SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-6510
MAUI LAND & PINEAPPLE COMPANY, INC.
(Exact name of registrant as specified in its charter)
HAWAII 99-0107542
(State or other jurisdiction (IRS Employer Identification
of incorporation or organization) number)
120 KANE STREET, P. O. BOX 187, KAHULUI, MAUI, HAWAII 96733-6687
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (808) 877-3351
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
Common Stock, without Par Value American Stock Exchange
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value, as of February 3, 2000, of the
voting stock held by nonaffiliates of the registrant:
$116,932,000.
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, 2000
Common Stock, no par value 7,195,800 shares
Documents incorporated by reference:
Parts I, II and IV -- Portions of the 1999 Annual Report to
Security Holders.
Part III - Portions of Proxy Statement dated March 24, 2000.
Exhibit Index--pages 17 - 20.
<PAGE>
PART I
Item 1. Business
(a) General
Maui Land & Pineapple Company, Inc. is a Hawaii corporation,
the successor to a business organized in 1909. The Company
consists of a landholding and operating parent company as well as
its principal wholly owned subsidiaries, Maui Pineapple Company,
Ltd. and Kapalua Land Company, Ltd. The "Company," as used
herein, refers to the parent and all of its subsidiaries.
The Company participates in joint ventures that are
accounted for by the equity method. The most significant of
these ventures is Kaahumanu Center Associates, the owner and
operator of a regional shopping center.
The industry segments of the Company are as follows:
(1) Pineapple - includes growing pineapple,
canning pineapple in tinplated steel containers
fabricated by the Company, production of pineapple
juice and fresh cut pineapple products and
marketing of canned pineapple products and fresh
whole and fresh cut pineapple.
(2) Resort - includes the development and sale of
resort real estate, property management and the
operation of recreational and retail facilities
and utility companies at Kapalua, Maui.
(3) Commercial & Property - includes the
Company's investment in Kaahumanu Center
Associates, the Napili Plaza shopping center, and
non-resort real estate development, rentals and
sales. It includes the Company's land entitlement
and land management activities.
(b) Financial Information About Industry Segments
The information set forth under Note 17 to Consolidated
Financial Statements on page 18 of the Maui Land & Pineapple
Company, Inc. 1999 Annual Report is incorporated herein by
reference.
(c) Narrative Description of Business
(1) Pineapple
Maui Pineapple Company, Ltd. is the operating subsidiary for
the Company's Pineapple segment. It owns and operates fully
integrated facilities for the production of pineapple products.
Pineapple is cultivated on two Company-operated plantations
on Maui that provided approximately 94% of the fruit processed in
1999. The balance of fruit processed was purchased from an
independent Maui grower. 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. stamped on the can lid. Its
products are sold principally to large grocery chains, other food
processors, wholesale grocers, and to organizations offering a
complete buyers' brand program to affiliated chains and
wholesalers serving both retail and food service outlets. A
substantial volume of the Company's pineapple products is
marketed through food brokers.
The Company sells fresh whole pineapple to retail and
wholesale grocers in Hawaii and the continental United States.
Since 1996, the Company has been test marketing various fresh cut
pineapple products in Hawaii and on the U.S. West Coast. In
1999, the Company introduced fresh cut pineapple wedges and
chunks in plastic containers to markets in the continental U. S.,
and a fresh pineapple salsa product in plastic containers to the
Hawaii market and to certain stores in California.
In 1999, the Company was granted a U.S. patent on its fresh
cut pineapple technology, which enhances the quality of the
product while extending the shelf life. The extended shelf life
will allow the Company to set up local warehouse programs,
thereby facilitating distribution to retailers.
In 1997, Royal Coast Tropical Fruit Company, Inc. (a wholly
owned subsidiary of Maui Pineapple Company, Ltd.) entered into a
joint venture with an Indonesian pineapple grower and canner.
The joint venture, Premium Tropicals International, LLC, markets
and sells Indonesian canned pineapple in the United States.
Sales through this joint venture began in 1998.
In 1999, Royal Coast Tropical Fruit Company, Inc. formed a
51%-owned pineapple production subsidiary in Central America.
Pineapple cultivated in Central America will be sold principally
as fresh whole fruit to the Company's customers in the United
States and Europe.
In 1999, approximately 20 domestic customers accounted for
about 64% of the Company's pineapple sales. Export sales,
primarily to Japan, Canada and Western Europe, amounted to
approximately 3.4%, 4.6% and 4.1% of total pineapple sales in
1999, 1998 and 1997, respectively. Sales to the U.S. government
amounted to approximately 9.7%, 10.2% and 12.9% of total
pineapple sales in 1999, 1998 and 1997, 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 U.S. The balance of its products is shipped directly
from Hawaii to its customers. The Company's canned pineapple
products are shipped from Hawaii by ocean transportation and are
then taken by truck or rail to customers or to public warehouses.
Fresh whole and fresh cut pineapple is shipped by air or by ocean
transportation.
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 Central America and
Southeast Asia. Other producers of pineapple products in
Thailand and Indonesia also are a major source of competition.
Foreign production has the advantage of lower labor costs. The
Company's principal marketing advantages are the high quality of
its fresh and canned pineapple, the relative proximity to the
West Coast United States fresh fruit market and being the only
U.S. canner of pineapple. Other canned fruits and fruit juices
also are 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.
The availability of water for irrigation is critical to the
cultivation of pineapple. The East Maui area is commonly
susceptible to drought conditions, which can adversely affect
pineapple operations by resulting in poor yields (tons per acre)
and lower recoveries (the amount of saleable product per ton of
fruit processed). Approximately 78% of the fields in the
Company's East Maui plantation (Haliimaile) are equipped with
drip irrigation systems. Fields that are not drip irrigated are
in areas that typically receive adequate rainfall. During
periods of drought, Company-owned water sources could supply
approximately 65% of the water for the Haliimaile plantation drip
irrigation systems. After completion of a new water well that is
currently being drilled, Company-owned water sources should be
able to supply close to 100% of the water requirement for the
Haliimaile plantation drip irrigation systems.
For information regarding the antidumping petition and
duties currently imposed on imports of canned pineapple fruit
from Thailand, see Part I, Item 3. (A) of this report.
For further information regarding Pineapple operations see
Management's Discussion and Analysis of Financial Condition and
Results of Operations.
(2) Resort
Kapalua Resort is a master-planned golf resort community on
Maui's northwest coast. The property encompasses 1,650 acres
bordering the ocean with three white sand beaches and includes
two hotels, seven residential subdivisions, three championship
golf courses, two ten-court tennis facilities, a 22,000 square
foot shopping center and over ten restaurants. Water and waste
transmission utilities are included in the Resort. Approximately
300 acres are available for further development within the
Kapalua Resort.
Kapalua Land Company, Ltd. is the developing and operating
subsidiary of the Company's Resort segment. The Resort segment
also includes the following wholly owned subsidiaries of the
Company: Kapalua Water Company, Ltd. and Kapalua Waste Treatment
Company, Ltd., public utilities providing water and waste
transmission services for the Kapalua Resort; Kapalua Advertising
Company, Ltd., an in-house advertising agency; Kapalua Investment
Corp., an investment holding company; and Kapalua Realty Company,
Ltd. (wholly owned by Kapalua Land Company, Ltd.), a general
brokerage real estate company located within the Resort.
The Company, through subsidiaries and joint ventures,
developed the Kapalua Resort, which opened in 1975 with The Bay
Course. At Kapalua, the Company owns three golf courses (The
Bay, The Village and The Plantation Courses), one tennis facility
(The Tennis Garden), a shopping center (The Kapalua Shops), the
land under both hotels (The Ritz-Carlton, Kapalua and The Kapalua
Bay Hotel), as well as the acreage available for development and
various on-site administrative and maintenance facilities.
The Company operates the golf and tennis facilities, the
shopping center, ten retail shops, a vacation rental program (The
Kapalua Villas), and certain services to the Resort, including
shuttle, security and maintenance of common areas. The Company
is the ground lessor under long-term leases for both hotels and
also receives rental income from certain other properties. The
Company manages The Kapalua Club, a membership program that
provides certain rights and privileges within the Resort for its
members.
In January 2000, the Kapalua Golf Academy and the Hale Irwin-
designed Village Course practice facility opened. In July of
2000, the Village Course Clubhouse is expected to be completed.
The clubhouse and golf academy development will include an 18-
hole putting course and two commercial retail parcels. This
development provides the foundation for the central resort master
plan including a Town Center, resort spa and residential
development.
In the fourth quarter of 1999, the Company began
construction of 14 single-family lots in the remaining acreage of
Plantation Estates Phase II (see Note 3 to Consolidated Financial
Statements). All of the lots were sold in 1999 and 12 closed
escrow in November and December of 1999. Construction is
expected to be substantially complete in the first quarter of
2000 and revenue on the closed sales is being recognized on the
percentage-of-completion method.
In 1997, the Company and an affiliate of Lend Lease Real
Estate Investment, Inc. (Lend Lease), owner of The Kapalua Bay
Hotel, formed a 50/50 joint venture, Kapalua Coconut Grove LLC,
to develop a 12-acre parcel adjacent to the hotel. Lend Lease
purchased a one-half interest in the land from the Company prior
to formation of the venture. Presales of the 36 luxury
beachfront condominiums, called The Coconut Grove on Kapalua Bay,
began in August of 1999. Mass grading and site work began in the
fourth quarter of 1999.
In December 1999, the Company received a Special Management
Area permit for a proposed 31 half-acre residential custom lot
subdivision on Site 19. Final subdivision approval, a zoning
change and Community Plan amendment for about three acres of the
20-acre site are still needed and are expected in May 2000. Lot
sales are expected to close in the third quarter of 2000 with
profits being recognized using the percentage-of-completion
method.
The Kapalua Resort faces substantial competition from
alternative visitor destinations and resort communities in Hawaii
and throughout the world. Kapalua's marketing strategies target
upscale visitors with an emphasis on golf. In 1999,
approximately 14% of the visitors to Maui were from the Eastbound
market and 86% were from the Westbound market (mostly U.S.
mainland). Kapalua's primary resort competitors on Maui are
Kaanapali, which is approximately five miles from Kapalua, and
Wailea on Maui's south coast. Kapalua's total guestroom
inventory accounts for approximately 10% of the units available
in West Maui and approximately 6% of the total inventory on Maui.
Nationally televised professional golf tournaments have been
a major marketing tool for Kapalua. Since January 1999, Kapalua
has successfully hosted the Mercedes Championships, the season
opening event for the PGA TOUR. The Company has, through the non-
profit organization Kapalua Maui Charities, Inc., agreements with
Mercedes-Benz and the PGA TOUR to host and manage this event at
Kapalua through January 2002. Advertising placements in key
publications are designed to promote Kapalua through the travel
trade, consumer, golf and real estate media.
For further information regarding Resort operations, see
Management's Discussion and Analysis of Financial Condition and
Results of Operations.
(3) Commercial & Property
Kaahumanu Center is the largest retail and entertainment
center on Maui with a gross leasable area (GLA) of approximately
573,000 square feet. Kaahumanu Center is owned by Kaahumanu
Center Associates (KCA), a 50/50 partnership between the Company,
as general partner, and the Employees' Retirement System of the
State of Hawaii, as a limited partner. On December 31, 1999, 134
tenants occupied 98% of the available GLA. Kaahumanu Center
faces substantial competition from other retail centers in
Kahului and other areas of Maui. Kahului has approximately nine
major shopping center destinations with a combined GLA of
approximately 1.6 million square feet of retail space. Kaahumanu
Center's primary competitors are the Maui Mall and the Maui
Marketplace, both located within three miles of Kaahumanu Center.
Napili Plaza is a 44,000 square foot retail and commercial
office center located in West Maui. As of December 31, 1999, 18
tenants occupied 78% of the GLA. Napili Plaza faces competition
from several retail locations in the Napili area, which have
approximately 195,000 square feet of retail space.
The Company's land entitlement and management activities are
included in the Commercial & Property segment. Land entitlement
is the process of obtaining the required county, state and
federal approvals to proceed with a planned development and use
of a parcel of land, and satisfying all conditions and
restrictions imposed in connection with such governmental
approvals. The Company actively works with regulatory agencies
and legislative bodies at all levels of government to obtain
necessary entitlements.
For further information regarding Commercial & Property
operations, see Management's Discussion and Analysis of Financial
Condition and Results of Operations.
(4) Employees
In 1999, the Company employed approximately 2,040 employees.
Pineapple operations employed approximately 520 full-time and 960
seasonal or intermittent employees. Approximately 48% of the
Pineapple operations employees were covered by collective
bargaining agreements. Resort operations employed approximately
450 employees, of which approximately 14% were part-time
employees and approximately 30% were covered by collective
bargaining agreements. The Company's Commercial & Property
operations employed approximately 80 employees and approximately
30 employees were engaged in administrative activities.
(5) Other Information
The Company's Pineapple segment engages in continuous
research to develop techniques to reduce costs through crop
production and processing innovations and to develop and perfect
new products. Improved production systems have resulted in
increased productivity by the labor force. Research and
development expenses approximated $839,000 in 1999, $815,000 in
1998 and $601,000 in 1997.
The Company has reviewed its compliance with federal, state
and local provisions that regulate the discharge of materials
into the environment or otherwise relate to the protection of the
environment. The Company does not expect any material future
financial impact as a result of compliance with these laws.
The Company has a commitment relating to the filtration of
water wells, as described in Part I, Item 3(B) of this report.
The Company's share of the cost to maintain and operate the
filtration systems for the existing wells and its share of the
cost of the letter of credit has been estimated, and a reserve
for this liability was recorded in 1999. Such amount did not
have a material effect on the Company's financial statements for
the year ended December 31, 1999. The Company is unable to
estimate the range of potential financial impact for the possible
filtration cost for any future wells acquired or drilled by the
County of Maui and, therefore has not made a provision in its
financial statements for such costs.
(d) Financial Information About Foreign and Domestic Operations
and Export Sales
Export sales only arise in the Company's Pineapple segment.
Export sales of pineapple products are primarily to Japan,
Western Europe and Canada. For the last three years, these sales
did not exceed 10% of total consolidated revenues.
Executive Officers of Registrant
Below is a list of the names and ages of the Company's
executive officers, indicating their position with the Company
and their principal occupation during the last five years. The
current terms of the executive officers expire in May of 2000 or
at such time as their successors are elected.
Gary L. Gifford (52) President and Chief Executive Officer
since 1995; Executive Vice
President/Resort 1987 to 1995.
Paul J. Meyer (52) Executive Vice President/Finance since
1984.
Douglas R. Schenk (47) Executive Vice President/Pineapple since
1995; Vice President/Pineapple 1993 to
1995.
Donald A. Young (52) Executive Vice President/Resort since
1995; Executive Vice
President/Operations of Kapalua Land
Company, Ltd. 1992 to 1995.
Scott A. Crockford (44) Vice President/Retail Property since
1995; General Manager of Kaahumanu
Center 1989 to 1995.
Warren A. Suzuki (47) Vice President/Land Management &
Development 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. 1988 to May 1995.
Item 2. PROPERTIES
The Company owns approximately 28,600 acres of land on Maui.
Approximately 30% of the acreage is used directly or indirectly
in the Company's operations and the remaining land is primarily
in pasture or forest reserve. This land, most of which was
acquired from 1911 to 1932, is carried on the Company's balance
sheet at cost. The Company believes it has clear and
unencumbered marketable title to all such property, except for
the following:
(1) a mortgage on the fee and leasehold interest in the 36-acre
Ritz-Carlton Kapalua Hotel site, which secures a loan to the
ground lessee for up to $65 million;
(2) a perpetual conservation easement granted to the State of
Hawaii on a 13-acre parcel at Kapalua;
(3) certain easements and rights-of-way that do not materially
affect the Company's use of its property;
(4) a mortgage on approximately 4,400 acres used in pineapple
operations, which secures the Company's $15 million term loan
agreement;
(5) a mortgage on the three golf courses at Kapalua, which
secures the Company's $15 million revolving credit and $15
million development line arrangement;
(6) a permanent conservation easement granted to The Nature
Conservancy of Hawaii, a non-profit corporation, covering
approximately 8,600 acres of forest reserve land;
(7) a $4,807,000 mortgage on the fee interest in Napili Plaza
shopping center; and
(8) a small percentage of the Company's land in various
locations on which multiple claims exist, some of which the
Company has initiated quiet title actions.
Approximately 22,800 acres of the Company's land are located
in West Maui, approximately 5,700 acres are located in East Maui
and approximately 28 acres are located in Kahului, Maui.
The 22,800 acres in West Maui comprise a largely contiguous
parcel that 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 West Maui acreage includes the Company's Honolua
pineapple plantation, which uses approximately 3,600 acres in its
operations and approximately 1,650 acres designated for the
Kapalua Resort.
The East Maui property is situated at elevations between
1,000 and 3,000 feet above sea level on the slopes of Haleakala
and approximately 3,140 acres are in pineapple operations as the
Company's Haliimaile plantation.
The Kahului acreage includes offices, a can manufacturing
plant and a pineapple-processing cannery with interconnected
warehouses at the cannery site where finished product is stored.
Approximately 3,500 acres of leased land are used in the
Company's pineapple operations. A major operating lease covering
approximately 1,500 acres of land expired on December 31, 1999.
The lease currently is being renegotiated for a minimum term of
ten years. Fourteen leases expiring at various dates through
2018 cover the balance of the leased property. The aggregate
land rental for all leased land was $589,000 in 1999.
Item 3. LEGAL PROCEEDINGS
A. Antidumping Petition
In June 1994, Maui Pineapple Company, Ltd. and the
International Longshore and Warehouse Union filed an antidumping
petition with the U.S. International Trade Commission (ITC) and
the U.S. Department of Commerce (DOC). The petition alleged that
producers of canned pineapple in Thailand were violating U.S. and
international trade laws by selling their products in the U.S. at
less than fair value, and that such sales were causing injury to
the U.S. industry producing canned pineapple.
In the second quarter of 1995, the DOC and the ITC completed
their investigations concluding that unfair imports of canned
pineapple from Thailand were causing material injury to the
domestic industry. As a result of the affirmative findings of
both the DOC and the ITC, antidumping duties were imposed on all
imports of canned pineapple fruit from Thailand into the United
States with cash duty deposits ranging up to 51%.
The Thai respondents appealed the dumping calculations of
DOC to the United States Court of International Trade (USCIT).
In November 1996, the USCIT remanded certain issues back to the
DOC for recalculation. The Company strongly disagreed with the
USCIT decision on one of the issues, which would substantially
reduce the duties being imposed, and the Company and the DOC
appealed the decision by the USCIT to the United States Court of
Appeals for the Federal Circuit.
In July 1999, the Court of Appeals reversed the decision of
the USCIT, in effect affirming the existing duties on imports
established by the DOC.
B. Chemical Litigation
In Board of Water Supply of the County of Maui v. Shell Oil
Company, et al., Civil No. 96-0370 (Second Circuit Court, State
of Hawaii), (the "DBCP Litigation") the County of Maui (the
"County") sued several chemical manufacturers claiming that they
were responsible for the presence of a nematocide commonly known
as "DBCP" in certain water wells that the County maintains. One
of those chemical manufacturers, Occidental Chemical Corporation
(OCC), claimed that Maui Land & Pineapple Company, Inc. and Maui
Pineapple Company, Ltd. (the "Company") were required to
indemnify OCC against the County's claims under the terms of a
March 14, 1978 Agreement for Sale of DBCP between the Company and
OCC. The Company rejected the OCC tender and the indemnification
and, on November 13, 1997, filed a lawsuit against OCC, Maui Land
& Pineapple Company, Inc. v. Occidental Chemical Corporation,
Civil No. 97-0867 (Second Circuit Court, State of Hawaii),
seeking judgment declaring that the Company has no obligation to
indemnify OCC against the County's claims.
The Company tendered the defense and indemnification of
OCC's claims to its insurers, including Hawaiian Insurance &
Guaranty Company, which has been liquidated by the State of
Hawaii and is now known as HUI/Unico in Liquidation, Inc.
("HUI/Unico"). HUI/Unico agreed to defend the Company against
OCC's claims under a reservation of the right to contest its
obligation to do so. On September 2, 1997, HUI/Unico filed a
lawsuit against the Company, Reynaldo D. Graulty, Insurance
Commissioner of the State of Hawaii, in his capacity as
Liquidator of HUI/Unico in Liquidation, Inc. v. Maui Land &
Pineapple Company, Inc., Civil No. 97-3571-09 (First Circuit
Court, State of Hawaii), seeking judgment declaring that
HUI/Unico had no obligation to defend and indemnify the Company
against OCC's claims.
On August 31, 1999, a Settlement Agreement and Release of
All Claims (the "Settlement Agreement") was executed among the
Defendants in the DBCP Litigation and the County. The Defendants
include OCC, Dow Chemical Company (DOW), Shell Oil Company, AMVAC
Chemical Corporation, American Vanguard Corporation, Brewer
Environmental Industries, LLC, and as Third Party Defendants, the
Company. Under the Settlement Agreement, the Defendants as a
group agreed to pay $3,000,000 in cash for the installation of a
charcoal filter system for one water well, the temporary
installation of a charcoal filter system for two water wells, and
other related costs. The Company's portion of this cash payment,
as detailed in the following paragraph, is $450,000. The
Defendants also agreed to pay 100% of the capital costs to
install charcoal filter systems and to pay ongoing operational
and maintenance costs on four other water wells specified in the
Settlement Agreement in the event that water from these wells
consistently contains levels of DBCP exceeding certain specified
levels and the water from the wells is needed by the County. In
addition, the Defendants have agreed to pay 90% of the capital
costs to install charcoal filter systems and to pay ongoing
operation and maintenance costs for wells that may be acquired by
or that may be drilled by the County if water from these wells
consistently contain levels of DBCP exceeding specified levels
and the water from these wells is needed for use by the County.
There are procedures in the Settlement Agreement under which the
Defendants can attempt to minimize the DBCP impact on future
wells by relocating the wells to areas unaffected by DBCP or by
using less costly methods to remove DBCP from the water.
Defendants are obligated to pay for these capital costs and
operation and maintenance costs through December 1, 2039, and the
obligation is limited to a maximum of 50 wells. The liability of
the Defendants under the Settlement Agreement is joint and
several.
The Settlement Agreement requires the Defendants to post as
security for their obligations a letter of credit in the amount
of $20,000,000, and to maintain the letter of credit, subject to
possible reductions in amount by virtue of payments, for the 40-
year term of the Settlement Agreement. In the event that a claim
for payment by the County is not paid on a timely basis or in the
event that the letter of credit is not renewed by the Defendants
on a timely basis, the County may draw against the then current
letter of credit. The letter of credit is issued on behalf of
Dow in accordance with the terms of a Contribution Agreement,
referenced below. The County has released Defendants from all
liability to the County for DBCP affecting County water wells on
the island of Maui. In addition, the Company has released
potential claims against the County for past transfers of land to
the County for well sites and for potential rental claims for
property upon which wells are situated. Board of Water Supply of
the County of Maui v. Shell Oil Company, et al., Civil No. 96-
0370 was dismissed on September 28, 1999.
Also on August 31, 1999, a Compromise and Settlement
Agreement (the "Contribution Agreement") was executed among the
Defendants in the DBCP Litigation. The Defendants agreed in the
Contribution Agreement to share in various proportions the
liability for the settlement of the DBCP Litigation referenced
above. The Company and OCC agreed to pay in cash a total of
$600,000 of the $3,000,000 cash payment and to each bear 11.25%
of all future costs under the Settlement Agreement. By virtue of
the Occidental Agreement (described below), the Company paid 75%
of this cash cost or $450,000 of the $600,000. With respect to
future costs, under the Occidental Agreement, the Company will be
required to pay a total of 16.875% of the future costs under the
Settlement Agreement. Under the Contribution Agreement, each of
the Defendants agreed to fund its respective proportion of the
obligations under the Settlement Agreement. In the event any of
the Defendants fails to do so, the remaining Defendants must fund
the defaulting defendant's deficiency in order to avoid a
potential default under the Settlement Agreement. Also under the
Contribution Agreement, Dow has agreed to obtain the $20,000,000
letter of credit required by the Settlement Agreement on behalf
of all the Defendants. Each will share in its respective
proportion of the cost of the letter of credit. In addition, in
the event that the letter of credit is drawn upon, either in
whole or in part, each Defendant is required to pay to Dow its
proportionate share of the drawing. The Contribution Agreement
releases all claims of the Defendants against each other for
contribution with respect to claims raised in the DBCP
Litigation.
On August 5, 1999, the Company entered into a settlement
agreement with OCC (the "Occidental Agreement") in which the
Company agreed to pay to OCC $100,000 for a release of liability
for past, present and future attorneys' fees and costs in the
DBCP Litigation and (i) 50% of OCC's share (up to a maximum of
$300,000, subject to potential increase) of the negotiated cost
of remediation of one existing well and the temporary drought
treatment of two wells that are the subject of the DBCP
Litigation and (ii) 50% of OCC's share of future capital,
operation and maintenance costs associated with the remediation
of future DBCP affected wells on Maui as such costs may become
due and payable to the Board of Water Supply. In addition, the
Company agreed to pay 50% of OCC's share of any liability in any
future action brought against it by the County or any other
person alleging property damage allegedly based on contamination
of one or more water wells on Maui by DBCP, whether such
liability is determined by settlement or by verdict, and pay 50%
of OCC's attorneys' fees and costs and expenses incurred in the
defense of such action.
On December 22, 1999, the Company and HUI/Unico entered into
a Release and Settlement Agreement under which the Company
received $600,000 from HUI/Unico in December 1999, the Company
released any right that it had to make any existing or future
claims against HUI/Unico's insurance policies, and HUI/Unico's
declaratory judgement action against the Company was dismissed on
December 29, 1999.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The information set forth under the caption "Common Stock"
on page 19 of the Maui Land & Pineapple Company, Inc. 1999 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. 1999 Annual Report is incorporated herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
"Management's Discussion and Analysis of Financial Condition
and Results of Operations" on pages 21 through 24 of the Maui
Land & Pineapple Company, Inc. 1999 Annual Report is incorporated
herein by reference.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
"Market Risk" on page 24 of the Maui Land & Pineapple
Company, Inc. 1999 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.
1999 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 24, 2000, is
incorporated herein by reference.
Information regarding the registrant's executive officers is
included in
Part I, Item 1. Business.
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 page 8 of the Maui Land &
Pineapple Company, Inc. Proxy Statement, dated March 24, 2000, 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 24, 2000, 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
24, 2000, 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, 1999 and 1998
Consolidated Statements of Operations and Retained Earnings
for the Years
Ended December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997
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 is filed herewith:
II. Valuation and Qualifying Accounts for the Years Ended
December 31, 1999, 1998 and 1997.
(a) 3. Exhibits
Exhibits are listed in the "Index to Exhibits" found on
pages 17 to 20 of this Form 10-K.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the last
quarter of the period covered by this report.
(d) The Financial Statements of Kaahumanu Center Associates
for the Years Ended December 31, 1999, 1998 and 1997 are filed as
exhibits.
<PAGE>
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, 1999 and 1998 and for each of the three years in the
period ended December 31, 1999, and have issued our report
thereon, dated February 9, 2000 (February 24, 2000 as to Note
13). Such consolidated financial statements and report are
included in your 1999 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(a)2. 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 9, 2000
<PAGE>
SCHEDULE II
MAUI LAND & PINEAPPLE COMPANY, INC.
AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
ADDITIONS
ADDITIONS CHARGED
BALANCE AT CHARGED TO TO OTHER BALANCE
BEGINNING COSTS AND ACCOUNTS DEDUCTIONS AT END
DESCRIPTION OF PERIOD EXPENSES (describe)(a) (describe)(b) OF PERIOD
(Dollars in Thousands)
Allowance for
Doubtful Accounts
1999 $ 493 $ 292 $ 161 $(163) $ 783
1998 567 191 9 (274) 493
1997 698 47 13 (191) 567
(a) Recoveries.
(b) Write off of uncollectible accounts.
<PAGE>
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 24, 2000 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/ RICHARD H. CAMERON Date March 24, 2000
Richard H. Cameron
Chairman of the Board
By /S/ PAUL J. MEYER Date March 24, 2000
Paul J. Meyer
Executive Vice President/Finance
(Principal Financial Officer)
By /S/ TED PROCTOR Date March 24, 2000
Ted Proctor
Controller & Assistant Treasurer
(Principal Accounting Officer)
By /S/ DANIEL H. CASE Date March 24, 2000
Daniel H. Case
Director
By /S/ DAVID A. HEENAN Date March 24, 2000
David A. Heenan
Director
By /S/ RANDOLPH G. MOORE Date March 24, 2000
Randolph G. Moore
Director
By /S/ CLAIRE C. SANFORD Date March 24, 2000
Claire C. Sanford
Director
By /S/ FRED E. TROTTER III Date March 24, 2000
Fred E. Trotter III
Director
<PAGE>
INDEX TO EXHIBITS
The exhibits designated by an asterisk (*) are filed herewith.
The exhibits not so designated are incorporated by reference to
the indicated filing. All previous exhibits were filed with the
Securities and Exchange Commission in Washington D. C. under file
number 0-6510.
3. Articles of Incorporation and By-laws
3(i)* Restated Articles of Association, as of February 24, 2000.
3(ii) Bylaws (Amended as of March 29, 1999). Exhibit (3ii) to
Form 10-Q for the quarter ended March 31, 1999.
4. Instruments Defining the Rights of Security Holders.
Instruments defining the rights of holders of long-term debt have
not been filed as exhibits where the amount of debt authorized
thereunder does not exceed ten percent of the total assets of the
Company and its subsidiaries on a consolidated basis. The
Company hereby undertakes to furnish a copy of any such
instrument to the Commission upon request.
4.1(i) Amended and Second Restated Revolving Credit and
Term Loan Agreement, dated as of December 4, 1998.
Exhibit 4.1(i) to Form 10-K for the year ended December 31, 1998.
(ii)* 1999 Loan Modification Agreement, dated as of December 30, 1999.
4.2(i) Bridge Loan Agreement between Pacific Coast Farm
Credit Services, ACA and Maui Land & Pineapple Company,
Inc., dated December 30, 1998. Exhibit 4.2(i) to Form
10-K for the year ended December 31, 1998.
(ii) Term Loan Agreement between Pacific Coast Farm Credit
Services and Maui Land & Pineapple Company, Inc., entered into as
of June 1, 1999. Exhibit 4(A) to Form 10-Q for the quarter ended
June 30, 1999.
(iii)* Modifications to Term Loan Agreement, dated February 16, 2000.
10. Material Contracts
10.1(i) Limited Partnership Agreement of Kaahumanu Center
Associates, dated June 23, 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.
10.2 Exhibits 10.2(i) to 10.2(xiv) relate to The Ritz-
Carlton, Kapalua Hotel
(i) 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.
10.3 Compensatory plans or arrangements
(i) Executive Deferred Compensation Plan (revised as
of 8/16/91). Exhibit (10)A to Form 10-Q for the
quarter ended September 30, 1994.
(ii) Executive Insurance Plan (Amended). Exhibit (10)A
to Form 10-K for the year ended December 31, 1980.
(iii) Supplemental Executive Retirement Plan (effective as of
January 1, 1988). Exhibit (10)B to Form 10-K for the year ended
December 31, 1988.
(iv) Restated and Amended Executive Change-In-Control
Severance Agreement (Gary L. Gifford, President/CEO),
dated as of March 16, 1999. Exhibit 10.3 (iv) to Form
10-K for the year ended December 31, 1998.
(v) Restated and Amended Executive Change-In-Control
Severance Agreement (Paul J. Meyer, Executive Vice
President/Finance), dated as of March 17, 1999.
Exhibit 10.3 (v) to Form 10-K for the year ended
December 31, 1998.
(vi) Restated and Amended Executive Change-In-Control
Severance Agreement (Donald A. Young, Executive Vice
President/Resort), dated as of March 16, 1999. Exhibit 10.3 (vi)
to Form 10-K for the year ended December 31, 1998.
(vii) Restated and Amended Executive Change-In-
Control Severance Agreement (Douglas R. Schenk,
Executive Vice President/Pineapple), dated as of March 23, 1999.
Exhibit 10.3 (vii) to Form 10-K for the year ended December 31, 1998.
(viii) Restated and Amended Change-In-Control Severance Agreement
(Warren A. Suzuki, Vice President/Land Management),
dated as of March 16, 1999. Exhibit 10.3 (viii) to Form 10-K
for the year ended December 31, 1998.
(ix) Restated and Amended Change-In-Control Severance
Agreement (Scott A. Crockford, Vice President/Retail
Property), dated as of March 16, 1999. Exhibit 10.3 (ix) to
Form 10-K for the year ended December 31, 1998.
(x) Executive Severance Plan, as amended through
November 6, 1998. Exhibit 10.3 (x) to Form 10-K for the
year ended December 31, 1998.
10.4(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.
10.5(i)*Settlement Agreement and Release of All Claims
(Board of Water Supply of the County of Maui vs. Shell
Oil Company, et al.)
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. 1999 Annual Report.
21. Subsidiaries of registrant:
All of the following were incorporated in the State of Hawaii:
Maui Pineapple Company, Ltd.
Kapalua Land Company, Ltd.
Kapalua Investment Corp.
Kapalua Water Company, Ltd.
Kapalua Waste Treatment Company, Ltd.
Honolua Plantation Land Company, Inc.
27.* Financial Data Schedule. As of December 31, 1999
and for the year then ended.
99. Additional Exhibits.
99.1* Financial Statements of Kaahumanu Center Associates
for the years ended December 31, 1999, 1998 and 1997.
RESTATED
ARTICLES OF ASSOCIATION
OF
MAUI LAND & PINEAPPLE COMPANY, INC.
(As of February 24, 2000)
These Restated Articles of Association correctly set forth
without change the corresponding provisions of the Articles of
Association as amended through the date hereof, and pursuant to
section 415-64, Hawaii Revised Statutes supersede the original
articles of association and all amendments thereto.
W I T N E S S E T H:
That said parties hereto do hereby covenant and agree, each
with the others, to become associated together as a joint stock
company under the laws of said Territory to obtain the rights and
benefits by said laws conferred upon joint stock companies or
corporations, and have made and entered into the following
Articles of Association, the terms whereof it is agreed shall be
equally obligatory upon the parties signing this instrument and
upon all others who from time to time hereafter may become
members of this corporation, and who may hold stock therein.
I.
The name of the corporation shall be "Maui Land & Pineapple
Company, Inc."
II.
The place of the principal office of the corporation shall
be at Kahului, Maui, Hawaii; there may be such subordinate or
branch offices in such place or places within Hawaii or elsewhere
as may be deemed necessary or requisite by the Board of Directors
to transact the business of the corporation, such branch or
subordinate offices to be in charge of such person or persons as
may be appointed by the Board of Directors.
III.
The purposes for which said corporation is organized are:
(a) To operate, conduct, engage in and carry on the
business of growing and cultivating pineapples and other fruits,
vegetables and all kinds of farm produce and products of the
soil; to erect and to maintain canneries, bottling works, packing
or preserving establishings, factories and warehouses; to
manufacture containers, appliances, machines, instruments and
products, and to use, sell and dispose of the same;
(b) To engage in and carry on the business of cattle
ranching, dairying and in pursuits producing any and all
agricultural products;
(c) To purchase or otherwise acquire, sell, market and
generally deal in sugar, sugar cane, sugar beets, molasses,
syrups, melada, pineapples, pineapple products, dairy products,
ranch products and agricultural products of any kind or nature,
and by-products of any of the foregoing;
(d) To acquire, construct, maintain and operate pumping
plants, irrigation systems, dams and works, for the development,
storage, transmission and utilizing of water, for plantation or
other purposes, for its own use and for use of others or for
purposes of sale;
(e) To generate, use, sell and supply heat, power or energy
of any kind, electric or otherwise, for heating, lighting,
driving or other motive power for any industry or purpose, for
itself or others, for hire or otherwise, and acquire, construct,
maintain and use all appropriate plants and systems and their
appurtenances for the manufacture, transmission and delivery or
use thereof;
(f) To contract with others for the growing, production and
manufacture of any agricultural or other products or commodities
suitable for any of the purposes of the corporation, and to make
advances to others and to take security from others in connection
therewith;
(g) To acquire, build, charter, lease or own ships,
vessels, lighters, docks and (or) operate the same between the
ports of the Hawaiian Islands and the ports of the Hawaiian
Islands and other ports;
(h) To own, operate and carry on a store or stores for the
purchase and sale of goods, wares and merchandise and otherwise
to deal in the same, and to do a general export and import,
wholesale and retail merchandising business;
(i) To do any of the business or exercise any of its powers
either solely or on its own account or as agent, factor, broker
or representative of any other person, company, association or
corporation; and to carry on any of said business or exercise any
of the powers aforesaid, either directly or by virtue of
ownership or control of the stock or shares of any other company,
corporation or enterprise to the fullest extent permitted by law;
(j) To buy or otherwise acquire, own, hold, use, improve,
develop, mortgage, lease or take on lease, sell, convey, and in
any and every other manner deal in and with and dispose of real
estate, buildings, and other improvements, hereditaments,
easements and appurtenances of every kind in connection
therewith, or any estate or interests therein, of any tenure or
description, to the fullest extent permitted by law, and also any
and all kinds of chattels, goods, wares, merchandise, and
agricultural, manufacturing and mercantile products and
commodities, and patents, licenses, debentures, securities,
stocks, bonds, commercial paper, and other forms of assets,
rights and interests and evidences of property or indebtedness,
tangible or intangible;
(k) To undertake and carry on any business, investment,
transaction, venture or enterprise which may be lawfully
undertaken or carried on by a corporation and any business
whatsoever which may seem to the corporation convenient or
suitable to be undertaken whereby directly or indirectly to
promote any of its general purposes or interests or render more
valuable or profitable any of its property, rights, interests, or
enterprises; and, for any of the purposes mentioned in these
Articles, to acquire by purchase, lease or otherwise, the
property, rights, franchise, assets, business and goodwill of any
person, firm, association, or corporation engaged in or
authorized to conduct any business or undertaking which may be
carried on by this corporation or possessed of any property
suitable or useful for any of its own purposes, and carry on the
same, and undertake all or any part of the obligations and
liabilities in connection therewith, on such terms and conditions
and for such consideration as may be agreed upon, and to pay for
the same either all or partly in cash, stocks, bonds, debentures,
or other forms of assets or securities, either of this
corporation or otherwise; and to effect any such acquisition or
carry on any business authorized by these Articles either by
directly engaging therein, or indirectly by acquiring the shares,
stocks or other securities of such other business or entity, and
holding and voting the same and otherwise exercising and enjoying
the rights and advantages incident thereto;
And in furtherance of said purpose and without prejudice to
the generality of the foregoing terms, the corporation shall also
have the following powers, that is to say:
1. To have succession by its corporate name in perpetuity
as hereinafter provided; to sue and be sued in any court; to make
and use a common seal, and alter the same at its pleasure; to
hold, purchase and convey such property as the purposes of the
corporation shall require without limit as to amount, and to
mortgage the same to secure any debt of the corporation; to
appoint such subordinate officers and/or agents as the business
of the corporation shall require, to make and adopt and from time
to time amend or repeal By-Laws not inconsistent with any
existing law for the management of its properties, the election
and removal of its officers, the regulation of its affairs and
the transfer of its stock;
2. To borrow money or otherwise incur indebtedness with or
without security, which indebtedness may at any time and from
time to time, without any necessity of any authorization or
consent of the stockholders of the corporation or any majority
thereof, exceed the amount of the corporation's capital stock,
and to secure any indebtedness by deed of trust, mortgage,
pledge, hypothecation or other lien upon all or any part of the
real or personal property of the corporation and to execute
bonds, promissory notes, bills of exchange, debentures or other
obligations or evidences of indebtedness of all kinds, whether
secured or unsecured;
3. To purchase on commission or otherwise, subscribe for,
hold, own, sell on commission or otherwise, or otherwise acquire
or dispose of and generally to deal in stocks, scrip, bonds,
notes, debentures, commercial paper, obligations and securities,
including so far as permitted by law, its own issued shares of
capital stock or other securities, and also any other securities
or evidences of indebtedness whatsoever or any interest therein,
and while owner of the same to exercise all the rights, powers
and privileges of ownership;
4. To draw, make, accept, endorse, assign, discount,
execute and issue all such bills of exchange, bills of lading,
promissory notes, dock and other warrants and other instruments
to be assignable, negotiable or transferable by delivery or to
order, or otherwise, as the business of the corporation shall
require;
5. To lend and advance money or to give credit, with or
without security, to such persons, firms or corporations and on
such terms as may be thought fit; and if with security then upon
mortgages, deeds of trust, pledges or other hypothecations or
liens upon real, personal or mixed property, or any right or
interest therein or thereto;
6. To aid in any manner any corporation of which any of
the bonds or other securities or evidences of indebtedness or
stock are held by this corporation, and to do any acts or things
to preserve, protect, improve or enhance the value of any such
bonds or other securities or evidences of indebtedness or stock,
including specifically the right and power to enter into and take
the management of any business enterprise of any kind or nature,
and while so managing any such business, to do the acts and
things incidental or necessary thereto;
7. To become a member of any general or limited
partnership and to exercise all powers and privileges of a
partner in any such partnership organized for or engaged in any
business or carrying out any purpose which the corporation is,
under these Articles of Association and the laws of Hawaii,
authorized to engage in or carry out; and to join and engage in
business as a member of any joint venture organized for or
engaged in any business or carrying out any purpose which the
corporation is, under these Articles of Association and the laws
of Hawaii, authorized to engage in or carry out;
8. To enter into and perform contracts, undertakings, and
obligations of every kind and character;
9. To promote, assist, subscribe or contribute to any
association, organization, society, company, institution or
object, charitable or otherwise, calculated to benefit the
corporation or any persons in its employ or having dealings with
the corporation, or deemed to be for the common or public
welfare, including the erection, operation and maintenance and/or
the aiding and assisting of hospitals, surgeries, clinics and
laboratories;
10. To become a party to and effect a merger or
consolidation with another corporation or other corporations, and
to enter into agreements and relationships not in contravention
of law with any persons, firms or corporations;
11. To become surety for or guarantee any dividends, bonds,
stocks, contracts, debts, or other obligations or undertakings of
any other person, firm or corporation, and to convey, transfer,
or assign by way of pledge or mortgage all or any of the
corporation's property or rights, both present and future to
secure the debts or obligations, present or future, of such
persons, firms or corporation and on such terms and conditions as
the corporation may determine.
The foregoing clauses shall be liberally construed, both as
to purposes and powers. The enumeration herein of the purposes
and powers of the corporation shall not be deemed to exclude by
inference any purposes or powers which this corporation is
empowered to exercise, whether expressly by force of the laws of
Hawaii now or hereafter in effect, or impliedly by the reasonable
construction of such laws.
IV.
(a) The amount of the authorized capital stock of the
corporation is Seven Million Two Hundred Thousand (7,200,000)
shares of common stock without par value; and
(b) The corporation shall have power from time to time to
increase and reduce its capital stock and to increase and reduce
the par value of its shares of capital stock having a par value
and to convert shares of its capital stock having a par value
into shares without par value and to convert shares of its
capital stock without par value into shares with par value, all
according to law. The corporation shall have power from time to
time upon compliance with applicable law to issue additional
classes of capital stock, either with or without par value, with
such preferences, voting powers, restrictions and qualifications
thereof, and subject to such provisions for call and retirement
thereof or conversion thereof into common capital stock or into
other classes of capital stock, and with such other provisions as
shall be fixed in the resolution authorizing the issue thereof,
or as shall be determined pursuant to the authority contained in
such resolution in accordance with law.
(c) The holders of the capital stock of the corporation
having voting rights may, by the vote of the holders of not less
than two-thirds of such capital stock outstanding (or if there
are two or more classes of capital stock of the corporation
having voting rights outstanding, by vote of the holders of two-
thirds of each class of capital stock having voting rights) at
any meeting of stockholders of the corporation called for the
purpose, deny, limit or restrict any right of the stockholders of
the corporation which may exist by virtue of the common law or
any statute or otherwise to subscribe for additional shares of
capital stock of the corporation of any class, whether such
additional shares have been authorized prior to or at such
meeting of stockholders, but no such vote shall in any way deny,
limit or restrict any rights previously granted to the holders of
any class of stock of the corporation in and by the resolution
creating and authorizing such class of stock.
(d) If, whenever and as often as shares of capital stock of
the corporation without par value shall be authorized, the Board
of Directors is authorized and empowered to determine from time
to time the consideration for and the terms and conditions upon
which shares of capital stock of the corporation without par
value may be issued and what portion of such consideration shall
constitute capital and what portion thereof, if any, shall
constitute paid in surplus; subject always to the applicable
provisions of these Articles of Association and the provisions of
law.
V.
(a) The officers of the corporation shall be a President,
one or more Vice Presidents as may be determined in accordance
with the By-Laws, a Secretary and a Treasurer. The corporation
may have such additional officers as may be determined in
accordance with the By-Laws from time to time. The officers
shall have the powers, perform the duties, and be appointed and
removable as may be determined in accordance with the By-Laws.
Any person may hold two offices of the corporation if so provided
by the By-Laws.
(b) The Board of Directors shall consist of such number of
persons, not less then two (2), as shall be determined in
accordance with the By-Laws from time to time. The officers and
directors of the corporation need not be stockholders of the
corporation. The directors (and alternate directors and/or
substitute directors, if any) shall be elected or appointed in
the manner provided in the By-Laws and may be removed from office
in the manner provided in the By-Laws and all vacancies in the
office of director shall be filled in the manner provided for in
the By-Laws.
(c) All powers and authority of the corporation shall be
vested in and may be exercised by the Board of Directors except
as otherwise provided by law, these Articles of Association, or
the By-Laws of the corporation; and in furtherance and not in
limitation of said general powers, the Board of Directors shall
have power: To acquire and dispose of property; to appoint a
General Manager, Branch Managers and such other Managers,
Officers or Agents of the corporation as in its judgment the
business may require, and to confer upon and to delegate to them
by power of attorney or otherwise such power and authority as it
shall determine; to fix the salaries or compensation of any or
all of the officers, agents and employees of the corporation, and
in its discretion require security of any of them for the
faithful performance of any of their duties; to declare dividends
in accordance with law when it shall deem it expedient; to make
rules and regulations not inconsistent with law or these Articles
of Association or the By-Laws for the transaction of business; to
instruct the officers or agents of the corporation with respect
to, and to authorize the voting of stock of other corporations
owned or held by this corporation; to incur such indebtedness as
may be deemed necessary, which indebtedness may exceed the amount
of the corporation's capital stock; to create such committees
(including an executive committee or committees) and to designate
as members of such committees such persons as it shall determine,
and to confer upon such committees such powers and authorities as
may by resolution be set forth for the purpose of carrying on or
exercising any of the powers of the corporation; to create and
set aside reserve funds for any purpose and to invest any funds
of the corporation in such securities or other property as it may
seem proper; to remove or suspend any officer and generally to do
any and every lawful act necessary or proper to carry into effect
the powers, purposes and objects of the corporation.
(d) There shall be an Auditor of the corporation who shall
be elected annually by the stockholders. The Auditor shall audit
the books and accounts of the corporation and shall certify his
findings and report thereon, in writing, to the stockholders at
least annually; and shall make such other audits and reports as
the Board of Directors shall determine from time to time. The
Auditor may be a person, co-partnership, or, if permitted by law,
a corporation. The Auditor may be removed from office either
with or without cause at any time at a special meeting of the
stockholders called for the purpose, and any vacancy caused by
such removal may be filled for the balance of the unexpired term
by the stockholders at a special meeting called for the purpose.
In case of a vacancy in the office of Auditor other than by
removal, the vacancy may be filled for the unexpired term by the
Board of Directors or, if a special meeting shall be held during
the existence of such vacancy, the vacancy may be filled at such
special meeting of the stockholders.
VI.
(a) No director, officer, employee or agent of the
corporation and no person serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise and no heir, executor or administrator of any such
person shall be liable to this corporation for any loss or damage
suffered by it on account of any action or omission by him as
such director, officer, employee or agent if he acted in good
faith and in a manner he reasonably believed to be in or not
opposed to the best interests of this corporation, unless with
respect to an action or suit by or in the right of the
corporation to procure a judgment in its favor such person shall
have been adjudged to be liable for gross negligence or willful
misconduct in the performance of his duty to this corporation.
(b) (1) The corporation shall indemnify each person who
after the adoption of this Article VI is made a party or is
threatened to be made a party to any action, suit or proceeding,
whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation) by reason
of the fact that he is or was a director, officer, employee or
agent of the corporation or of any division of the corporation,
or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by
him in connection with such action, suit or proceeding if he
acted in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of this corporation, and,
with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not of itself create a presumption that the
person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests
of this corporation and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was
unlawful.
(2) The corporation shall indemnify each person who after
the adoption of this Article VI is made a party or is threatened
to be made a party to any action or suit by or in the right of
the corporation to procure a judgment in its favor by reason of
the fact that he is or was a director, officer, employee or agent
of the corporation or of any division of the corporation, or is
or was serving at the request of the corporation as a director,
officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses
(including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action
or suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of this
corporation and except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable for gross negligence or
willful misconduct in the performance of his duty to this
corporation unless and only to the extent that the court in which
such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which such
court shall deem proper.
(3) To the extent that a director, officer, employee or
agent of the corporation or of any division of the corporation,
or a person serving at the request of the corporation as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, has been
successful on the merits or otherwise in defense of any action,
suit or proceeding referred to in paragraphs (1) and (2) of this
section, or in defense of any claim, issue or matter therein, he
shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.
(4) Any indemnification under paragraphs (1) and (2) of
this section (unless ordered by a court) shall be made by the
corporation unless a determination is made that the director,
officer, employee or agent has failed to meet the applicable
standard of conduct set forth in paragraphs (1) and (2). Such
determination may be made (i) by the Board of Directors by a
majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding; (ii) if such a quorum
is not obtainable or even if obtainable a quorum of disinterested
directors so directs by independent legal counsel in a written
opinion to the corporation; or (iii) if a quorum of disinterested
directors so directs, by a majority vote of the stockholders.
(5) Expenses incurred in defending a civil or criminal
action, suit or proceeding may be paid by the corporation in
advance of the final disposition of such action, suit or
proceeding as authorized by the Board of Directors in a
particular case upon receipt of an undertaking by or on behalf of
the director, officer, employee or agent to repay such amount
unless it shall ultimately be determined that he is entitled to
be indemnified by the corporation as authorized in this Article.
(6) The indemnification provided by this Article shall not
be deemed exclusive of any other rights to which those
indemnified may be entitled and shall continue as to a person who
has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators
of such a person.
(7) The benefits and protections of paragraphs (a) and (b)
of this Article shall extend to officers, directors, employees
and agents of subsidiary corporations even though such service
was not at the specific request of this corporation and shall be
in addition to the coverage, if any, provided by such subsidiary.
For purposes of this Article, subsidiary corporation shall mean
any corporation in which this corporation owns more than 50% of
the outstanding stock or any corporation more than 50% of whose
outstanding stock is owned by a subsidiary of this corporation.
For purposes of this Article, the term agent shall include those
persons acting on behalf of this corporation who (i) are not
otherwise covered by this Article as directors, officers or
employees and (ii) have been specifically designated by the Board
of Directors or management of this corporation as being entitled
to indemnification hereunder.
(8) The corporation shall have the power to purchase and
maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation or of any
division of the corporation, or is or was serving at the request
of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise, against any liability asserted against him and
incurred by him in any such capacity or arising out of his status
as such, whether or not the corporation would have the power to
indemnify him against such liability under the provisions of this
Article. Any such insurance may be procured from any insurance
company designated by the Board of Directors, including any
insurance company in which the corporation shall have any equity
or other interest, through stock ownership or otherwise.
(9) This Article shall be effective upon its adoption and
shall apply to any person or entity covered by this Article with
respect to any event or transaction occurring after adoption.
(c) No contract, agreement, undertaking or other transaction
between the corporation and any other corporation, partnership,
joint venture or trust shall be invalidated or affected in any
way by the fact that some or all of the officers and/or directors
of the corporation are interested in or are officers, directors,
stockholders, partners, joint venturers, trustees or
beneficiaries of such other corporation, partnership, joint
venture or trust; and any director of this corporation who is
interested in or is an officer, director, stockholder, partner,
joint venturer, trustee or beneficiary of any such other
corporation, partnership, joint venture or trust may be counted
in determining the existence of a quorum at any meeting of the
Board of Directors of the corporation which shall authorize or
approve any such contract, agreement, undertaking or other
transaction, and may vote thereat to approve any such contract,
agreement, undertaking or other transaction with like force and
effect as if he were not interested in, or an officer, director,
stockholder, partner, joint venturer, trustee or beneficiary of
such other corporation, partnership, joint venture or trust.
VII.
The duration of the corporation shall be perpetual.
VIII.
Service of legal process may be made upon the corporation in
the manner provided by law.
IX.
No stockholder shall be liable for the debts of the
corporation beyond the amount which may be due and unpaid upon
any share or shares of stock of the corporation owned by him.
1999 LOAN MODIFICATION AGREEMENT
THIS AGREEMENT dated as of December 30, 1999, by and
among MAUI LAND & PINEAPPLE COMPANY, INC., a Hawaii
corporation (the "Borrower"), BANK OF HAWAII, a Hawaii
banking corporation ("BOH"), FIRST HAWAIIAN BANK, a Hawaii
banking corporation ("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 in the Loan
Documents described below and in the Agency Agreement
described in the Loan Agreement described 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 respectively 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, the parties hereto entered into that
certain Amended and Restated Revolving Credit and Term
Loan Agreement dated December 4, 1996, as amended by
letter agreement dated February 21, 1997, by First Loan
Modification Agreement dated December 31, 1997, and by
Second Loan Modification Agreement dated March 17, 1998 (as
so amended, the "First Restatement");
WHEREAS, the parties hereto entered into that
certain Amended and Second Restated Revolving Credit
and Term Loan Agreement dated as of December 4, 1998
("Second Restatement") to, among other things, establish a
development line in the aggregate principal amount of
$15,000,000, being the Village Course Facility more
particularly described in the Second Restatement;
WHEREAS, the Lenders having purchased the interests of
BOA under the Original Loan Agreement and the other
Loan Documents referred to therein (the "BOA Purchase"),
and BOH having purchased a portion of the interest of FHB under
the Original Loan Agreement, as amended by the First Restatement
and by the Second Restatement (the Original Loan Agreement as the
same has been and may hereafter be amended, the "Loan
Agreement"), and under the other Loan Documents referred to
in the Loan Agreement, the respective "Individual Loan
Commitment Percentage" of each Lender is now as follows:
(1) BOH's Individual Loan Commitment Percentage is
equal to 53.667% with respect to the Original Facility
and 50% with respect to the Village Course Facility;
(2) FHB's Individual Loan Commitment Percentage is
equal to 33.333% with respect to the Original Facility and
33.333% with respect to the Village Course Facility; and
(3) CPB's Individual Loan Commitment Percentage is
equal to 13% with respect to the Original Facility and
16.667% with respect to the Village Course Facility;
WHEREAS, the Aggregate Loan Commitment with respect to
the Original Facility having been reduced to
$15,000,000, the respective Individual Loan Commitments of
the Lenders are as follows:
(1) BOH's Individual Loan Commitment is equal to
$8,050,000 with respect to the Original Loan Facility,
subject to further permanent reduction from time to time
in accordance with the terms of the Loan Agreement, and
$7,500,000 with respect to the Village Course Facility;
(2) FHB's Individual Loan Commitment is equal to
$5,000,000 subject to further permanent reduction from
time to time in accordance with the terms of the Loan
Agreement, and $5,000,000 with respect to the Village
Course Facility; and
(3) 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 the Loan
Agreement, and $2,500,000 with respect to the Village
Course Facility; and
WHEREAS, Borrower has requested a further
modification of the Loan Documents and Lenders are
willing to accommodate such modification under the terms of
this Agreement;
NOW, THEREFORE, in consideration of the premises, the
mutual covenants set forth herein and other good
and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the Borrower, the
Lenders and the Agent hereby agree as follows:
1. The Loan Documents are amended to conform to the
following:
(a) Expiry Date - Revolving Loans. The Expiry
Date is extended from December 31, 1999, to December 31, 2001.
(b) Maturity Date - Term Loans. The Maturity Date
is extended from December 31, 2002, to December 31, 2004.
(c) Village Course Facility Maturity Date. The
Village Course Facility Maturity Date is extended from
December 11, 2000, to December 11, 2001.
(d) Reduction of Aggregate Loan Commitment --
Village Course Facility.
(i) Effective December 11, 2000, the
Aggregate Loan Commitment with respect to the Village Course
Facility will be reduced to $8,000,000.
(ii) On or before December 11, 2000, Borrower
shall pay the amount, if any, by which the outstanding principal balance
of the Village Course Facility exceeds $8,000,000.
(iii) Upon such reduction of the Aggregate Loan
Commitment with respect to the Village Course Facility, Bank of
Hawaii's Individual Loan Commitment with respect to the
Village Course Facility shall be $4,000,000, First Hawaii
Bank's Individual Loan Commitment with respect to the
Village Course Facility shall be $2,666,640 and Central
Pacific Bank's Individual Loan Commitment with respect to
the Village Course Facility shall be $1,333,360.
(e) Interest Rate - Revolving Loans. Outstanding balances
of principal of the Revolving Loans during the Revolving Loan
Period shall bear interest at either of the following interest rate
options that Borrower may select in accordance with the terms of
the Loan Agreement (1) a floating rate equal to the Base Rate in
effect from time to time or (2) LIBOR, plus:
(i) if Borrower's Recourse Debt to Net Worth Ratio
is less than or equal to 0.20, one and one-half percentage points
(1.50%);
(ii) if Borrower's Recourse Debt to Net Worth Ratio is greater
than 0.20 but not more than 0.40, one and three-fourths
percentage points (1.75%);
(iii) if Borrower's Recourse Debt to Net Worth Ratio is
greater than 0.40 but not more than 0.60, two percentage points (2.00%);
(iv) if Borrower's Recourse Debt to Net Worth Ratio
is greater than 0.60 but not more than 0.80,two and one-fourth percentage
points (2.25%); and
(v) if Borrower's Recourse Debt to Net Worth Ratio
is greater than 0.80, two and one-half percentage points (2.50%).
(f) Interest Rate - Term Loans. In the event that the
Term Loans shall be made, then during the period (the "Term
Loan Period") commencing on the Expiry Date, to and including the
date that the Term Loans are paid in full, at the option of
the Borrower initially either (i) a floating rate per annum equal
to the Base Rate in effect from time to time, or (ii) LIBOR, plus:
(i) if Borrower's Recourse Debt to Net Worth Ratio
is less than or equal to 0.20, one and three-fourths
percentage points
(1.75%);
(ii) if Borrower's Recourse Debt to Net Worth Ratio is
greater than 0.20 but not more than 0.40, two percentage points (2.00%);
(iii) if Borrower's Recourse Debt to Net Worth Ratio is
greater than 0.40 but not more than 0.60, two percentage and one
fourth points (2.25%);
(iv) if Borrower's Recourse Debt to Net Worth Ratio
is greater than 0.60 but not more than 0.80, two and one-half percentage
points (2.50%); and
(v) if Borrower's Recourse Debt to Net Worth Ratio
is greater than 0.80, two and three-fourths percentage points (2.75%).
(g) Interest Rate - Village Course Facility Advances.
The Borrower agrees to pay interest on the outstanding
principal balance of the Advances pursuant to the following
interest rate options that the Borrower may select in
accordance with the provisions of the Loan Agreement: (1) a
floating rate equal to the Base Rate in effect from time to time;
or (2) LIBOR plus:
(i) if Borrower's Recourse Debt to Net Worth Ratio
is less than or equal to 0.20, one and one-half percentage points
(1.50%);
(ii) if Borrower's Recourse Debt to Net Worth Ratio
is greater than 0.20 but not more than 0.40, one and three-fourths
percentage points (1.75%);
(iii) if Borrower's Recourse Debt to Net Worth Ratio is
greater than 0.40 but not more than 0.60, two percentage points (2.00%);
(iv) if Borrower's Recourse Debt to Net Worth Ratio
is greater than 0.60 but not more than 0.80, two and one-fourth
percentage points (2.25%); and
(v) if Borrower's Recourse Debt to Net Worth Ratio
is greater than 0.80, two and one-half percentage points (2.50%).
(h) Recourse Debt to Net Worth Ratio. "Recourse Debt to Net Worth
Ratio" or "Recourse Debt/Net Worth Ratio" shall mean the quotient
obtained by dividing (i) Recourse Debt by (ii) Net Worth. For
the purpose of determining the interest rate applicable to the
Loans, such ratio shall be based of the most recent financial reports
referred to in Section 5.1(a)(1) of the Loan Agreement and any KCA
debt which is nonrecourse to the Borrower shall be disregarded.
(i) Commitment Fee - Village Course Facility. The Borrower shall
pay to the Agent for pro rata distribution to each Lender, a commitment
fee on the aver-age daily unutilized Aggregate Loan Commitment
with respect to the Village Course Facility, 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
March 31, 2000, and thereafter, on the last day of each March, June,
September and December prior to the Maturity Date and on the Maturity Date
(or such earlier date as the Aggregate Loan Commitment with respect to
the Village Course Facility shall be terminated).
(j) Net Worth. Section 5.1(e)(3) of the Loan
Agreement is amended to read as follows:
(3) A Net Worth of not less
than $60,100,000.00, plus 50% of the
cumulative net profits after December 31, 1998 (but not
the net losses) of Borrower.
(k) Capital Expenditures. Section 5.2(d) of the Loan
Agreement is amended to read as follows:
(d) Neither the Borrower nor any
Subsidiary will make any Capital Expenditure
that is not approved in writing by Lenders that
causes Borrower to exceed (on an aggregated
basis) the following Capital Expenditure limits:
$10,800,000 for fiscal year 1998; $11,500,000 for
fiscal year 1999; $14,000,000 for each of fiscal
years 2000 and 2001; and $12,000,000 for each
fiscal year thereafter. Capital Expenditures for
work at the Village Course at Kapalua (described in
Section 5.1(n)) shall not be counted towards such
Capital Expenditure limits. Capital Expenditures
for the Site 29 Project of up to $1,000,000 in the
aggregate or that are approved in writing by
Lenders shall not be counted towards such
Capital Expenditure limits.
2. Upon execution of this Agreement and in consideration of
these amendments:
(a) Borrower shall pay to the Agent, on demand, for
distribution to the Lenders according to their
Individual Commitment Percentages with respect to the
Original Facility the following non-refundable fee with
respect to the Original Facility:
$10,000.
(b) Borrower shall pay to the Agent, on demand, for
distribution to the Lenders according to their
Individual Commitment Percentages with respect to the
Village Course Facility the following non-refundable
fee with respect to the Village Course Facility:
$7,500.
3. Capitalized terms used, but not defined,
in this Agreement, shall have the definitions stated in
the Loan Agreement.
4. Borrower agrees that Borrower has no claims,
defenses, or offsets against the Lenders or the Agent with respect to
said credit facility or to the enforcement of the Loan
Documents arising prior to the date of this Agreement, and that
Borrower agrees that all such claims, defenses, and offsets are
hereby released.
5. The execution of this Agreement by the Borrower
constitutes the personal certification of the persons signing
this Agreement on behalf of the Borrower that, to the
best of their knowledge, the representations and
warranties made in Article IV of the Loan Agreement
are true and correct as of the date of this
Agreement.
6. In all other respects, the Loan Documents, as amended,
remain in full force and effect and the provisions of
the Loan Documents including, without limitation, all
promises, representations, warranties, covenants, and
conditions, are ratified and confirmed as of the date
of this Agreement by the parties hereto.
7. This Agreement is binding upon, and shall inure
to the benefit of, the parties hereto and their respective
successors and assigns.
8. The parties hereto agree that this instrument
may be executed in counterparts, each of which shall be
deemed an original, and said counterparts shall
together constitute one and the same agreement,
binding all of the parties hereto, notwithstanding
all of the parties are not signatory to the original
or the same counterparts. Duplicate unexecuted pages
of the counterparts may be discarded and the
remaining pages assembled as one document.
To signify their agreement, the parties
have executed this Agreement as of the date first
written above.
MAUI LAND & PINEAPPLE COMPANY, INC. BANK OF HAWAII,
individually and as Agent
By:/S/ PAUL J. MEYER By:/S/ JAMES C. POLK
Its EXECUTIVE VICE PRESIDENT/FINANCE Its VICE PRESIDENT
FIRST HAWAIIAN BANK
By:/S/ TED PROCTOR
Its ASSISTANT TREASURER By:/S/ LANCE A MIZUMOTO
Its VICE PRESIDENT
CENTRAL PACIFIC BANK
By:/S/ ROBERT D MURAKAMI
Its VICE PRESIDENT
Capital Markets Group
5560 South Broadway, Eureka, CA 95503
P. O. Box 398, Fields Landing, CA 95537
Pacific Coast Farm Credit Services, ACA
February 16, 2000
Maui Land & Pineapple Company, Inc.
120 Kane Street
Kahului, Hawaii 96732
Gentlemen:
Reference is made to that certain Term Loan Agreement dated as of
June 1, 1999 (the "Term Loan Agreement") by and among Maui Land
and Pineapple Company a corporation organized and existing under
the laws of the State of Hawaii ("Borrower") and Pacific Coast
Farm Credit Services, ACA ("Lender"). Capitalized terms used in
this letter without being defined shall have the meaning ascribed
to them in the Term Loan Agreement.
Borrower requested that Lender make certain modifications to the
Term Loan Agreement and Lender is willing to make such
modifications provided that the Borrower agree to the terms and
conditions set forth herein. The modifications set forth below
shall be effective when the Lender shall have received a copy of
this letter signed by the Borrower in the space provided.
Modifications to Term Loan Agreement
1. The following covenant shall be modified as follows:
Capital Expenditures. Section 12(e) of the Term Loan
Agreement shall be deleted in full and the following shall
be inserted in lieu thereof:
Capital Expenditures: Make Capital Expenditures, other
than Capital Expenditures for or Investments in
Borrower's "Kaahumanu Center Associates" Subsidiary, in
excess of the following amounts:
Year In Excess of
2000 $18,500,000
2001 $13,500,000
2002 $12,500,000
2003 $12,000,000
2004 and thereafter * $13,500,000
* Subject to further review prior to establishing annual
allowable capital expenditures for the period 2004 through
loan maturity.
2. The following covenant shall be added as Section 12(j) to
Section 12 of the Term Loan Agreement.
Indebtedness. Incur any Indebtedness if after such
Indebtedness is incurred the aggregate amount of all such
Indebtedness of the Borrower and its Subsidiaries shall
exceed Sixty-two Million dollars ($62,000,000.00)
Except as expressly modified hereinabove the terms and conditions
of the Term Loan Agreement shall remain in full force and effect
without waiver or modification. The modifications contained
hereinabove and the Term Loan Agreement shall be read together as
one document.
Sincerely,
/s/ Sean P. O'Day
Regional Vice President
The undersigned agrees to the modification and the terms and
conditions set forth above.
BORROWER:
MAUI LAND & PINEAPPLE COMPANY, INC., a Hawaii Corporation
Date: February 22, 2000
By: /s/ Paul J. Meyer
Title: Executive Vice President/Finance
Date: February 22, 2000
By: /s/ Gary L. Gifford
Title: President
SETTLEMENT AGREEMENT AND RELEASE OF ALL CLAIMS
This Settlement Agreement and Release of All Claims
("Agreement") is entered into by Plaintiff Board of Water Supply
of the County of Maui ("Plaintiff"), on the one hand, and The Dow
Chemical Company, Occidental Chemical Corporation, successor-in-
interest to Occidental Chemical Company, Occidental Petroleum
Corporation, Shell Oil Company, individually and dba Shell
Chemical Company, AMVAC Chemical Corporation, American Vanguard
Corporation, Brewer Environmental Industries LLC, Maui Pineapple
Company, Ltd. and Maui Land and Pineapple Company, Inc.
(collectively "Defendants"), on the other hand.
RECITALS
Case Name:
1. There is now pending in the Second Circuit Court of the
State of Hawaii a civil action entitled "Board of Water Supply of
the County of Maui v. Shell Oil Company, et al.," Civil Case No.
96-0370(1) (the "Action").
Intent:
2. Plaintiff and Defendants have entered into this
Agreement to resolve with finality the Action, as well as
all past, pending, potential, continuing and future DBCP claims
between them and to avoid the expense of further litigation.
3. In consideration for this Agreement, Defendants agree to
pay as tort damages $3,000,000 in settlement of the Action,
consisting of the sums of $1,791,231 for the capital cost of GAC
facilities for the Napili A well, $404,769 for certain past DBCP
related costs, and $804,000 for the cost of the Hamakuapoko 1999
Drought Emergency GAC facility. Defendants also agree (subject
to certain limitations) to pay certain sums for the installation
and operation of carbon filtration systems (hereinafter "GAC") or
alternative remedies to assist Plaintiff in complying with the
Maximum Contaminant Level ("MCL") for DBCP on the Island of Maui
until September 1, 2039 (a period of forty (40) years).
DEFINITIONS
4. The following definitions apply throughout this Agreement:
a. "Defendants", as the term is used throughout
this Agreement, refers collectively to defendants The Dow Chemical
Company, Occidental Chemical Corporation, successor- in-interest to
Occidental Chemical Company, Occidental Petroleum Corporation, Shell Oil
Company, individually and dba Shell Chemical Company, AMVAC
Chemical Corporation, American Vanguard Corporation, and Brewer
Environmental Industries, LLC, and third-party defendants Maui
Land and Pineapple Company, Inc., and Maui Pineapple Company,
Ltd. and each of them, and all of their predecessors and
successors, their current and former parent and subsidiary
companies, divisions and affiliates.
b. "DBCP" refers to 1,2-dibromo-3-chloropropane,
and all products containing said compound, including, without limitation,
Dow "Fumazone," Occidental "BBC" and "DBCP," Nematocide Granules 50,
Nematocide 12.1 EM, Nematocide 15.1 EM , Nematocide Solution 17.1
and Shell "Nemagon".
c. The term "Maximum Contaminant Level" or "MCL"
refers to a limit concerning the concentration of DBCP in drinking water
supplies enforced by a public agency which applies to Plaintiff.
At present, the MCL for DBCP enforced by the Hawaii Department of
Health ("DOH") is 40 parts per trillion (ppt), or 0.04 parts per
billion (ppb). The parties anticipate that during the period
covered by this Agreement the name of the governmental entity
enforcing the MCL, the numerical limit, and/or the terminology
used to describe the limit may change. This Agreement is intended
to secure compliance with whatever MCL is applicable and
enforceable at the relevant time during the term of this
Agreement.
d. The terms "Exceeds the MCL" or "Exceeded the
MCL" refer to a potential situation where either: (1) Plaintiff's
well exceeds the MCL for DBCP when tested for the applicable regulatory
period; (2) a regulatory authority directs Plaintiff to stop
using a well or refrain from connecting a well to its water
system unless Plaintiff remediates DBCP in the well; or (3) the
well is tested quarterly and the total of such quarterly test
results exceeds the applicable MCL when divided by four (4).
e. "CPI" refers to the Consumer Price Index, all
urban consumers, water and sewerage maintenance, issued by the
U.S. Bureau of Labor Statistics, or its successor, as adjusted
for projects in Hawaii.
f. (i) "Napili A" refers to Plaintiff's well, Hawaii
State No. 5838-01.
(ii) "Honokahua A" refers to Plaintiff's well,
State No. 5838-03.
(iii) "Hamakuapoko 1" refers to Plaintiff's well,
State No. 5420-02.
(iv) "Hamakuapoko 2" refers to Plaintiff's well,
State No. 5320-01.
(v) "Haiku well" refers to Plaintiff's well, State
No. 5419-01.
g. "Existing Wells" refers to all wells on the
Island of Maui which were drilled, owned, and/or operated by
Plaintiff before the effective date of this Agreement.
h. "Hamakuapoko 1999 Drought Emergency GAC" refers
to the temporary installation of GAC on Hamakuapoko Wells Nos. 1
and 2 during the 1999 Upcountry Drought Emergency.
i. "Future Wells" refers to drinking water wells
on the Island of Maui, which are drilled and/or acquired by
Plaintiff after the effective date of this Agreement.
j. The term "GAC" refers to granular activated
carbon facilities for removal of DBCP from water.
k. The term "O&M" refers to the cost of operation
and maintenance of GAC or other method used to remove DBCP from water,
including, but not limited to, vessel replacement due to age and/or
wear and tear.
l. "Regularly Scheduled Well Test" currently means
a quarterly raw water analysis conducted by or on behalf of
Plaintiff, or for such other period as may be required by any
state or federal law or regulator.
m. The term "Regular Use" means a Plaintiff well
that has a utilization rate of 10% or more, averaged over a year
where water from the well is introduced into the water
distribution system.
n. The term "In Operation" refers to that period of
time (measured in days) when GAC is installed on an active
Plaintiff well and: (1) it is actually removing DBCP from the
water; (2) it is not removing DBCP because the well on which it
is installed is not pumping due to regular water demand
fluctuations; or (3) it is undergoing ordinary maintenance or
carbon change-out.
o. "Defendants' Representative" refers to the law
firm of Filice, Brown, Eassa & McLeod, LLP, 1999 Harrison Street,
18th Floor, Oakland, California 94612-3541, or such other
successor, person or entity designated by Defendants in the
future.
p. "Plaintiff's Representatives" refers to the
Corporation Counsel, County of Maui, 200 South High Street,
Wailuku, Maui, Hawaii, and Miller, Sher & Sawyer, A Professional
Corporation, 7 Park Center, Suite 1, Sacramento, California
95825, or such other successor, person or entity designated by
Plaintiff in the future.
q. The term "Notice to Proceed" refers to a notice
from Plaintiff to a contractor to construct a GAC facility, or
alternative technology facility.
r. "DOH" refers to the Hawaii Department of Health or any
successor entity charged by the State of Hawaii with regulating water quality.
s. "Event of Default" refers to any of the following events:
(i) under the terms of paragraph 46, Defendants fail to pay
Capital
Costs within 30 days of receiving a Notice to
Proceed;
(ii) under the terms of Paragraph 47, Defendants fail to make a
timely payment for O&M Costs;
(iii)under the terms of Paragraph 48, Defendants fail to
provide a replacement Letter of Credit.
GENERAL SUMMARY OF TERMS OF AGREEMENT
5. As more specifically described below, in consideration
for this Agreement:
Past and Present Costs
6. On or before September 1, 1999, Defendants will make a
cash payment as tort damages to Plaintiff and its attorneys of
record, "Miller, Sher & Sawyer, a professional corporation," in
the amount of Three Million Dollars ($3,000,000), provided
Plaintiff has executed this Agreement. This represents a total
of $1,791,231 for the capital cost of GAC facilities for the
Napili A well, $804,000 for the cost of the Hamakuapoko 1999
Drought Emergency GAC, and $404,769 for other past DBCP-related
costs.
7. Third-party defendant, Maui Land and Pineapple
Company hereby releases any claim for past transfers of land to
Plaintiff in West Maui. Plaintiff will participate in separate
negotiations with Maui Land and Pineapple Company to install,
operate and maintain a 2.5 inch high density polyethylene (HDPE)
pipeline, or its equivalent, and appurtenances, across Maui Land
and Pineapple Company land, to connect with the nearest
connection to Plaintiff's water system in the Honokahou Valley.
Capital Costs of GAC Facilities For Certain Wells
8. It is anticipated that during the term of this
Agreement the concentration of DBCP in the Hamakuapoko 1 and 2,
Honokahua A and Haiku wells may Exceed the MCL. Defendants will
reimburse Plaintiff during the term of this Agreement for 100% of
the capital costs of GAC for each such Well that Exceeds the MCL.
Defendants have agreed to make specified payments, as set forth
in subparagraphs (i) through (iv), to defray the expense of
installing GAC on these wells.
i. Defendants shall pay 100% of the sum of One
Million Eight Hundred Thousand Dollars ($1,800,000) for wells
that can be treated with two (2) GAC vessels (that is, a well
with a yield of 750 gallons per minute ("gpm") or less);
ii. Defendants shall pay 100% of the sum of
$2,400,000 for well(s) which can be treated with three GAC
vessels (that is, well(s) with a yield of more than 750 gpm and
less than 1,500 gpm);
iii. Defendants shall pay 100% of the sum of
$600,000 for each additional 750 gpm of yield in a well at or
above 1,500 gpm, in addition to the base amount of $2.4 million;
iv. Defendants' obligations to pay capital costs under
this paragraph shall be reduced by $100,000 for wells with no
pump or a non oil-lubed pump;
v. Capital costs to be paid under this Agreement
after January 1, 2000 shall be adjusted by the CPI annually,
pursuant to Paragraph No. 29 (CPI Adjustment).
Capital Costs of GAC Facilities For Other Wells
9. It is anticipated during the term of this Agreement
that the concentration of DBCP in some other Existing and Future
Wells may Exceed the MCL. Defendants will reimburse Plaintiff
during the term of this Agreement for the capital costs of GAC
for each other Existing and Future Well that Exceeds the MCL.
Defendants have agreed to make specified payments, as set forth
in subparagraphs (i) through (iv), to defray the expense of
installing GAC on these wells.
i. Defendants shall pay 90% of the sum of One Million
Eight Hundred Thousand Dollars ($1,800,000) for wells that can be
treated with two (2) GAC vessels (that is, a well with a yield of
750 gallons per minute ("gpm") or less);
ii. Defendants shall pay 90% of the sum of
$2,400,000 for well(s) which can be treated with three GAC
vessels (that is, well(s) with a yield of more than 750 gpm and
less than 1,500 gpm);
iii. Defendants shall pay 90% of the sum of
$600,000 for each additional 750 gpm of well capacity at or above
1,500 gpm, in addition to the base amount of $2.4 million;
iv. Defendants' obligations to pay capital costs under
this paragraph shall be reduced by $100,000 for all future wells
and existing wells with no pump or a non oil- lubed pump;
v. Capital costs to be paid under this Agreement
after January 1, 2000 shall be adjusted by the CPI annually,
pursuant to Paragraph No. 29 (CPI Adjustment).
Reimbursement For Operations and Maintenance ("O&M") Of GAC
10. Defendants will reimburse Plaintiff during the term
of this Agreement for O&M of GAC for each Plaintiff well that
Exceeds the MCL as follows: Napili A, Honokahua A, Hamakuapoko 1
and 2, and the Haiku Wells shall each qualify for 100% of O&M at
the annual rate of $68,500 for a two-vessel facility, $74,500 for
a three-vessel facility, and an additional $6,000 for O&M for
each additional vessel, adjusted by the CPI as set forth in
Paragraph No. 29. Existing and Future Wells which are treated
with GAC under this Agreement shall qualify for O&M at 90% of the
O&M per vessel rate set forth in this paragraph, adjusted by the
CPI as set forth in Paragraph No. 29. The number of vessels for
which Defendants will pay will be based on well yield and will be
determined pursuant to Paragraph No. 20 (for the Honokahua A,
Hamakuapoko 1 and 2, and Haiku wells) or Paragraph No. 23 (for
other Existing or Future Wells).
i. The O&M payments specified above shall be made on
or before January 10, 2000, and each successive year thereafter.
The payments made shall be adjusted by the CPI annually pursuant
to Paragraph No. 29.
ii. Defendants' obligation to pay annual O&M
under this Agreement ends on September 1, 2039.
Limitation on Number of Wells
11. The number of wells for which Defendants will be
obligated to pay for the capital and O&M costs for GAC is limited
to fifty (50) wells.
Termination Of Obligations
12. Any obligation of Defendants to make any payment
under this Agreement will end on September 1, 2039, provided that
all payments due as of that date have been made.
TERMS OF AGREEMENT
Dismissal of Actions
13. Plaintiff agrees to dismiss with prejudice
Defendants and the Action in its entirety, and Plaintiff further
agrees to release and waive all rights to bring any future DBCP
claims, lawsuits or actions arising in whole or in part from the
past, present, continuing or future presence of DBCP in
Plaintiff's wells on the Island of Maui, subject to the
exceptions set forth in Paragraph 42 [indemnity] and Paragraph 43
[claims related to the Islands of Molokai and/or Lanai].
Denial of Liability
14. This Agreement is not an admission of liability, nor
an admission that any of the facts alleged by Plaintiff are true,
nor an admission that the Action or any portion thereof asserted
by Plaintiff are well-founded, and Defendants deny that they, or
any of them, are liable to Plaintiff for any of the claims
asserted in the Action.
Joint Tortfeasor Release
15. It is understood, agreed, and intended as follows:
a. The release contained in Paragraph 57 of this
Agreement (the "Release") is intended to be and shall be
construed as a joint tortfeasor release, and any damages
otherwise recoverable by the Board against any other persons
(natural, corporate, or otherwise) in connection with events and
transactions which are the subject of the release shall be and
hereby are reduced to the extent of (1) the consideration paid
for this Release, or (2) the pro rata share that Defendants would
be responsible to pay to the Board if it were determined that
Defendants were jointly liable to the Board, whichever is
greater.
b. The Release is given and taken pursuant to the
provisions of the Uniform Contribution Among Tortfeasors Act,
sections 663-11 through 663-17, Hawaii Revised Statutes, as
amended ("UCATA"), and shall operate to release Defendants from
any and all liability to make contribution for the Covered Claims
(as that term is defined in the statute) to any person found to
be a joint tortfeasor with Defendants.
c. The parties hereto intend that the Release and
provisions of UCATA shall be applicable to all Covered Claims,
whether asserted under federal statutes or under Hawaii statutes
or under common law, including claims to which UCATA may not
otherwise (in the absence of this Release) apply.
Payment for Past and Present Costs
16. Plaintiff agrees to release Defendants from all
claims for DBCP-related costs incurred to date by Plaintiff,
including, but not limited to, the capital costs of GAC on the
Napili A well, the costs of the 1999 Hamakuapoko Drought
Emergency GAC, and certain other costs, for which Defendants
agree to pay Plaintiff as tort damages the amount of Three
Million Dollars ($3,000,000), payable to "Board of Water Supply
of the County of Maui and its attorneys of record, Miller, Sher &
Sawyer, a professional corporation," on or before September 1,
1999, if Plaintiff has executed this Agreement.
Payment for O&M Costs
17. On or before January 10 of each year, Defendants
will reimburse Plaintiff for O&M of GAC for the preceding year in
conformity with this Agreement, if GAC was in place and In
Operation during the preceding year. The first payment will be
made on or before January 10, 2000, for the portion of 1999, if
any, that such facilities were in operation. Defendants will
reimburse Plaintiff for O&M on the Hamakuapoko 1999 Drought
Emergency GAC for each month GAC was in place and in operation at
least 10% of the month at a monthly rate of $5,708.
Reimbursement for O&M costs will be requested and paid in
accordance with the terms of paragraph 47.
18. The amounts payable for O&M for GAC will be adjusted
by the CPI annually, pursuant to Paragraph No. 29.
CERTAIN WELLS THAT EXCEED THE MCL
19. If the concentration of DBCP in the Honokahua A,
Hamakuapoko 1, Hamakuapoko 2, and/or the Haiku wells Exceeds the
MCL, then upon issuance of a Notice to Proceed for installation
of GAC facilities on any such well, Defendants will pay 100% of
the capital costs and O&M for GAC on those wells.
Capital Costs
20. Capital costs associated with installation of GAC for
the Honokahua A, Hamakuapoko 1, Hamakuapoko 2, and/or the Haiku
wells are determined as follows:
a. Plaintiff will determine the number of GAC
vessels to be installed for a well(s) that Exceeds the MCL based
on actual peak well yield capacity as follows: Up to 750 gpm
(two vessel), and 751-1,500 gpm (three vessels). One additional
vessel will be installed for each additional 750 gpm increment,
or fractions thereof, in actual peak well capacity. Plaintiff may
locate vessels on a well site, a remote site or at a centralized
site at its option.
b. The capital costs of which Defendants will pay
100% are as follows:
two vessels -- $1, 800,000, three vessels -- $2, 400,000.
Defendants will pay 100% of an additional $600,000 for each
additional vessel above three. Defendants' obligations to pay
capital costs under this paragraph shall be reduced by $100,000
for any of these wells with no pump or a non oil-lubed pump. The
foregoing amounts are deemed to include, but are not limited to,
the costs of land acquisition, design, and construction of GAC.
c. Subject to Defendants' obligation to reinstall GAC
on previously treated wells from which GAC has been removed,
capital costs of which Defendants will pay 100% do not include
the costs of GAC vessel replacement, including due to age or wear
and tear. (See Paragraph No. 4 k.) Such vessel replacement costs
are included in, and/or to be paid by Plaintiff out of, O&M.
d. Reimbursement will be requested and paid in
accordance with Paragraph No. 46.
O&M Costs
21. The O&M costs on the Honokahua A, Hamakuapoko 1,
Hamakuapoko 2, and/or Haiku wells are determined as follows:
a. O&M costs will be based on well yield as follows:
Up to 750 gpm (two vessels), $68,500/year; 751-1,500 gpm (three
vessels), $74,500/year; and an additional $6,000/year for each
additional 750 gpm of well yield.
b. On or before January 10 of each year, for each such
well, Defendants will reimburse Plaintiff for 100 percent of the
O&M of GAC for the preceding year if GAC was In Operation on such
well during the preceding year.
c. For any such well for which GAC has been In
Operation for less than one year, Defendants' obligation to
reimburse Plaintiff for O&M will be limited to 100% of the
monthly per vessel rate set forth in Paragraph No. 21 e. for O&M
of GAC for each month GAC was In Operation.
d. Defendants' obligation to pay annual O&M on any
such well, as set forth above, will be conditioned on Plaintiff's
Regular Use of such well. For any such well with an average
annual utilization rate of less than 10%, Defendants will pay O&M
of $1,000 for such well for each month GAC was In Operation if
GAC was not installed and In Operation for the entire year.
e. For any such well at which GAC was In Operation for
less than one year, the payment will be a calculated amount for
each month the GAC was In Operation for more than fifteen (15)
days. The amount paid for each month under this paragraph will be
calculated by dividing 12 into the annual rate for O&M payments
set forth under subparagraph (a) above.
f. The amounts payable for capital costs for the
Honokahua A, Hamakuapoko 1, Hamakuapoko 2, and/or Haiku wells
under Paragraph 20 will be adjusted by the CPI annually, pursuant
to Paragraph No. 29. The amounts payable for O&M for such wells
under Paragraph No. 21 will be adjusted by the CPI annually,
pursuant to Paragraph No. 29.
g. Reimbursement will be requested and paid in
accordance with the terms of Paragraph No. 47.
OTHER WELLS THAT EXCEED THE MCL IN THE FUTURE
22. Where Existing or Future Wells Exceed the MCL,
Defendants will pay 90% of the capital costs and O&M for GAC on
those Wells, upon Plaintiff's issuance of a Notice to Proceed for
installation of GAC facilities on any Existing or Future Wells.
Capital Costs
23. Capital costs associated with installation of GAC
for Existing or Future Wells are determined as follows:
a. Plaintiff will determine the number of GAC vessels
to be installed for a well(s) that Exceeds the MCL based on actual
peak well yield capacity as follows: Up to 750 gpm (two vessel),
and 751-1,500 gpm (three vessels). One additional vessel will
be installed for each additional 750 gpm increment, or fractions
thereof, in actual peak well capacity. Plaintiff may locate vessels
on a well site, a remote site or at a centralized site at its option.
b. The capital costs of which Defendants will pay 90%
are as follows:
two vessels -- $1, 800,000, three vessels -- $2, 400,000.
Defendants will pay 100% of an additional $600,000 for each
additional vessel above three. Defendants' obligations to pay
capital costs under this paragraph shall be reduced by ninety
percent (90%) of $100,000 for all future wells and for existing
wells with no pump or a non oil-lubed pump. The foregoing
amounts are deemed to include, but are not limited to, the costs
of land acquisition, design, and construction of GAC.
c. Subject to Defendants' obligation to reinstall GAC
on previously treated wells from which GAC has been removed,
capital costs of which Defendants will pay 90% do not include the
costs of GAC vessel replacement, including due to age or wear and
tear. (See Paragraph No. 4 k.) Such vessel replacement costs are
included in, and/or to be paid by Plaintiff out of, O&M.
d. Reimbursement will be requested and paid in
accordance with Paragraph No. 46.
O&M Costs
24. The O&M costs on Existing and Future Wells are
determined as follows:
a. O&M costs will be based on well yield as follows:
Up to 750 gpm (two vessels), $68,500/year; 751-1,500 gpm (three
vessels), $74,500/year; and an additional $6,000/year for each
additional 750 gpm of well yield.
b. On or before January 10 of each year, for each
Existing and/or Future Well, Defendants will reimburse Plaintiff
for 90 percent of the O&M of GAC for the preceding calendar year,
if GAC was In Operation on such Existing or Future Well for the
entire year.
c. For any Existing and/or Future Well for which GAC
has been In Operation for less than one year, Defendants'
obligation to reimburse Plaintiff for O&M will be limited to 90%
of the monthly per vessel rate set forth in Paragraph No. 24 e.
for O&M of GAC for each month GAC was In Operation.
d. Defendants' obligation to pay annual O&M on any
Existing or Future Well, as set forth above, will be conditioned
on Plaintiff's Regular Use of such Well. For any Existing or
Future Well with an average annual utilization rate of less than
10%, Defendants will pay O&M of $1,000 for such Well for each
month GAC was in operation (if GAC was not installed and In
Operation for the entire year).
e. For any Existing and/or Future Well at which GAC
was In Operation for less than one year, the payment will be a
calculated amount for each month the GAC was In Operation for
more than fifteen (15) days. The amount paid for each month under
this paragraph will be calculated by dividing 12 into the annual
rate for O&M payments set forth under subparagraph (a) above.
f. Reimbursement will be requested and paid in
accordance with the terms of Paragraph No. 47.
CPI
25. The amounts payable for capital costs for wells under
Paragraphs 20 and 23 will be adjusted by the CPI annually,
pursuant to Paragraph No. 29. The amounts payable for O&M for
wells under Paragraphs 21 and 24 will also be adjusted by the CPI
annually, pursuant to Paragraph No. 29.
Selection of Alternative Sites for Future Wells
26. Future Wells (other than wells under construction as
of the date this Agreement is fully executed) constructed by
Plaintiff or contractors retained by Plaintiff, must be in
substantial compliance with the following procedures before
Plaintiff may obtain reimbursement from Defendants for the cost
of constructing, operating or maintaining GAC on such well.
a. Plaintiff shall select a proposed well site and
notify Defendants' representative thereof, and provide Defendants
with available relevant information concerning the presence of
DBCP in groundwater underlying the site, including historic land
use information, hydrogeologic characteristics and DBCP test
results (if any).
b. Defendants shall have 21 days after receipt of
said notice to notify Plaintiff that: (1) Defendants do not
object to Plaintiff proceeding with the production well at that
location, or (2) a pilot test well should be drilled and tested
at that location (at defendants' sole expense), or (3) an
alternative well site should be considered.
c. If Defendants request a pilot test well at the
proposed well site, Defendants shall have 15 days after receipt
of test results from that pilot test well to notify Plaintiff
that Defendants do not object to Plaintiff proceeding with the
production well at that location or that an alternative well site
should be considered.
d. If Defendants notify Plaintiff to consider an
alternative well site, Defendants' representative must meet and
confer with Plaintiff's representative to select an alternative
site at least one-half mile from any existing or planned
Plaintiff well, and within one-half mile of the connection to
Plaintiff's water system that would have been serviced by the
original well site. After consideration of potential
environmental issues, Plaintiff shall not unreasonably withhold
consent for the selection of alternative well sites. If
Plaintiff or a controlling regulatory entity determines that a
proposed alternative well site is too environmentally sensitive
to be used for a production well, Plaintiff shall promptly notify
Defendants of that determination so that the parties may consider
additional alternative well sites. Potential environmental issues
may be identified through existing documents (if any) prepared
pursuant to the Hawaii Environmental Policy Act, or otherwise,
that assess the original well site and include the alternative
well site as a project alternative. Nothing in this Agreement
shall impose any additional environmental analysis obligations on
Plaintiff under the Hawaii Environmental Policy Act or otherwise.
e. The parties shall also meet and confer regarding
the estimated cost of constructing, operating, and maintaining
the well at the alternative well site. The parties intend that
should the construction of a well proceed at an alternative well
site, any estimated increased costs (compared to the original
well site) incurred in connection with constructing, connecting,
operating and maintaining a well at the alternative site shall be
borne exclusively by Defendants including, but not limited to:
(i) the cost of acquiring at
least 20,000 square feet of land for the well
site and any treatment facilities which may
be required;
(ii) the cost of drilling,
constructing, and connecting the well to
Plaintiff's distribution system, all in
conformance with Plaintiff's standard
specifications and construction standards;
(iii) the cost of any
electrical costs (see attached formula,
Exhibit A) and/or pressure reducing
facilities associated with the alternative
site;
(iv) the cost of constructing
and maintaining and/or obtaining easements
for any access road to the replacement well;
(v) the cost of obtaining all
necessary permits and authorizations,
including, but not limited to, those required
by the Hawaii Environmental Policy Act and
the Department of Land and Natural Resources
and/or successor legislation;
(vi) the amount of increased
allowance for change orders, based on a 10
percent allowance for such change orders; and
(vii) all other reasonably
anticipated costs associated with the
project.
In calculating any increased costs associated with the
alternative well site, the parties will subtract the amount
Plaintiff would have expended in constructing, connecting,
operating and maintaining the well at the original well site from
the costs of constructing, connecting, operating, and maintaining
the well at the alternative site.
f. Upon completion of the meet and confer process,
Plaintiff shall serve a written notice upon Defendants with
Plaintiff's itemized comparison of the reasonably anticipated
cost of constructing, connecting, operating, and maintaining a
well at the original and alternative well sites. If the
estimated costs at the alternative site are higher than those
estimated at the original well site, Plaintiff may make a demand
on Defendants for those increased costs ("Increased Cost
Demand").
g. Within twenty-one (21) calendar days of receipt
of said itemized comparison, Defendants shall: (1) inform
Plaintiff that Defendants do not object to proceeding with
construction of a well at the original well site; (2) inform
Plaintiff that Defendants agree to pay the Increased Cost Demand;
or (3) serve a written notice of specific objections to the
Increased Cost Demand together with an estimate by a qualified
contractor to perform the work at the alternative well site to
Plaintiff's specifications for construction of a well.
h. If the parties are unable to agree on the selection
and/or increased cost of the alternative well site, either party
may elect to arbitrate the dispute as provided in Paragraph 54.
In any such arbitration, Defendants shall bear the burden of
proof.
i. In the event new or materially different
environmental issues associated with the selection of the
alternative well site ("New Issues") are a substantial factor
leading to environmental litigation by a third party, then
either: (1) Defendants shall assume the cost of defense of that
litigation; or (2) if Defendants do not assume the cost of
defense of that litigation, Plaintiff may proceed with
construction at the original well site with reimbursement by
Defendants if the well exceeds the MCL as specified in this
Agreement.
j. If Defendants fail to serve Plaintiff with a
timely objection to the Increased Cost Demand described above,
Plaintiff may elect to proceed with construction at the original
well site.
k. If the well constructed at an alternative site
fails to yield water that meets all then applicable water quality
standards, Defendants shall pay the full cost of installing
treatment facilities to correct any such deficiency and shall
reimburse Plaintiff for the full cost of operating and
maintaining any such equipment. Defendants' obligation to
reimburse Plaintiff for such treatment facilities shall not apply
to disinfection facilities or any treatment or other water
quality technology which Plaintiff is required to install on all
Plaintiff wells In Operation, other than wells treated with GAC.
l. Any well constructed at an alternative site must
yield at least eighty percent (80%) as much water (gallons per
minute ("gpm")) as the original site selected by Plaintiff.
m. If the well constructed at the alternative well
site fails to operate as provided in the previous sub-paragraph,
Defendants may elect to construct at their sole expense an
additional well to Plaintiff's standards at another site approved
by Plaintiff so that the combined flow from both wells equals or
exceeds that anticipated at the original proposed site.
n. If Defendants pay the Increased Cost Demand or
amount determined in Arbitration under this Agreement, then: (1)
any increased capital costs will be paid within 30 days of
Defendants' receipt of a notice to proceed to a contractor to
construct a well at the alternative well site; and (2) any
increased operations and maintenance costs will be adjusted by
the CPI under Paragraph No. 29 and January 10 for each preceding
year the well is operation during the term of this Agreement.
ADMINISTRATIVE APPEALS
27. If a regulatory authority incorrectly, mistakenly, or
in excess of its authority directs Plaintiff to stop using a well
or refrain from connecting a well to its water system unless
Plaintiff remediates DBCP in the well, Plaintiff may, within 60
days of receipt of the directive, petition the regulatory
authority for reconsideration of the directive. If Plaintiff
chooses not to petition the regulatory authority for
reconsideration of the directive, Plaintiff shall notify
Defendants and Defendants, at their own expense, may choose to
challenge the regulatory authority's decision. Plaintiff shall
provide Defendants with information from its files concerning the
status of the well in question.
CESSATION OF O&M
28. For any Plaintiff well on which GAC or other
remediation equipment to remove DBCP is installed, Defendants'
obligation to pay O&M shall cease upon the occurrence of the
following:
a. If any Regularly Scheduled Well Test for DBCP
results in a concentration below the MCL, a second confirming
sample will be taken within ten (10) days. If the average of
those two samples is below the applicable DBCP MCL, the well is
to be tested for the time period specified by the then applicable
drinking water regulation. If the average of those tests is below
the applicable MCL, Plaintiff may within sixty (60) days of
receipt of the laboratory result for the last sample petition DOH
for a permit amendment allowing removal of GAC or other DBCP
remediation equipment. If the amendment is granted, Defendants'
responsibility to pay O&M on the well is terminated thirty (30)
days after notification to Plaintiff by DOH of the amendment
approval. If Plaintiff chooses not to petition DOH for a permit
amendment, Defendants' obligation to pay O&M on the well is
terminated on the thirtieth day after the events described in
this paragraph.
b. Within 90 days, either DOH will grant Plaintiff's
petition, or Plaintiff must make a good faith effort to obtain
such relief from DOH. If the petition is denied, Plaintiff shall
again petition DOH in a good faith effort to persuade DOH to
grant the petition. If the second petition is denied, Plaintiff
shall notify Defendants and the parties shall cooperate should
Defendants, at their own expense, choose to challenge the DOH
decision in Plaintiff's name. Defendants' responsibility to pay
O&M on the site or well in question will cease 30 days after DOH
grants the petition.
c. Plaintiff is entitled to leave the GAC or other
DBCP remediation equipment in place and/or operate same at its
own expense for at least twelve (12) months after Defendants'
obligation to pay O&M on the well has ceased.
d. If GAC or other DBCP remediation equipment has
been removed from a well which has previously been treated and
which subsequently requires treatment, the cost of such treatment
will be borne by Defendants to the same extent as it was when GAC
or other DBCP remediation equipment was originally installed, and
will not be counted twice against the well limits set forth in
Paragraph No. 30.
CPI ADJUSTMENT
29. This Agreement contains provisions for: (a) Defendants'
payment of specified sums for the installation of GAC, which are
expressed in 1999 dollars, and O&M, which are expressed in 1999
dollars; and (b) credits and offsets to Defendants, which are
expressed in 1999 dollars. All payments of capital costs and O&M
made by Defendants to Plaintiff and all credits and offsets to
which Defendants are entitled under this Agreement for the year
beginning January 1, 2000, and each year thereafter will be
adjusted according to the CPI. The CPI adjustment shall operate
as follows: The payments made, and credits and offsets applied,
for the year 2000 shall be adjusted to reflect inflation or
deflation pursuant to the CPI, except as limited by this
Paragraph, with each successive year's payments being similarly
adjusted according to the prior year's inflation or deflation
pursuant to the CPI.
a. For the purpose of calculating inflation or
deflation for capital costs, 1999 expressed dollars (as
established by the June 1999 figure for the CPI) are to be used
in this Agreement and are to be modified annually using the June
CPI for subsequent years.
b. For the purpose of calculating inflation or
deflation for O & M, 1999 expressed dollars (as established by
the June 1999 figure for the CPI) are to be used in this
Agreement and are to be modified annually using the June CPI for
subsequent years. The first CPI adjustment to O&M shall commence
with the January 10, 2001 payment using the June 2000 CPI.
LIMIT ON NUMBER OF WELLS FOR WHICH
DEFENDANTS MAY BE RESPONSIBLE
30. The number of wells for which Defendants will be
obligated to pay for the capital and O&M costs for GAC is limited
to fifty (50) wells.
TERMINATION OF OBLIGATIONS
31. All obligations on the part of Defendants under this
Agreement, including but not limited to payments of capital costs
and O&M to Plaintiff, end on September 1, 2039, provided that all
payments due as of that date have been paid.
RE-USE OF GAC VESSELS
32. As GAC vessels become available when they are taken out
of service on wells that no longer require DBCP remediation,
Defendants may choose to move those units to another well
requiring DBCP remediation. If Defendants pay for the
installation or reinstallation of surplus GAC vessels, Defendants
will receive a credit of $95,000 per vessel (adjusted by the CPI)
to be applied to Defendants' portion of the capital cost of GAC
on any well covered by this Agreement. Defendants will pay for
the cost of moving, installing, inspecting, repairing and
refilling these units, such activities to be performed by
Plaintiff to Plaintiff's standards.
33. If a GAC vessel is moved to another site, and the well
on which it had previously been installed once again Exceeds the
MCL, then Defendants shall pay the appropriate portion of capital
costs and O&M (either 90% or 100%) required to install or
reinstall and operate GAC on that well.
ALTERNATIVE TECHNOLOGY AND/OR REMEDIES
34. Defendants may propose that Plaintiff utilize a less
expensive wellhead treatment method approved by U.S. EPA or State
of Hawaii for the remediation of DBCP. Defendants agree to pay
the actual cost of designing, procuring, and installing all
appropriate equipment and modifications to existing equipment,
including capital and O&M costs under the conditions of this
Agreement, on any well on which such equipment is installed. If
any such less expensive wellhead treatment method is installed,
then in lieu of O&M payments for GAC, Defendants will reimburse
Plaintiff for the actual cost of O&M for the less expensive
wellhead treatment method pursuant to Paragraph 47.
35. After meeting and conferring, Plaintiff's or
Defendants' representatives may submit any disputed claim
concerning the reliability, practicability, or efficacy, or
actual cost, including capital and O&M costs, of employing any
less expensive well-head treatment to binding arbitration
pursuant to Paragraph 54 (Arbitration) of this Agreement.
Notwithstanding any other provision of this Agreement, Plaintiff
shall not be required to use any technology approved by the EPA,
but disapproved by the DOH.
36. Plaintiff may elect to implement alternative remedies
for DBCP. If Plaintiff elects to implement an alternative remedy,
Defendants will only be obligated to pay the lesser of either:
(a) 100% of the capital and O&M costs of the alternative remedy,
or (b) 90% of the capital and O&M costs for the appropriately
sized GAC facility, based on the capacity of the subject well(s),
as appropriate. Plaintiff and Defendants shall submit any
disputed claim concerning the actual cost, including capital and
O&M costs, of any alternative remedy for DBCP to binding
arbitration pursuant to Paragraph 54 (Arbitration) of this
Agreement.
37. If EPA or DOH directs Plaintiff that modifications or
additions to GAC (other than disinfection equipment) are required
to continue use of GAC solely for the removal of DBCP, and
Plaintiff and Defendants are unable to agree on the amount of the
reasonably necessary expense of such treatment that should be
borne by Defendants, Plaintiff and Defendants will submit
Plaintiff's claim for the reasonably necessary expense of such
treatment to binding arbitration pursuant to Paragraph 54
(Arbitration) of this Agreement.
38. The activities set forth in Paragraph Nos. 34 through
37 are subject to approval by both Plaintiff and Defendants; said
approval will not be unreasonably withheld.
LABORATORY ANALYSIS AND REPORTING
39. Plaintiff and Defendants each retain the right to
challenge any reported laboratory test result for DBCP and may
take the steps necessary, at their own cost, to verify the
result, including such steps as obtaining a confirming sample for
analysis or requesting that the laboratory confirm its
calculations or reanalyze the initial sample.
40. Plaintiff will provide Defendants' Representative with
a complete report of all DBCP test results from Plaintiff
production wells every six months throughout the duration of this
Agreement on the first business days of May and December of each
year. The report need only contain the DBCP results for the year
preceding the date of the report.
41. Defendants may, at their own expense, participate in
Plaintiff's regularly scheduled sampling, take split samples, and
make reasonable site inspections upon request; said requests will
not be unreasonably made by Defendants.
INDEMNITY
42. Plaintiff will retain its right, if any, to seek
indemnity from Defendants if it is sued by a third party for
personal injuries or property damage allegedly attributable to
DBCP. Plaintiff certifies that it is presently unaware of any
such claims.
LANAI AND MOLOKAI
43. Notwithstanding any other provision of this Agreement,
Plaintiff will retain its right, if any, to bring any future DBCP
claims, lawsuits, or actions, including but not limited to,
claims for compensatory and/or punitive damages, arising in whole
or in part from the past, present, continuing, or future presence
of DBCP on the Islands of Lanai and Molokai.
COSTS
44. All parties will bear their own costs and attorney's
fees incurred in the Action.
45. As to Plaintiff, Defendants will waive costs and
attorneys' fees for all dismissed Defendants.
PAYMENT OF ANY FUTURE OBLIGATIONS
Capital Costs
46. In addition to the conditions that must be met under
this Agreement before Defendants' obligations to pay future
capital costs arise under this Agreement, Plaintiff must submit
to Defendants' Representative and representatives for defendants
AMVAC, Occidental, and Maui Land and Pineapple Company (the names
and addresses of which will be provided and updated by
Defendants' Representatives) a copy of a Notice to Proceed to a
contractor to construct a GAC or alternative technology facility
to treat a well that Exceeds the MCL. Within 30 days of
Defendants' receipt of the Notice to Proceed, Defendants must pay
Plaintiff the amount owed under the terms of this Agreement. In
the event that Defendants fail to make timely payment, payment
will be made under Paragraph 48 of this Agreement (Letter of
Credit). Any disputed claims shall be submitted to arbitration
pursuant to Paragraph 54, provided that Plaintiff shall be
entitled to immediate payment pursuant to Paragraph 48,
regardless of whether the claim is disputed.
O&M
47. In addition to the conditions that must be met under
this Agreement before Defendants' obligations to pay future O&M
arise under this Agreement, Plaintiff must submit by December 1
of each year starting in 2000 a qualifying claim for O&M that
provides sufficient information to evaluate whether and to what
extent Plaintiff's well(s) qualify for O&M payment. This will
include, but not be limited to, DBCP test results and information
concerning whether the wells were In Operation and In Regular Use
during the preceding twelve months. Provided Plaintiff's O&M
claim is timely submitted, Defendants shall make payment in the
amount claimed by the following January 10. In the event
Defendants fail to make timely payment, payment will be made
under Paragraph 48 of this Agreement (Letter of Credit). Any
disputed claims shall be submitted to arbitration pursuant to
Paragraph 54, provided that Plaintiff shall be entitled to
immediate payment pursuant to Paragraph 48, regardless of whether
the claim is disputed. If Plaintiff fails to submit a timely
claim (i.e., by December 1), then Defendants' obligation to make
a timely payment (i.e., by January 10) shall be extended one day
for each day Plaintiff's claim is late.
LETTER OF CREDIT
48. To secure the obligations of Defendants under this
Agreement, and as a condition precedent to the obligations of
Plaintiff hereunder, Defendants shall, at their sole cost and
expense, furnish to Plaintiff, on or prior to October 1, 1999,
and thereafter maintain during the entire term of this Agreement,
continuing to a date thirty (30) days after the later of (i)
September 1, 2039 or (ii) satisfaction of all Defendants'
obligations to Plaintiff under this Agreement, an irrevocable
standby letter of credit ("Letter of Credit") in favor of
Plaintiff in form and substance reasonably satisfactory to
Plaintiff, issued or confirmed by a United States banking
institution having capital and surplus of not less than One
Billion United States Dollars (USD 1,000,000,000) and advised by
a banking institution with a banking office in Honolulu, Hawaii,
a. The Letter of Credit shall have a principal amount
of Twenty Million United States Dollars (USD 20,000,000), and
shall provide for payment to Plaintiff under this Agreement by a
draft at sight to which is attached Plaintiff's Signed Statement
(as defined in the Letter of Credit). The draft at sight and the
Signed Statement which shall be conclusive that there has
occurred an event of default under this Agreement and any
applicable cure period has lapsed. A draft at sight presented as
the result of an Event of Default related to claims under either
Paragraph 46 or 47 will be limited to the amount of the claim. A
draft at sight presented as the result of an Event of default
based on the failure of the Defendants to renew the Letter of
Credit may be presented for the full amount of the Letter of
Credit.
b. Should any Letter of Credit furnished by Defendants
hereunder expire prior to the term of this Agreement, Defendants
shall automatically provide Plaintiff with a replacement, in the
same tenor, no later than sixty (60) days prior to the expiration
of the then-current Letter of Credit. Failure to provide a
replacement for a Letter of Credit shall be an event of default
under this Agreement, and shall permit Plaintiff to draw on the
then-current Letter of Credit as provided above. Plaintiff's
realization of the amount payable under the Letter of Credit
shall not affect Plaintiff's right to elect any other remedy on
default available to Plaintiff under this Agreement, or under
applicable law.
c. Where Plaintiff draws on a Letter of Credit because
of the occurrence of an Event of Default based on the failure of
the Defendants to renew the Letter of Credit, the amount drawn on
the Letter of Credit shall first be applied to any then existing
claims for Capital Costs and/or O&M Costs under this Agreement
and thereafter the balance of the amount drawn shall be appplied
as credit against future claims under the Agreement or reconveyed
to the banking institution that issued the Letter of Credit upon
Defendants obtaining a new Letter of Credit.
d. The principal amount of the Letter of Credit may be
adjusted upon agreement of all the parties at the time of any
renewal or replacement of the Letter of Credit. In the absence
of such agreement, the principal amount of the Letter of Credit
shall remain Twenty Million United States Dollars (USD
20,000,000) so long as Defendants are required to maintain a
Letter of Credit under this Paragraph 48.
CREDITS
49. a. Upon Defendants' initial payment of $3,000,000
pursuant to Paragraph 16 of this Agreement, Defendants shall be
entitled to a one-time credit against the amount otherwise
payable for installation of permanent GAC facilities on the
Hamakuapoko Well Nos. 1 or 2 of $804,000, less the amount
described in Paragraph 32 (Re Use of GAC Vessels), if, at
Defendants' option, the vessels are used to treat any other well.
b. If any disputed claims under this Agreement are
resolved in favor of Defendants, any amount determined to have
been paid by Defendants in excess of the amount found to be due
shall be credited to Defendants to offset future obligations
under this Agreement.
c. Any credit or offset to which Defendants become
entitled shall be applied to reduce the next occurring obligation
of Defendants related to capital cost, and Defendants shall owe
no additional amounts for capital costs until all credits and
offsets to which Defendants are entitled have been applied and
exhausted. Except as provided in this paragraph, and
notwithstanding any other provision of this Agreement, Plaintiff
shall not be obligated to pay Defendants cash on any accumulated
credits or offsets. Except as otherwise set forth in this
paragraph, any credits remaining as of September 1, 2039, shall
be extinguished. Credits remaining as of September 1, 2039 that
are the result of a claim made by Plaintiff after September 1,
2038 and disputed by Defendants thereafter, where the dispute is
subsequently resolved in favor of Defendants, will be reimbursed
to Defendants within thirty (30) days of such resolution.
50. If Plaintiff receives a payment under this Agreement
for a GAC project that is not constructed, Defendants shall
receive a credit in the amount of such payment toward the capital
cost of the next GAC project that would otherwise trigger a
further payment by Defendants.
DESIGNATED CONTACTS
51. Defendants' Representative and Plaintiff's
Representatives are the parties' respective designated contacts
for all reports, correspondence, and notices concerning the
subject matter of this Agreement. If another representative is
substituted, Defendants or Plaintiff, as appropriate, must
provide written notice of same within ten (10) days.
GOOD FAITH EFFORT
52. Consistent with this Agreement, the parties agree to
make a good faith effort to mitigate both Defendants' obligations
under this Agreement and any adverse impact on Plaintiff's water
system.
ARBITRATION AGREEMENT
53. In the event of any dispute between Plaintiff and
Defendants arising out of or relating to this Agreement, the
parties agree to try in good faith to settle the dispute by
negotiation and/or mediation.
54. If the dispute cannot be resolved to the parties'
mutual satisfaction through negotiation and/or mediation within
thirty (30) days, Plaintiff and/or Defendants' Representative may
elect to seek arbitration, and the dispute shall be resolved
through binding arbitration. It is the intent of the parties that
the arbitration be structured in such a way as to minimize costs
and delay. The arbitration shall be conducted in accordance with
the Commercial Arbitration Rules of the American Arbitration
Association (the "AAA Rules") with the following stipulations:
a. The arbitration hearing shall be held before Hon.
Ret. Judge Weinstein at JAMS, San Francisco, or if he is not
available or declines to serve, a single arbitrator if the
parties agree upon a single arbitrator. If the parties cannot
agree upon a single arbitrator, then each shall select an
arbitrator, and those arbitrators shall select a third
arbitrator. If they are unable to agree upon a third arbitrator
within fifteen (15) days, the third arbitrator shall be selected
as provided in the AAA Rules.
b. Unless otherwise ordered, each party's presentation
at the arbitration hearing shall be limited to 14 hours, and the
hearing shall be completed within ten (10) business days.
c. The arbitration decision shall be rendered not later
than thirty (30) days after the final day of the hearing and
shall be judicially enforceable, nonappealable and binding.
d. Summaries of any expert testimony, along with
copies of all documents to be submitted as exhibits, shall be
exchanged at least ten (10) business days before arbitration
under procedures set up by the arbitrators.
e. Except as otherwise specified herein, there shall
be no discovery or dispositive motion practice except as may be
permitted by the arbitrators, who may authorize only such
discovery as is shown to be necessary to ensure a fair hearing.
No discovery or motions permitted by the arbitrators shall in any
way alter the time limits specified herein.
f. Arbitration costs, arbitrators' fees, and
attorneys' fees and costs shall be awarded to the prevailing
party, if any, by the arbitrators.
g. The arbitration shall occur in San Francisco,
California.
55. In the event of arbitration arising out of, or
related to, this Agreement, the prevailing party shall be
entitled to recover its costs, expenses, and reasonable
attorneys' fees, in addition to any other relief to which it may
be entitled.
RELEASE
NOW THEREFORE, in reliance on the recitals stated above and
for consideration, Plaintiff agrees as follows:
56. The foregoing recitals are true and correct and by
this reference incorporated herein.
57. Subject to the provisions of this Agreement, on
behalf of itself, its assigns, Board representatives, and past,
present or future agents, Plaintiff hereby releases Defendants,
individually and collectively, and their respective predecessors,
successors, assigns, present and potential indemnitees, insurers,
subsidiaries, affiliates, attorneys, and past or present
employees, directors, officers, agents, shareholders, and
representatives from any and all DBCP claims, demands, Action,
causes of action, obligations, liens, damages, and liabilities,
of any nature whatsoever, whether or not known, suspected or
claimed, present or future, relating to or arising out of any
act, cause, matter or thing stated, claimed, or alleged, or that
could have been stated, claimed, or alleged by Plaintiff in the
Action. Plaintiff understands and acknowledges that it is
releasing and waiving all past, present, continuing and future
claims it has or may have against Defendants for the presence of
DBCP, except as specifically set forth in this Agreement.
58. Plaintiff declares and warrants that no other person
or entity has had nor now has any interest in the claims,
demands, Action, causes of action, obligations, liens, damages,
and liabilities released in Paragraph No. 57, above; and that it
has not sold, assigned, transferred, conveyed, or otherwise
disposed of any DBCP claim, demand, action, cause of action,
obligation, lien, damage, or liability released in Paragraph No.
57, above.
59. Plaintiff declares that, prior to the execution of
this Agreement, it has apprised itself of sufficient data, either
through experts or other sources of its own selection, in order
that it might intelligently exercise its judgment in deciding on
the contents of this Agreement and in deciding whether to execute
it. Plaintiff further declares that its decision to enter into
this Agreement is not predicated on or influenced by any
declarations or representations of Defendants, or any of them, or
by Defendants' respective predecessors, successors, assigns,
subsidiaries, affiliates, insurers or attorneys or past or
present employees, officers, directors, agents, shareholders, or
representatives. Plaintiff declares that this Agreement is
executed voluntarily and with full knowledge of its significance.
60. The parties acknowledge that they have an understanding
of the facts underlying the Action and have negotiated in good
faith and that this Agreement represents a good faith settlement
with regard to the interests of all parties to the Agreement.
61. Plaintiff authorizes and directs its counsel to execute
appropriate Requests for Dismissal, with prejudice, of the entire
Action as to all Defendants, and to deliver the executed Requests
for Dismissal to Defendants' Representative. All parties
authorize and direct their respective counsel to execute whatever
documents are necessary to implement this Agreement.
62. This Agreement shall bind the parties and each successor
and assign of each party.
63. This document embodies the entire terms and conditions
of the Agreement between the parties, and supersedes any prior
documents signed by the parties in the course of resolving the
Action. All words, phrases, sentences, and paragraphs, including
the recitals hereto, are material to the execution of this
Agreement.
64. This Agreement shall be governed by, and interpreted and
construed in accordance with, the laws of the State of Hawaii.
65. Upon the occurrence of an uncontrollable circumstance,
the party affected shall be excused from any failure or delay in
performance under this Agreement. For purposes of this
Agreement, an "uncontrollable circumstance" includes, but is not
limited to, acts of God, fire, flood, civil unrest, earthquake,
declaration of a public emergency, injunction, and labor
disputes. However, the parties recognize that delays in
Defendants' performance under the terms of this Agreement could
uniquely subject Plaintiff to third parties' disputes.
Therefore, in the event Defendants' performance of any option or
obligation described in Paragraph 26 and its subparts is delayed
due to force majeure circumstances, Plaintiff may proceed with
the construction of wells, notwithstanding any right of
Defendants to construct replacement wells and select alternative
well sites. Defendants shall promptly reimburse Plaintiff for
the cost of well construction incurred under these circumstances.
66. In the event any of the terms, conditions or covenants
contained in this Agreement are held to be invalid, then any such
invalidity shall not affect any other terms, conditions or
covenants contained herein which shall remain in full force and
effect.
67. Plaintiff warrants that this Agreement has been approved
by Plaintiff's Board of Water Supply, and each of the signatories
to this Agreement warrants that he or she is fully authorized to
enter into the terms and conditions stated herein and to execute
this Agreement.
68. This Agreement will be effective whether or not executed
in multiple counterparts.
Dated: 8/31/99 BOARD OF WATER SUPPLY
OF THE COUNTY OF MAUI
By /S/ ROBERT K. TAKITANI
Its: CHAIRMAN
Approved as to form: MILLER, SHER & SAWYER
A Professional Corporation
(signatures continued)
Dated: Aug. 31, 1999 By: illegible
DUANE C. MILLER
VICTOR M. SHER
Attorneys for Plaintiff, Board of
Water Supply of the County of Maui
Dated: September 8, 1999 THE DOW CHEMICAL COMPANY
By /S/ THOMAS J. CRESSWELL
Its: Thomas J. Cresswell
Associate General Counsel
Approved as to form: FILICE, BROWN, EASSA & MCLEOD, LLP
Dated: 9/3/99 By /S/ NICHOLAS D. KAYHAN
Attorneys for Defendant
The Dow Chemical Company
Dated: 9/21/99 OCCIDENTAL CHEMICAL COMPANY
By illegible
Its: Senior Vice President & General Counsel
Dated: 9/16/99 OCCIDENTAL PETROLEUM CORPORATION
By /S/LAWRENCE D. STECKMEST
Its: Assistant General Counsel
Dated: 9/21/99 OCCIDENTAL CHEMICAL CORPORATION
By illegible
Its: Senior Vice President & General Counsel
Approved as to form: LANDELS, RIPLEY & DIAMOND, LLP
(signatures continued)
Dated: 9/13/99 By /S/ STEPHEN C. LEWIS
STEPHEN C. LEWIS
Attorneys for Defendants
Occidental Chemical Company,
Occidental Petroleum Corporation, and
Occidental Chemical Corporation
Dated: 30 Aug 1999 AMVAC CHEMICAL CORPORATION
By illegible
Its: Vice Chairman
Date: 30 Aug 1999 AMERICAN VANGUARD CORPORATION
By illegible
Its: Co- Chairman
Approved as to form: RUSH, MOORE, CRAVEN, SUTTON, MORRY & BEH
Dated: August 30, 1999 By /S/ RICHARD C. SUTTON, JR.
RICHARD C. SUTTON, JR.
Attorneys for Defendant
AMVAC Chemical Corp.
American Vanguard Corp.
Dated: Sept 1, 1999 BREWER ENVIRONMENTAL INDUSTRY, FKA
BREWER CHEMICAL COMPANY
By /S/ J. ALAN KUGLE
Its: Sec
Approved as to form: MANCINI, ROWLAND & WELCH
Dated: September 1, 1999 By /S/ PAUL R. MANCINI
PAUL R. MANCINI
Attorneys for Defendant
Brewer Environmental Industry, fka
Brewer Chemical Company
(signatures continued)
Dated: 9/2/99 SHELL OIL COMPANY
By /S/ BURT BALLANFANT
Its: Senior Litigation Counsel
Approved as to form: KOBAYASHI, SUGITA & GODA
By____________________________
DALE W. LEE
Attorneys for Defendant
Shell Oil Company
Dated: _____________ MAUI LAND & PINEAPPLE COMPANY AND
MAUI PINEAPPLE COMPANY, LTD.
By /S/ PAUL J. MEYER
Its: Executive Vice President/Finance
Approved as to form: TOM & PETRUS
Dated:________________ By_______________________________
STEPHEN M. TEVES
Attorneys for Third-Party
Defendants, Maui Land &
Pineapple Co. and Maui Pineapple
Co., Ltd.
STATE OF HAWAII)
) SS.
COUNTY OF MAUI )
On this 31st day of August, 1999, before me appeared ROBERT
K. TAKITANI, to me personally known, who, being by me duly sworn,
did say that is the Chairperson of the BOARD OF WATER SUPPLY
of the County of Maui, and that the seal affixed to the foregoing
instrument is the lawful seal of the BOARD OF WATER SUPPLY, and
that the said instrument was signed and sealed on behalf of the
said BOARD OF WATER SUPPLY, and the said ROBERT K. TAKITANI
acknowledged the said instrument to be the free act and deed of
said BOARD OF WATER SUPPLY.
IN WITNESS WHEREOF, I have hereunto set my hand and official
seal.
/S/ JERRY ANN WELLS
(Signature)
JERRY ANN WELLS
Notary Public, State of Hawaii
My commission expires: 4/19/2002.
MAUI LAND & PINEAPPLE COMPANY, INC
ANNUAL REPORT
1999
CONTENTS
Letter to Shareholders 2
Pineapple 4
Resort 5
Commercial & Property 6
Independent Auditors' Report 7
Consolidated Balance Sheets 8
Consolidated Statements of Operations and Retained Earnings 10
Consolidated Statements of Cash Flows 11
Notes to Consolidated Financial Statements 12
Common Stock 19
Selected Financial Data 20
Management's Discussion and Analysis of
Financial Condition and Results of Operations 21
Officers and Directors inside back cover
<PAGE>
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
subsidiaries. The Company's principal business activities are
Pineapple, Resort and Commercial & Property.
The Company owns approximately 28,600 acres of land on the
island of Maui, of which about 8,400 acres are used directly or
indirectly in the Company's operations. The Company employed
approximately 2,040 people in 1999 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. imprinted on the can lid. In addition,
the products are sold through institutional, industrial and
export distribution channels.
Kapalua Land Company, Ltd. is the development and operating
subsidiary for the Kapalua Resort. The Kapalua Resort is a
master-planned golf resort community on Maui's northwest coast.
The property encompasses 1,650 acres bordering the ocean with
three white sand beaches.
Commercial & Property includes the operations of various
properties, including Kaahumanu Center, the largest retail and
entertainment center on Maui. It also includes the Company's
land entitlement and management activities and land sales that
are not part of the Kapalua Resort.
On the cover: 18th green at the Plantation Course during the
Mercedes Championships; Pailolo channel and the island of Molokai
in the background.
Quarterly reports: As part of our company-wide effort to reduce
costs, we are eliminating printed quarterly reports after 1999.
To request a copy of news releases or other financial reports,
contact us at our corporate offices or visit our web sites.
Printed in Hawaii
<PAGE>
10-K REPORT
Shareholders who wish to receive, free of charge, a copy of the
Company's 10-K Report to the Securities and Exchange Commission
(excluding certain exhibits) may write to:
Corporate Secretary
Maui Land & Pineapple Company, Inc.
P. O. Box 187
Kahului, Hawaii 96733-6687
OFFICES
Corporate Offices Pineapple Marketing Office
Maui Land & Pineapple Company, Inc. Maui Pineapple Company, Ltd.
P. O. Box 187 P. O. Box 4003
Kahului, Hawaii 96733-6687 Concord, California 94524-4003
Telephone: 808-877-3351 Telephone: 510-798-0240
Fax: 808-871-0953 Fax: 510-798-0252
www.mauiland.com
Maui Pineapple Company, Ltd.
P. O. Box 187
Kahului, Hawaii 96733-6687
Telephone: 808-877-3351
Fax: 808-871-0953
www.pineapplehawaii.com
Kapalua Land Company, Ltd.
1000 Kapalua Drive
Kapalua, Hawaii 96761-9028
Telephone: 808-669-5622
Fax: 808-669-5454
www.kapaluamaui.com
Kaahumanu Center
275 Kaahumanu Avenue
Kahului, Hawaii 96732-1612
Telephone: 808-877-3369
Fax: 808-877-5992
www.kaahumanu.net
Transfer Agent & Registrar Independent Auditors
ChaseMellon Shareholder Services, LLC Deloitte & Touche LLP
P. O. Box 3315 1132 Bishop Street, Suite 1200
South Hackensack, NJ 07606-1915 Honolulu, Hawaii 96813-2870
Telephone: 800-356-2017 Telephone: 808-543-0700
www.chasemellon.com
<PAGE>
MAUI LAND & PINEAPPLE COMPANY, INC. & SUBSIDIARIES
FINANCIAL HIGHLIGHTS
1999 1998 1997
(Dollars in Thousands Except Per Share Amounts)
REVENUES
Pineapple $ 94,535 $ 97,658 $ 90,949
Resort 47,950 41,929 40,338
Commercial & Property 4,381 4,087 5,065
Corporate 132 37 146
Total 146,998 143,711 136,498
INCOME BEFORE
EXTRAORDINARY LOSS 4,670 4,340 863
NET INCOME 4,670 3,596 863
PER COMMON SHARE
Income Before
Extraordinary Loss .65 .60 .12
Net Income $ .65 $ .50 $ .12
AVERAGE COMMON
SHARES OUTSTANDING 7,188,840 7,188,500 7,188,500
TOTAL ASSETS $ 153,387 $ 136,247 $135,507
CURRENT RATIO 1.5 2.1 2.2
LONG-TERM DEBT and
CAPITAL LEASES $ 25,497 $ 23,592 $ 29,435
STOCKHOLDERS' EQUITY 66,400 62,492 58,896
STOCKHOLDERS' EQUITY PER
COMMON SHARE $ 9.23 $ 8.69 $ 8.19
EMPLOYEES 2,040 2,030 2,270
<PAGE>
TO OUR SHAREHOLDERS and EMPLOYEES:
We are pleased to report that the Company made further
progress in terms of financial results in 1999. Net income
increased by 30% from $3,596,000 in 1998 to $4,670,000 in 1999.
This represents a 7.5% return on beginning equity compared to 6.1%
for 1998. While we are pleased with the improvement in net income,
this level of profitability still is short of our goal for the
Company of a 10% to 15% return on equity. Our focus will remain on
achieving an appropriate level of profitability for the Company and
on the steps necessary to achieve that goal.
The 1999 net income of $4,670,000 includes a portion of the
net income from the sale of twelve single-family home lots in
Plantation Estates Phase II at Kapalua in the fourth quarter. Land
sales and development activities contributed approximately $1.2
million to net income in 1999 compared to $2.4 million in 1998.
The increase in net income in 1999 resulted from improved
operating performance and higher operating profits from Pineapple
and Kapalua Resort operations. The Company's Commercial & Property
operation produced an operating loss of $454,000, which represented
a 58% improvement over the 1998 operating loss.
Cash provided by activities increased from $17.6 million in
1998 to $18.5 million in 1999. The increase in cash flow on a year-
to-year basis is attributable to improved operating results and
cash flow in the Pineapple and Resort divisions. As a result, the
Company was able to invest over $18 million in resort amenity
projects and plant and equipment while the Company's total debt,
including capital leases, increased by $2.2 million from $26.3
million to $28.6 million in 1999. Interest expense declined by
$1.2 million from $3 million in 1998 to $1.8 million in 1999.
Approximately $500,000 of the reduction is due to interest that was
capitalized in connection with construction projects, such as the
Village Course Clubhouse and Kapalua Golf Academy project.
Interest expense also declined because of lower interest rates on
the Company's debt and lower average borrowings compared to 1998.
The Company's Pineapple division reported an operating profit
of $6.1 million in 1999, a $591,000 improvement over 1998. Sales
volume in terms of cases sold declined, in part due to the
strategic goal of reducing acreage planted in pineapple and a
diversion of acreage to our fresh fruit business. Also, an
increased volume of imported canned pineapple was sold in the
United States in 1999 compared to 1998. The Pineapple division
benefited from relatively stable prices for canned pineapple
products during the year. We believe this is due, in part, to the
effect of the anti-dumping duties on canned pineapple fruit from
Thailand. These duties are subject to a sunset review, which is
scheduled to begin in the summer of 2000. Extension of these
duties will be an important factor in maintaining a stable,
competitive market price for canned pineapple in the U.S.
We are pleased with the progress of our fresh cut pineapple
products and with the results to date from the introduction of our
fresh pineapple salsa. We believe these products capitalize on
consumer preferences for fresh and convenient food products. We
look forward to the introduction later this year of our latest
product, pineapple juice packed in plastic containers, and
anticipate that it will be well received as demonstrated by
consumer preference for other fruit juices packed in plastic
containers. In addition, we are pleased with the progress of our
Royal Coast subsidiary in positioning the Company for long-term
development in Central America.
The Resort division also posted improved operating results.
Operating profits of $5.7 million improved by $463,000 over 1998
results. The relative health of the U.S. economy, as demonstrated
by record high consumer confidence indicator levels, resulted in a
higher level of westbound visitors to Maui and substantially higher
hotel occupancy levels for Maui's visitor industry. Kapalua
experienced significantly higher occupancies in 1999 and produced
record profits from Resort operations. Revenue from the Resort
division increased by 14% over 1998. An important factor in
improved operating performance at Kapalua is the quality of the
guest experience at the resort. The Ritz-Carlton, Kapalua Hotel,
The Kapalua Bay Hotel and The Kapalua Villas as well as Kapalua's
recreational facilities all received national and international
awards and accolades for excellence. We believe the commitment to
providing a quality guest experience results in increased value and
return over the long term. The recognition provided by the
Mercedes Championships golf tournament also is a positive factor in
the occupancy levels and financial performance of the Resort
division.
A number of new Resort projects were undertaken in 1999. The
$15 million Village Course Clubhouse and Kapalua Golf Academy
project is expected to be completed in June of this year. This
project demonstrates the Resort's commitment to remaining the
number one golf resort in Hawaii. The Coconut Grove at Kapalua Bay
project is the first condominium project undertaken at Kapalua
since the early 1980s. The project has been well received with 28
of the 36 condominiums already sold. Building construction
commenced in February of this year and delivery of the finished
condominiums is expected beginning in the later part of 2000. The
fourteen 2-acre lots representing the final phase of the Plantation
Estates subdivision project were offered for sale in 1999. Twelve
of the lots were sold in 1999 and the remaining two closed in the
first quarter of this year. Also underway at Kapalua is a
proposed 31-lot subdivision located on a 20-acre site adjoining the
Bay Course. We expect this project will receive its final
approvals and are optimistic that it will be well received when it
is offered for sale in the second half of this year.
The Commercial & Property division also posted improved
results in 1999. The operating loss of $454,000 represents an
improvement of $631,000 over the operating loss posted in 1998.
Merchandise sales at Kaahumanu Center, Maui's largest shopping
center, increased by 5% over 1998 levels. We believe the improved
sales reflect a modest improvement in the general economy of Maui
from the depressed levels experienced over the previous five years.
There remains an oversupply of retail space creating highly
competitive conditions. This is reflected in the level of sales at
the Napili Plaza Shopping Center, which was down 5.7% in 1999 from
1998 levels. We believe the retail environment will continue to be
extremely competitive for the foreseeable future.
As was well covered in the local and national press, the forty-
one percent interest in the Company owned by the Weinberg
Foundation of Baltimore was sold to Mr. Stephen M. Case on August
31, 1999. This transaction resolved, in a positive manner, the
uncertainty regarding longer-term ownership of this large block of
stock. We are pleased with the credentials and the contributions
of the Directors nominated by Mr. Case.
We believe the economic climate in 2000 will be relatively
positive for the Company's businesses. The New Economy, with its
associated higher levels of productivity, low inflation, high
employment and higher levels of personal wealth should provide a
favorable business environment for Maui's visitor industry. The
Kapalua Resort is particularly well positioned to benefit in terms
of occupancy and operating revenue.
We remain dedicated to achieving the Company's goals in terms
of financial performance and in enhancing the long-term value of
the Company's assets. In view of the 1999 profits, the Company's
Board of Directors declared, at its February 2000 meeting, a cash
dividend of $.125 per share.
Thank you for your continued support and for your commitment
to the Company's success.
/S/ RICHARD H. CAMERON
Richard H. Cameron
Chairman
/S/ GARY L. GIFFORD
Gary L. Gifford
President & CEO
February 24, 2000
<PAGE>
PINEAPPLE
The Pineapple division reported an operating profit in 1999,
before allocated interest and income taxes, of $6.1 million,
$591,000 higher than 1998. This was Pineapple's fourth consecutive
year of profitability and the division's best financial results
since 1987.
Pineapple revenue for 1999 was $94.5 million, down 3.2% from
1998. Canned pineapple provided 90% of total revenue in 1999 and
overall case sales volume decreased by 8.1% compared to 1998. Case
sales volume of grocery fruit, our largest category within the
canned product line, declined by 11%. Institutional and government
fruit also declined by 5% and 7%, respectively, from 1998 levels.
Juice case volume declined by 6% overall. Grocery and government
juice categories were down 6% and 35%, respectively. Concentrate
volume was down 24% from 1998 levels. Part of this decrease in
volume is a result of a planned reduction in the acreage being
cultivated and a diversion of other acreage to our fresh fruit
business. The balance of the case sales volume decline was due
primarily to a substantial increase in imports of canned pineapple
into the U.S. during the second half of 1999.
Pricing for canned pineapple remained relatively stable
throughout 1999, resulting in an increase in average prices over
1998. Low inventories of imports at the beginning of the year kept
prices firm through the first half of 1999. Although the large
influx of imports after May of 1999 caused prices to decline
somewhat, the effect of these imports was greater on case sales
volume than on pricing.
Fresh fruit sales volume in 1999 was lower than 1998 by 10%.
However, average pricing was slightly higher than 1998. The loss
in volume is due to an increase in fresh pineapple case volume from
Central American producing countries. In February 2000, the
Governor of the State of Hawaii canceled plans for extension of the
Kahului airport runway on Maui. The limited cargo capacity out of
Kahului airport has been a continuing problem for the Company;
however the new Boeing 777 aircraft, which recently made its first
flight to Kahului, may alleviate some of this problem. We are
reassessing our plans and strategy for our Jet Fresh fruit program
in light of these developments.
The pineapple crop on Maui experienced a prolonged drought in
1999. Rainfall at every key rain gauge station on both plantations
was recorded at levels below the five-year historical average.
This was the fifth consecutive year that dry weather conditions
negatively affected the pineapple crop. Conditions in East Maui
were much worse than in West Maui, in part due to East Maui water
restrictions by the County of Maui. In spite of the dry weather in
1999, tonnage was slightly higher than 1998, but fruit and juice
recovery was slightly lower than 1998. The higher tonnage was due
primarily to heavy use of the company's irrigation systems and good
agricultural practices.
In 1999, the division continued to reduce its production costs
by reducing planting in unreliable fields with a history of low
yields. As a result, we expect tonnage to be modestly lower in the
future, but we anticipate the average quality of our fruit to
improve. In addition, we expect to harvest more second ratoon
crops in the future. Production costs were reduced in 1999 as we
continued with our project to consolidate certain operating
departments. Additional cost reductions may be made in 2000 and
future years.
We continue to monitor canned pineapple imports into the
United States. As expected, imports of canned pineapple products
into the U.S. increased in 1999. Through November 1999, the year-
to-date case volume of imported canned pineapple fruit, juice and
concentrate increased by 44%, 11% and 34%, respectively. Imports
of canned pineapple from Thailand increased the most at 153% over
1998 levels. Over the past several years, companies in the major
pineapple producing areas have increased their plantings and we
expect competition to continue to intensify as more of these
plantings reach maturity. Accordingly, we expect the case volume
of imports of canned pineapple products into the U.S. to increase
in 2000.
Antidumping duties were in effect on canned pineapple fruit
from Thailand throughout 1999. The U.S. Department of Commerce has
begun the fourth annual review of these tariffs. We anticipate the
announcement of preliminary dumping margins and tariffs to be made
in April 2000 with final results expected in July 2000. We do not
expect any significant changes in the current duty structure as a
result of the fourth annual review. A "Sunset Review" of the
duties will take place beginning in summer 2000. For a
continuation of existing duties, we must convince the International
Trade Commission during the Sunset Review that elimination of the
duties will potentially cause injury to the domestic industry.
We continue to make progress in new product and business
development. In 1999, we expanded our fresh cut pineapple
distribution and introduced our product consisting of fresh cut
wedges and chunks of pineapple in plastic containers on the
mainland. We also introduced a fresh pineapple salsa product in
plastic containers to the Hawaii market and to certain stores in
California. Response from the retail trade for these products has
been excellent.
Our subsidiary, Royal Coast Tropical Fruit Company imports and
sells fresh pineapple from Central America and a variety of fresh
Hawaiian produce. Although 1999 sales were somewhat below
expectations, we are pleased with the progress made in 1999 in
positioning ourselves for long-term development and anticipate
increasing our pineapple sales volume of fruit from Central
America.
The Pineapple division's primary focus in 2000 will be to
increase its competitiveness and profitability by emphasizing
product quality, achieving cost reductions in operations,
maximizing yields and improving recovery. Significant capital
resources will be directed toward fresh and fresh cut products
where customer demand is growing. Sales and marketing objectives
will be to achieve the highest return from sales of 100% HAWAIIAN
U.S.A. canned pineapple and to expand sales through the Royal Coast
Tropical Fruit Company label.
We expect 2000 to be a challenging year as we continue to
expand and improve our business.
<PAGE>
RESORT
For the third consecutive, year the Resort division showed
financial improvement. The 1999 profit, before allocated interest
and income taxes, was $5.7 million compared with $5.2 million in
1998. The improvement in 1999 was due to record profits from
resort operations, which offset a lower contribution from resort
development activities.
Overall, Hawaii's resort real estate market continues to
strengthen, primarily from increased demand created by the strong
U.S. mainland economy. Total dollar volume of real estate resales
at Kapalua increased 19% in 1999 compared to 1998. This growth was
achieved despite strong competing interest in our new residential
product and historically low inventory of Kapalua resale listings.
The total resort development profit in 1999 of $1.6 million
was primarily from the development of the final 34-acre parcel in
Plantation Estates II. All fourteen of the two-acre lots were
sold for a total of $9.6 million. Twelve of the sales closed
escrow in 1999 while the remaining sales closed in the first
quarter of 2000. Construction of subdivision improvements began in
the fourth quarter of 1999 and should be substantially completed in
March 2000. Profits have been accounted for using the percentage-
of-completion method, which will result in the remaining profit
being recognized as the project is completed this year.
Construction of The Coconut Grove on Kapalua Bay also began in
the fourth quarter of 1999. Development of the 36 luxury
beachfront condominiums is through a 50/50 partnership with Lend
Lease Real Estate Investment Inc., owner of The Kapalua Bay Hotel.
We presently have sold 28 of these exclusive residences for a total
sales volume of $53.8 million, of which more than $47 million is
under binding contract. Mass grading has been completed and
building construction began in February 2000. Construction is
scheduled to be completed in the first quarter of 2001. Profits
will be recorded when title to the residences is delivered, which
could be in late 2000 for some of the buildings.
In December 1999, the Maui County Planning Commission approved
our Special Management Area permit application for the proposed 31
half-acre residential custom lot subdivision on Site 19. Final
subdivision approval, as well as a zoning change and Community Plan
amendment for about three acres of the 20-acre site are still
needed and are expected in May 2000. We have reached an agreement
with the Pineapple Hill Homeowners Association for the annexation
of this development with Pineapple Hill. Presales are expected to
begin in the second quarter of 2000 with construction completed by
year-end. Lot sales are expected to close in the third quarter
with profits being accounted for using the percentage-of-completion
method.
In January 2000, we opened the Kapalua Golf Academy and the
Hale Irwin-designed Village Course practice facility for limited
use by participants in the Mercedes Championships. A month later,
the facility was fully opened to the resort community and general
public. The response has been extremely positive and, in
conjunction with our staff of 30 PGA professionals, the Kapalua
Golf Academy gives us a distinct competitive advantage.
Equally important to our strategic golf positioning and future
town center development is the new 27,000 square foot Village
Course Clubhouse, which should be open by July 2000. The other
components of the $15 million clubhouse and golf academy
development include an 18-hole putting course and two commercial
retail parcels. Overall, this will provide a foundation for the
remaining Town Center, resort spa and residential development of
our central resort master plan.
As expected, Hawaii's visitor industry continued its struggle
to offset a decline in eastbound visitors in 1999 due to the
ongoing economic problems in Japan. This is particularly difficult
for the island of Oahu and the Waikiki hotels that have relied
heavily on the eastbound market. Growth from the westbound market,
mostly U.S. mainland, gave the state a slight gain in total visitor
counts and occupancies in 1999 with most of the gains reflected in
the neighbor islands. Maui showed surprisingly strong growth in
1999 with a 6% increase over 1998 and finished with an average
occupancy of over 77%, the highest of any Hawaiian island.
Total resort occupancy for Kapalua was up significantly in
1999 with an increase of almost 16% compared to 1998. All three of
the resort properties (The Kapalua Bay Hotel, The Ritz-Carlton,
Kapalua and The Kapalua Villas) finished the year with strong
occupancy gains and were equally successful in delivering high
quality guest experiences. Travel & Leisure magazine ranked all
three in the top 25 hotels in Hawaii for 1999 and rated The Ritz-
Carlton, Kapalua as #3 in the world.
The record profit from resort operations in 1999 is due mostly
to the higher occupancies, increased demand for golf and increased
hotel lease rents. Gross revenues from resort operations increased
13% in 1999 with all major business segments of golf, villas,
retail and commercial leases showing strong revenue gains.
Excluding direct revenue-related expenses, our total operating
costs increased less than 7%.
The marketing exposure from our inaugural Mercedes
Championships contributed to the positive results for Kapalua in
1999. In January 2000, we hosted the 2000 Mercedes Championships,
the first PGA TOUR event of the new millennium and saw Tiger Woods
culminate an extraordinary week at Kapalua with his dramatic
playoff victory over Ernie Els. ESPN television ratings on the
final day were the highest ever for ESPN golf. We believe the
Mercedes Championships has been a significant factor in helping to
define our strategic positioning as the #1 golf resort in Hawaii
and hope to continue our partnership with the tournament sponsor,
Mercedes Benz, and the PGA TOUR beyond our initial four-year
agreement on a long-term basis.
We expect the year 2000 will present challenges to resort
operations from the start-up phase of the new Village Course
Clubhouse and Kapalua Golf Academy. Profits from the two new
residential projects could be significant for the year 2000, but as
with any development, are subject to substantial timing and other
customary risks. Overall we believe the Resort division is in an
excellent position for continued long-term improvement from both
resort operations and development activities.
<PAGE>
COMMERCIAL & PROPERTY
The Company's Commercial & Property business segment produced
an operating loss, before allocation of interest and income taxes,
of $454,000 in 1999 compared to an operating loss of $1.1 million
in 1998. Revenue increased from $4.1 million in 1998 to $4.4
million in 1999. Improved results from Kaahumanu Center were
responsible for the lower operating loss in 1999.
Joint venture losses at Kaahumanu Center, a 573,000 square
foot regional mall, decreased from $2,479,000 in 1998 to $1,800,000
in 1999. The Company's share of these losses, together with
management fee revenues and other expenses, resulted in an
operating loss of $470,000 in 1999 compared to an operating loss of
$1,000,000 in 1998. Kaahumanu Center's revenues increased by 6% in
1999, reflecting improved occupancies, higher sales reported by
tenants and higher recovery of expenses from tenants. Costs and
expenses at Kaahumanu Center increased by 1% in 1999 as higher
utility and payroll costs were partially offset by lower expense
for bad debts.
Occupancy at Kaahumanu Center improved with new merchants
opening in 1999, including Gap Kids/Baby Gap, Pacific Sunwear,
d.e.m.o., The Gift Basket, Vitamin World, Athens Restaurant and an
expansion of Fun Factory. Anthurium's boutique, Twig, Native
Soles, Heaven Scents and Maui Elements opened in the first phase of
a plantation town themed area in the new "Plantation District" on
Kaahumanu Center's second level. Moondoggy's, a 7,000 square foot
restaurant, is slated to open in the second phase of the Plantation
District in March 2000. Merchant sales at Kaahumanu Center
increased over 5% in 1999 compared to 1998.
Napili Plaza, the Company's 44,000 square foot shopping and
commercial center in West Maui, showed a decrease in profits from
$268,000 in 1998 to $202,000 in 1999. Merchant sales at Napili
Plaza increased over the previous year in the latter part of 1999,
but overall were down 5.7% in 1999 compared to 1998 primarily as a
result of increased competition in the area.
Operating losses in other property-related and land management
activities declined from $574,000 in 1998 to $409,000 in 1999.
Gains from land sales of $223,000 in 1999 were comparable to 1998.
In 1999, the Company continued its efforts to obtain the
Special Management Area permit and other required permits for the
Kapua Village Employee Subdivision in West Maui. Delays were
encountered due primarily to legal challenges filed with the courts
by neighboring property owners opposing the Environmental
Assessment completed for the subdivision. We anticipate that
approval of the required permits will be obtained sometime in 2000.
Work commenced in 1999 on the preliminary planning phase for
the business-commercial development of the Country Town Business
zoned parcel of land located within Haliimaile Village in Upcountry
Maui, with alternative conceptual development plans reviewed and
evaluated. An important consideration for the proposed development
is recognition of the unique rural characteristics of the Upcountry
Maui area.
In addition to the Haliimaile business-commercial development,
other Company-owned lands were evaluated to determine appropriate
uses and potential opportunities that would achieve the highest and
best uses for the Company's lands.
Further progress was made by the Land Management & Development
Division in 1999 toward achieving strategic goals and objectives to
position the Company to more effectively and responsibly manage,
plan and develop the Company's valuable land and water assets.
<PAGE>
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, 1999 and 1998, 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, 1999. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of the
Companies at December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the
period ended December 31, 1999 in conformity with generally
accepted accounting principles.
/S/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Honolulu, Hawaii
February 9, 2000
(February 24, 2000 as to Note 13)
<PAGE>
MAUI LAND & PINEAPPLE COMPANY, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
1999 1998
(Dollars in Thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,657 $ 3,447
Accounts and notes receivable,
less allowance of $783 and $493
for doubtful accounts 15,098 13,005
Inventories
Pineapple products 9,714 8,380
Real estate held for sale 577 1,083
Merchandise, materials and supplies 6,634 6,057
Prepaid expenses and other assets 4,779 3,659
Total Current Assets 39,459 35,631
INVESTMENTS AND OTHER ASSETS 12,952 10,695
PROPERTY
Land 4,737 4,618
Land improvements 46,062 45,868
Buildings 50,317 49,708
Machinery and equipment 105,784 104,052
Construction in progress 18,058 5,721
Total Property 224,958 209,967
Less accumulated depreciation 123,982 120,046
Net Property 100,976 89,921
TOTAL $153,387 $136,247
1999 1998
(Dollars in Thousands)
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable and current portion
of long-term debt $ 2,792 $ 2,254
Current portion of capital lease obligations 264 499
Trade accounts payable 12,492 6,613
Customers' deposits 1,264 1,304
Payroll and employee benefits 4,662 4,085
Deferred revenue 3,365 643
Other accrued liabilities 1,696 1,248
Total Current Liabilities 26,535 16,646
LONG-TERM LIABILITIES
Long-term debt 25,077 22,913
Capital lease obligations 420 679
Accrued retirement benefits 23,204 22,920
Equity in losses of joint venture 8,944 7,969
Other noncurrent liabilities 2,361 2,628
Total Long-Term Liabilities 60,006 57,109
MINORITY INTEREST IN SUBSIDIARY 446 --
CONTINGENCIES AND COMMITMENTS
STOCKHOLDERS' EQUITY
Common stock--no par value, 7,200,000 shares
authorized, 7,195,800 and 7,188,500 shares issued
and outstanding at December 31, 1999
and 1998, respectively 12,455 12,318
Retained earnings 53,945 50,174
Stockholders' Equity 66,400 62,492
TOTAL $153,387 $136,247
See Notes to Consolidated Financial Statements
<PAGE>
MAUI LAND & PINEAPPLE COMPANY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997
(Dollars in Thousands Except Per Share Amounts)
REVENUES
Net sales $112,191 $113,391 $101,421
Operating revenue 33,982 29,123 29,058
Other income 825 1,197 6,019
Total Revenues 146,998 143,711 136,498
COSTS AND EXPENSES
Cost of goods sold 74,494 76,049 72,200
Operating expenses 27,440 26,168 26,027
Shipping and marketing 18,479 16,673 18,053
General and administrative 16,408 15,094 14,600
Equity in losses of joint ventures 956 1,160 1,211
Interest 1,834 3,039 3,045
Total Costs and Expenses 139,611 138,183 135,136
INCOME BEFORE
INCOME TAXES AND
EXTRAORDINARY LOSS 7,387 5,528 1,362
INCOME TAX EXPENSE 2,717 1,188 499
INCOME BEFORE
EXTRAORDINARY LOSS 4,670 4,340 863
EXTRAORDINARY LOSS, NET OF
INCOME TAX CREDIT OF $456 -- (744) --
NET INCOME 4,670 3,596 863
RETAINED EARNINGS,
BEGINNING OF YEAR 50,174 46,578 45,715
CASH DIVIDENDS 899 -- --
RETAINED EARNINGS, END OF YEAR 53,945 50,174 46,578
PER COMMON SHARE
Income Before
Extraordinary Loss .65 .60 .12
Extraordinary Loss,
Net of Income Tax Credit -- (.10) --
Net Income .65 .50 .12
Cash Dividends $ .125 $ -- $ --
Average Common
Shares Outstanding 7,188,840 7,188,500 7,188,500
See Notes to Consolidated Financial Statements.
<PAGE>
MAUI LAND & PINEAPPLE COMPANY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997
(Dollars in Thousands)
OPERATING ACTIVITIES
Net income $ 4,670 $ 3,596 $ 863
Adjustments to reconcile net income
to net cash provided by operating activities
Depreciation 8,445 8,176 8,041
Undistributed equity in
losses of joint ventures 1,019 1,194 1,211
Gain on property disposals (49) (627) (5,254)
Deferred income taxes 552 (523) (313)
(Increase) decrease in
accounts receivable (1,700) (526) 1,446
(Increase) decrease
in inventories (2,360) 5,193 (1,219)
Increase (decrease) in
trade payables 3,798 (420) (1,356)
Net change in other operating
assets and liabilities 4,094 1,568 34
NET CASH PROVIDED BY
OPERATING ACTIVITIES 18,469 17,631 3,453
INVESTING ACTIVITIES
Purchases of property (18,213) (8,230) (8,388)
Proceeds from sale of property 509 634 5,882
Distributions from joint ventures -- -- 1,460
Contributions to joint ventures (575) (425) (1,030)
Payments for other investments (2,735) (1,632) (1,815)
NET CASH USED IN
INVESTING ACTIVITIES (21,014) (9,653) (3,891)
FINANCING ACTIVITIES
Proceeds from long-term debt 15,632 30,647 23,891
Payments of long-term debt (13,659) (35,780) (20,991)
Proceeds from short-term debt 729 -- --
Payments on capital lease
obligations (494) (1,009) (1,304)
Dividend paid (899) -- --
Other 446 -- --
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 1,755 (6,142) 1,596
NET INCREASE (DECREASE) IN CASH (790) 1,836 1,158
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 3,447 1,611 453
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 2,657 $ 3,447 $ 1,611
Supplemental Disclosures of Cash Flow Information and Non-Cash
Investing and Financing Activities:
1. Cash paid during the year (in thousands):
Interest (net of
amount capitalized) $ 1,711 $ 4,809 $ 3,235
Income taxes 1,842 984 335
2. Amounts included in accounts payable for additions to
property and other investments totaled $3,419,000, $1,144,000 and
$280,000, respectively, at December 31, 1999, 1998 and 1997.
3. In December 1999, 7,300 shares of Company stock, which was
held by a wholly owned subsidiary of the Company, were
contributed to the Company's Employee Stock Ownership Plan (see
Note 7 to Consolidated Financial Statements).
4. Capital lease obligations of $739,000 in 1997 were incurred
for new equipment.
5. Effective December 31, 1997, the Company's investment in
Plantation Club Associates (PCA) was liquidated and the Company
assumed PCA's remaining assets totaling $1.4 million (see Note 3
to Consolidated Financial Statements).
See Notes to Consolidated Financial Statements.
<PAGE>
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 subsidiaries,
primarily Maui Pineapple Company, Ltd. and Kapalua Land Company,
Ltd. Significant intercompany balances and transactions have
been eliminated.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, deposits in
banks and commercial paper with original maturities of three
months or less.
INVENTORIES
Inventories of tinplate, cans, ends and canned pineapple
products are stated at cost, not in excess of market value, using
the dollar value last-in, first-out (LIFO) method.
The costs of growing pineapple are charged to production in
the year incurred rather than deferred until the year of harvest.
For financial reporting purposes, each year's total cost of
growing and harvesting pineapple is allocated to products on the
basis of their respective market values; for income tax purposes,
the allocation is based upon the weight of fruit included in each
product.
Real estate held for sale is stated at the lower of cost or
fair value less cost to sell.
Merchandise, materials and supplies are stated at cost, not
in excess of market value, using retail and average cost methods.
INVESTMENTS AND OTHER ASSETS
Cash surrender value of life insurance policies are
reflected net of loans against the policies.
Investments in joint ventures are generally accounted for
using the equity method.
PROPERTY AND DEPRECIATION
Property is stated at cost. Major replacements, renewals
and betterments are capitalized while maintenance and repairs
that do not improve or extend the life of an asset are charged to
expense as incurred. When property is retired or otherwise
disposed of, the cost of the property and the related accumulated
depreciation are written off and the resulting gains or losses
are included in income. Depreciation is provided over estimated
useful lives of the respective assets using the straight-line
method.
POSTRETIREMENT BENEFITS
The Company's policy is to fund pension cost at a level at
least equal to the minimum amount required under federal law, but
not more than the maximum amount deductible for federal income
tax purposes.
Deferred compensation plans for certain management employees
provide for specified payments after retirement. The present
value of estimated payments to be made were accrued over the
period of active employment. On October 1, 1998, these plans
were terminated (see Note 7 to Consolidated Financial
Statements).
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. When the Company's remaining obligation to
complete improvements is significant, the sale is recognized on
the percentage-of-completion method.
INTEREST CAPITALIZATION
Interest costs are capitalized during the construction
period of major capital projects.
ADVERTISING AND RESEARCH AND DEVELOPMENT
The costs of advertising and research and development
activities are expensed as incurred.
LEASES
Leases that transfer substantially all of the benefits and
risks of ownership of the property are accounted for as capital
leases. Amortization of capital leases is included in
depreciation expense. Other leases are accounted for as
operating leases.
INCOME TAXES
The Company's provision for income taxes is calculated using
the liability method. Deferred income taxes are provided for all
temporary differences between the financial statement and tax
bases of assets and liabilities using enacted tax rates.
FOREIGN CURRENCY TRANSLATION
The assets and liabilities of the Company's majority owned
subsidiary in Central America are translated into U.S. dollars at
exchange rates in effect at the balance sheet date, and revenues
and expenses are translated at weighted average exchange rates in
effect during the period. Translation adjustments are to be
reported as other comprehensive income and accumulated in
Stockholders' Equity. Transaction gains and losses that arise
from exchange rate changes on transactions denominated in a
currency other than the functional currency are included in
income as incurred. During 1999, these foreign translation and
transaction adjustments were not material.
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.
EARNINGS PER COMMON SHARE
Earnings per common share is computed using the weighted
average number of shares outstanding during the period. The
Company has no dilutive potential common shares outstanding. All
references to shares outstanding and per share amounts for prior
periods have been restated to reflect the four-for-one split of
the Company's common stock that was effected on May 1, 1998.
RECLASSIFICATIONS
Certain amounts for prior years have been reclassified to
conform to the presentation for the current year.
2. INVENTORIES
Pineapple product inventories were comprised of the
following components at December 31, 1999 and 1998:
1999 1998
(Dollars in Thousands)
Finished Goods $ 7,399 $ 5,979
Work In Progress 839 839
Raw Materials 1,476 1,562
Total $ 9,714 $ 8,380
The replacement cost of pineapple product inventories at
year-end approximated $21 million in 1999 and $19 million in
1998. In 1998, there was a partial liquidation 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, net income for 1998 would have
decreased by $1,360,000 or $.19 per share.
3. INVESTMENTS AND OTHER ASSETS
Investments and Other Assets at December 31, 1999 and 1998
consisted of the following:
1999 1998
(Dollars in Thousands)
Deferred Costs $ 6,657 $ 6,230
Cash Surrender Value of Life
Insurance Policies (net) 633 515
Prepaid pension asset 2,774 2,247
Kapalua Coconut Grove LLC 905 496
Other 1,983 1,207
Total $12,952 $10,695
Deferred costs are primarily intangible predevelopment costs
related to various projects at the Kapalua Resort, which will be
allocated to future development projects.
Cash surrender value of life insurance policies are stated
net of policy loans totaling $597,000 at December 31, 1999 and 1998.
KAPALUA COCONUT GROVE LLC
Kapalua Coconut Grove LLC (KCG) is a Hawaii limited
liability company whose members are the Company and an affiliate
of Lend Lease Real Estate Investments, Inc. KCG was formed in
June of 1997 to own, develop and sell the 12-acre parcel of
property adjacent to The Kapalua Bay Hotel. Each member
contributed to the venture its 50% interest in the land parcel
and $1.1 million in cash. Presales of the 36 luxury residential
condominiums to be constructed on the parcel began in August 1999
and mass grading and site work began in November 1999. Each
member has a 50% interest in KCG and the Company has accounted
for its investment in KCG by the equity method. The Company's
pre-tax share of KCG's net income (loss) was $(172,000) in 1999
and $1,000 in 1998.
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 expansion and renovation were substantially complete by
the end of November 1994. Effective April 30, 1995, the ERS
converted its $30.6 million loan to an additional 49% ownership
in KCA. Effective with 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.
The Company has a long-term agreement with KCA to manage
Kaahumanu Center. The agreement provides for certain performance
tests, which if not met, could result in termination of the
agreement. The tests were not met in 1999, but termination of
the agreement is not presently being considered. KCA does not
have any employees. As manager, the Company provides all
administrative and on-site personnel and incurs other costs and
expenses, primarily insurance, which are reimbursable by KCA.
The Company generates a portion of the electricity used by
Kaahumanu Center. In 1999, 1998 and 1997, reimbursements from
KCA for payroll and other costs and expenses totaled $2,417,000,
$2,303,000, and $2,240,000, respectively, and the Company charged
KCA $2,531,000, $2,402,000, and $2,574,000, respectively, for
electricity and management fees. At December 31, 1999 and 1998,
$1,154,000 and $333,000, 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, 1999 and 1998 and operating information for each of the three
years ended December 31, 1999 follows:
1999 1998
(Dollars in Thousands)
Current assets $ 1,188 $ 1,039
Property and equipment, net 72,277 73,861
Other assets, net 1,701 2,311
Total Assets 75,166 77,211
Current liabilities 2,969 2,200
Noncurrent liabilities 60,352 61,366
Total Liabilities 63,321 63,566
Partners' Capital $ 11,845 $13,645
1999 1998 1997
Revenues $ 14,506 $13,625 $ 13,945
Costs and Expenses 16,306 16,104 16,255
Net Loss $ 1,800 $ 2,479 $ 2,310
The Company's share of losses from KCA was $900,000,
$1,240,000 and $1,155,000, respectively, for 1999, 1998 and 1997.
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, 1999, the accumulated
unpaid preferred return was $11 million each for ERS and the
Company. Pursuant to cash calls, the partners each contributed
$830,000 to the partnership in 1997.
The Company's investment in KCA is a negative $8.9 million
at December 31, 1999. The negative balance is a result of (1)
recording the Company's initial contribution in 1993 at net book
value of the assets contributed, reduced by the related debt and
(2) the Company's share of KCA's accumulated losses since 1995.
PLANTATION CLUB ASSOCIATES
Plantation Club Associates (PCA) was an unincorporated joint
venture in which Kapalua Land Company, Ltd. (Kapalua) was the
managing venturer. Profits and losses of the joint venture were
allocated based on estimated distributions to the partners, which
was 85% to Kapalua and 15% to the other partner. The partnership
agreement required that all major decisions receive unanimous
approval of the partners.
In 1997, the three remaining lots in Plantation Estates
Phase I were sold and the partners concluded an agreement to
liquidate PCA as of December 31, 1997. After distribution of the
joint venture's cash to the partners, Kapalua assumed PCA's
remaining assets of $1.4 million, primarily land and planning
costs for Plantation Estates Phase II.
Kapalua's pre-tax share of the joint venture's net loss was
$56,000 for 1997. This amount includes expenses incurred by the
Company related to the investment, primarily amortization of
capitalized interest cost. The Company received a cash
distribution from PCA of $1,460,000 in 1997.
4. BORROWING ARRANGEMENTS
During 1999, 1998 and 1997, the Company had average
borrowings outstanding of $29.5 million, $33 million and $32.8
million, respectively, at average interest rates of 7.8%, 8.9%
and 8.8%, respectively.
Short-term bank lines of credit available to the Company at
December 31, 1999 were $2 million. These lines provide for
interest at the prime rate (8.5% at December 31, 1999) plus 1/4%
to 1/2%. There were no borrowings under these lines at December
31, 1999, but $213,000 in letters of credit were reserved against
these lines to secure the Company's deductible portion of
insurance claims administered by various insurance companies.
The Company has a $900,000 working capital credit facility for
its Central American operations. At December 31, 1999, the
Company had borrowings outstanding of $729,000 under this
facility at 7.55%.
Long-term debt at December 31, 1999 and 1998 consisted of
the following (interest rates represent the rates at December 31):
1999 1998
(Dollars in Thousands)
Term loan, 7.87% to 8.39% $ 15,000 $ --
Bridge loan, 8% -- 15,000
Revolving credit agreement, 8.5% 3,400 --
Mortgage loan, 7.25% and 8.25% 4,807 4,886
Equipment loans, 6.76% to 8.46% 3,932 5,281
Total 27,139 25,167
Less portion classified as current 2,062 2,254
Long-term debt $ 25,077 $22,913
On December 31, 1998, $20 million of 8.86% senior unsecured
notes were retired with a $15 million bridge loan (7.3% at
January 4, 1999) and cash generated by the Company's operations.
Principal payments on the $20 million loan were due from 1999
through 2003. A prepayment penalty of $1.2 million was paid for
early extinguishment of the 8.86% notes and has been accounted
for as an extraordinary loss of $744,000 (net of income tax
credit of $456,000).
In March of 1999, the Company accepted a commitment to
refinance the bridge loan and, accordingly, the $15 million
bridge loan was classified as long-term debt in the December 31,
1998 balance sheet. In June of 1999, the bridge loan agreement
was amended and restated in its entirety and converted to a term
loan secured by certain parcels of the Company's real property on
Maui. Principal payments are due from September 2004 through
June 2009. Interest rates on the loan are adjustable to 2.15% to
2.55% above six-month, one-year and three-year rates made
available by the Federal Farm Credit Bank. The agreement
includes certain financial covenants, including the maintenance
of a minimum tangible net worth and debt coverage ratio, maximum
funded debt to capitalization ratio, and limits on capital
expenditures, investments and the payment of dividends.
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, 2001. Amounts
outstanding at that date, at the Company's option, may be
converted to a three-year term loan payable in six equal semi-
annual installments. The agreement also includes a $15 million
development line of credit facility for construction of the new
Village Course Clubhouse and Kapalua Golf Academy. The
development facility reduces to $8 million in December of 2000
and matures in December of 2001.
Commitment fees of 1/4% are payable on the unused portions
of the revolving credit line and the development facility. At
the Company's option, interest on advances under both the
revolving credit line and the development facility is at the
prime rate or based on a LIBOR rate. The loan is collateralized
by the Company's three golf courses at the Kapalua Resort. 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. Declaration and payment of cash
dividends is restricted to 30% of prior year's net income. At
December 31, 1999, the Company did not meet the minimum current
ratio required by this credit facility. As of February 9, 2000,
the Company obtained a waiver of the violation with regard to
year-end 1999. The Company believes that the conditions that
caused the violation will be different in the future. The
Company's financial projections for 2000, which reflect the
aforementioned differences in conditions, indicate that the
Company should be in compliance with this working capital
covenant throughout 2000.
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. Effective January 1, 1999, the
interest rate on the loan was amended to 7.25% until January 1,
2002. The interest rate will be adjusted to the lender's then
prevailing rate of interest for such loans as of January 1, 2002
and January 1, 2005.
The Company has agreements that provide for term loans that
were used to purchase assets for the Company's pineapple and
resort operations. The loans are at fixed interest rates and
mature through June 2004. The agreements include certain
financial covenants that are similar to those in the Company's
revolving credit agreement. One of the agreements also requires
the maintenance of a minimum tangible net worth and debt coverage
ratio (as defined).
Maturities of long-term debt during the next five years,
from 2000 through 2004, are as follows: $2,062,000, $985,000,
$1,927,000, $1,517,000, $1,341,000.
5. MINORITY INTEREST IN SUBSIDIARY
In February of 1999, Royal Coast Tropical Fruit Company,
Inc. (a wholly owned subsidiary of Maui Pineapple Company, Ltd.)
formed a subsidiary in Central America and invested $503,000 for
a 51% ownership interest in a new pineapple production company.
The minority stockholders contributed $460,000. The minority
stockholders' share of the 1999 operating loss was not material.
6. DEFERRED REVENUE
Deferred revenue for 1999 primarily represents proceeds
received on closed sales in Plantation Estates Phase II in excess
of revenue recognized in 1999 on the percentage-of-completion
method. Construction of the subdivision improvements for the 14
single-family lots began in the fourth quarter of 1999 and is
scheduled to be substantially completed during the first quarter
of 2000. In November and December of 1999, 12 of the 14 lots in
Plantation Estates Phase II closed escrow. Revenue on the closed
sales is being recognized as construction is completed.
7. POSTRETIREMENT BENEFITS
The Company has defined benefit pension plans and defined
benefit postretirement health care and life insurance plans.
Changes in benefit obligations and changes in plan assets
for 1999 and 1998 and the funded status of the plans and amounts
recognized in the balance sheets as of December 31 were as
follows:
Pension Benefits Other Benefits
1999 1998 1999 1998
(Dollars in Thousands)
Change in benefit obligations:
Benefit obligations at
beginning of year $ 35,071 $ 31,015 $ 15,379 $ 14,140
Service cost 1,443 1,240 359 411
Interest Cost 2,396 2,261 895 1,024
Actuarial (gain) loss (897) 2,228 (2,657) 481
Special termination benefits -- 314 -- 29
Benefits paid (2,150) (1,987) (713) (706)
Benefit obligations at
end of year 35,863 35,071 13,263 15,379
Change in plan assets:
Fair value of plan assets at
beginning of year 41,807 37,530 -- --
Actual return on
plan assets 6,367 6,028 -- --
Employer contributions 143 236 713 706
Benefits paid (2,150) (1,987) (713) (706)
Fair value of plan assets at
end of year 46,167 41,807 -- --
Funded status 10,304 6,736 (13,263) (15,379)
Unrecognized actuarial gain (7,548) (3,935) (5,425) (3,082)
Unrecognized net
transition asset (759) (1,295) -- --
Unrecognized prior
service cost 185 244 (1,172) (1,324)
Net Amounts recognized 2,182 1,750 (19,860) (19,785)
Amounts recognized in
balance sheets consist of:
Prepaid benefit cost 2,774 2,247 -- --
Accrued benefit liability (592) (497) (19,860) (19,785)
Net amount recognized $ 2,182 $ 1,750 $(19,860) $(19,785)
Net periodic benefit costs for 1999, 1998 and 1997 included
the following components:
1999 1998 1997
(Dollars in Thousands)
Pension benefits:
Service cost $ 1,443 $ 1,240 $ 1,030
Interest cost 2,396 2,261 2,161
Expected return on
plan assets (3,638) (2,925) (2,576)
Amortization of net
transition asset (535) (535) (535)
Amortization of
prior service cost 59 61 61
Recognized net
actuarial (gain) loss (14) 3 16
Special termination benefits -- 314 --
Net expense (credit) (289) 419 157
Other benefits:
Service cost 359 411 325
Interest cost 895 1,024 991
Amortization of
prior service cost (146) (147) (147)
Recognized net actuarial gain (320) (209) (300)
Special termination benefits -- 29 --
Net expense $ 788 $ 1,108 $ 869
Effective September 1, 1998, in an effort to reduce the size
of its workforce, the Company offered a voluntary, enhanced early
retirement program to employees in the Pineapple and Corporate
divisions based on age and years of service. The projected
benefit obligation for the pension plans and the net pension
expense for 1998 increased by $314,000 and the accumulated
postretirement benefit obligation for other benefits and the
corresponding net expense for 1998 increased by $29,000 as a
result of implementing this program.
The projected benefit obligation, accumulated benefit
obligation and fair value of plan assets for the pension plan
with accumulated benefits in excess of plan assets were
$1,028,000, $578,000 and $-0-, respectively, as of December 31,
1999 and $846,000, $471,000 and -0-, respectively, as of December
31, 1998.
The benefit obligations for pensions and other
postretirement benefits were determined using a discount rate of
7.25% and 7% as of December 31, 1999 and 1998, respectively, and
compensation increases ranging up to 4.5%. The expected long-
term rate of return on assets ranged up to 9% for 1999 and 8% for
1998.
The accumulated postretirement benefit obligation for health
care as of December 31, 1999 and 1998 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 $1,629,000 as of December 31, 1999, and the
aggregate of the service and interest cost for 1999 by
approximately $178,000; a 1% annual decrease would reduce the
accrued postretirement benefit obligation by approximately
$1,335,000 as of December 31, 1999, and the aggregate of the
service and interest cost for 1999 by approximately $142,000.
The Company has an Employee Stock Ownership Plan (ESOP) for
non-bargaining salaried employees and for bargaining unit
clerical employees of Maui Pineapple Company, Ltd. All of the
shares originally sold to the ESOP in 1979 have been allocated to
participants since December of 1993. In December of 1999, 7,300
shares of the Company's common stock held by a wholly owned
subsidiary were contributed to the ESOP. The Company recorded a
charge to employee benefit expense of $137,000 and a
corresponding credit to Common Stock. Effective December 31,
1999, the Company's Board of Directors approved a plan amendment
to freeze the ESOP. Accordingly, after 1999 there will be no
further contributions to the ESOP and no additional employees
will become participants of the plan.
On October 1, 1998, deferred compensation plans that
provided for specified payments after retirement for certain
management employees were terminated. At the termination date,
these employees were given credit for existing years of service
and future accruals were discontinued.
8. OTHER INCOME
Revenues attributable to real estate sales other than
inventory held for sale were $223,000, $591,000 and $5.2 million,
respectively, in 1999, 1998 and 1997, and were included in Other
Income.
9. LEASES
LESSEE
The Company has capital leases, primarily on equipment used
in pineapple operations, which expire at various dates through
2002. At December 31, 1999 and 1998, property included capital
leases of $900,000 and $1,699,000, respectively (accumulated
depreciation of $452,000 and $684,000, respectively). Future
minimum rental payments under capital leases aggregate $736,000
(including $52,000 representing interest) and are payable as
follows (2000 to 2002): $300,000, $275,000, $161,000.
The Company 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 expired on
December 31, 1999. The lease currently is being renegotiated for
a minimum term of ten years. Total rental expense under
operating leases was $801,000 in 1999, $746,000 in 1998, $804,000
in 1997. Future minimum rental payments under operating leases
aggregate $5,592,000 and are payable during the next five years
(2000 to 2004) as follows: $670,000, $591,000, $587,000,
$465,000, $435,000, respectively, and $2,844,000 thereafter.
LESSOR
The Company leases land and land improvements, primarily to
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:
1999 1998 1997
(Dollars in Thousands)
Minimum rentals $ 1,744 $ 1,694 $ 1,575
Percentage rentals 2,232 1,279 1,140
Total $ 3,976 $ 2,973 $ 2,715
Property at December 31, 1999 and 1998 includes leased
property of $20,473,000 and $20,184,000, respectively
(accumulated depreciation of $10,623,000 and $9,961,000,
respectively).
Future minimum rental income aggregates $8,360,000 and is
receivable during the next five years (2000 to 2004) as follows:
$1,508,000, $1,244,000, $1,041,000, $879,000, $658,000,
respectively, and $3,030,000 thereafter.
10. INCOME TAXES
The components of the income tax provision were as follows:
1999 1998 1997
(Dollars in Thousands)
Current
Federal $ 1,831 $ 1,225 $ 931
State 334 30 (119)
Total 2,165 1,255 812
Deferred
Federal 584 (415) (433)
State (32) (108) 120
Total 552 (523) (313)
Total provision $ 2,717 $ 732 $ 499
Reconciliation between the total provision and the amount
computed using the statutory federal rate of 34% follows:
1999 1998 1997
(Dollars in Thousands)
Federal provision at
statutory rate $ 2,512 $ 1,471 $ 463
Adjusted for
State income taxes,
net of effect on
federal income taxes 200 (91) (5)
Appreciated property donation -- (721) --
Other 5 73 41
Total income tax
provision $ 2,717 $ 732 $ 499
Deferred tax assets and liabilities were comprised of the
following types of temporary differences as of December 31, 1999
and 1998:
1999 1998
(Dollars in Thousands)
Accrued retirement benefits $ 6,921 $ 7,216
Minimum tax credit carryforward 2,567 3,566
Accrued liabilities 1,120 1,279
Inventory 439 230
Allowance for doubtful accounts 216 176
Net operating loss carryforward 70 111
Total deferred tax assets 11,333 12,578
Deferred condemnation proceeds (5,864) (5,998)
Property net book value (2,629) (2,968)
Income from partnerships (1,840) (2,246)
Pineapple marketing costs (583) (409)
Other (120) (108)
Total deferred tax liabilities (11,036) (11,729)
Net deferred tax asset $ 297 $ 849
At December 31, 1999, the Company had federal minimum tax
credit carryforwards of $2.6 million.
In December of 1998, issues regarding the charitable
donation of appreciated property in 1989 and 1990 were settled
with the Internal Revenue Service. Deferred tax liabilities that
would not reverse in the future as a result of the settlement
were recognized in 1998 as a credit in the income tax provision.
The Company's federal income tax returns for 1990 through
1993 are under examination by the Internal Revenue Service. The
revenue agent's report on these years has not yet been issued and
the Company presently cannot predict the outcome of these
examinations.
11. INTEREST CAPITALIZATION
Interest cost incurred in 1999, 1998 and 1997 was
$2,477,000, $3,179,000 and $3,214,000, respectively, of which
$643,000, $140,000 and $169,000, respectively, was capitalized.
12. ADVERTISING AND RESEARCH AND DEVELOPMENT
Advertising expense totaled $1,801,000 in 1999, $1,397,000
in 1998 and $1,592,000 in 1997. Research and development
expenses totaled $839,000 in 1999, $815,000 in 1998 and $601,000
in 1997.
13. SUBSEQUENT EVENT
On February 24, 2000, the Company's Board of Directors
declared a cash dividend of $.125 per share payable on March 31,
2000.
14. CONTINGENCIES AND COMMITMENTS
The County of Maui sued several chemical manufacturers
claiming that they were responsible for the presence of a
nematocide commonly known as DBCP in certain water wells on Maui.
The Company was a Third Party Defendant in the suit as a result
of a 1978 agreement for the sale of DBCP between the Company and
one of the DBCP manufacturers. In August 1999, settlement of the
case was reached. The Company's portion of the cash payment in
1999 to install filtration systems in the existing contaminated
wells was substantially covered by proceeds of a settlement
concluded on this issue with its insurance carrier. The Company
and the other defendants as a group have agreed that until
December 1, 2039, they will pay for 90% of the capital cost to
install filtration systems in any future wells if DBCP
contamination exceeds specified levels and for the ongoing
maintenance and operating cost for filtration systems on existing
and future wells. The level of DBCP in the existing wells should
decline over time as the wells are pumped, which may end the
requirement for filtration before 2039. To secure the
obligations of the defendants under the settlement agreement, the
defendants are required to furnish to the County of Maui an
irrevocable standby letter of credit throughout the entire term
of the agreement. The Company has estimated a range of its share
of the cost to operate and maintain the filtration systems for
the existing wells and its share of the cost of the letter of
credit, and has recorded a reserve for this liability. Such
amount did not have a material effect on the Company's financial
statements for the year ended December 31, 1999. There are
procedures in the settlement agreement to minimize the DBCP
impact on future wells by relocating the wells to areas
unaffected by DBCP or by using less costly methods to remove the
DBCP from the water. The Company is unable to estimate the range
of potential financial impact for the possible filtration cost
for any future wells acquired or drilled by the County of Maui
and, therefore has not made a provision in its financial
statements for such costs.
There are various claims and legal actions pending against
the Company. In the opinion of management, after consultation
with legal counsel, the resolution of these matters will not have
a material adverse effect on the Company's financial position or
results of operations.
The Company has guaranteed the payment of up to $10 million
of the $61 million mortgage loan of Kaahumanu Center Associates.
The lender will release the guaranty when Kaahumanu Center
attains a defined level of net operating income.
Premium Tropicals International, LLC (PTI) is a joint
venture between Royal Coast Tropical Fruit Company, Inc. (a
wholly owned subsidiary of Maui Pineapple Company, Ltd.) and an
Indonesian pineapple grower and canner. The joint venture
markets and sells Indonesian canned pineapple in the United
States. The Company is a guarantor of a $3 million line of
credit, which supports letters of credit to be issued on behalf
of PTI for import trading purposes.
At December 31, 1999, the Company had commitments under
signed contracts totaling $5,029,000.
15. CONCENTRATIONS OF CREDIT RISK
A substantial portion of the Company's trade receivables
results from sales of pineapple products, primarily to food
distribution customers in the United States. Credit is extended
after evaluating creditworthiness and no collateral generally is
required from customers. Notes receivable result principally
from sales of real estate in Hawaii and are collateralized by the
property sold.
16. 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 Receivable:
The fair value of these assets was estimated based on rates
currently available for similar types of transactions.
Long-Term Debt:
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, 1999 and 1998 were as follows:
1999 1998
(Dollars in Thousands)
Carrying Fair Carrying Fair
Amount Value Amount Value
Notes Receivable $ 1,101 $ 1,101 $ 255 $ 272
Long-Term Debt 27,139 26,348 25,167 25,189
17. BUSINESS SEGMENTS
The Company's reportable segments are Pineapple, Resort and
Commercial & Property. Each segment is a line of business
requiring different technical and marketing strategies.
Pineapple includes growing pineapple, canning pineapple in
tin-plated steel containers fabricated by the Company, and
marketing canned and fresh pineapple products.
Resort includes the development and sale of real estate,
property management and the operation of recreational and retail
facilities and utility companies at Kapalua on Maui.
Commercial & Property covers non-resort real estate
activities, including the Company's investment in Kaahumanu
Center Associates, Napili Plaza shopping center and non-resort
real estate development, rentals and sales. It includes the
Company's land entitlement and land management activities.
The accounting policies of the segments are the same as
those described in Note 1, Summary of Significant Accounting
Policies.
Commercial
1999 Pineapple Resort & Property Other Consolidated
(Dollars in Thousands)
Revenues (1)(3) $94,535 $ 47,950 $ 4,381 $ 132 $ 146,998
Operating profit (loss)(2) 6,071 5,702 (454) (2,098) 9,221
Interest expense (919) (443) (133) (339) (1,834)
Income (loss) before
income taxes and
extraordinary loss 5,152 5,259 (587) (2,437) 7,387
Depreciation 5,040 2,796 481 128 8,445
Equity in earnings (losses) of
joint ventures 116 (172) (900) -- (956)
Investment in joint ventures 198 905 (8,944) -- (7,841)
Segment assets (4) 69,733 64,943 7,190 11,521 153,387
Expenditures for
segment assets 8,030 13,750 226 795 22,801
1998
Revenues (1)(3) $97,658 $ 41,929 $ 4,087 $ 37 $ 143,711
Operating profit (loss)(2) 5,480 5,239 (1,085) (1,067) 8,567
Interest expense (1,543) (1,089) (167) (240) (3,039)
Income (loss) before
income taxes and
extraordinary loss 3,937 4,150 (1,252) (1,307) 5,528
Depreciation 4,795 2,743 487 151 8,176
Equity in earnings (losses) of
joint ventures 79 1 (1,240) -- (1,160)
Investment in joint ventures 145 495 (7,969) -- (7,329)
Segment assets (4) 62,384 53,323 6,780 13,760 136,247
Expenditures for
segment assets 6,433 3,930 406 997 11,766
1997
Revenues (1)(3) $90,949 $ 40,338 $ 5,065 $ 146 $ 136,498
Operating profit (loss)(2) 2,079 3,772 (479) (965) 4,407
interest expense (1,479) (1,102) (164) (300) (3,045)
Income (loss) before
income taxes and
extraordinary loss 600 2,670 (643) (1,265) 1,362
Depreciation 4,562 2,898 415 166 8,041
Equity in losses of
joint ventures -- (56) (1,155) -- (1,211)
Investment in joint ventures 100 112 (6,655) -- (6,443)
Segment assets (4) 64,443 52,437 6,922 11,705 135,507
Expenditures for
segment assets 6,485 4,153 1,002 822 12,462
(1) Amounts are principally revenues from external customers.
Intersegment revenues and interest revenues were insignificant.
Sales to any single customer did not exceed 10% of consolidated
revenues. Revenues attributed to foreign countries were $3.1
million, $4.3 million and $3.4 million, respectively, in 1999,
1998 and 1997. Foreign sales are attributed to countries based
on the location of the customer.
(2) "Operating profit (loss)" is total revenues less all
expenses except allocated interest expenses and income taxes.
Operating profit (loss) included in "Other" is primarily
unallocated corporate expenses.
(3) Resort includes gains on land sales of $370,000 in 1998 and
$4.2 million in 1997. Commercial & Property includes gains on
land sales of $223,000 in 1999, $221,000 in 1998 and $1 million
in 1997.
(4) Segment assets are located in the United States, primarily
Maui. Other assets are corporate and non-segment assets.
COMMON STOCK
A dividend of $.125 per share was paid in March of 1999.
The Company did not declare any dividends in 1998. The
declaration and payment of cash dividends are restricted by the
terms of borrowing arrangements to 30% of prior year's net
income.
At February 3, 2000, there were 357 shareholders of record.
On May 1, 1998, the Company effected a four-for-one split of
its common stock. All references to the number of shares of
common stock and per share amounts have been restated to reflect
the split. Also on May 1, 1998, the Company's common stock was
listed and began trading on the American Stock Exchange under the
symbol "MLP."
Prior to May 1, 1998, the stock was traded over the counter
nationally. The following chart reflects high and low sales
prices after April 1998 and high and low bid prices as supplied
by the National Quotation Bureau Incorporated for periods before
May 1998. The quotes from the National Quotation Bureau 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
1999 High $ 10 $ 15 7/8 $ 30 3/4 $ 21 3/4
Low 9 9 7/8 15 17 3/8
1998 High 11 1/4 21 5/8 14 7/8 10 3/8
Low 10 15/16 10 7/8 9 1/4 8 13/16
SELECTED FINANCIAL DATA
1999 1998 1997 1996 1995
(Dollars in Thousands Except Per Share Amounts)
FOR THE YEAR
Summary of Operations
Revenues $ 146,998 $ 143,711 $ 136,498 $ 136,335 $ 125,577
Cost of goods sold 74,494 76,049 72,200 75,279 69,314
Operating expenses 27,440 26,168 26,027 24,030 24,315
Shipping and marketing 18,479 16,673 18,053 19,185 16,793
General and
administrative 16,408 15,094 14,600 14,507 15,160
Equity in (earnings) losses
of joint ventures 956 1,160 1,211 882 (4,001)
Interest expense 1,834 3,039 3,045 3,575 7,021
Income tax expense
(credit) 2,717 1,188 499 (376) (1,466)
Income (loss) before
extraordinary loss 4,670 4,340 863 (747) (1,559)
Extraordinary loss, net of
income tax credit -- (744) -- -- --
Net income (loss) 4,670 3,596 863 (747) (1,559)
Per Common Share (1)
Income (loss) before
extraordinary loss .65 .60 .12 (.10) (.22)
Extraordinary loss, net of
income tax credit -- (.10) -- -- --
Net income (loss) .65 .50 .12 (.10) (.22)
Other Data
Cash dividends
Amount 899 -- -- 90 --
Per common share (1) .125 -- -- .01 --
Depreciation $ 8,445 $ 8,176 $ 8,041 $ 8,606 $ 10,202
Return on beginning
stockholders' equity 7.5% 6.1% 1.5% (1.3%) (2.6%)
Percent of net income (loss)
to revenues 3.2% 2.5% .6% (.5%) (1.2%)
AT YEAR END
Current assets less
current liabilities (2) $12,924 $ 18,985 $ 20,283 $ 19,467 $ 23,428
Ratio of current assets
to current liabilities (2) 1.5 2.1 2.2 2.2 2.8
Property, net of
depreciation $100,976 $ 89,921 $ 88,047 $ 86,610 $ 88,557
Total assets 153,387 136,247 135,507 132,851 137,085
Long-term debt and
capital leases 25,497 23,592 29,435 28,898 36,227
Stockholders' equity
Amount 66,400 62,492 58,896 58,033 58,870
Per common share (1) $ 9.23 $ 8.69 $ 8.19 $ 8.07 $ 8.19
Common shares
outstanding (1) 7,195,800 7,188,500 7,188,500 7,188,500 7,188,500
(1) All references to the number of shares of common stock and
per share amounts have been restated to reflect the four-for-one
common stock split as of May 1, 1998.
(2) Current assets less current liabilities and ratio of current
assets to current liabilities for 1999 decreased primarily
because of increased accounts payable resulting from the high
level of construction in progress at year-end.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
1999 vs. 1998
CONSOLIDATED
The Company reported consolidated net income of $4.7 million
for 1999 compared to $3.6 million for 1998. Higher net income in
1999 was due to improved results from all of the Company's
business segments and to lower interest expense. In addition,
net income for 1998 included an extraordinary loss of $744,000
(net of taxes) for the prepayment of $20 million of debt.
General and administrative expenses for 1999 were higher
than 1998 by 9% or $1.3 million. Included in 1999 are $1.1
million of deferred cost write-offs for consultants who were
engaged to analyze and develop potential strategic plans for the
Company. These costs were charged to expense in the second
quarter of 1999 because of the then pending sale (now completed)
of approximately 41% of the Company's outstanding shares by
certain shareholders. Other components of the increased expense
in 1999 were increased accruals for bonus incentives for the
Company's non-bargaining personnel and a reserve for the
Company's portion of costs of filtration of certain water wells
on Maui (see Note 14 to Consolidated Financial Statements).
Partially offsetting these increases were lower pension expense
as a result of favorable investment experiences and lower expense
for postretirement health and life insurance because of lower
premium cost and a reduction in the number of covered employees.
Interest expense was lower in 1999 by 40% compared to 1998
as a result of lower average borrowings and interest rates, and
because of a greater amount of interest capitalized in 1999.
Borrowings were lower in 1999 because a large part of the 1999
capital expenditures and other cash outflows for investing
activities were funded by cash flows from operating activities.
The higher amount of interest capitalized was largely due to
commencing construction during 1999 of the Village Course
Clubhouse and Kapalua Golf Academy.
PINEAPPLE
Pineapple revenues decreased in 1999 by 3% or $3.1 million
compared to 1998. Operating profit was $6.1 million in 1999
compared to $5.5 million in 1998. Lower revenues were due
largely to a decline in case sales volume (the number of cases
sold) of canned pineapple. Lower case sales volume can be
attributed in part to a planned reduction in the acreage planted
to eliminate planting in unreliable fields with a history of low
yields. The decrease in case volume also is attributable to a
substantial increase in imports of canned pineapple into the
United States during the second half of 1999. The decrease in
revenues caused by lower sales volume was partially offset by
higher average prices. Higher average prices in 1999 were
largely the result of low inventories of imports at the beginning
of the year, which kept prices firm through the first half of
1999. Competitive pressure on prices increased in the second
half of 1999, reflecting the large increase in imports after May.
Pineapple cost of sales decreased in 1999 by 4% or $2.8
million, largely as a function of the decrease in case sales
volume. Average cost of sales per case of pineapple sold was
higher in 1999, primarily because in 1998 there was a partial
liquidation of LIFO inventories resulting in lower costs from
prior years being included in cost of sales. Cost of sales for
1998 would have been higher by $1.6 million based on current
production costs for 1998. Unit production cost in 1999 and 1998
were approximately the same.
Lower shipping and selling costs in 1999, as a result of the
reduction in case sales volume and decreased general and
administrative costs, more than offset increased marketing
expenses.
Over the past several years companies in Central America and
Southeast Asia have increased their plantings. Therefore,
competition is expected to continue to intensify as more of these
plantings reach maturity. Accordingly, case volume of imports of
canned pineapple products into the U.S. is expected to increase
in 2000.
Antidumping duties were in effect on canned pineapple fruit
imported from Thailand since mid-1995 as a result of an
antidumping petition in 1994 to which the Company was a party.
In 1997, both the Company and the U.S. Department of Commerce
(DOC) appealed a November 1996 decision by the United States
Court of International Trade (USCIT) regarding the appropriate
method to allocate cost to canned pineapple. The USCIT decision
required the DOC to recalculate the antidumping duties using
accounting methods not normally used by Thai producers. The
Company and the DOC believe this method understated the magnitude
of canned pineapple dumping by Thai producers. In July 1999, the
United States Court of Appeals for the Federal Circuit reversed
the decision of the USCIT.
The amount of duties on pineapple imports from Thailand is
subject to annual administrative reviews by the DOC. Either the
Company or the Thai producers may request these reviews. If the
cost of production changes relative to the selling price of the
product in the U.S., the duties would be adjusted. Some of the
Thai pineapple companies have significantly reduced their
antidumping duties through the annual review process. Present
antidumping duties on imports of canned pineapple fruit from
Thailand range from less than 1% up to 51%. The DOC has begun
its fourth annual review and preliminary margins are expected to
be announced in April 2000. A "Sunset Review" of the duties is
scheduled to begin in summer 2000. The Company is not currently
able to estimate when results of the Sunset Review will be
available. For a continuation of existing duties, the Company
must convince the U.S. International Trade Commission during the
Sunset Review that elimination of the duties will potentially
cause injury to the domestic industry. Elimination of the import
duties could have a material adverse effect on the Company.
The Company manufactures all of the cans that it uses to can
pineapple at its Kahului cannery with tin-coated steel imported
from Japan. During the last quarter of 1999, a United States
steel company and certain labor unions filed an antidumping
petition with the U.S. International Trade Commission claiming
that the U.S. industry is materially injured by reason of imports
of tin-coated and chromium-coated steel sheet from Japan that are
allegedly sold in the United States at less than fair value. The
U.S. Department of Commerce is presently conducting an
antidumping investigation of imports of this product from Japan
and a preliminary antidumping determination is expected in April
2000. The results of this investigation could potentially
increase the Company's cost of canned pineapple production.
RESORT
Kapalua Resort revenues (including operations and
development) increased in 1999 by 14% or $6 million compared to
1998. Resort operating profit was $5.7 million in 1999 compared
to $5.2 million in 1998. Approximately 30% of the revenue
increase in 1999 was due to tournament operations fees received
as a result of hosting the Mercedes Championships held in January
of 1999. Costs and expenses to host the tournament more than
offset the tournament operations fees and were charged primarily
to marketing expense in 1999. In 1998, Kapalua did not host a
major golf tournament; thus, the 1999 tournament expenses were
the primary reason for the increase in Resort marketing expense
in 1999.
Revenue from the sale of real estate inventories increased
by 3% in 1999 and the contribution to operating profit was $2.2
million in 1999 compared to $2.8 million in 1998. In the fourth
quarter of 1999, construction and sale of fourteen single-family
lots in Plantation Estates Phase II began. Construction is
expected to be substantially completed in the first quarter of
2000 and, in 1999, the Company recognized profit on the
percentage-of-completion method for the sales that closed prior
to year-end. Sale of Resort real estate inventories in 1998
included a December 1998 sale of a 75-acre parcel in Plantation
Estates Phase II.
Revenues from the Resort golf operations increased by 8%,
merchandise sales increased by 16%, income from The Kapalua
Villas rental program increased by 20% and income from lease
rents increased by 58%. A large part of the increase in lease
rent income is attributable to recognizing lease rents from The
Ritz Carlton, Kapalua Hotel as of January 1, 1999. The Company
did not recognize revenue from that ground lease since December
31, 1995, as a result of an agreement to offset lease rents
against a previous loan from the partnership that originally
owned the hotel. As of January 1, 1999, the remaining loan
balance was canceled. For accounting purposes, the loan was
written off against the related off site improvements in 1995.
In addition to these lease rents, revenue increased in 1999
because of increased hotel room occupancies throughout the Resort
and at The Kapalua Villas, as well as higher room rates at The
Kapalua Villas, an increase in paid rounds of golf and higher
green fees and cart fees.
COMMERCIAL & PROPERTY
Revenue from Commercial & Property was $4.4 million in 1999
compared to $4.1 million in 1998. Gains from land sales of
$223,000 in 1999 were comparable to 1998. The segment produced
an operating loss of $454,000 in 1999 compared to $1.1 million in
1998. The primary reason for the lower operating loss was a
reduction in the loss from Kaahumanu Center. The Company's
equity in losses of Kaahumanu Center Associates was $900,000 in
1999 or $340,000 less than 1998. Improved results from Kaahumanu
Center primarily reflect increased rental revenues because of an
increase in the percentage of space occupied and higher sales
reported by the tenants, higher recoveries of common area costs
and lower expense for bad debts.
1998 vs. 1997
CONSOLIDATED
The Company reported consolidated net income of $3.6 million
for 1998 compared to $863,000 for 1997. The increase in net
income for 1998 resulted from higher operating profits from
Pineapple and Kapalua Resort operations that more than offset
lower results from the Commercial & Property segment. In
December of 1998, the Company retired $20 million of 8.86% senior
unsecured notes. The prepayment penalty of $1.2 million was
accounted for as an extraordinary loss of $744,000 (net of income
tax credit of $456,000).
General and administrative expenses increased by 3% in 1998
compared to 1997. The increase primarily was due to higher
expense for postretirement health and life insurance benefits
because of a .5% discount rate reduction as of December 31, 1997,
accruals for incentive awards for the Company's non-bargaining
salaried personnel and charges for an enhanced early retirement
package offered to employees in the Pineapple and Corporate
divisions. The increase in expense in these categories was
partially offset by lower expenses in the land management area
and reductions in insurance costs.
Interest expense in 1998 was comparable to 1997.
PINEAPPLE
Pineapple revenues of $97.7 million in 1998 increased $6.8
million over 1997. This increase was due to higher case sales
volume (the number of cases sold) of canned pineapple and to
higher average prices. Higher prices and case sales volume was
attributed to a reduction in the volume of imports of canned
pineapple into the United States that began during the fourth
quarter of 1998. A change in the product mix sold (fruit, juice,
concentrate) and a higher volume of fresh product sales accounted
for most of the remaining revenue increase. Operating profit was
$5.5 million in 1998 compared to $2.1 million in 1997.
Pineapple cost of sales increased as a result of higher
sales volume. However, the average cost per case decreased in
1998 compared to 1997. In 1998, a partial liquidation of LIFO
inventories resulted in lower costs from prior years being
included in cost of sales. Cost of sales would have been higher
by $1,636,000 based on current production costs for 1998. Per
unit production costs were slightly lower in 1998 compared to
1997 as a result of improved recoveries (the amount of saleable
product per ton of fruit processed), reduction of personnel costs
through an early retirement program, job consolidations and other
production efficiencies.
Shipping and selling costs were higher in 1998 compared to
1997 due to higher volume of cases sold and increases in
warehousing and transportation costs.
RESORT
Revenues from the Kapalua Resort (including operations and
development) were $41.9 million in 1998 compared to $40.3 million
in 1997. Resort operating profit was $5.2 million in 1998
compared to $3.8 million in 1997. Operating profit for 1998
included $3.2 million from the sale of real estate inventory and
gain from land sales at the Resort. In December of 1998, a 75-
acre parcel in Plantation Estates Phase II was sold, which
contributed $5.3 million to revenues and $2.8 million to Resort
operating profit. This large parcel, originally planned for 26
lots, was consolidated by the buyer into a single lot for family
use that may be subdivided into a maximum of eight lots. In
1997, the sale of a 50% interest in a 12-acre beachfront parcel
at Kapalua contributed $4.2 million to Resort revenues and
operating profit.
Excluding sales of real estate inventory and gains from land
sales, Resort operating profit was $2 million in 1998 compared to
an operating loss of $452,000 in 1997. The improved results were
partially due to the re-opening of The Kapalua Bay Hotel, which
was closed during part of 1997. Ground rents for the hotel were
suspended until September of 1997 while restoration work took
place. In 1998, revenues from commercial leases increased by
23%.
Revenues from Resort golf operations increased by 6% in 1998
due to an increase in the number of paid rounds and higher
average rates for green and cart fees. Gross rental income and
management fees from The Kapalua Villas rental program increased
by 12% in 1998 as a result of higher occupancies and higher
average room rates. Kapalua Realty contributed a 62% increase in
commission revenues. Merchandise sales declined in 1998 by 2%
compared to 1997.
Marketing expenses were lower in 1998 compared to 1997
primarily because Kapalua did not host a major golf tournament in
1998. Cost of sales was lower in 1998 as a result of the lower
volume of merchandise sales. Increases in other operating and
administrative expenses offset these reductions. However,
overall expenses for 1998 exceeded 1997 by less than 1%.
COMMERCIAL & PROPERTY
Revenues from Commercial & Property were $4.1 million in
1998 compared to $5.1 million in 1997. This segment produced an
operating loss of $1.1 million in 1998 compared to $479,000 in
1997. The reduction in revenue and the increase in operating
loss were principally due to a decrease in land sales
attributable to this segment. Land sales contributed gains of
$221,000 in 1998 compared to $1 million in 1997.
Costs and expenses for this segment were $5.2 million in
1998 compared to $5.5 million in 1997. Lower expense in 1998 was
due primarily to lower insurance and other costs for land
management. The Company's equity in losses of Kaahumanu Center
Associates was $1,240,000 in 1998 compared to $1,155,000 in 1997.
The increase in the loss reflects reductions in minimum rents and
lower recoveries of common area costs from tenants.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, the Company's total debt, including
capital leases, was $28.6 million, an increase of $2.2 million
from year-end 1998. Unused short- and long-term credit lines
available to the Company at December 31, 1999 totaled $31.7
million. Due to the seasonal nature of the Company's pineapple
operations, the timing of construction and sales of Resort real
estate projects and the level of planned capital expenditures for
2000, the debt level is expected to increase and peak during the
third quarter of 2000. The credit facilities currently available
to the Company are estimated to be adequate to cover the planned
capital expenditures and seasonal cash requirements.
Resort capital expenditures are expected to be $9.8 million
in 2000. This amount includes $6.3 million for completion of The
Village Course Clubhouse and Kapalua Golf Academy and
approximately $2.5 million for replacement of existing equipment
and facilities. Pineapple capital expenditures are expected to
be $13.4 million in 2000 of which approximately $5.2 million is
for the replacement of existing equipment and facilities.
Approximately $3.9 million has been allocated to secure
additional land and water resources on Maui for farming and $1.5
million is budgeted to be spent in 2000 on a project to replace
the information systems used by the pineapple and corporate
divisions. Approximately $700,000 will be expended in 2000 to
complete a new water well for the Company's Haliimaile
plantation.
At December 31, 1999, the Company was in violation of the
minimum current ratio requirement for its $30 million revolving
credit line and development facility. The lenders subsequently
waived the violation with respect to year-end 1999. The Company
believes that the conditions that caused the violation will be
different in the future. For example, at year-end 1999 accounts
payable related to capital expenditures were exceptionally high.
The Company's credit facilities available at year-end 1999 were
more than adequate to liquidate these current liabilities with
long-term debt; however, the timing of the progress billings did
not allow for payment prior to year-end. In 2000, the Company
expects progress billings to be submitted on a more timely basis
and to be paid with long-term debt. In addition, at year-end
1999, the Company's current liabilities included approximately
$3.3 million of deferred revenue, primarily representing proceeds
received on closed sales in Plantation Estates Phase II, in
excess of revenue recognized in 1999 on the percentage-of-
completion method. The cash proceeds from such sales, which were
not immediately required to complete the improvements were used
to reduce long-term debt. The deferred revenue relating to this
project is expected to be realized as income in the first quarter
of 2000. The Company's financial projections for 2000, which
reflect the aforementioned differences in conditions, indicate
that the Company should be in compliance with this working
capital covenant throughout 2000.
The Company, as a partner in various partnerships, may under
particular circumstances be called upon to make additional
capital contributions (see Note 3 to Consolidated Financial
Statements).
IMPACT OF INFLATION AND CHANGING PRICES
The Company uses the LIFO method of accounting for its
pineapple inventories. Under this method, the cost of products
sold approximates current cost and during periods of rising
prices the ending inventory is reflected at an amount below
current cost. The replacement cost of pineapple inventory was
$21 million at December 31, 1999, which was $11 million more than
the amount reflected in the financial statements.
Most of the land owned by the Company was acquired from 1911
to 1932 and is carried at cost. A small portion of "Real Estate
Held for Sale" represents land cost. Replacements and additions
to the Pineapple operations occur every year and some of the
assets presently in use were placed in service in 1934. At
Kapalua, some of the fixed assets were constructed and placed in
service in the mid-to-late 1970s. Depreciation expense would be
considerably higher if fixed assets were stated at current cost.
YEAR 2000
The Company encountered no significant date-related problems
when the year 2000 began. The Company anticipates that its
Information Services personnel will spend approximately 5% of
their time in 2000 to monitor business critical systems for any
date-related problems that may occur during the year and through
year-end 2000. No material future expenditures have been
identified.
MARKET RISK
The Company's primary market risk exposure with regard to
financial instruments is to changes in interest rates. The
Company manages this risk by monitoring interest rates and future
cash requirements and evaluating opportunities to refinance
borrowings at various maturities and interest rates. At December
31, 1999, 80% of the Company's short- and long-term borrowing
commitments carried interest rates that were periodically
adjustable to the prime rate, a Federal Farm Credit Bank index
rate or to a LIBOR rate and 20% carried interest at fixed rates.
Based on debt outstanding at the end of 1999, a hypothetical 100
basis point increase in interest rates would result in a
reduction to annual pretax income of approximately $120,000. A
hypothetical decrease in interest rates of 100 basis points would
increase the fair value of the Company's long-term debt by
approximately $319,000. At December 31, 1999, the carrying value
of the Company's long-term debt exceeded the fair value by
approximately $792,000 as a result of a general increase in
quoted interest rates.
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 future of new products
and new business development, distribution of pineapple under the
Royal Coast label, future cost reductions in pineapple
operations, the volume of imports of canned pineapple into the
United States, results of the Department of Commerce fourth
annual review of antidumping duties on canned pineapple fruit,
success of The Village Course Clubhouse and Kapalua Golf Academy,
and development and sale of condominiums comprising The Coconut
Grove on Kapalua Bay, completion of development of Plantation
Estates Phase II, obtaining final subdivision approval, zoning
change and Community Plan amendment for and presales of Site 19,
and 2000 projections of working capital. 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 availability or
cost of funds, or the number, length of stay or expenditure
levels of eastbound or westbound visitors, or agricultural
production and transportation costs of the Company and its
competitors, or Maui retail or real estate activity; (2) the
effect of weather conditions on agricultural operations of the
Company and its competitors; (3) the success of the Company in
obtaining land use entitlements and timely resolution of
contested case proceedings or other actions that could delay or
prevent the Company's development activities or public projects
that may affect its operations; (4) the possibility of an
unfavorable outcome in the "Sunset Review" of antidumping duties;
(5) events in the airline industry affecting passenger or freight
capacity or cost; (6) possible shifts in market demand; (7) the
impact of competing products, competing resort destinations, and
competitors' pricing; and (8) the possibility of an unfavorable
outcome in the antidumping investigation of imports of tin-coated
steel from Japan.
<PAGE>
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 & Development
Warren A. Suzuki
Treasurer
Darryl Y. H. Chai
Secretary
Adele H. Sumida
Controller & Assistant Treasurer
Ted L. Proctor
Directors
Richard H. Cameron--Chairman
Private Investor
Daniel H. Case
Chairman of the Board
Case Bigelow & Lombardi
David A. Heenan
Trustee
The Estate of James Campbell
Randolph G. Moore
Chief Executive Officer
Kaneohe Ranch
Claire C. Sanford
Co-owner
Top Dog Studio
Fred E. Trotter III
President
F. E. Trotter, Inc.
Mary C. Sanford-Director Emeritus
Retired Chairman of the Board
Maui Publishing Company, Ltd.
Compensation Committee
Fred E. Trotter III--Chairman
Richard H. Cameron
Daniel H. Case
David A. Heenan
Randolph G. Moore
Claire C. Sanford
Mary C. Sanford
Audit Committee
Randolph G. Moore-Chairman
David A. Heenan
Fred E. Trotter III
PRINCIPAL SUBSIDIARIES
MAUI PINEAPPLE COMPANY, LTD.
Officers
President & Chief Executive Officer
Douglas R. Schenk
Executive Vice President/Sales & Marketing
James B. McCann
Executive Vice President/Finance
Paul J. Meyer
Vice President/Cannery
Eduardo E. Chenchin
Vice President/Plantations
L. Douglas MacCluer
Treasurer
Darryl Y. H. Chai
Secretary
Adele H. Sumida
Controller
Stacey M. Jio
Assistant Treasurer
Ted L. Proctor
Directors
Richard H. Cameron-- Chairman
Daniel H. Case
Gary L. Gifford
David A. Heenan
Paul J. Meyer
Randolph G. Moore
Claire C. Sanford
Douglas R. Schenk
Fred E. Trotter III
Mary C. Sanford-Director Emeritus
KAPALUA LAND COMPANY, LTD.
Officers
President & Chief Executive Officer
Donald A. Young
Executive Vice President/Finance
Paul J. Meyer
Vice President/Marketing
Kim D. Carpenter
Vice President/Administration
Caroline P. Egli
Vice President/Development
Robert M. McNatt
Vice President/Resort Operations
Gary M. Planos
Treasurer
Darryl Y. H. Chai
Secretary
Adele H. Sumida
Controller
Russell E. Johnson
Assistant Treasurer
Ted L. Proctor
Directors
Richard H. Cameron-- Chairman
Daniel H. Case
Gary L. Gifford
David A. Heenan
Paul J. Meyer
Randolph G. Moore
Claire C. Sanford
Fred E. Trotter III
Donald A. Young
Mary C. Sanford--Director Emeritus
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Maui
Land & Pineapple Company, Inc. Balance Sheet as of December 31, 1999 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-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,657
<SECURITIES> 0
<RECEIVABLES> 15,881
<ALLOWANCES> 783
<INVENTORY> 16,925
<CURRENT-ASSETS> 39,459
<PP&E> 224,958
<DEPRECIATION> 123,982
<TOTAL-ASSETS> 153,387
<CURRENT-LIABILITIES> 26,535
<BONDS> 25,497
0
0
<COMMON> 12,455
<OTHER-SE> 53,945
<TOTAL-LIABILITY-AND-EQUITY> 153,387
<SALES> 112,191
<TOTAL-REVENUES> 146,998
<CGS> 74,494
<TOTAL-COSTS> 101,934
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,834
<INCOME-PRETAX> 7,387
<INCOME-TAX> 2,717
<INCOME-CONTINUING> 4,670
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,670
<EPS-BASIC> .65
<EPS-DILUTED> .65
</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, 1999 and 1998, and the related statements of operations,
changes in partners' capital (deficit) and cash flows for each of
the three years in the period ended December 31, 1999. 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, 1999 and 1998, and the results of its operations and
its cash flows for each of the three years in the period ended
December 31, 1999 in conformity with generally accepted
accounting principles.
/S/ DELOITTE & TOUCHE
DELOITTE & TOUCHE LLP
February 9, 2000
<PAGE>
KAAHUMANU CENTER ASSOCIATES
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
ASSETS
1999 1998
Current Assets
Cash $ 504,712 $ 404,688
Accounts receivable - less allowance of
$107,707 and $206,402
for doubtful accounts 618,900 558,272
Prepaid expenses 64,305 76,084
Total Current Assets 1,187,917 1,039,044
Property
Land and land improvements 6,054,330 6,050,064
Buildig 81,879,796 81,529,259
Furniture, fixtures and equipment 5,128,820 5,047,416
Construction in process 1,348,581 60,227
Total Property 94,411,527 92,686,966
Accumulated depreciation 22,134,416 18,826,086
Net Property 72,277,111 73,860,880
Other Assets 1,700,997 2,310,999
Total Assets $75,166,025 $77,210,923
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities
Current portion of long-term debt $1,018,643 $ 948,517
Accounts payable 690,470 825,831
Due to Maui Land &
Pineapple Company, Inc. 1,153,658 333,290
Other current liabilities 105,764 92,312
Total Current Liabilities 2,968,535 2,199,950
Long-Term Liabilities
Long-term debt 60,266,149 61,284,878
Other long-term liabilities 86,204 80,688
Total Long-Term Liabilities 60,352,353 61,365,566
Partners' Capital 11,845,137 13,645,407
Total Liabilities
and Partners' Capital $75,166,025 $77,210,923
See notes to financial statements.
<PAGE>
KAAHUMANU CENTER ASSOCIATES
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997
Revenues
Rental income - minimum $7,472,086 $7,235,108 $7,521,860
Rental income - percentage 1,112,419 1,029,760 874,362
Other operating income - primarily
recoveries from tenants 5,921,174 5,359,743 5,548,824
Total Revenues 14,505,679 13,624,611 13,945,046
Costs and Expenses
Utilities 2,668,013 2,427,054 2,689,715
Payroll and related costs 2,087,090 1,976,969 1,938,328
Depreciation
and amortization 3,539,544 3,452,639 3,349,654
Interest 5,369,013 5,447,733 5,522,235
Repairs and maintenance 570,175 652,390 545,817
General excise taxes 566,518 530,313 547,949
Real property taxes 315,005 314,181 305,842
Insurance 366,253 278,605 320,284
Provision for
doubtful accounts 57,349 327,914 360,788
Advertising and promotions 204,328 158,493 148,972
Management fee 268,264 258,275 262,380
Professional fees 143,646 175,971 191,915
Other expenses 150,751 103,414 71,305
Total Costs and Expenses 16,305,949 16,103,951 16,255,184
Net Loss $(1,800,270) $(2,479,340) $(2,310,138)
See notes to financial statements.
<PAGE>
KAAHUMANU CENTER ASSOCIATES
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
State of
Hawaii
Maui Land & Employees'
Pineapple Retirement
Company, Inc. System TOTAL
Partners' Capital (Deficit),
December 31, 1996 $(7,125,504) $23,900,389 $16,774,885
Cash Calls 830,000 830,000 1,660,000
Net Loss - 1997 (1,155,069) (1,155,069) (2,310,138)
Partners' Capital (Deficit),
December 31, 1997 (7,450,573) 23,575,320 16,124,747
Net Loss - 1998 (1,239,670) (1,239,670) (2,479,340)
Partners' Capital (Deficit),
December 31, 1998 (8,690,243) 22,335,650 13,645,407
Net Loss - 1999 (900,135) (900,135) (1,800,270)
Partners' Capital (Deficit),
December 31, 1999 $(9,590,378) $21,435,515 $11,845,137
See notes to financial statements.
<PAGE>
KAAHUMANU CENTER ASSOCIATES
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997
Operating Activities:
Net Loss $(1,800,270) $(2,479,340) $(2,310,138)
Adjustments to reconcile
net loss to cash provided
by operating activities:
Depreciation
and amortization 3,539,544 3,452,639 3,349,654
Loss on property disposals 88,074 -- --
(Increase) decrease in accounts
receivable (60,628) (239,868) 161,743
Increase (decrease) in
accounts payable 609,583 548,765 (337,831)
Increase in noncurrent
accounts receivable (285,546) (192,282) (139,743)
Net change in other operating
assets and liabilities 30,747 77,282 (9,734)
Net Cash Provided by
Operating Activities 2,121,504 1,167,196 713,951
Investing Activities:
Purchases of property (1,831,275) (414,746) (1,344,934)
(Increase) decrease in
restricted cash 758,398 (30,641) 144,669
Net Cash Used in
Investing Activities (1,072,877) (445,387) (1,200,265)
Financing Activities:
Payments of long-term debt (948,603) (870,000) (797,799)
Proceeds from cash calls -- -- 1,660,000
Net Cash Provided by (Used in)
Financing Activities (948,603) (870,000) 862,201
Net Increase (Decrease) in Cash 100,024 (148,191) 375,887
Cash, Beginning of Year 404,688 552,879 176,992
Cash, End of Year $504,712 $404,688 $552,879
See notes to financial statements.
<PAGE>
KAAHUMANU CENTER ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
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.
Advertising and Promotion - The cost of advertising and sales
promotion activities is expensed as incurred.
Income Taxes - The Partnership is not subject to federal and
state income taxes. The distributive shares of income or loss
and other tax attributes from the Partnership are reportable by
the individual partners.
PARTNERSHIP AGREEMENTS
Capital Contributions - ML&P contributed the land and the
shopping center improvements as they existed prior to the
expansion and renovation project, subject to the existing first
mortgage, together with approximately nine acres of adjacent land
which became part of the expanded shopping center, for a 99%
interest in the Partnership.
ERS originally contributed $312,000 for a one- percent interest
in the Partnership and made a loan of $30.6 million to the
Partnership. Effective April 30, 1995, after completion of the
expansion and renovation and the satisfaction of certain
conditions, ERS converted its loan to capital for an additional
49% interest and became a 50% partner with ML&P.
In 1997 the Partnership received cash of $1,660,000 from the
partners pursuant to cash calls.
Allocations and Distributions - Profit and loss allocations and
cash distributions of the partnership are based on the ownership
interests of the partners.
ERS and ML&P each have a 9% cumulative, non-compounded priority
right to cash distributions based on their net contributions to
the partnership (preferred return). The ML&P preferred return is
subordinate to the ERS preferred return. For the purpose of
calculating the preferred returns, each partner's capital
contribution had an agreed upon value of $30.9 million on April
30, 1995. The accumulated unpaid preferred returns at December
31, 1999 were $11 million each for ML&P and ERS.
Management and Operations - The Partnership has an Operating
Agreement with ML&P for the operation of the Center. The
Operating Agreement has an initial term of 15 years, which
commenced when ERS became a 50% partner, with options to renew
for four additional 10-year periods. It provides for certain
performance tests, which if not met, could result in termination
of the Agreement. The tests were not met in 1999, but
termination of the Agreement is not presently being considered.
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
1. Purchases of property of $75,000 is included in accounts
payable at December 31, 1999.
2 Interest paid during 1999, 1998 and 1997 was $5,369,000,
$5,448,000 and $5,522,000, respectively.
RELATED PARTY TRANSACTIONS
Pursuant to the Partnership Operating Agreement, the Partnership
pays to ML&P an operator's fee equal to 3% of gross revenues, as
defined. In 1999, 1998 and 1997, ML&P charged the Partnership
$268,000, $258,000 and $262,000, respectively, for management
fees.
The Partnership does not have any employees. As such, ML&P
provides all on-site and administrative personnel and also incurs
other costs and expenses, primarily insurance, which are
reimbursable by the Partnership. In 1999, 1998, and 1997 ML&P
charged the Partnership $2,417,000, $2,303,000 and $2,240,000,
respectively, for payroll and other costs and expenses.
ML&P generates a portion of the electricity which is used by the
Center. In 1999, 1998, and 1997 ML&P charged the Partnership
$2,263,000, $2,144,000 and $2,312,000, respectively, for
electricity.
Amounts due to ML&P for management fees, electricity and
reimbursable costs were
$1,154,000 and $333,000 as of December 31, 1999 and 1998,
respectively.
OTHER ASSETS
Other Assets at December 31, 1999 and 1998 consisted of the
following:
1999 1998
Deferred costs $ 719,171 $ 856,321
Restricted cash -- 758,398
Noncurrent accounts receivable 981,826 696,280
Total Other Assets $1,700,997 $2,310,999
Deferred costs are primarily leasing consultation costs and are
net of amortization of $845,000 and $721,000, respectively, at
December 31, 1999 and 1998. Restricted cash represents proceeds
from the mortgage loan which are reserved for additional
expansion costs, as well as a percentage of revenues retained for
capital improvements as set forth in the Partnership Operating
Agreement. The balance at December 31, 1998 was expended for
property additions in 1999. The Partners agreed to waive the
required reserve for the year ended December 31, 1999.
Noncurrent accounts receivable represents the excess of minimum
rental income recognized on a straight-line basis over amounts
receivable according to the provisions of the lease, after
deducting an estimated amount for amounts not recoverable.
BORROWING ARRANGEMENTS
The Partnership has a mortgage loan which bears interest at 8.57%
and is payable in monthly installments of $526,000, including
interest, through 2005 when the entire balance is payable. The
loan is collateralized by the Center and is nonrecourse except
for the first $10 million which is guaranteed by ML&P until the
Center attains a defined level of net operating income.
Scheduled principal maturities for the next five years from 2000
through 2004 are as follows: $1,019,000, $1,126,000, $1,228,000,
$1,338,000 and $1,459,000.
LEASES
Tenant leases of the Center provide for monthly base rent plus
percentage rents and reimbursement for common area maintenance
and other costs. Future minimum rental income to be received
under non-cancelable operating leases aggregates $50,347,000 and
is receivable during the next five years (2000 through 2004) as
follows: $6,532,000, $6,498,000, $6,165,000, $5,337,000,
$4,597,000, respectively, and $21,218,000 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 is evaluated and under certain circumstances a
security deposit is required.
* * * * *
