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