapple Company, Inc. ("MLP"),
and two of its officers, Don Young and Paul J. Meyer, entitled
Arosi Hawaii, Inc. v. Maui Land & Pineapple Company, Inc.,
etal., Civil No. 96-087(1) (Circuit Court of the Second
Circuit, State of Hawaii). The complaint, which seeks
unspecified special, general and punitive damages, alleges
that the exercise by MLP of a first refusal right constituted
tortious interference with Arosi's attempt to purchase the
Kapalua Bay Hotel and Villas from KBH Operations Limited
Partnership ("KBH"). The first refusal right was included in
a ground lease under which MLP leased the land underlying the
hotel to KBH. Arosi entered into a hotel purchase contract,
which expressly acknowledged MLP's first refusal right. After
MLP exercised that right, Arosi terminated the contract with
KBH, and KBH initiated a Chapter XI proceeding. The hotel was
subsequently sold to a third party, pursuant to bankruptcy
court approval and stipulations among KBH, MLP and other
parties. The litigation is still in its preliminary stages.
Item 5. Other Information
In September 1996 the owners of the Kapalua Bay Hotel sold the
hotel to a third party. The Company, as ground lessor, has
agreed to the assignment of the lease to the buyer and to the
amendment of certain terms of the lease (see Exhibit (10)A,
filed herewith).
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(10) Material Contracts
A. Third Amendment of Hotel Ground Lease, dated and
effective as of September 5, 1996. Attached.
(27) Financial Data Schedule
As of September 30, 1996 and for the nine months
then ended. Attached.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the
period covered by this report.
<PAGE>
SIGNATURE
Pursuant to the requirements 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.
November 12, 1996 /S/ PAUL J. MEYER
Date Paul J. Meyer
Executive Vice President/Finance
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
the Maui Land & Pineapple Company, Inc. Balance Sheet as of
September 30, 1996 and the Statement of Operations for the nine
months then ended, and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 465
<SECURITIES> 0
<RECEIVABLES> 17,581
<ALLOWANCES> 0
<INVENTORY> 24,547
<CURRENT-ASSETS> 46,582
<PP&E> 189,469
<DEPRECIATION> 102,916
<TOTAL-ASSETS> 143,500
<CURRENT-LIABILITIES> 33,376
<BONDS> 21,653
0
0
<COMMON> 12,318
<OTHER-SE> 47,214
<TOTAL-LIABILITY-AND-EQUITY> 143,500
<SALES> 74,750
<TOTAL-REVENUES> 95,135
<CGS> 51,076
<TOTAL-COSTS> 68,642
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,708
<INCOME-PRETAX> 1,109
<INCOME-TAX> 447
<INCOME-CONTINUING> 662
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 662
<EPS-PRIMARY> .37
<EPS-DILUTED> .37
</TABLE>
THIRD AMENDMENT OF HOTEL GROUND LEASE
THIS THIRD AMENDMENT OF HOTEL GROUND LEASE (the
"Amendment") is dated and effective as of September 5, 1996
and made by and between MAUI LAND & PINEAPPLE COMPANY, INC.,
a Hawaii corporation ("Lessor"), 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 and YCP KAPALUA L.P., a Delaware limited partnership
("Lessee"), whose principal place of business and post
office address is 950 East Paces Ferry Road, Suite 3210,
Atlanta, Georgia 30326.
R E C I T A L S:
Lessor and THE KBH COMPANY, a California limited
partnership, as lessee, entered into that certain Hotel
Ground Lease (Sublease) dated October 22, 1985, a Memorandum
of which is recorded in the Bureau of Conveyances of the
State of Hawaii (the "Bureau") in Book 19021, Page 378,
demising certain premises in Kapalua, Maui, Hawaii which are
commonly referred to as The Kapalua Bay Hotel.
The Hotel Ground Lease was amended by Lessor's
Consent to Mortgages; Amendment of Lease; and Estoppel
Certificate dated June 13, 1990 and was further amended by
Second Amendment of Lease dated October 14, 1991 (the Hotel
Ground Lease, as amended, is referred to herein as the
"Lease").
By Assignment of Lease dated June 13, 1990 and
filed in the Bureau (the "Bureau") as Document No.
90-089060, THE KBH COMPANY assigned all of its right, title
and interest in and to the Lease to KBH OPERATIONS LIMITED
PARTNERSHIP ("KBH"), a Hawaii limited partnership, which
Assignment was consented to by Lessor by Lessor's Consent to
Assignment of Lease dated June 13, 1990, and which Consent
was filed in the Bureau as Document No. 90-089061.
By Assignment of Ground Lease dated September 5,
1996, KBH assigned all of its right, title and interest in
and to the Lease to Lessee, and Lessor and Lessee now desire
to amend the Lease as set forth in this Amendment, which
Assignment is hereby consented to by Lessor.
NOW, THEREFORE, in consideration of these premises
and other good and valuable consideration, the Lessor and
Lessee hereby agree, effective as of the date first set
forth above, to amend the Lease as follows.
1. Article I (Definitions), Section 2 (Term)
shall be deleted in its entirety and replaced with the
following:
"Term" shall mean the term of this Lease which
shall commence on the Effective Date and terminate at
midnight on December 31, 2095.
2. Article I (Definitions), Section 3(n) is
hereby amended in its entirety to read as follows:
(n) Hotel Operator. "Hotel Operator" shall mean
a person or entity experienced in the management of a
first-class national or international luxury resort hotel at
standards equal to the 1994 published standard necessary to
receive at least a 4-Diamond rating from the American
Automobile Association."
3. Article I (Definitions), Section 3(bb) is
hereby added to the section (following the end of Section
3(aa)) to read as follows:
(bb) Kapalua Villas Management Agreement. The
"Kapalua Villas Management Agreement" shall mean that
certain agreement dated September 5, 1996 between Lessee and
Lessor dealing with the management of rental units at the
Kapalua Villa Condominium project at Kapalua, Maui, which
agreement is (i) being executed by Lessee and Lessor
concurrently or substantially concurrently with this Third
Amendment of Hotel Ground Lease and (ii) incorporated herein
by reference.
4. [Intentionally Omitted].
5. Article III (Rental), Section 2 is hereby
amended by adding thereto a new clause (7) to be placed
after the end of clause (6) which appears in the first
paragraph of this Section 2 to read as follows:
"and (7) any income received by Lessee under the
Kapalua Villas Management Agreement (including revenues
based on Buyer's Revenue Percentage as defined therein).
6. Article III (Rental), Section 2 is hereby
amended by changing the first sentence of the second
paragraph of this Section 2 to read as follows:
The term "Gross Annual Rental Income" shall mean
all revenues and income of any kind whether in the form of
cash, property or services (i.e., barter, "contra" accounts
and such alternatives to cash payments) actually received by
Lessee from the operations of any Concessionaires occurring
on or from the Premises during any Lease Years during the
Term, specifically including therein any revenue actually
received by Lessee from the management and rental of
condominiums in the Kapalua Resort area, but specifically
excluding therefrom any revenue received by Lessee under the
Kapalua Villas Management Agreement (including revenues
based on Buyer's Revenue Percentage as defined therein).
7. [Intentionally Omitted].
8. Article III (Rental), Sections 3(f) and 3(g)
are hereby amended in their entirety to read as follows:
(f) Beginning on September 5, 1996 and ending on
December 31, 2002, the annual minimum rent shall be O (zero)
and only percentage rent as provided for in Section 4(vi) of
this Article III shall be payable during this period.
(g) Beginning January 1, 2003 through December
31, 2007, and for each 5-year period thereafter during the
term of this Lease (and any lesser period ending on the
expiration date of this Lease), the annual minimum rent
shall be 4% of 75% of the average annual Gross Revenues of
the five years (i) immediately preceding January 1, 2003 or,
(ii) in the case of each 5-year period thereafter,
immediately preceding the beginning of such 5-year period.
9. Article III, Section 4 (Percentage Rent),
paragraph (a)(v) and the examples following thereafter are
hereby deleted and replaced with the following:
(v) Beginning September 5, 1996 and continuing
through September 4, 1997, a percentage rent equal to
0% (zero) of the Gross Revenues for that period.
Beginning September 5, 1997 and continuing through
September 4, 1998, a percentage rent equal to 2% of
Gross Revenues for that period. Beginning September 5,
1998 and continuing through September 4, 1999, a
percentage rent equal to 3% of Gross Revenues for that
period. Beginning September 5, 1999 and every Lease
Year thereafter, a percentage rent equal to 4% of Gross
Revenues for each such Lease Year.
10. Article III (Rental), Section 5 is hereby
amended by changing the second sentence in its entirety to
read as follows:
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, (ii) Lessee's guest list constitutes valuable and
confidential trade secrets of either Lessee or of Lessee's
Hotel Operator and (iii) to the extent the guest list sought
by Lessor is proprietary property of the Hotel Operator,
Lessee shall use its best efforts, upon Lessor's request, to
make such information available to Lessor, but that Lessee's
obligation shall be subject to the Hotel Operator's
agreement to release the same.
11. Article V (Mortgages), Section 3 (Protection
of Mortgagee) is amended in its entirety to read as follows:
3. Protection of Mortgagees. During the
existence of any permitted mortgage of this Lease, Lessor
shall not terminate this Lease by reason of any default by
Lessee, or for any other cause whatsoever, if, within ninety
days after Lessor has mailed to the holder of the mortgage
at its last known address a written notice of Lessor's
intention to terminate the interest of Lessee, the mortgagee
or its permitted assignee cures such default, provided that
it can be cured by the payment of money, or, if it cannot be
cured by the payment of money, the mortgagee or its
permitted assignee shall undertake in writing to observe and
perform, and shall thereafter observe and perform with due
diligence and in reasonable good faith, until such time as
this Lease is sold upon foreclosure or assigned in lieu of
foreclosure, all of the covenants and conditions which
Lessee is obligated to observe and perform under this Lease
and which can be observed and performed by the mortgagee or
its permitted assignee. In the event of such an
undertaking, Lessor shall not terminate this Lease within
such further time as may be required by the mortgagee to
complete foreclosure, assignment in lieu of foreclosure or
such other remedy as may be available under its mortgage,
provided that (i) such remedy is pursued promptly and
completed in a diligent manner, and (ii) all rent and other
charges accruing hereunder are paid as they become due.
Upon a foreclosure sale of this Lease or an assignment in
lieu of foreclosure, the time for performance of any
obligation of Lessee then in default (other than the payment
of money) will be extended by the time necessary to complete
such performance with the exercise of diligence. Any
default consisting of Lessee's failure to discharge promptly
any lien, charge or encumbrance against the Premises junior
in priority to an authorized mortgage of this Lease will be
deemed to be duly cured if such mortgage is foreclosed by
appropriate action instituted within the ninety-day period
specified in this Lease and is thereafter prosecuted and
completed in a diligent manner, but it being understood that
Lessor shall have no obligation to mortgagee if such junior
liens, charges or encumbrances are not so cured. Any
default not susceptible of being cured by a mortgagee or
party acquiring title to Lessee's leasehold estate shall be
deemed waived by Lessor upon completion of the foreclosure
proceeding or acquisition of Lessee's interest as a result
of the mortgagee's exercise of its remedies. Any person
acquiring the leasehold estate in accordance with paragraph
1 of Article V in consideration of the extinguishment of
debt or through foreclosure sale, judicial or otherwise, or
any party claiming by, through or under any such person,
provided the lease rent is paid, shall be liable to perform
the obligations imposed upon the Lessee by the Lease only
during the period such person or party has possession or
ownership of the leasehold estate.
(a) In the event of the bankruptcy of
Lessee, Lessor agrees to waive the sixty-day limitation
period under section 365 of the Bankruptcy Code (11 U.S.C.
365) for an extension period of thirty days, provided that
all rent and other charges due under this Lease are paid
when due.
(b) If this Lease is terminated prior to the
natural expiration of the term hereof, as a result of an
actual or deemed rejection of the Lease under any provision
of the Bankruptcy Code (11 U.S.C.) or any successor law
having similar effect, then, and in any such event, the
mortgagee or its permitted assignee or permitted designee
(as set forth below) will thereupon have the option to
obtain a new Lease (the "Mortgagee's Lease") of the Premises
in accordance with and upon the following terms and
conditions:
(i) The mortgagee shall pay or cause to be
paid to Lessor at the time of the execution and
delivery of the Mortgagee's Lease any and all sums
which are at the time of execution and delivery thereof
due under this Lease and, in addition thereto, all
reasonable expenses (including reasonable attorneys'
fees) which Lessor shall have incurred by reason of the
actual or deemed rejection of this Lease and the
execution and delivery of the Mortgagee's Lease.
(ii) Upon the written request of the mort-
gagee delivered to Lessor within sixty days after the
actual or deemed rejection of this Lease as aforesaid,
Lessor shall enter into the Mortgagee's Lease of the
Premises with the mortgagee, or a subsidiary or other
affiliate of the mortgagee as it may designate or, with
the Lessor's approval (which may be given or withheld
in Lessor's sole discretion), another designee, as
provided in this Section; provided, however, that, if
Lessor receives no such written request within said
sixty-day period, then all of the mortgagee's rights to
the Mortgagee's Lease hereunder will automatically
terminate and mortgagee shall cooperate by executing
and delivering to Lessor such documents as may be
reasonably necessary to accomplish this paragraph.
(iii) The Mortgagee's Lease will be effective
as of the date of termination of this Lease and will be
for the remainder of the term of this Lease, at the
same rent, additional rent or other charges herein
provided and otherwise upon the same agreements, terms,
covenants and conditions herein, except that the
Mortgagee's Lease will also include an additional
indemnity paragraph under the terms of which the lessee
named therein shall indemnify Lessor against and hold
Lessor harmless from all claims, demands and liability
whatsoever, by whomsoever made, for loss or damage
arising out of or in connection with the issuance of
the Mortgagee's Lease and shall promptly reimburse
Lessor for its costs and expenses (including reasonable
attorneys' fees) incurred in connection with the
defense of any such claims. In consideration for such
indemnity, Lessor shall use its reasonable efforts to
obtain the cooperation of all parties in interest, such
that any Mortgagee's Lease made pursuant hereto will,
if possible, be prior to any mortgage or other lien,
charge or encumbrance on the fee simple interest in the
Premises, which mortgage, lien, charge or encumbrance
was junior to this Lease; provided, that Lessor shall
be reimbursed its costs and any fees incurred in
connection with such cooperative efforts. The
Mortgagee's Lease will, if possible, have the same
relative priority in time and right as this Lease and
have the benefit of and vest in the mortgagee all of
the same rights, title, interest, powers and privileges
of Lessee. Concurrently with the execution of the
Mortgagee's Lease, Lessor shall assign its interest in
and to any then existing sublease under which Lessee
has attorned to and been recognized by Lessor and shall
be reimbursed its costs in so doing. During the period
between termination of this Lease and execution of the
Mortgagee's Lease, Lessor shall not amend or modify the
subleases or take any action which will adversely
affect the Premises or give rise to any liens against
the Premises.
(iv) As a condition to and concurrently with
delivery of the Mortgagee's Lease, the lessee named
therein shall pay any and all sums which would, at the
time of the execution thereof, be due under this Lease,
but for the termination as aforesaid, and shall
otherwise fully remedy any existing defaults under this
Lease susceptible of cure by the mortgagee or permitted
designee, as applicable, and shall pay to Lessor all
costs and expenses, including, but not limited to, any
premiums paid or incurred by Lessor in order to
maintain the insurance coverage required by the terms
of this Lease and the reasonable attorneys' fees, court
costs and disbursements incurred by Lessor by reason of
the actual or deemed rejection of this Lease and/or in
connection with the preparation, execution and delivery
of the Mortgagee's Lease. Any default which cannot be
cured by such lessee until obtaining possession shall
be cured by the lessee within a reasonable time after
obtaining possession.
12. Article VIII (Maintenance and Use of
Premises), Section 8(a) shall be amended by changing the
reference to the 1984 published standard for 4-Diamond
rating of the American Automobile Association to the "1994
published standard for 4-Diamond Rating of the American
Automobile Association".
13. Article VIII (Maintenance and Use of
Premises), Section 8(c) shall be amended in its entirety to
read as follows:
Lessee shall not use the Premises for realty sales office
(except for temporary realty sales office to sell or lease
realty, apartments and/or condominiums owned by Lessee
and/or any of its partners and located in the Kapalua Resort
Development, and realty, apartments and/or condominiums
located or to be located on Site 29, whether or not owned
by Lessee or any of its partners) and shops selling items
bearing the Kapalua logo, which is a stylized butterfly with
a pineapple in the center, except as Lessor shall otherwise
approve. Lessee shall be permitted to conduct commercial
retail operations on the Premises such as retail shops and
stores, provided, that the area used therefore is limited as
provided in Article VIII, Section 8(a) and that Lessee shall
reasonably cooperate with Lessor to provide a tenant mix
which shall be complementary to the retail activities at The
Shops which is the retail facility operated by Lessor on the
adjacent property.
14. Article XI (General Provisions), Section 7(a)
shall be amended in its entirely as follows:
(a) This Lease and/or the Hotel may be assigned
or transferred, voluntarily or involuntarily, in whole or in
part, by Lessee, without the consent or approval of Lessor,
to a subsidiary or parent corporation or other affiliated
entity of Lessee or to any limited or general partnership or
other entity in which Lessee, its parent company, or any
affiliate or subsidiary company of either Lessee or its
parent company is a general partner and is given and
exercises day-to-day operational control (each such entity
to be hereinafter referred to as the "Controlled Entity").
For purposes of this provision, the term "affiliate" or
"affiliated entity" shall mean an entity controlling,
controlled by or under common control with the party in
question. A sale, assignment or transfer permitted by this
paragraph 7(a) shall not be considered a sale, assignment or
transfer under paragraph 7(b) below.
15. Article XI (General Provisions), Section
7(b) shall be amended by changed the first sentence to read
as follows:
"If Lessee or any Controlled Entity ("Assignor")
proposes to sell, assign or transfer this Lease and/or the
Hotel other than to a Controlled Entity, Assignor shall give
Lessor written notice stating Assignor's intention to so
sell, assign or transfer this Lease and/or the Hotel and the
price and material terms of payment of the purchase price
Assignor desires to receive in consideration thereof."
16. Article XI (General Provisions), Section
7(c) shall be amended by deleting the word "If" which is the
first word in the first sentence of this section and
substituting the following clause in its place:
"Subject to Section 7(a) of this Article XI, if"
17. Article XII (Special Provisions), Section 2
(Right of First Refusal), is amended in its entirety to read
as follows:
2. Right of First Refusal.
(a) Intention to Sell. If Lessor intends to
sell, assign or transfer fee simple title to the Premises
and/or its interest in this Lease, Lessor shall give Lessee
written notice stating Lessor's intention to so sell, assign
or transfer and the price Lessor desires to receive in
consideration thereof, Lessee shall have sixty (60) days
following such notice in which to accept or reject such
price and to enter into a definitive agreement with Lessor
with respect thereto which is mutually acceptable to Lessor
and Lessee and customary for transactions of this type. If
Lessee fails to accept such price or fails to enter into
such definitive purchase agreement within said sixty (60)
days or rejects such price at any time, Lessor shall be
entitled, at any time after such failure or rejection, to
sell, assign or transfer its fee simple title to the
Premises and/or its interest in this Lease to any third
party, provided that such sale, assignment or transfer shall
(a) be for a purchase price equal to or higher than that
stated in Lessor's notice to Lessee, and (b) provide terms
and conditions which are not materially more favorable to
the purchaser than those terms and conditions offered to
Lessee by Lessor.
If Lessor desires to sell, assign or transfer its
fee simple title to the Premises and/or its interest in this
Lease for a price less than that stated in Lessor's notice
to Lessee and/or pursuant to other terms and conditions
which are materially more favorable than those offered to
Lessee, Lessor shall give Lessee written notice of such
price and terms and conditions upon which Lessor desires to
consummate the sale, assignment or transfer, and Lessee
shall have forty-five (45) days after such notice to accept
such new price, terms and conditions. If Lessee fails to
accept such new price, terms and conditions within the
forty-five (45) days or rejects such new price, terms and
conditions, Lessor shall be entitled, at any time after such
failure or rejection, to consummate the sale, assignment or
transfer to any third party.
(b) Offer to Purchase. Subject to Section 2(a),
if Lessor shall receive an offer to purchase its fee simple
title in the Premises and/or its interest in this Lease
which Lessor intends to accept, Lessor shall give Lessee
written notice stating Lessor's intention to so sell, assign
or transfer and all of the terms and conditions of such
offer. Lessor shall include a copy of such agreement or
offer with such notice to Lessee. Lessee shall have sixty
(60) days following such notice in which to elect to
purchase the land or interest in the Lease (as the case may
be) on terms identical to those set forth in the notice from
Lessor with the only exception that 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 elect to purchase such interest, Lessor shall be
entitled to sell, assign or transfer its fee simple title to
the Premises and/or its interest in this Lease to the
purchaser with whom Lessor's notice to Lessee applied and
upon the terms and conditions set forth in such notice
within ninety (90) days after such failure or rejection.
(c) Assignment to Affiliate. For purposes of this
paragraph 2 of Article XII, a sale, assignment or transfer
by Lessor to any parent or subsidiary of Lessor or to any
trust, partnership, corporation or other entity owned or
controlled by Lessor or all of Lessor's stockholders, or any
subsequent sale, assignment or transfer by such subsidiary,
parent or entity owned and controlled by Lessor to its
parent or subsidiary shall not be considered a "sale,
assignment or transfer" giving Lessee any right of first
refusal, but Lessee shall be entitled to the right of first
refusal described herein upon any sale, assignment or
transfer by any such entity.
18. Article XII (Special Provisions), Section 5
(a new section) is hereby added to the Lease to read as
follows:
5. Future Expansion. Notwithstanding any
provision of the Ground Lease or the Supplemental Agreement
to the contrary, Lessee hereby agrees to undertake
substantial refurbishment and improvements to the Hotel at a
cost of not less than $7,500,000 during the calendar years
1996 and 1997 which may result in a closure of the Hotel for
a period of up to approximately six (6) months, subject to
force majeure delays. Lessee may also, in the future,
undertake to expand the Hotel and increase the number of
hotel rooms and the size of some of the facilities. Lessor
encourages such undertakings by Lessee and agrees to
cooperate and assist Lessee in any reasonable manner to
obtain the permits and necessary approval to perform such
improvements, subject to Lessor's approval of the plans and
specifications for such work as are provided for in this
Lease.
19. Exhibit A to the Lease is hereby amended by
adding the following to the description of the Land
contained therein, immediately before the phrase "SUBJECT,
HOWEVER, to the following":
"TOGETHER WITH a nonexclusive easement
for access over and across all of that
certain parcel known as Lot 2-A-1-B-4 of
the Kapalua Development Subdivision, as
more particularly described in Exhibit 2
attached hereto and incorporated herein,
provided that said easement shall
terminate automatically upon the
dedication of said parcel to the County
of Maui or any other governmental entity
for use as a public roadway, and
provided further that Lessor shall have
the right to relocate such easement from
time to time so long as Lessee's access
from a public roadway to the Hotel is
not thereby unreasonably disturbed."
In connection with the foregoing, the attached
Exhibit 2 is hereby added as Exhibit 2 to the Lease.
20. Lessor and Lessee hereby confirm that except
as herein modified, the existing terms of the Lease shall
remain in full force and effect. Lessor hereby certifies
that as of the date of this Amendment, there is no default
by Lessee (or any prior lessee) in the observing or
performing of any term, covenant, agreement, provision,
condition or limitation contained in the Lease or in any way
relating thereto, or arising out of any other transaction
between Lessor and Lessee (or any prior lessee) thereunder.
Moreover, rent under the Lease has been paid through the
date hereof, and no rent or other sums payable under the
Lease are owed. Unless otherwise specified herein, defined
terms shall have the same meanings as in the Lease.
IN WITNESS WHEREOF. Lessor and Lessee have executed
this Third Amendment of Hotel Ground Lease as of the day and
year first above set forth.
MAUI LAND & PINEAPPLE COMPANY, INC.
By: /S/ GARY L. GIFFORD
Name: GARY L. GIFFORD
Title: PRESIDENT
By: /S/ DON YOUNG
Name: DON YOUNG
Title: EXECUTIVE VICE PRESIDENT
"Lessor"
YCP KAPALUA L.P., a Delaware
limited partnership
By: YCP Kapalua G.P., a Delaware
corporation, its General Partner
By: /S/ EVA WASSERMANN
Name: EVA WASSERMAN
Title: VICE PRESIDENT
"Lessee"
