AMFAC JMB HAWAII INC, 10-Q/A, 1999-12-14

AMFAC JMB HAWAII INC
10-Q/A, 1999-12-14
REAL ESTATE OPERATORS (NO DEVELOPERS) & LESSORS

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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10Q/A

AMENDMENT NO. 1

Filed pursuant to Section 12, 13, or 15(d) of the
Securities Exchange Act of 1934

Commission File Number 33-24180

Hawaii 36-3109397
(State of organization) (IRS Employer Identification No.)

AMFAC/JMB HAWAII, L.L.C.
----------------------------------------------------
(Exact name of registrant as specified in its charter)

Commission File Number 33-24180-01

Illinois 36-3611183
(State of organization) (IRS Employer Identification No.)

AMFAC/JMB FINANCE, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)

The undersigned registrant hereby amends the following section of its
Report for the quarter ended September 30, 1999 on Form 10-Q as set forth
in the pages attached hereto:

PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS - Pages 4 - 28

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Pages 29 - 46

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS - Pages 47 - 47A

Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.

AMFAC/JMB HAWAII, L.L.C.

/s/ EDWARD J. KROLL
------------------------------------
By: Edward J. Kroll
Vice President

Dated: December 14, 1999

<PAGE>

<TABLE>
PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

AMFAC/JMB HAWAII, L.L.C.

Consolidated Balance Sheets

September 30, 1999 and December 31, 1998
(Dollars in Thousands)
(Unaudited)

<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------ -----------
<S> <C> <C>
A S S E T S
- -----------

Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . $ 13,630 26,526
Receivables-net . . . . . . . . . . . . . . . . . . . . . . . . . . 6,187 13,248
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,408 29,770
Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . . . . 1,826 2,048
-------- --------
Total current assets. . . . . . . . . . . . . . . . . . . . . 39,051 71,592
-------- --------

Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 40
-------- --------
Property, plant and equipment:
Land and land improvements. . . . . . . . . . . . . . . . . . . . . 279,477 291,617
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . 65,584 65,641
Construction in progress. . . . . . . . . . . . . . . . . . . . . . 670 737
-------- --------
345,731 357,995
Less accumulated depreciation and amortization. . . . . . . . . . . 45,999 44,865
-------- --------
299,732 313,130
-------- --------
Deferred expenses, net. . . . . . . . . . . . . . . . . . . . . . . . 6,565 10,862
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,682 35,456
-------- --------
$381,070 431,080
======== ========

<PAGE>

AMFAC/JMB HAWAII, L.L.C.

Consolidated Balance Sheets - Continued

September 30, 1999 and December 31, 1998
(Dollars in Thousands)
(Unaudited)
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------ -----------
L I A B I L I T I E S
- ---------------------
Current liabilities:
Current portion of long-term debt . . . . . . . . . . . . . . . . . $ 7,185 7,166
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . 6,604 6,773
Accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . . 12,393 8,111
Current portion of deferred income taxes. . . . . . . . . . . . . . 975 81
Amounts due to affiliates . . . . . . . . . . . . . . . . . . . . . 11,748 12,310
-------- --------
Total current liabilities . . . . . . . . . . . . . . . . . . 38,905 34,441
-------- --------
Amounts due to affiliates - senior debt financing . . . . . . . . . . 167,854 110,325
Accumulated postretirement benefit obligation . . . . . . . . . . . . 48,458 51,314
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . 94,102 100,240
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . 19,264 30,908
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . 61,351 60,971
Certificate of Land Appreciation Notes. . . . . . . . . . . . . . . . 139,399 220,692
-------- --------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . 569,333 608,891
-------- --------
Commitments and contingencies (notes 2, 3, 4, 6, 7 and 8)

M E M B E R ' S E Q U I T Y (D E F I C I T )
- ------------------------------------------------
Member's equity (deficit) . . . . . . . . . . . . . . . . . . . . . . (188,263) (177,811)
-------- --------
Total Member's equity (deficit) . . . . . . . . . . . . . . . (188,263) (177,811)
-------- --------
$381,070 431,080
======== ========

<FN>
The accompanying notes are an integral part of the consolidated financial statements.

5
</TABLE>

<PAGE>

<TABLE>
AMFAC/JMB HAWAII, L.L.C.

Consolidated Statements of Operations

Three and Nine Months Ended September 30, 1999 and 1998
(Dollars in Thousands)
(Unaudited)

<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
-------------------------- --------------------------
1999 1998 1999 1998
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>

Revenue:
Agriculture . . . . . . . . . . . . . . . . . $ 9,520 19,572 29,243 22,999
Property. . . . . . . . . . . . . . . . . . . 4,823 12,514 11,685 37,500
Golf. . . . . . . . . . . . . . . . . . . . . 3,643 3,261 11,438 11,172
-------- -------- -------- --------
17,986 35,347 52,366 71,671
-------- -------- -------- --------

Cost of sales:
Agriculture . . . . . . . . . . . . . . . . . 14,490 20,506 31,766 23,847
Property. . . . . . . . . . . . . . . . . . . 990 12,691 8,103 36,989
Golf. . . . . . . . . . . . . . . . . . . . . 2,233 2,266 6,537 7,061
-------- -------- -------- --------
17,713 35,463 46,406 67,897

Operating expenses:
Selling, general and administrative . . . . . 1,845 2,518 5,738 7,791
Depreciation and amortization . . . . . . . . 1,399 1,632 4,498 4,898
-------- -------- -------- --------

Total costs and expenses. . . . . . . . . . . . 20,957 39,613 56,642 80,586

Operating loss . . . . . . . . . . . . . . . . (2,971) (4,266) (4,276) (8,915)
-------- -------- -------- --------

<PAGE>

AMFAC/JMB HAWAII, L.L.C.

Consolidated Statements of Operations - Continued

Three and Nine Months Ended September 30, 1999 and 1998
(Dollars in Thousands)
(Unaudited)

THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
-------------------------- --------------------------
1999 1998 1999 1998
----------- ---------- ----------- ----------
Non-operating income (expenses):
Amortization of deferred costs. . . . . . . . (217) (323) (812) (951)
Interest expense. . . . . . . . . . . . . . . (7,773) (8,576) (21,322) (24,790)
Interest income . . . . . . . . . . . . . . . 160 147 767 333
-------- -------- -------- --------
(7,830) (8,752) (21,367) (25,408)
-------- -------- -------- --------
Loss before taxes and extraordinary item. . (10,801) (13,018) (25,643) (34,323)
-------- -------- -------- --------
Income tax benefit. . . . . . . . . . . . . . 4,110 5,053 10,053 14,101
-------- -------- -------- --------
Loss before extraordinary item. . . . . . . (6,691) (7,965) (15,590) (20,222)
-------- -------- -------- --------
Extraordinary gain from extinguishment of
debt (less applicable income taxes of
$7,207). . . . . . . . . . . . . . . . . . . 28 -- 11,271 --
-------- -------- -------- --------
Net loss. . . . . . . . . . . . . . . . . . $ (6,663) (7,965) (4,319) (20,222)
======== ======== ======== ========

<FN>
The accompanying notes are an integral part of the consolidated financial statements.

7
</TABLE>

<PAGE>

<TABLE>
AMFAC/JMB HAWAII, L.L.C.

Consolidated Statements of Cash Flows

Nine Months Ended September 30, 1999 and 1998
(Dollars in Thousands)
(Unaudited)

<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (4,319) (20,222)
Items not requiring (providing) cash:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . 4,498 4,898
Amortization of deferred costs. . . . . . . . . . . . . . . . . . . . . 812 951
Equity in earnings of investments . . . . . . . . . . . . . . . . . . . -- 75
Income tax benefit. . . . . . . . . . . . . . . . . . . . . . . . . . . (4,859) (14,101)
Extraordinary gain from extinguishment of debt. . . . . . . . . . . . . (18,478) --
Deferred interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 449 650
Interest on advances from affiliates. . . . . . . . . . . . . . . . . . 11,849 11,275

Changes in:
Receivables - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,061 (16,776)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,634 30,469
Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 222 332
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (169) 688
Accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,282 (382)
Amounts due to affiliates . . . . . . . . . . . . . . . . . . . . . . . . (2,575) 1,148
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . (3,282) (2,821)
-------- --------
Net cash provided by (used in) operating activities . . . . . . . . 8,125 (3,816)
-------- --------
Cash flows from investing activities:
Property additions. . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,889) (15,101)
Property sales, disposals and retirements - net . . . . . . . . . . . . . 10,517 92
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (226) (371)
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . (4,043) (2,187)
-------- --------
Net cash provided by (used in) investing activities . . . . . . . . 4,359 (17,567)
-------- --------

<PAGE>

AMFAC/JMB HAWAII, L.L.C.

Consolidated Statements of Cash Flows - Continued

Nine Months Ended September 30, 1999 and 1998
(Dollars in Thousands)
(Unaudited)

1999 1998
--------- ---------
Cash flows from financing activities:
Payment to redeem and purchase Certificate of Land
Appreciation Notes (COLAs). . . . . . . . . . . . . . . . . . . . . . . (40,286) --
Deferred expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . (54) --
Net (repayments) proceeds of long-term debt . . . . . . . . . . . . . . . (6,119) 8,514
Net amounts due to affiliates . . . . . . . . . . . . . . . . . . . . . . 21,318 24,827
Other costs related to extinguishment of debt . . . . . . . . . . . . . . (239) --
-------- --------
Net cash provided by (used in) financing activities . . . . . . . . (25,380) 33,341
-------- --------
Net increase (decrease) in cash and cash equivalents. . . . . . . . (12,896) 11,958
Cash and cash equivalents, beginning of year. . . . . . . . . . . . 26,526 9,115
-------- --------
Cash and cash equivalents, end of period. . . . . . . . . . . . . . $ 13,630 21,073
======== ========

Supplemental disclosure of cash flow information:
Cash paid for interest (net of amount capitalized). . . . . . . . . . . . $ 9,005 15,512
======== ========
Schedule of non-cash investing and financing activities:
Transfer of property actively held for sale to real estate
inventories and accrued costs relating to real estate sales . . . . . $ 272 21,251
======== ========

Disposition of debt:
Gain on extinguishment of debt. . . . . . . . . . . . . . . . . . . . . . $ 18,478 --
Face value of debt extinguished . . . . . . . . . . . . . . . . . . . . . (81,294) --
Other costs related to extinguishment of debt . . . . . . . . . . . . . . 239 --
Issuance of Senior Debt to affiliate. . . . . . . . . . . . . . . . . . . 26,375 --
Write-off of Contingent Base Interest . . . . . . . . . . . . . . . . . . (7,624) --
Write-off of deferred COLA costs. . . . . . . . . . . . . . . . . . . . . 3,540 --
-------- --------
Cash paid to redeem and purchase COLAs. . . . . . . . . . . . . . . $(40,286) --
======== ========

<FN>
The accompanying notes are an integral part of the consolidated financial statements.

9
</TABLE>

<PAGE>

AMFAC/JMB HAWAII, L.L.C.

Notes to Consolidated Financial Statements

September 30, 1999 and 1998

(Dollars in Thousands)

Readers of this quarterly report should refer to the Company's audited
financial statements for the fiscal year ended December 31, 1998, which are
included in the Company's 1998 Annual Report, as certain footnote
disclosures which would substantially duplicate those contained in such
audited financial statements have been omitted from this report.

All reference to "Notes" are to Notes to the Consolidated Financial
Statements contained in this report.

(1) BASIS OF ACCOUNTING

Amfac/JMB Hawaii, L.L.C. (the "Company") is a Hawaii limited liability
company. The Company is wholly-owned by Northbrook Corporation
("Northbrook"). The primary business activities of the Company are land
development and sales, golf course management and agriculture. The Company
owns approximately 33,000 acres of land located on the islands of Oahu,
Maui, Kauai and Hawaii in the State of Hawaii. All of this land is held by
the Company's wholly-owned subsidiaries. In addition to its owned lands,
the Company leases approximately 49,000 acres of land used primarily in
conjunction with its agricultural operations. The Company's operations are
subject to significant government regulation.

The Company is the successor to Amfac/JMB Hawaii, Inc. ("A/J Hawaii").

On March 3, 1998, A/J Hawaii was merged (the "Merger") with and into the
Company pursuant to an Agreement and Plan of Merger dated February 27, 1998
by and between A/J Hawaii and the Company (which was then named Amfac/JMB
Mergerco, L.L.C. (the "Merger Agreement")). The Merger was consummated to
change the Company's form of entity from a corporation to a limited
liability company. The Company was a nominally capitalized limited
liability company which was formed on December 24, 1997, solely for the
purpose of effecting the Merger. The Company succeeded to all the assets
and liabilities of A/J Hawaii in accordance with the Hawaii Business
Corporation Act and the Hawaii Uniform Limited Liability Company Act. In
addition, A/J Hawaii, the Company, The First National Bank of Chicago (the
"Trustee") and various guarantors entered into a Second Supplemental
Indenture dated as of March 1, 1998, pursuant to which the Company
expressly assumed all obligations of A/J Hawaii under the Indenture dated
as of March 14, 1989, as amended (the "Indenture") by and among A/J Hawaii,
the Trustee and the guarantors named therein and the holders of Certificate
of Land Appreciation Notes due 2008 Class A (the "Class A COLAs") and the
Certificate of Land Appreciation Notes Class B (the "Class B COLAs" and,
collectively with the Class A COLAs the "COLAs"). The Merger did not
require the consent of the holders of the COLAs under the terms of the
Indenture. The Company has succeeded to A/J Hawaii's reporting obligations
under the Securities Exchange Act of 1934, as amended. Unless otherwise
indicated, references to the Company prior to March 3, 1998 shall mean A/J
Hawaii and A/J Hawaii's subsidiaries.

The Company will continue until at least December 31, 2027, unless
earlier dissolved. Except as noted in Notes 2 and 3 to Notes to the
Balance Sheets of Amfac/JMB Finance, Inc.("AJF"), the Company's sole member
(Northbrook) is not obligated for any debt, obligation or liability of the
Company.

The Company has three primary business segments. The agriculture
segment ("Agriculture") is responsible for the Company's activities related
to the cultivation and processing of sugar cane and other agricultural
products. The real estate segment ("Property") is responsible for
development and sales activities related to the Company's owned land, all

<PAGE>

AMFAC/JMB HAWAII, L.L.C.

Notes to Consolidated Financial Statements - Continued

(Dollars in Thousands)

of which is in the State of Hawaii. The golf segment ("Golf") is
responsible for the management and operation of the Company's golf course
facilities.

The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.

The Company's policy is to consider all amounts held with original
maturities of three months or less in U.S. Government obligations,
certificates of deposit and money market funds (approximately $11,243 and
$24,188 at September 30, 1999 and December 31, 1998, respectively) as cash
equivalents, which approximates market. These amounts include $3,000 and
$1,923 at September 30, 1999 and December 31, 1998, respectively, which
were restricted primarily to fund debt service on long-term debt related to
the acquisition of power generation equipment (see Note 4).

As part of the Company's agriculture operations, the Company enters
into commodities futures contracts and options in sugar as deemed
appropriate to reduce the risk of future price fluctuations in sugar. The
sugar futures contracts obligate the Company to make or receive a payment
equal to the net change in value of the contracts at its maturity. The
sugar option contracts permit, but do not require, the Company to purchase
specified numbers of futures contracts at specified prices until the
expiration dates of the contracts. The sugar futures and options contracts
are designated as hedges of the Company's firm sales commitments, are
short-term in nature to correspond to the commitment period, and are
effective in hedging the Company's exposure to changes in sugar prices
during that cycle.

These contracts are marked to market with unrealized gains and losses
deferred and recognized in earnings when realized as an adjustment to cost
of sales as part of the production cost (the deferral accounting method).
The related amounts due to or from the exchange are included in inventory.
Unrealized changes in fair value of contracts no longer effective as hedges
are recognized in income from the date the contracts become ineffective
until their expiration.

Investments in certain partnerships and joint ventures, if any, over
which the Company exercises significant influence are accounted for by the
equity method. To the extent the Company engages in such activities as a
general partner, the Company is contingently liable for the obligations of
its partnership and joint venture investments.

Project costs associated with the acquisition, development and
construction of real estate projects are capitalized and classified as
construction in progress. Such capitalized costs are not in excess of the
project's estimated fair value, as reviewed periodically or as considered
necessary.

Land actively held for sale and any related development costs
transferred from construction in progress are reported as inventories in
the accompanying consolidated balance sheets and are stated at the lower of
cost or fair value less costs to sell.

For financial reporting purposes, the Company uses the effective
interest rate method and accrued interest on the COLAs at 4% per annum,
which is the "Mandatory Base Interest" (see Note 3).

<PAGE>

AMFAC/JMB HAWAII, L.L.C.

Notes to Consolidated Financial Statements - Continued

(Dollars in Thousands)

Interest is capitalized to qualifying assets (principally real estate
under development) during the period that such assets are undergoing
activities necessary to prepare them for their intended use. Such
capitalized interest is charged to cost of sales as revenue from the real
estate development is recognized. Interest costs of $732 and $538 have
been capitalized for the nine months ended September 30, 1999 and 1998,
respectively.

Net interest received (paid) on contracts that qualify as hedges is
recognized over the life of the contract as an adjustment to interest
income (expense) of the hedged financial instrument.

The Company and its subsidiaries report their taxes as part of the
consolidated tax return of the Company's parent, Northbrook. The Company
and its subsidiaries have entered into a tax indemnification agreement with
Northbrook in which Northbrook indemnifies the Company and its subsidiaries
for responsibility for all past, present and future federal and state
income tax liabilities (other than income taxes which are directly
attributable to cancellation of indebtedness income caused by the
repurchase or redemption of securities as provided for in or contemplated
by the Repurchase Agreement).

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.

Certain amounts in the 1998 financial statements have been
reclassified to conform to the 1999 presentation.

(2) AMOUNTS DUE TO AFFILIATES - SENIOR DEBT FINANCING

The approximately $15,097 of remaining acquisition-related financing
owed to affiliates had a maturity date of June 1, 1998 and bore interest at
a rate per annum based upon the prime interest rate (7.75% at September 30,
1999), plus one percent. In addition to the $52,000 borrowed from
Northbrook in 1995 to redeem Class A COLAs pursuant to the Class A
Redemption Offer (see Note 3), the Company had also borrowed approximately
$18,746 and $9,814 during 1996 and 1995, respectively, to fund COLA
Mandatory Base Interest payments, Royal Kaanapali Golf Course debt interest
payments and other operational needs. These loans from Northbrook were
payable interest only until maturity, had a maturity date of June 1, 1998
and carried an interest rate per annum equal to the prime interest rate
plus two percent. Pursuant to the Indenture relating to the COLAs, the
amounts borrowed from Northbrook are "Senior Indebtedness" to the COLAs.

<PAGE>

AMFAC/JMB HAWAII, L.L.C.

Notes to Consolidated Financial Statements - Continued

(Dollars in Thousands)

In February 1997, the above-noted affiliate loans, along with certain
other amounts due Northbrook, were converted into a new $104,759 ten year
note payable. In 1998, the $104,759 note was cancelled and bifurcated into
two nine-year notes: (i) a $99,595 note payable to Fred Harvey
Transportation Company, an affiliate of Northbrook, and (ii) a $15,000 note
(with an initial balance of $7,920) payable to Northbrook. The bifurcated
notes are payable interest only until maturity, have a maturity date of
February 17, 2007 and accrue interest at the prime rate plus 2%. The
Company borrowed an additional $16,628 during 1997 and $24,828 during 1998
to fund COLA Mandatory Base Interest payments and other operational needs
from a subsidiary of Northbrook under a separate note which was payable
interest only until maturity, had a maturity date of February 17, 2007 and
accrued interest at the prime rate plus 2%.

As of December 31, 1998, the Company agreed to exercise its option to
redeem Class B COLAs that are "put" to AJF for repurchase in partial
consideration for (a) the agreements by the Company's affiliates, Fred
Harvey Transportation Company ("Fred Harvey") and AF Investors, to defer
until December 31, 2001 all interest accruing from January 1, 1998 through
December 31, 2001 and relating to the approximately $100,000 of Senior
Indebtedness of the Company currently owing to Fred Harvey and the
approximately $48,000 of Senior Indebtedness of the Company currently owing
to AF Investors (see below); and (b) Northbrook agreeing to cause
approximately $55,100 of the Company's indebtedness that was senior to the
COLAs to be contributed to the capital of the Company. In connection with
the foregoing deferral of interest and contribution of capital, the Company
agreed to allow the senior debt held by Northbrook and its affiliates to be
secured by assets of the Company. As a result of the contribution, in the
Company's December 31, 1998 balance sheet, the "Amounts due to affiliates -
senior debt financing" were decreased, and the Company's "Member's equity
(deficit)" was increased, by approximately $55,100. The deferral of
interest, together with this contribution to capital, were made as part of
the Company's effort to alleviate significant liquidity constraints and
continue to meet the Value Maintenance Ratio requirement under the
Indenture. At current interest rates, and assuming no further advances of
Senior Indebtedness, approximately $62,000 of such deferred interest
relating to all Senior Indebtedness existing at September 30, 1999 will
become due and payable on December 31, 2001. At such time, there can be no
assurance that the Company will either (i) have unrestricted cash available
for meeting such obligation or (ii) have the ability to refinance such
$62,000 obligation. Failure to meet such obligation, if called, would
cause all Senior Indebtedness owing to Fred Harvey or other Northbrook
affiliates to be immediately due and payable. A default on Senior
Indebtedness of such magnitude could constitute an event of default under
the Indenture. To the extent that Northbrook or any of its affiliates make
additional advances of Senior Indebtedness to the Company during 1999,
Northbrook or its affiliates intend to defer any interest accruing on such
additional indebtedness until December 31, 2001. Therefore, interest in
excess of $62,000 may be due and payable on December 31, 2001 and any such
excess may be substantial.

On June 1, 1999, the Company borrowed approximately $21,318 from AF
Investors, LLC ("AF Investors"), an affiliate of the Company, to redeem a
portion of the Class B COLAs pursuant to the Class B COLA Redemption Offer
(see Note 3). Pursuant to the terms of the Indenture, such amount borrowed
from AF Investors is Senior Indebtedness that matures on December 31, 2008
and bears interest at a rate per annum of prime (8.25% at September 30,
1999) plus 1% (note deferral of interest discussions above). Additional
interest may be payable on such Senior Indebtedness upon its maturity based
upon fair market value, if any, of the Company's equity at that time.
Additionally, AF Investors submitted Class B COLAs pursuant to the Class B

<PAGE>

AMFAC/JMB HAWAII, L.L.C.

Notes to Consolidated Financial Statements - Continued

(Dollars in Thousands)

Redemption Offer and agreed to take back senior debt in the amount of
$26,375 from the Company in lieu of cash. Such Senior Indebtedness matures
on December 31, 2008 and bears interest at a rate per annum equal to prime
plus 1% (note deferral of interest discussion above). Additional interest
may be payable on such senior debt upon its maturity based upon its fair
market value, if any, of the Company at that time.

In October of 1999, AF Investors paid approximately $808 to assume the
lender's position in the loan to the Lihue Plantation Company, Limited
("Lihue") which was originally used to fund the acquisition of the Lihue's
power generation equipment (see note 4). The loan had an outstanding
balance of $808 on the date of the loan transfer and bears interest at the
rate equal to prime rate (8.25% at September 30, 1999) plus three and one
half percent. The loan is secured by the Lihue power generation equipment,
sugar inventories and receivables, certain other assets and real property
of the Company, has limited recourse to the Company and certain other
subsidiaries and is "Senior Indebtedness" as defined in the Indenture
relating to the COLAs.

The total amount due Northbrook and its subsidiaries for Senior Debt
financing as of September 30, 1999 was $167,854, which includes deferred
interest to affiliates on senior debt of approximately $20,567 (all of
which has been deferred until December 31, 2001, as described above).
Under the terms of the Indenture, the amounts borrowed from Northbrook or
its affiliates are "Senior Indebtedness" to the COLAs.

(3) CERTIFICATE OF LAND APPRECIATION NOTES

The COLAs are unsecured debt obligations of the Company. Interest on
the COLAs is payable semi-annually on February 28 and August 31 of each
year. The COLAs mature on December 31, 2008, and bear interest after the
Final Issuance Date (August 31, 1989) at a rate of 10% per annum ("Base
Interest") of the outstanding principal balance of the COLAs on a
cumulative, non-compounded basis, of which 6% per annum is contingent
("Contingent Base Interest") and due and payable only to the extent of Net
Cash Flow (Net Cash Flow for any period is generally an amount equal to 90%
of the Company's net cash revenues, proceeds and receipts after payment of
cash expenditures, including the Qualified Allowance (as defined in Note 6)
other than federal and state income taxes and after the establishment by
the Company of reserves) or Maturity Market Value (as defined below). The
Company has not generated a sufficient level of Net Cash Flow to incur or
pay Contingent Base Interest on the COLAs from 1990 through 1998.
Approximately $81,401 of cumulative deferred Contingent Base Interest (i.e.
not due and payable in the absence of events which have not occurred)
related to the period from August 31, 1989 (Final Issuance Date) through
September 30, 1999 has not been accrued in the accompanying consolidated
financial statements as the Company believes that it is not probable at
this time that a sufficient level of Net Cash Flow will be generated in the
future or that there will be sufficient Maturity Market Value as of
December 31, 2008 (the COLA maturity date) to pay such unaccrued and
deferred Contingent Base Interest. The following table is a summary of
Mandatory Base Interest and Contingent Base Interest for the nine months
ended September 30, 1999 and the year ended December 31, 1998:

Nine Months The Year
Ended Ended
September 30, December 31,
1999 1998
------------- ------------
Mandatory Base Interest paid. . . . . . $ 7,202 8,828
Contingent Base Interest due and paid . --
Cumulative deferred Contingent Base
Interest. . . . . . . . . . . . . . . $ 81,401 120,652

<PAGE>

AMFAC/JMB HAWAII, L.L.C.

Notes to Consolidated Financial Statements - Continued

(Dollars in Thousands)

Net Cash Flow was $0 for 1998 and is expected to be $0 for 1999.

Cumulative deferred Contingent Base Interest as discussed above is
calculated based upon the face amount of Class A and Class B COLAs
outstanding. The face amount of COLAs outstanding decreased to
approximately $139,399 at September 30, 1999 from approximately $220,692 at
December 31, 1998 resulting from the retirement of approximately $81,293
face of COLAs pursuant to the Class B COLA Redemption Offer discussed
below, and accordingly, the Cumulative deferred Contingent Base Interest
decreased from $120,652 at December 31, 1998 to $81,401 at September 30,
1999.

In each calendar year, principal reductions may be made from remaining
Net Cash Flow, if any, in excess of all current and unpaid deferred
Contingent Base Interest and will be made at the election of the Company
(subject to certain restrictions). The COLAs will bear additional
contingent interest in any year, after any principal reduction, equal to
55% of remaining Net Cash Flow. Upon maturity, holders of COLAs will be
entitled to receive the remaining outstanding principal balance of the
COLAs plus Unpaid Mandatory Base Interest plus additional interest equal to

certain levels of the unpaid Contingent Base Interest, to the extent of the
Maturity Market Value (Maturity Market Value generally means 90% of the
excess of the Fair Market Value (as defined in the Indenture) of the
Company's assets at maturity over its liabilities (including Qualified
Allowance, but only to the extent earned and payable from Net Cash Flow
generated through maturity) at maturity, which liabilities have been
incurred in connection with its operations), plus 55% of the remaining
Maturity Market Value.

On March 14, 1989, AJF, a wholly-owned subsidiary of Northbrook, and
the Company entered into an agreement (the "Repurchase Agreement")
concerning AJF's obligations to repurchase, on June 1, 1995 and 1999, the
COLAs upon request of the holders thereof. The COLAs were issued in two
units consisting of one Class A and one Class B COLA. As specified in the
Repurchase Agreement, the holders of Class A COLAs were entitled to request
AJF to repurchase their Class A COLAs on June 1, 1995 at a price equal to
the original principal amount of such COLAs ($.5) minus all payments of
principal and interest allocated to such COLAs. The cumulative interest
paid per Class A COLA through June 1, 1995 was $.135. Also pursuant to the
Repurchase Agreement, the holders of Class B COLAs were entitled to request
AJF to repurchase their Class B COLAs on June 1, 1999 at a price equal to
125% of the original principal amount of such COLAs ($.5) minus all
payments of principal and interest allocated to such Class B COLAs. As of
September 30, 1999, the cumulative interest paid per Class A and Class B
COLA was approximately $.225 and $.225, respectively.

On March 14, 1989, Northbrook entered into a Keep-Well Agreement with
AJF, whereby it agreed to contribute sufficient capital or make loans to
AJF to enable AJF to meet its COLA repurchase obligations described above.
As of December 31, 1998, pursuant to the Indenture, the Company elected to
exercise its right to redeem (the "Class B COLA Redemption Offer") all
Class B COLAs tendered by the registered holders pursuant to the Repurchase
Agreement, thereby eliminating AJF's Class B COLA repurchase obligations
with respect to such holders as of June 1, 1999. Pursuant to the Class B
Redemption Offer mailed on March 15, 1999 to COLA holders, and in
accordance with the terms of the Indenture, the Company was therefore
obligated to purchase any and all Class B COLAs submitted pursuant to the
Class B Redemption Offer at a price of $.410 per Class B COLA.

<PAGE>

AMFAC/JMB HAWAII, L.L.C.

Notes to Consolidated Financial Statements - Continued

(Dollars in Thousands)

Additional interest may be payable on such Senior Debt upon its maturity
based upon fair market value, if any, of the Company's equity at that time.

AF Investors, an affiliate of the Company, submitted approximately 64,330
of its 89,325 Class B COLAs for repurchase pursuant to the Class B
Redemption Offer and AF Investors agreed to take back Senior Debt of the
Company in lieu of cash. Such Senior Debt matures on December 31, 2008 and
bears interest at a rate per annum equal to the prime rate (8.25% at
September 30, 1999) plus 1% (see deferral of interest discussion above).
Additional interest may be payable on such Senior Debt upon its maturity
based upon the fair market value, if any, of the Company's equity at that
time. AF Investors' Class B COLAs were contributed by Amfac Finance
Limited Partnership ("Amfac Finance"), an Illinois Limited partnership and
an affiliate of the Company, to AF Investors in December 1998.

As a result of the Class B COLA repurchases on June 1, 1999, the
Company retired approximately $81,293 face value of Class B COLA debt and
correspondingly recognized a financial statement gain of approximately
$14,633 of which $8,843 is attributable to the retirement of COLA debt held
by persons unaffiliated with the Company. Such financial statement gain
was reduced by applicable income taxes of approximately $7,207, the write-
off of an applicable portion of deferred financing costs and other expenses
of approximately $3,757 and increased by the reversal of the previously
accrued deferred contingent base interest of approximately $7,624 resulting
in a financial statement extraordinary gain of approximately $11,271. The
tax payable on the gain (approximately $2,013) related to the Class B COLAs
which were submitted for repurchase by persons unaffiliated with the
Company pursuant to the Class B COLA Redemption Offer is not indemnified
pursuant to the tax agreement with Northbrook (see Note 1).

On March 15, 1995, under the terms of the Indenture, the Company
elected to offer to redeem (the "Class A COLA Redemption Offer") all
Class A COLAs submitted by from the registered Class A COLA holders,
thereby eliminating AJF's obligation to satisfy the Class A COLA repurchase
options requested by such holders as of June 1, 1995. Pursuant to the Class
A COLA Redemption Offer, and in accordance with the terms of the Indenture,
the Company was therefore obligated to purchase any and all Class A COLAs
submitted pursuant to the Class A COLA Redemption Offer at a price of $.365
per Class A COLA. In conjunction with the Company's Class A COLA Redemption
Offer, the Company made a tender offer (the "Tender Offer") to purchase up
to approximately $68,000 principal value of the Class B COLAs at a price of
$.220 per Class B COLA from COLA holders electing to have their Class A
COLAs repurchased. Approximately 229,000 Class A COLAs were submitted for
repurchase pursuant to the Class A COLA Redemption Offer and approximately
99,000 Class B COLAs were submitted for repurchase pursuant to the Tender
Offer, requiring an aggregate payment by the Company of approximately
$105,450 on June 1, 1995. The Company used its available cash to purchase
Class B COLAs pursuant to the Tender Offer and borrowed $52,000 from
Northbrook to purchase Class A COLAs pursuant to the Redemption Offer. As

<PAGE>

AMFAC/JMB HAWAII, L.L.C.

Notes to Consolidated Financial Statements - Continued

(Dollars in Thousands)

of September 30, 1999, the Company had approximately 155,271 Class A COLAs
and approximately 123,526 Class B COLAs outstanding, with a principal
balance of approximately $77,635,500 and $61,763,000, respectively.

As a result of the Class A COLA repurchases on June 1, 1995, the
Company retired approximately $164,045 in face value of COLA debt and
recognized a financial statement extraordinary gain of approximately
$32,544 (net of income taxes of $20,807, the write-off of deferred
financing costs of $10,015, the write-off of accrued Contingent Base
Interest of $5,667 and expenses of $894). Such gain was treated as
cancellation of indebtedness income for tax purposes and, accordingly, the
income taxes related to the Class A COLA Redemption Offer (approximately
$9,106) were not indemnified by the tax agreement with Northbrook (see
Note 1).

On January 30, 1998, Amfac Finance extended a Tender Offer to Purchase
(the "Class B Tender Offer") up to approximately $65,421 principal amount
of separately certificated Class B COLAs ("Separate Class B COLAs") for
cash at a unit price of $.375 to be paid by Amfac Finance on each Separate
Class B COLA on or about March 24, 1998. The maximum cash to be paid under
the Class B Tender Offer was approximately $49,066 (130,842 Separate
Class B COLAs at a unit price of $.375 for each separate Class B COLA).
Approximately 62,857 Separate Class B COLAs were submitted to Amfac Finance
for repurchase pursuant to the Tender Offer, requiring an aggregate payment
by Amfac Finance of approximately $23,571 on March 31, 1998. In addition,
on October 23, 1998, Amfac Finance extended a Tender Offer to purchase (the
"Class A/B Tender Offer") up to approximately $22,500 principal amount of
jointly certificated Class A and B COLAs (together "COLA Units") for cash
at a unit price of $.460 to be paid by Amfac Finance on each COLA Unit on
or about December 23, 1998. The maximum cash to be paid under the Tender
Offer was approximately $12,236 (26,600 COLA Units at a unit price of $.460
for each COLA Unit). Approximately 26,473 COLA Units were submitted to
Amfac Finance for repurchase pursuant to the Tender Offer requiring an
aggregate payment by Amfac Finance of approximately $12,178 on December 23,
1998. Neither the Class B nor the Class A/B Tender Offer reduced the
outstanding indebtedness of the Company. In December 1998, Amfac Finance
contributed its Class A and Class B COLAs to AF Investors. The COLAs still
held by AF Investors remain outstanding pursuant to the terms of the
Indenture. Except as provided in the last sentence of this paragraph, AF
Investors is entitled to the same rights and benefits of any other holder
of COLAs, including having the right to have AJF repurchase on June 1,
1999, the separate Class B COLAs that it owned. As discussed above, AF
Investors submitted approximately 64,330 of its 89,325 Class B COLAs for
repurchase pursuant to the Class B Redemption offer. AF Investors agreed
to take back senior debt of the Company for the portion of Class B COLAs so
put in lieu of cash. Because AF Investors is an affiliate of the Company,
AF Investors will not be able to participate in determining whether the
holders of the required principal amount of debt under the Indenture have
concurred in any direction, waiver or consent under the terms of the
Indenture.

As a result of the Class B and Class A/B Tender Offers, the Company
recognized approximately $7,857 and $14,295, respectively, of taxable gain
in accordance with income tax regulations for certain transactions with
affiliates. Such gain is treated as cancellation of indebtedness income
for income tax purposes only and, accordingly, the income taxes related to
the Class B Tender Offer (approximately $3,064) and Class A/B Tender Offer
(approximately $5,575) were, or will be, indemnified by Northbrook through
the tax agreement between Northbrook and the Company (See Note 1).

<PAGE>

AMFAC/JMB HAWAII, L.L.C.

Notes to Consolidated Financial Statements - Continued

(Dollars in Thousands)

The terms of the Indenture place certain restrictions on the Company's
declaration and payment of dividends. Such restrictions generally relate to
the source, timing and amounts which may be declared and/or paid. The COLAs
also impose certain restrictions on, among other things, the creation of
additional indebtedness for certain purposes, the Company's ability to
consolidate or merge with or into other entities, and the Company's
transactions with affiliates.

(4) LONG-TERM DEBT

In June 1991, the Company obtained a five-year $66,000 loan from the
Employees' Retirement System of the State of Hawaii ("ERS"). The
nonrecourse loan is secured by a first mortgage on the Kaanapali Golf
Courses, and is "Senior Indebtedness" (as defined in the Indenture). The
loan bore interest at a rate per annum equal to the greater of (i) the base
interest rate announced by the Bank of Hawaii on the first of July for each
year or (ii) ten percent per annum through September 30, 1993 and nine
percent per annum thereafter.

In April 1996, the Company reached an agreement with the ERS to amend
the loan, extending the maturity date for five years. In exchange for the
loan extension, the ERS received the right to participate in the "Net
Disposition Proceeds" (as defined) related to the sale or the refinancing
of the golf courses or at the maturity of the loan. The ERS share of the
Net Disposition Proceeds increases from 30% through June 30, 1997, to 40%
for the period from July 1, 1997 to June 30, 1999 and to 50% thereafter.
The loan amendment effectively adjusted the interest rate as of January 1,
1995 to 9.5% until June 30, 1996. After June 30, 1996, the loan bears
interest at a rate per annum equal to 8.73%. The loan amendment requires
the Company to pay interest at the rate of 7% for the period from
January 1, 1995 to June 30, 1996, 7.5% from July 1, 1996 to June 30, 1997,
7.75% from July 1, 1997 to June 30, 1998 and 8.5% thereafter ("Minimum
Interest"). The Minimum Interest for the nine months ended September 30,
1999 and 1998 was $4,251 and $3,951, respectively. The accrued Minimum
Interest was $5,665 and $1,414 as of September 30, 1999 and 1998,
respectively. Through July 1, 1998, the Company paid $2,536, which
represents the Minimum Interest due for the nine months ended September 30,
1998. The Company had paid the Minimum Interest to the ERS on October 29,
1999 for the payments due on January 1, April 1, and July 1, 1999, as
discussed below. The scheduled minimum payments are normally paid
quarterly on the principal balance of the $66,000 loan. The difference
between the accrued interest expense and the Minimum Interest payment due
accrues interest and is payable on an annual basis from excess cash flow,
if any, generated from the Kaanapali Golf Courses. The annual interest
payments in 1998 were in excess of the cash flow generated by the Kaanapali
Golf Courses. The total accrued interest payable from excess cash flow was
approximately $5,432 as of September 30, 1999. Although the outstanding
loan balance remains nonrecourse, certain payments and obligations, such as
the Minimum Interest payments and the ERS's share of appreciation, if any,
are recourse to the Company. However, the Company's obligations to make
future Minimum Interest payments and to pay the ERS a share of appreciation
would be terminated if the Company tendered an executed deed to the golf
course property to the ERS in accordance with the terms of the loan
amendment. Due to depressed golf course revenues and intransigence by the
ERS related to certain easements needed by the Company's development
operations, the Company chose not to pay to the ERS the quarterly Minimum
Interest payments beginning January 1, 1999, totaling approximately $5,720
through October 29, 1999. As expected, the Company received a default
notice from the ERS. On October 29, 1999, after receipt of consent to
certain easements, the Company paid the ERS the minimum interest payments
due beginning with the January 1, 1999 through October 1, 1999 payments
aggregating approximately $5,744 (including other miscellaneous costs).
The loan is no longer in default and the terms of the loan remain the same.

<PAGE>

AMFAC/JMB HAWAII, L.L.C.

Notes to Consolidated Financial Statements - Continued

(Dollars in Thousands)

In January 1993, Lihue obtained a ten-year $13,250 loan used to fund
the acquisition of Lihue's power generation equipment. The $13,250 loan,
constituting "Senior Indebtedness" under the COLAs' Indenture, consists of
two ten-year amortizing term loans of $10,000 and $3,250, respectively,
payable in forty consecutive installments commencing July 1, 1993 in the
principal amount of $250 and $81, respectively (plus interest). The
remaining balance of the $3,250 loan was fully repaid in January 1997. The
$10,000 loan had an outstanding balance of $1,479 as of September 30, 1999
and bore interest at a rate equal to prime rate (8.25% at September 30,
1999) plus three and one half percent. In October of 1999, AF Investors
paid $808 to the original lender and assumed the lender's position in the
loan. The loan had an outstanding balance of $808 on the date of the loan
payoff to the original lender. Lihue had purchased an interest rate
agreement which protects against fluctuations in interest rates and
effectively caps the prime rate at eight percent for the first seven years
of the loan agreement. The loan was secured by the Lihue power generation
equipment, sugar inventories and receivables, certain other assets and real
property of the Company, had limited recourse to the Company and certain
other subsidiaries and was "Senior Indebtedness" as defined in the
Indenture relating to the COLAs.

In October 1993, Waikele Golf Club, Inc. ("WGCI"), a wholly-owned
subsidiary of the Company that owns and operates the Waikele Golf Course,
obtained a five-year $20,000 loan facility from two lenders. The loan
consisted of two $10,000 amortizing loans. Each loan bore interest only for
the first two years and interest and principal payments based upon an
assumed 20-year amortization period for the remaining three years. The
loans bore interest at prime plus 1/2% and LIBOR (6.0% at September 30,
1999) plus 3%, respectively. In February 1997, WGCI entered into an amended
and restated loan agreement with the Bank of Hawaii, whereby the
outstanding principal amount of the loan has been increased to $25,000, the
maturity date has been extended to February 2007, the interest rate has
been changed to LIBOR plus 2% until the fifth anniversary and LIBOR plus
2.25% thereafter and principal is to be repaid based on a 30-year
amortization schedule. The loan is secured by WGCI's assets (the golf
course and related improvements and equipment), is guaranteed by the
Company, and is "Senior Indebtedness" (as defined in the Indenture). As of
September 30, 1999, the outstanding balance was $24,348, with scheduled
remaining annual principal maturities of $1,770 in 1999 through 2006 and
the balance of $22,578 in 2007.

In December 1996, Amfac Property Development Corp. ("APDC"), a wholly-
owned subsidiary of the Company, obtained a $10,000 loan facility from City
Bank. The loan is secured by a mortgage on property under development at
the mill-site of Oahu Sugar (the sugar plantation was closed in 1995), and
is "Senior Indebtedness" (as defined in the Indenture). The loan bears
interest at the bank's base rate (8.25% at September 30, 1999) plus .5% and
originally was scheduled to mature on December 1, 1998. In November 1998,
APDC sold certain mill-site property which served as collateral for the
$10,000 City Bank loan for an approximate sales price of $7,690 in cash
plus 2% of the gross sales price of subsequent parcel sales of all or any
portion of the property by the purchaser. The bank required $6,000 of the
sales proceeds as a principal reduction on the loan in order to release the
collateral. APDC received a one-year extension on the $4,000 remaining
balance of the loan which is secured by another parcel at the mill-site.
The extended loan bears interest at the bank's base rate plus 1.25% and
matures on December 1, 1999. APDC has reached an agreement with the bank
for an additional one year extension on $3 million of the $4 million loan.
APDC made a $1 million loan payment on December 2, 1999. The new extended
loan bears interest at the bank's base rate plus 1.25% and matures on
December 1, 2000.

<PAGE>

AMFAC/JMB HAWAII, L.L.C.

Notes to Consolidated Financial Statements - Continued

(Dollars in Thousands)

In September 1998, Amfac Property Investment Corporation ("APIC"), a
wholly-owned subsidiary of the Company, purchased Tobishima Pacific, Inc.'s
("TPI") 50% ownership interest in the 96-acre beachfront parcel (commonly
referred to as Kaanapali North Beach) for $12,000. APIC paid $2,400 in
cash and signed a note for $9,600. The note is secured by a mortgage on
the property in favor of TPI and is "Senior Indebtedness" (as defined in
the Indenture). The note is payable in five annual installments in the
principal amount of $1,920 beginning in September 1999. The note bears
interest of 8.5% and is payable quarterly. In January 1999, the Company
paid TPI approximately $2,200 on its note to release Lot #1 for the
Kaanapali Ocean Resort and the new 10-acre public recreation area at North
Beach and an additional $1,920 in September 1999 as required under the
terms of the note.

(5) SEGMENT INFORMATION

Agriculture, Property and Golf comprise separate industry segments of
the Company. Operating Income (Loss)-Other consists primarily of
unallocated overhead expenses and Total Assets-Other consists primarily of
cash and deferred expenses. Total assets at the balance sheet dates and
capital expenditures, operating income (loss) and depreciation and
amortization during the nine months ended September 30, 1999 and
December 31, 1998 are set forth below by each industry segment:

September 30, December 31,
1999 1998
------------- ------------
Total Assets:
Agriculture . . . . . . . . . . . . . $185,558 197,288
Property. . . . . . . . . . . . . . . 101,191 121,957
Golf. . . . . . . . . . . . . . . . . 77,472 77,644
Other . . . . . . . . . . . . . . . . 16,849 34,191
-------- --------

$381,070 431,080
======== ========

Nine Months Ended
September 30
------------------------
1999 1998
-------- --------
Capital Expenditures:
Agriculture . . . . . . . . . . . . . $ 1,320 1,519
Property. . . . . . . . . . . . . . . 374 13,277
Golf. . . . . . . . . . . . . . . . . 195 305
-------- --------
$ 1,889 15,101
======== ========

Operating income (loss):
Agriculture . . . . . . . . . . . . . $ (5,723) (4,603)
Property. . . . . . . . . . . . . . . (531) (5,029)
Golf. . . . . . . . . . . . . . . . . 3,351 2,727
Other . . . . . . . . . . . . . . . . (1,373) (2,010)
-------- --------
$ (4,276) (8,915)
======== ========

<PAGE>

AMFAC/JMB HAWAII, L.L.C.

Notes to Consolidated Financial Statements - Continued

(Dollars in Thousands)

Nine Months Ended
September 30
------------------------
1999 1998
-------- --------
Depreciation and amortization:
Agriculture . . . . . . . . . . . . . $ 2,765 3,320
Property. . . . . . . . . . . . . . . 510 656
Golf. . . . . . . . . . . . . . . . . 1,084 918
Other . . . . . . . . . . . . . . . . 139 4
-------- --------
$ 4,498 4,898
======== ========

(6) TRANSACTIONS WITH AFFILIATES

With respect to any calendar year, JMB Realty Corporation ("JMB"), an
affiliate of the Company, or its affiliates may receive a Qualified
Allowance in an amount equal to: (i) approximately $6,200 during each of
the calendar years 1989 through 1993; and (ii) thereafter, 1-1/2% per annum
of the Fair Market Value (as defined in the Indenture) of the gross assets
of the Company and its subsidiaries (other than cash and cash equivalents
and Excluded Assets (as defined in the Indenture)) for providing certain
advisory services for the Company. The aforementioned advisory services,
which are provided pursuant to a 30-year Services Agreement entered into
between the Company, certain of its subsidiaries and JMB in November 1988,
include making recommendations in the following areas: (i) the construction
and development of real property; (ii) land use and zoning changes; (iii)
the timing and pricing of properties to be sold; (iv) the timing, type and
amount of financing to be incurred; (v) the agricultural business; and,
(vi) the uses (agricultural, residential, recreational or commercial) for
the land. However, the Qualified Allowance shall be earned and paid for
each year prior to maturity of the COLAs only if the Company generates
sufficient Net Cash Flow to pay Base Interest to the holders of the COLAs
for such year of an amount equal to 8% of the balance of the COLAs for such
year; any portion of the Qualified Allowance not paid for any year shall
cumulate without interest and JMB or its affiliates shall be paid such
amount with respect to any succeeding year, after the payment of all
Contingent Base Interest for such year, to the extent of 100% of remaining
Net Cash Flow until an amount equal to 20% of the Base Interest with
respect to such year has been paid, and thereafter, to the extent of the
product of (a) remaining Net Cash Flow, multiplied by (b) a fraction, the
numerator of which is the cumulative deficiency as of the end of such year
in the Qualified Allowance and the denominator of which is the sum of the
cumulative deficiencies as of the end of such year in the Qualified
Allowance and Base Interest. A Qualified Allowance for 1989 of
approximately $6,200 was paid on February 28, 1990. Approximately $74,102
of Qualified Allowance related to the period from January 1, 1990 through
December 31, 1998 has not been earned and paid and is payable only from
future Net Cash Flow. Accordingly, because the Company does not believe it
is probable at this time that a sufficient level of Net Cash Flow will be
generated in the future to pay the Qualified Allowance, the Company has not
accrued for any Qualified Allowance in the accompanying consolidated
financial statements. JMB has informed the Company that no incremental
costs or expenses have been incurred relating to the provision of these
advisory services. The Company believes that using an incremental cost
methodology is reasonable. The following table is a summary of the
Qualified Allowance for the year ended December 31, 1998:

<PAGE>

AMFAC/JMB HAWAII, L.L.C.

Notes to Consolidated Financial Statements - Continued

(Dollars in Thousands)

1998
-------
Qualified Allowance calculated. . . . . . . . . . . . . $ 9,776
Qualified Allowance paid. . . . . . . . . . . . . . . . $ --
Cumulative deficiency of Qualified Allowance at
end of year . . . . . . . . . . . . . . . . . . . . . $74,102

Net Cash Flow was $0 for 1998 and is expected to be $0 for 1999.

After the maturity date of the COLAs, JMB will continue to provide
advisory services pursuant to the Services Agreement, the Qualified
Allowance for such years will continue to be 1-1/2% per annum of the Fair
Market Value of the gross assets of the Company and its subsidiaries and
the Qualified Allowance will continue to be payable from the Company's Net
Cash Flow. Upon the termination of the Services Agreement, if there has not
been sufficient Net Cash Flow to pay the cumulative deficiency in the
Qualified Allowance, if any, such amount would not be due or payable to
JMB.

The Company, its subsidiaries and their joint ventures reimburse
Northbrook, JMB and their affiliates for direct expenses incurred on their
behalf, including salaries and salary-related expenses incurred in
connection with the management of the Company's or its subsidiaries' and
the joint ventures' operations. The total of such costs for the nine months
ended September 30, 1999 and 1998 was approximately $587 and $495,
respectively, of which $273 was unpaid as of September 30, 1999. In
addition, as of September 30, 1999, the current portion of amounts due to
affiliates includes $9,106 and $2,013 of income tax payable related to the
Class A COLA Redemption Offer and Class B COLA Redemption Offer,
respectively (see Note 3). Also, the Company pays a non-accountable
reimbursement of approximately $30 per month to JMB or its affiliates in
respect of general overhead expense, all of which was paid as of
September 30, 1999.

JMB Insurance Agency, Inc., an affiliate of JMB, earns insurance
brokerage commissions in connection with providing the placement of
insurance coverage for certain of the properties and operations of the
Company. Such commissions are comparable to those available to the Company
in similar dealings with unaffiliated third parties. The total of such
commissions for the nine months ended September 30, 1999 and 1998 was
approximately $558 and $605, respectively, all of which was paid as of
September 30, 1999.

Northbrook and its affiliates allocated certain charges for services
to the Company based upon the estimated level of services for the nine
months ended September 30, 1999 and 1998 of approximately $450 and $658,
respectively, of which $353 was unpaid as of September 30, 1999. The
affiliated charges for the nine months ended September 30, 1999 and 1998
were offset by $71 and $6, respectively, of charges for certain
expenditures paid by the Company for Northbrook. These services and costs
are intended to reflect the Company's separate costs of doing business and
are principally related to the inclusion of the Company's employees in the
Northbrook pension plan, payment of severance and termination benefits and
reimbursement for insurance claims paid on behalf of the Company. All
amounts described above, deferred or currently payable, do not bear
interest and are expected to be paid in future periods.

<PAGE>

AMFAC/JMB HAWAII, L.L.C.

Notes to Consolidated Financial Statements - Continued

(Dollars in Thousands)

In 1998, the $104,759 affiliate note (see Note 4) was cancelled and
bifurcated into two nine-year notes: (i) a $99,595 note payable to Fred
Harvey Transportation Company, an affiliate of Northbrook, and (ii) a
$15,000 note (with an initial balance of $7,920) payable to Northbrook.
The bifurcated notes were payable interest only until maturity, have a
maturity date of February 17, 2007 and accrue interest at the prime rate
plus 2%. Pursuant to the Indenture, the amounts borrowed from Northbrook
and its affiliates are "Senior Indebtedness" to the COLAs. The Company
borrowed an additional $24,828 during 1998 to fund COLA Mandatory Base
Interest payments and other operational needs from a subsidiary of
Northbrook under a separate note which is payable interest only until
maturity, had a maturity date of February 17, 2007 and accrued interest at
the prime rate plus 2%. In connection with such affiliated loans, the
Company incurred interest expense of approximately $8,346 and $11,275 for
the nine months ended September 30, 1999 and 1998, respectively.

As of December 31, 1998, the Company agreed to exercise its option to
redeem Class B COLAs that are "put" to AJF for repurchase (as described in
Note 3 above), in partial consideration for (a) Fred Harvey's and AF
Investors' agreement to defer until December 31, 2001 all interest accruing
from January 1, 1998 through December 31, 2001 and relating to the
approximately $100,000 of Senior Indebtedness of the Company currently
owing to Fred Harvey and the approximately $48,000 of Senior Indebtedness
of the Company currently owing to AF Investors (as described in Note 4
above); and (b) Northbrook agreeing to cause approximately $55,100 of the
Company's indebtedness that was senior to the COLAs to be contributed to
the capital of the Company. As a result of the contribution, in the
Company's December 31, 1998 balance sheet, the "Amounts due to affiliates -
senior debt financing" were decreased, and the Company's "Member's equity
(deficit)" was increased, by approximately $55,100. The deferral of
interest, together with this contribution to capital, were made as part of
the Company's effort to alleviate significant liquidity constraints and
continue to meet the Value Maintenance Ratio requirement under the
Indenture. At current interest rates, and assuming no further advances of
Senior Indebtedness, approximately $62,000 of such deferred interest
relating to all Senior Indebtedness existing at September 30, 1999 will
become due and payable on December 31, 2001. At such time, there can be no
assurance that the Company will either (i) have unrestricted cash available
for meeting such obligation or (ii) have the ability to refinance such
$62,000 obligation. Failure to meet such obligation, if called, would
cause all Senior Indebtedness owing to Fred Harvey or its affiliates to be
immediately due and payable. A default on Senior Indebtedness of such
magnitude could constitute an event of default under the Indenture. To the
extent that Northbrook or any of its affiliates make additional advances of
Senior Indebtedness to the Company during 1999, Northbrook or its
affiliates intend to defer any interest accruing on such additional
indebtedness until December 31, 2001. Therefore, interest in excess of
$62,000 may be due and payable on December 31, 2001 and any such excess may
be substantial.

On June 1, 1999, the Company borrowed approximately $21,318 from AF
Investors, to redeem a portion of the Class B COLAs pursuant to the Class B
Redemption Offer. Pursuant to the terms of the Indenture, such amount
borrowed from AF Investors is Senior Indebtedness that matures on
December 31, 2008 and bears interest at a rate per annum of Prime (7.75% at

<PAGE>

AMFAC/JMB HAWAII, L.L.C.

Notes to Consolidated Financial Statements - Continued

(Dollars in Thousands)

September 30, 1999) plus 1% (note deferral of interest discussion above).
Additional interest may be payable on such Senior Indebtedness upon its
maturity based upon fair market value, if any, of the Company's equity at
that time. Additionally, AF Investors submitted Class B COLAs pursuant to
the Class B Redemption Offer and agreed to take back senior debt in the
amount of $26,375 from the Company in lieu of cash. Such Senior
Indebtedness matures on December 31, 2008 and bears interest at a rate per
annum equal to prime plus 1% (note deferral of interest discussion above).
Additional interest may be payable on such senior debt upon its maturity
based upon its fair market value, if any, of the Company at that time. In
connection with such affiliated loans, the Company incurred interest
expense of $1,490 and $0 for the nine months ended September 30, 1999 and
1998, respectively.

The total amount due Northbrook and its subsidiary for Senior Debt
financing as of September 30, 1999 was $167,854, which includes deferred
interest to affiliates on the senior debt of approximately $20,567 (all of
which has been deferred until December 31, 2001, as described above).
Under the terms of the Indenture, the amounts borrowed from Northbrook and
its affiliates are "Senior Indebtedness" to the COLAs.

(7) EMPLOYEE BENEFIT PLANS

The Company participates in benefit plans covering substantially all
of its employees, which provide benefits based primarily on length of
service and compensation levels. These plans are administered by
Northbrook in conjunction with other plans providing benefits to employees
of Northbrook and its affiliates.

(8) COMMITMENTS AND CONTINGENCIES

On September 20, 1996, Oahu Sugar Company, Limited ("Oahu Sugar")
filed a lawsuit, Oahu Sugar v. Walter Arakaki and Steve Swift, Case No. 96-
3880-09, in the Circuit Court of the First Circuit, State of Hawaii. In
the lawsuit, Oahu Sugar alleged that it entered into an agreement to sell
to defendants certain sugar cane processing equipment at Oahu Sugar's sugar
cane mill in Waipahu. Oahu Sugar alleged that defendants failed to timely
dismantle and remove the equipment, as required by the agreement, and that
defendants were obligated to pay Oahu Sugar rent for the area occupied by
the equipment beyond the time provided for by the parties. Oahu Sugar
further alleged that it provided notice to defendants that Oahu Sugar was
entitled to treat the equipment as abandoned property and to sell the
equipment, because the equipment had not been removed from the property in
a timely fashion, as required by the parties' agreement. In its complaint,
Oahu Sugar sought, among other things, declaratory relief that it was
entitled to treat the equipment as abandoned, damages for breach of
contract, and rent under an unjust enrichment theory.

Defendants filed an answer, as amended, denying the substantive
allegations of Oahu Sugar's complaint and asserting various affirmation
defenses. In addition, the defendants filed a seven-count counterclaim
against Oahu Sugar. In the counterclaim, defendants alleged, among other
things, that Oahu Sugar failed to make the equipment available for removal
on a timely basis, and that Oahu Sugar otherwise improperly interfered with
defendants' plans for the removal and subsequent sale of the equipment. In
the counterclaim, defendants sought, among other things, general, special
and punitive damages, attorneys' fees, costs, and such other relief as the
Court may have deemed appropriate.

Oahu Sugar's declaratory relief claim was settled in advance of trial.

<PAGE>

AMFAC/JMB HAWAII, L.L.C.

Notes to Consolidated Financial Statements - Continued

(Dollars in Thousands)

Sugar relief on its remaining claims and awarded the defendants
approximately $2.6 million in damages on their counterclaim. Oahu Sugar
intends to file post judgment motions in an effort to overturn the verdict
and will appeal if its motions are unsuccessful. Oahu Sugar continues to
believe that it is entitled to affirmation relief on its complaint and that
it has meritorious defenses to the counterclaim that it intends to pursue
vigorously. Oahu Sugar, however, can provide no assurances that it will be
successful in obtaining affirmative relief or overturning the verdict
against Oahu Sugar.

On October 7, 1999, Oahu Sugar Company, Limited was named in a lawsuit
entitled, Akee, et al. v. Dow Chemical Company, et al., Civil No. 99-3757-
10, and filed in Hawaii State Court (Circuit Court of the First Circuit of
Hawaii). This multiple plaintiff toxic tort case names Oahu Sugar, but
Oahu Sugar has not yet been served, and a number of additional defendants
including several large chemical, petroleum and agricultural companies.
Plaintiffs allege several causes of action related to personal injuries
arising from exposure to allegedly multiple toxic fumigants. Plaintiffs
allege that Oahu Sugar and other defendants used these fumigants in their
agricultural operations and that the fumigants have contaminated the air,
soil and water in the area surrounding their residences. Plaintiffs seek
damages for various unspecified personal injuries/illnesses, emotional
distress, lost wages and wrongful deaths as well as damages for
unlawful/unfair or deceptive practices and punitive damages.

On September 30, 1999, Oahu Sugar was one of several defendants named
in a lawsuit entitled, City and County of Honolulu v. Leppert, et al.
Civil No. CV 99 00670 ACK-FIY, and filed in the federal court, District of
Hawaii. Oahu Sugar has not yet been served. Plaintiffs filed this
environmental action to assert several causes of action including
(1) clean-up and other response costs under the Comprehensive Environmental
Response, Compensation, and Liability Act ("CERCLA"); (2) owner/operator
liability, contribution and indemnity under Hawaii statutory law: (3)
strict liability for ultrahazardous activity; and (4) negligence.
Plaintiff alleges that defendant Oahu Sugar previously operated a sugar
mill on property currently owned by plaintiff, and used pesticides,
herbicides, fumigants, petroleum products and by-products and other
hazardous chemicals which were allegedly released into the soil and/or
groundwater at the subject property. Plaintiff seeks recovery of response
costs it has incurred and to be incurred, a declaration of the rights and
liabilities for past and any future claims, damages for lost property
value, technical consulting and legal costs in investigating the property,
increased construction costs, and attorneys' fees and costs.

Oahu Sugar has not been served. This case is the same case as the CERCLA
action above, except that it asserts causes of action under the Hawaii
Environmental Response Law, the state law equivalent of CERCLA. The
alleged specific causes of action include (1) owner/operator liability,
contribution and indemnity under Hawaii Revised Statue Section 128D-18; (2)
strict liability; (3) negligence, and, (4) declaratory relief on state
claims.

These lawsuits are in the beginning stages of litigation. The Company
believes that Oahu Sugar has meritorious defenses to these lawsuits and,
Oahu Sugar will defend itself vigorously. However, there can be no
assurances that these cases (or any of them), when once adjudicated, will
not have a material adverse effect on the financial condition of the
Company.

<PAGE>

AMFAC/JMB HAWAII, L.L.C.

Notes to Consolidated Financial Statements - Continued

(Dollars in Thousands)

The Company is also involved in other various matters of litigation
and claims. Management, after consultation with legal counsel, is of the
opinion that the Company's liability (if any), when ultimately determined,
will not have a material adverse effect on the Company's financial
position.

The Company's Property segment had contractual commitments (related to
project costs) of approximately $1,371 as of September 30, 1999.
Additional development expenditures are dependent upon the Company's
ability to obtain financing for such costs and on the timing and extent of
property development and sales.

As of September 30, 1999, certain portions of the Company's land not
currently under development are mortgaged as security for approximately
$1,522 of performance bonds related to property development.

(9) INCOME TAXES

Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax liabilities and assets
as of December 31, 1998 are as follows:

Deferred tax (assets):
Postretirement benefits . . . . . . . . . . . . . $ (20,012)
Interest accruals . . . . . . . . . . . . . . . . (3,047)
Cancellation of Debt Income on
COLA tenders. . . . . . . . . . . . . . . . . . (8,639)
Other accruals. . . . . . . . . . . . . . . . . . (2,039)
---------

Total gross deferred tax assets . . . . (33,737)
---------

Deferred tax liabilities:
Accounts receivable, related to profit on
sales of sugar. . . . . . . . . . . . . . . . . 3,216
Inventories, principally due to sugar production
costs, capitalized costs, capitalized interest
and purchase accounting adjustments. . . . . . (870)
Plant and equipment, principally due to
depreciation and purchase accounting
adjustments . . . . . . . . . . . . . . . . . . 9,920
Land and land improvements, principally
due to purchase accounting adjustments. . . . . 75,163
Deferred gains, due to installment sales
for income tax purposes . . . . . . . . . . . . 7,676
Investments in unconsolidated entities,
principally due to purchase accounting
adjustments . . . . . . . . . . . . . . . . . . (316)
---------
Total deferred tax liabilities. . . . . 94,789
---------
Net deferred tax liability. . . . . . . $ 61,052
=========

(10) ADJUSTMENTS

In the opinion of the Company, all adjustments (consisting solely of
normal recurring adjustments) necessary for a fair presentation have been
made to the accompanying figures as of September 30, 1999 and for the nine
months ended September 30, 1999 and 1998.

<PAGE>

AMFAC/JMB FINANCE, INC.

Balance Sheets

September 30, 1999 and December 31, 1998

(Dollars in thousands, except per share information)

(Unaudited)

A s s e t s
-----------

September 30, December 31,
1999 1998
------------ ------------

Cash. . . . . . . . . . . . . . . . $ 1 1
======== ========

L i a b i l i t y a n d S t o c k h o l d e r ' s E q u i t y
-------------------------------------------------------------------

Repurchase obligation (note 3)

Common stock, $1 par value;
authorized, issued and
outstanding - 1,000 shares. . . . $ 1 1
========= ========

The accompanying notes are an integral part of these balance sheets.

<PAGE>

AMFAC/JMB FINANCE, INC.

Notes to the Balance Sheets

(Unaudited)

(Dollars in Thousands)

(1) ORGANIZATION AND ACCOUNTING POLICY

Amfac/JMB Finance, Inc. ("AJF") was incorporated November 7, 1988 in
the State of Illinois. AJF has had no financial operations. All of the
outstanding shares of AJF are owned by Northbrook Corporation
("Northbrook").

(2) KEEP-WELL AGREEMENT

On March 14, 1989, Northbrook entered into a keep-well agreement with
AJF, whereby it agreed to contribute sufficient capital or make loans to
AJF to enable AJF to meet the COLA repurchase obligations described below
in note 3.

On March 15, 1995, pursuant to the indenture that governs the terms of
the COLAs (the "Indenture"), Amfac/JMB Hawaii, L.L.C. (the "Company")
elected to exercise its right to redeem, and therefore was obligated to
purchase, any and all Class A COLAs submitted pursuant to the June 1, 1995
Redemption Offer at a price of $.365 per Class A COLA. Pursuant to the
Company's election to redeem the Class A COLAs submitted for repurchase,
the Company assumed AJF's maximum amount of its liability from the June 1,
1995 COLA repurchase obligation of $140,425.

On March 15, 1999, pursuant to the Indenture, the Company elected to
exercise its right to redeem, and therefore was obligated to purchase, any
and all Class B COLAs submitted pursuant to the June 1, 1999 Redemption
Offer at a price of $.410 per Class B COLA. Pursuant to the Company's
election to redeem the Class B COLAs submitted for repurchase, the Company
assumed AJF's liability from the June 1, 1999 Class B COLA repurchase
obligation (a maximum of $117,306).

(3) REPURCHASE OBLIGATION

On March 14, 1989, AJF and the Company entered into an agreement (the
"Repurchase Agreement") concerning AJF's obligation (on June 1, 1995 and
1999) to repurchase, upon request of the holders thereof, the Certificate
of Land Appreciation Notes due 2008 ("COLAs") issued by the Company. A
total aggregate principal amount of $384,737 of COLAs were issued during
the offering, which terminated on August 31, 1989. The COLAs were issued in
two units consisting of one Class A and one Class B COLA. As specified in
the Repurchase Agreement, the holders of Class A COLAs were entitled to
request AJF to repurchase their Class A COLAs June 1, 1995 at a price equal
to the original principal amount of such COLAs ($.500) minus all payments
of principal and interest allocated to such COLAs. The cumulative interest
paid per Class A COLA through June 1, 1995 was $.135. Also pursuant to the
Repurchase Agreement the holders of the Class B COLAs were entitled to
request AJF to repurchase their Class B COLAs on June 1, 1999 at a price
equal to 125% of the original principal amount of such Class B COLAs
($.500) minus all payments of principal and interest allocated to such
COLAs. To date, the cumulative interest paid per Class A and Class B COLA
is approximately $.225 and $.225, respectively.

As discussed above in Note 2 of Notes to the Balance Sheets, the
Company elected to redeem the Class B COLAs submitted for repurchase,
thereby assuming AJF's repurchase obligation on June 1, 1999.

<PAGE>

PART I. FINANCIAL INFORMATION

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

LIQUIDITY AND CAPITAL RESOURCES

General

A significant portion of the Company's cash needs result from the
nature of the real estate development business, which requires a
substantial investment in preparing development plans, seeking land
urbanization and other governmental approvals and completing infrastructure
improvements prior to sale. Additionally, the Company's sugar operations
incur a cash deficit during the first half of the year of $10 to $15
million. This seasonal cash deficit is due to the sugar plantation's
operating costs being incurred fairly ratably during the year, while
revenues are received between May and December, concurrent with raw sugar
deliveries to the California and Hawaiian Sugar Company ("C&H"). In
addition to seasonal cash needs, in many years cash flow from sugar
operations has been negative, requiring a net cash investment to fund the
operating deficits and any capital costs. Other significant cash needs also
include overhead expenses and debt service.

Recent property and business sales have temporarily improved the
Company's current cash position, the Company expects to have a severe
liquidity shortage beginning in the first quarter of 2000. The Company had
anticipated obtaining the necessary project financing for its Kaanapali
Ocean Resort ("KOR") in the fourth quarter of 1999 in conjunction with a
new investor who could provide the cash needed to satisfy the project
lender's requirements. A delay in receiving project financing for KOR in
1999 has accordingly delayed an anticipated investor cash infusion in early
2000. There has also been a recent deterioration in the price of raw sugar
which has further exacerbated the Company's cash outlook (as discussed
below). These events in light of the seasonality of the Company's sugar
business, coupled with several large debt service payments due during the
next six months, are expected to create a severe liquidity shortage
beginning in the first quarter of 2000 which could result in the Company's
inability to make certain debt service payments. As a result, the Company
must continue to aggressively pursue its ongoing land sale program.

In the absence of additional land and business sales (which are
currently not expected to close in the first quarter of 2000) or financing
from third parties (which has generally not been obtainable), the Company
believes that additional borrowings from Northbrook or its affiliates will
be necessary to meet its short-term and long-term liquidity needs.
Northbrook and its affiliates have made such borrowings to the Company in
the past and, through the end of 1999, intend to continue making such
borrowings, as necessary, to the extent of available liquidity. However,
there is no assurance that Northbrook or its affiliates will have
sufficient funds either through the end of 1999 or in the long-term, or
that Northbrook or its affiliates will continue to make such funds
available to the Company, to meet the Company's short-term or long-term
liquidity needs. To the extent that Northbrook or its affiliates make such
borrowings to the Company during 1999, Northbrook and its affiliates intend
to defer until December 31, 2001 any interest accruing on such borrowings.
The Company will explore other alternatives to address the projected cash
deficits for early next year. These alternatives will likely include
drastic expense cuts at several of the Company's businesses and/or
liquidating certain operations. Although management is hopeful that
sufficient sales can be completed to generate the funds necessary to
continue operations, there is no assurance that sufficient sales will be
completed. Accordingly, the Company is preparing to implement these
alternative plans.

<PAGE>

As of December 31, 1998, pursuant to the indenture that governs the
terms of the COLAs (the "Indenture"), the Company elected to offer to
redeem (the "Class B COLA Redemption Offer") all Class B COLAs from the
registered holders, thereby eliminating AJF's Class B COLA repurchase
obligations with respect to such holders as of June 1, 1999. Pursuant to
the Class B COLA Redemption Offer mailed on March 15, 1999 to the Class B
COLA holders, and in accordance with the terms of the Indenture, the
Company was therefore obligated to purchase any and all Class B COLAs
submitted pursuant to the Class B COLA Redemption Offer at a price of $410
per Class A COLA.

The Class B COLA Redemption Offer terminated on April 15, 1999 in
accordance with its terms and with the Indenture. Approximately 162,587
Class B COLAs were submitted for repurchase pursuant to the Class B
Redemption Offer including approximately 98,257 Class B COLAs which were
submitted for repurchase by persons unaffiliated with the Company, and
required an aggregate cash payment by the Company of approximately $40.3
million on June 1, 1999. On June 1, 1999, the Company borrowed
approximately $21.3 million from AF Investors, LLC ("AF Investors") to
redeem a portion of the Class B COLAs pursuant to the Class B Redemption
Offer. Under the terms of the Indenture, such amount borrowed from AF
Investors is Senior Indebtedness that matures on December 31, 2008 and
bears interest at a rate per annum of prime (8.25% at September 30, 1999)
plus 1% (see deferral of interest discussion above). Additional interest
may be payable on such Senior Debt upon its maturity based upon fair market
value, if any, of the Company's equity at that time. AF Investors
submitted approximately 64,330 of its 89,325 Class B COLAs for repurchase
pursuant to the Class B Redemption Offer and AF Investors agreed to take
back Senior Debt of the Company in lieu of cash. Such Senior Debt matures
on December 31, 2008 and bears interest, at a rate per annum equal to the
prime rate (8.25% at September 30, 1999) plus 1% (see deferral of interest
discussion above). Additional interest may be payable on such Senior Debt
upon its maturity based upon the fair market value, if any, of the
Company's equity at that time. AF Investor's Class B COLAs were
contributed by Amfac Finance Limited Partnership ("Amfac Finance"), an
Illinois Limited partnership and an affiliate of the Company, to AF
Investors in December 1998.

As a result of the Class B COLA repurchases, the Company retired
approximately $81.3 million face value of COLA debt and correspondingly
recognized a financial statement gain of approximately $14.6 million of
which approximately $8.8 million is attributable to the retirement of COLA
debt held by persons unaffiliated with the Company. Such financial
statement financial statement extraordinary gain was reduced by applicable
income taxes of $7.2 million, the write-off of an applicable portion of
deferred financing costs and other expenses of approximately $3.7 million
and increased by the reversal of previously accrued deferred contingent
based interest of approximately $7.6 million resulting in a financial
statement extraordinary gain of approximately $11.3 million. The tax
payable on the gain (approximately $2.0 million) related to the Class B
COLAs which were submitted for repurchase by persons unaffiliated with the
Company pursuant to the Class B COLA Redemption offer is not indemnified by
the tax agreement with Northbrook (see Note 1).

As of December 31, 1998, the Company agreed to exercise its option to
redeem Class B COLAs that are "put" to AJF for repurchase, in partial
consideration for (a) the agreements by the Company's affiliates, Fred
Harvey Transportation Company ("Fred Harvey") and AF Investors, to defer
until December 31, 2001 all interest accruing from January 1, 1998 through
December 31, 2001 and relating to the approximately $100 million of Senior
Indebtedness of the Company currently owing to Fred Harvey and the
approximately $48,000 of Senior Indebtedness of the Company currently owing
to AF Investors (as described in Note 4); and (b) Northbrook agreeing to
cause approximately $55.1 million of the Company's indebtedness that was
senior to the COLAs to be contributed to the capital of the Company. In
connection with the foregoing deferral of interest and contribution of
capital, the Company agreed to allow the Senior Debt held by Northbrook and

<PAGE>

its affiliates to be secured by assets of the Company. As a result of the
contribution, in the Company's December 31, 1998 balance sheet, the
"Amounts due to affiliates - senior debt financing" were decreased, and the
Company's "Member's equity (deficit)" was increased, by approximately $55.1
million. The deferral of interest, together with this contribution to
capital, were made as part of the Company's effort to alleviate significant
liquidity constraints and continue to meet the Value Maintenance Ratio
requirement under the Indenture. At current interest rates, and assuming
no further advances of Senior Indebtedness, approximately $62 million of
such deferred interest relating to all Senior Indebtedness existing at
September 30, 1999 will become due and payable on December 31, 2001. There
can be no assurance that, at such time, the Company will either (i) have
unrestricted cash available for meeting such obligation or (ii) have the
ability to refinance such $62 million obligation. Failure to meet such
obligation, if called, would cause all Senior Indebtedness owing to Fred
Harvey or other Northbrook affiliates to be immediately due and payable. A
default on Senior Indebtedness of such magnitude could constitute an event
of default under the Indenture. To the extent that Northbrook or any of
its affiliates make additional advances of Senior Indebtedness to the
Company during 1999 (as described above), interest in excess of $62 million
will be due and payable on December 31, 2001 and such excess could be
substantial.

In recent years, the Company has funded its significant cash
requirements primarily through senior debt borrowings from Northbrook and
one of its subsidiaries and from revenues generated by the development and
sale of its properties. Significant short-term cash requirements relate to
the funding of agricultural deficits, interest expenses, costs to process
the SMA permit for North Beach, development costs on Oahu and Maui and
overhead expenses. At September 30, 1999, the Company had unrestricted
cash and cash equivalents of approximately $10.6 million. The Company
intends to use its cash reserves, land sales proceeds and proceeds from new
financings or joint venture arrangements to meet its short-term liquidity
requirements. However, there can be no assurance that new financings can be
obtained or property sales completed. The Company's land holdings on Maui
and Kauai are its primary sources of future land sale revenues. However,
due to current market conditions, the difficulty in obtaining land use
approvals and the high development costs of required infrastructure, the
Company does not believe that it will be able to generate significant
amounts of cash in the short-term from the development of these lands. As a
result, the Company is marketing for sale certain unentitled agricultural
and conservation parcels.

The Company has placed for sale a relatively large portion of its land
holdings to generate cash to finance the Company's operations and to meet
debt service requirements. The Company has approximately 460 acres of land
on Kauai and 20 acres on Maui currently listed for sale. These lands
consist primarily of unentitled agricultural and conservation parcels.
Approximately 1,400 acres of land on Kauai are currently under contract for
sale. However, the contract has a due diligence investigation period which
allows the prospective purchaser to terminate the agreement. There can be
no assurance that the signed contract for sale will in fact close under
their current terms and conditions or any other terms or that the Company
will be successful in selling these lands at acceptable prices.

During the first nine months of 1999, the Company generated
approximately $5.7 million from the sale of approximately 800 acres on Maui
and Kauai. In October 1999, the Company sold in bulk the 17 acre parcel 21
on Maui for $4.5 million. While the Company is pursuing other bulk parcel
sales, there can be no assurance that any such sales will be consummated.
During all of 1998, the Company generated approximately $41.3 million of
land sales, of which approximately $16 million came from the sale of the
6,700 acre Kealia parcel in June 1998. The Company received $11.2 million
in cash from the sale of the Kealia parcel ($5.6 million at closing and
$5.6 million from subsequent installment payments); the remaining $4.8
million was received (pursuant to the terms of a first mortgage note and
amendment) in March 1999. The sale of the 740-acre Olowalu parcel on Maui
closed in September 1998 for a sales price of $9.6 million, paid in full at

<PAGE>

closing. The Company was able to lease back approximately 395 acres of the
mauka ("towards the mountains") portion of Olowalu for its agricultural
operations. The lease is currently in the process of being terminated. In
November 1998, the Company received approximately $7.7 million in cash from
the sale of certain mill-site property at Oahu Sugar. The Company used a
portion of the proceeds to pay down $6 million on the Company's $10 million
City Bank loan in November 1998 and received a one-year extension on the
repayment of the $4 million remaining balance. Additionally in 1998, the
Company generated approximately $4.1 million of lot sales related to
Kaanapali Golf Estates and approximately $3.0 million primarily from the
sale of unentitled agricultural and conservation land parcels on Kauai and
Hawaii.

The Company continues to implement certain cost savings measures and
to defer certain development costs and capital expenditures for longer-term
projects. The Company's Property segment expended approximately $7.0
million in project costs during 1998, and anticipates expending
approximately $4.2 million in project costs during 1999. As of September
30, 1999, contractual commitments related to project costs totaled
approximately $1.4 million.

The Company has completed the purchase of its former joint venture
partner's 50% interest in the 96 acre beachfront parcel commonly referred
to as Kaanapali North Beach. The Company and Tobishima Pacific, Inc.
("TPI") were unable to agree on key operating decisions related to the
development of the Kamapali Ocean Resort ("KOR") and the future development
plan for the entire North Beach property. To break the deadlock on these
issues, the Company exercised a buy/sell option using a $12 million stated
purchase price, and TPI elected to sell its interest. The Company financed
80% of the purchase price for TPI's interest in North Beach and signed a
note and first mortgage in favor of TPI for $9.6 million. The note is
payable in five equal, annual principal installments beginning in September
1999 and with interest at 8.5% per annum payable quarterly beginning in
December 1998. In January 1999, the Company paid TPI $2.2 million on its
note to release Lot #1 for KOR and the new 10-acre public recreation area
at North Beach and an additional $1.9 million in September 1999 as required
under the terms of the note.

The Company has made significant changes in the operations of its
sugar plantations in an effort to reduce operating costs and increase
productivity. The sugar industry in Hawaii has experienced significant
difficulties for a number of years. Growers in Hawaii have long struggled
with high costs of production, which have led to the closure of many
plantations, including the Oahu Sugar Company. Transportation costs of raw
sugar to the C&H refinery are also significant. Over the years, the
Company has implemented numerous cost reduction and consolidation plans.

After lengthy negotiations with the union, in April 1998, the union
membership at the Kauai plantation ratified a two-year contract which
included a 10% reduction in wages as well as other concessions. In June
1998, the union membership at Pioneer Mill ratified a three-year contract
which included a 9% reduction in wages for one year as well as other
concessions. Although the concessions will have a meaningful, positive
impact on current operations, they do not provide the type of structural
changes that the Company was seeking to provide for long-term profitability
and a secure future for the Company's sugar operations.

The Company has completed its final harvest of sugar cane at Pioneer
Mill on Maui in September 1999 in conjunction with its plans to shut down
its sugar operations at Pioneer Mill on Maui at the end of the 1999 harvest
season. Pioneer Mill had consistently incurred losses in prior years and
it was expected that those losses would continue in the future. The
Company expects to use portions of the land at Pioneer Mill for alternative
crops. The Company's estimated future costs to shut down sugar operations
at Pioneer Mill are not expected to have a material adverse effect on the
financial condition of the Company.

<PAGE>

The price of raw sugar has fallen from approximately 22 cents / lb. to
17 cents / lb. for current deliveries. Futures prices for 2000 are not
much better as they range from 18 cents / lb. to 19 cents/ lb. The Company
has hedged (effectively pre-sold) a portion of the 1999 deliveries and does
expect any material impact in 1999 resulting from the current years raw
sugar price reduction. At the current price levels, the Company
anticipates receiving approximately $3.9 million less in net sugar proceeds
from its 2000 harvest than originally forecasted. As the futures prices
for 2000 have generally not exceeded the Company's break-even price, the
Company is only 5% hedged for year 2000 deliveries. If the USDA continues
to manage the sugar program at the current price levels, it is doubtful
that the Company will be able to sustain its sugar business on Kauai for
more than another year or two.

Company management cannot predict precisely the actual cost of a
plantation shutdown until a shut down plan is developed. There are a
significant number of factors that impact the actual cost including: the
exact timing of the shutdown, potential environmental issues (currently
unknown), the market and pricing for the possible sale or lease of the
plantation's field and mill equipment, and employee termination costs
(which are subject to union negotiation). Other significant unknowns (in
the case of Kauai) relate to the costs associated with terminating the
power sale agreements with the local utility company.

Decisions regarding the future of the Company's sugar operations will
be made on a year-to-year basis taking into account the current year's
operating results and forecasts for the upcoming year. There can be no
assurance that the Company will continue with sugar production in the
future.

Changes in the price of raw sugar could also impact the level of
agricultural deficits, and as a result the annual cash needs of the
Company. Although government legislation, which is in place through 2002,
sets a target price range for raw sugar, it is possible that such
legislation could be amended or repealed resulting in a reduction in the
price of raw sugar. Such a reduction could also cause the Company to
consider the shutdown of its remaining sugar plantation.

During the first nine months of 1999, cash decreased by $12.9 million
from December 31, 1998. Net cash provided by operating activities of $8.1
million and investing activities of $4.4, was offset by cash used in
financing activities of $25.4 million.

During the first nine months of 1999, net cash flow provided by
operating activities was $8.1 million, as compared to net cash used in
operating activities of $3.8 million during the first nine months of 1998.
The $11.9 million increase in cash flow provided by operating activities
was due primarily to (i) a $6.4 million improvement in the operating loss
after adjustment for non-cash items due to the decrease in the operating
loss of $4.3 million from $8.9 million for the nine months ended
September 30, 1999 and September 30, 1998, respectively (as discussed in
Results of Operations below), (ii) a $6 million decrease in receivables in
1999 related to the collection of $7.6 million in receivables related
primarily to prior year land sales partially offset by a $.9 million
increase in receivables related to sugar operations compared to the $16.7
million increase in receivables in 1998 primarily the result of land sales
and receivables related to sugar operations, (iii) a $12.6 million decrease
in Inventories for the nine months ended September 30, 1999 as compared to
a decrease of $30.5 million for the nine months ended September 30, 1998
due to the decrease in the volume of land sales in 1999 and a decrease in
agricultural inventories primarily as a result of the timing of the start
of sugar harvest season in 1999, (iv) an increase in accrued expenses of
$4.3 million in 1999 compared to a $.4 million decrease in 1998 primarily
due to an increase in accrued interest due to ERS (Note 4) and (v) offset
in part by a decrease of $2.6 million in amounts due to affiliates in 1999
primarily as a result of repayments to an affiliate compared to a $1.1
million increase in 1998.

<PAGE>

During the first nine months of 1999, net cash flow provided by
investing activities was $4.4 million as compared to $17.5 million used
during the first nine months of 1998. The $21.9 million increase in net
cash provided by investing activities was principally due to an increase in
net property sales, disposals and retirements of $10.4 million offset in
part by a decrease in other liabilities of $1.9 million primarily due to
the stock sale of Kaanapali Water Corporation (discussed below) and a $13.2
million decrease in property additions primarily due to the 1998
acquisition of Tobishima Pacific, Inc.'s 50% ownership interest in North
Beach (as discussed in Results of Operations).

During the first nine months of 1999, net cash flow used in financing
activities was $25.4 million compared to $33.3 million provided in the
first nine months of 1998. The $58.7 million decrease in cash provided
from financing activities is due primarily to $40.3 million cash used to
redeem the Class B COLAs on June 1, 1999 (discussed below) offset in part
by $21.3 million in cash advances from affiliates compared to $24.8 million
in cash advances from affiliates during the first nine months of 1998 and a
$6.1 million decrease in long-term debt as compared to a net increase of
$8.5 million in 1998.

As the Company's sugar production decreases, the Company's water needs
will also decrease. Subject to significant state regulatory restrictions,
excess water may be used for other purposes and the Company is exploring
alternative uses for such water. Waiahole Irrigation Company, Limited
("WIC") is a wholly-owned subsidiary of the Company and previously owned
and operated a water collection and transmission system on the island of
Oahu commonly referred to as the "Waiahole Ditch" (a series of tunnels and
ditches constructed in the early 1900's). The Waiahole Ditch has the
capacity to transport approximately 27 million gallons of water per day
from the windward part of Oahu to the central Oahu plain leeward of the
Ko'olau mountain range. This water was used by the Company's Oahu Sugar
operations from the early 1900s until 1995, when the plantation was closed.

After the closure of Oahu Sugar in 1995, WIC negotiated a collective
agreement with several farms and golf courses (the "Users") to deliver
irrigation water to them for a fee. However, to consummate these
agreements, water permits (the "Water Permits") were applied for from the
State of Hawaii Water Commission (the "Water Commission"). The Water
Commission issued a final decision in December 1997 relating to the Water
Permits which allowed only about one-half of the capacity of the Waiahole
Ditch to be transported through the system. The continued operation of the
Waiahole Ditch and receipt of the delivery fees (from the agreement with
the Users) were predicated upon an allocation from the Water Commission at
or near the capacity of the Waiahole Ditch. When the lower allocation was
received, WIC terminated the agreements with the Users.

After several months of discussions with prospective purchasers, the
Company reached an agreement in June 1998 with the State of Hawaii pursuant
to which the State would purchase substantially all of the assets of WIC
for $8.5 million (which includes 450 acres of conservation land). The
purchase was subject to various conditions, including state legislative
approval (which was obtained in May 1998) and resolution of certain third
party claims to water within WIC's system on the Island of Oahu. All of
the contingencies were resolved and the sale was consummated in July 1999
(with a payment by WIC of approximately $2.5 million to a third party to
resolve its water claim).

In February 1999, the Company signed a stock purchase agreement for
the sale of Kaanapali Water Corporation, the Company's water utility
business on West Maui for $5.5 million. This water utility serves the
Kaanapali Beach Resorts. The sale received the approval of the State of
Hawaii Public Utilities Commission and successfully closed on May 25, 1999.

COLA RELATED OBLIGATIONS. AJF and the Company were parties to the
Repurchase Agreement pursuant to which AJF was obligated to repurchase on
June 1, 1999 the Class B COLAs tendered by the holders thereof. Northbrook

<PAGE>

agreed, pursuant to the Keep-Well Agreement, to contribute sufficient
capital or make loans to AJF to enable AJF to meet the COLA repurchase
obligations, if any, described above. In addition, the Company was
obligated to cause AJF to comply with AJF's repurchase obligation. AJF did
not have significant assets, and the Company was uncertain of the extent to
which AJF would be able to perform its repurchase obligation. Notwith-
standing AJF's repurchase obligations, the Company elected to redeem the
Class B COLAs that were "put" to AJF for repurchase.

The COLAs were issued in units consisting of one Class A COLA and one
Class B COLA. As of September 30, 1999, the Company had approximately
155,271 Class A COLAs and approximately 123,526 Class B COLAs outstanding,
with a principal balance of approximately $78 million and $62 million,
respectively. At September 30, 1999, the cumulative interest paid per
Class A COLA and Class B COLA was approximately $225 and $225,
respectively.

As of December 31, 1998, under the terms of the Indenture, the Company
elected to offer to redeem (the "Class B COLA Redemption Offer") all Class
B COLAs from the registered holders, thereby eliminating AJF's Class B COLA
repurchase obligation with respect to such holders as of June 1, 1999.
Pursuant to the Class B COLA Redemption Offer mailed on March 15, 1999 to
the COLA holders, and in accordance with the terms of the Indenture, the
Company was therefore obligated to purchase any and all Class B COLAs
submitted pursuant to the Class B COLA Redemption Offer at a price of $410
per Class B COLA.

The Class B COLA Redemption Offer terminated on April 15, 1999 in
accordance with its terms and with the Indenture. Approximately 162,277
Class B COLAs were submitted for repurchase pursuant to the Class B
Redemption Offer of which approximately 98,257 Class B COLAs were submitted
for repurchase by persons unaffiliated with the Company and which required
an aggregate cash payment by the Company of approximately $40.3 million on
June 1, 1999. On June 1, 1999, the Company borrowed approximately $21.3
million from AF Investors, LLC ("AF Investors") to redeem a portion of the
Class B COLAs pursuant to the Class B COLA Redemption Offer. Pursuant to
the terms of the Indenture, such amount borrowed from AF Investors is
Senior Indebtedness that matures on December 31, 2008 and bears interest at
a rate per annum of prime (8.25% at September 30, 1999) plus 1% (see
deferral of interest discussion - note 3). Additional interest may be
payable on such Senior Indebtedness upon its maturity based upon fair
market value, if any, of the Company's equity at that time. AF Investors
submitted approximately 64,330 of its 89,325 Class B COLAs for repurchase
pursuant to the Class B Redemption Offer and AF Investors agreed to take
back senior debt of the Company in lieu of cash. Such Senior Indebtedness
matures on December 31, 2008 and bears interest at a rate per annum equal
to the prime rate (8.25% at September 30, 1999) plus 1%. Additional
interest may be payable on such Senior Indebtedness upon its maturity based
upon the fair market value, if any, of the Company's equity at that time.
AF Investors' Class B COLAs were contributed by Amfac Finance Limited
Partnership ("Amfac Finance"), an Illinois Limited partnership and an
affiliate of the Company, to AF Investors in December 1998.

As a result of the Class B COLA repurchases, the Company retired
approximately $81.3 million face value of COLA debt and correspondingly
recognized a financial statement gain of approximately $14.6 million of
which $8.8 million is attributable to the retirement of COLA debt held by
persons unaffiliated with the Company. Such financial statement gain was
reduced by applicable income taxes of approximately $7.2 million, the
write-off of an applicable portion of deferred financing costs and other
expenses of approximately $3.7 million increased by the reversal of
previously accrued deferred contingent base interest of approximately $7.6
million resulting in a financial statement extraordinary gain of
approximately $11.2 million. The tax payable on the gain (approximately
$2.0 million) related to the Class B COLAs which were submitted for
repurchase by persons unaffiliated with the Company pursuant to the Class B
COLA Redemption Offer is not indemnified under the tax agreement with
Northbrook (see Note 1).

<PAGE>

On January 30, 1998, Amfac Finance extended a tender offer to purchase
(the "Class B Tender Offer") up to $65.4 million principal amount of
separately certificated Class B COLAs ("Separate Class B COLAs") for cash
at a unit price of $375 to be paid by Amfac Finance on each Separate Class
B COLA tendered on or about March 24, 1998. The maximum cash to be paid
under the Class B Tender Offer was approximately $49.0 million (130,842
Separate Class B COLAs at a unit price of $375 each). Approximately 62,857
Separate Class B COLAs were submitted to Amfac Finance for repurchase
pursuant to the Class B Tender Offer, requiring an aggregate payment by
Amfac Finance of approximately $23.6 million on March 31, 1998. In
addition, on October 23, 1998, Amfac Finance extended a Tender Offer to
purchase (the "Class A/B Tender Offer") up to approximately $22.5 million
principal amount of jointly certificated Class A and B COLAs (together
"COLA Units") for cash at a unit price of $460 to be paid by Amfac Finance
on each COLA Unit on or about December 23, 1998. The maximum cash to be
paid under the Class A/B Tender Offer was approximately $12.2 million
(26,600 COLA Units at a unit price of $460 for each COLA Unit).
Approximately 26,473 COLA Units were submitted to Amfac Finance for
repurchase pursuant to the Class A/B Tender Offer, requiring an aggregate
payment by Amfac Finance of approximately $12.2 million on December 23,
1998. Neither the Class B nor the Class A/B Tender Offer reduced the
outstanding indebtedness of the Company. In December 1998, Amfac Finance
contributed its COLAs to AF Investors. The COLAs still held by AF
Investors remain outstanding pursuant to the terms of the Indenture.
Except as provided in the last sentence of this paragraph, AF Investors is
entitled to the same rights and benefits of any other holder of COLAs,
including having the right to have AJF repurchase on June 1, 1999, the
separate Class B COLAs that it owned. As discussed above, AF Investors
submitted approximately 64,330 of its 89,325 Class B COLAs for repurchase
pursuant to the Class B COLA Redemption Offer. AF Investors agreed to take
back senior debt of the Company for the portion of Class B COLAs so put in
lieu of cash. Because AF Investors is an affiliate of the Company, AF
Investors will not be able to participate in determining whether the
holders of the required principal amount of debt under the Indenture have
concurred in any direction, waiver or consent under the terms of the
Indenture.

As a result of the Class B and Class A/B Tender Offers, the Company
recognized approximately $7.9 million and $14.3 million, respectively, of
taxable gain in accordance with income tax regulations for certain
transactions with affiliates. Such gain is treated as cancellation of
indebtedness income for income tax purposes only and, accordingly, the
income taxes related to the Class B Tender Offer (approximately $3.1
million) and Class A/B Tender Offer (approximately $5.7 million) were, or
will be, indemnified by Northbrook through the tax agreement between
Northbrook and the Company (See Note 1).

Pursuant to the terms of the Indenture, the Company is required to
maintain a Value Maintenance Ratio (defined in the Indenture) of 1.05 to
1.00. Such ratio is equal to the relationship of the Company's Net Asset
Value to the sum of: (i) the outstanding principal amount of the COLAs,
(ii) any unpaid Base Interest that is required to be paid, and (iii) the
outstanding principal balance of any Indebtedness incurred to redeem COLAs
(the "COLA Obligation"). Net Asset Value represents the excess of the Fair
Market Value (as defined in the Indenture) of the gross assets of the
Company over the liabilities of the Company other than the COLA obligations
and certain other liabilities. The COLA Indenture requires the Company to
obtain independent appraisals of the fair market value of the gross assets
used to calculate the Value Maintenance Ratio as of December 31 in each
even-numbered calendar year.

The Company has received independent appraisals indicating that the
appraised value of substantially all of its gross assets as of December 31,
1998, was at least approximately $453 million. Based upon the appraisals
and, where a lower value was indicated, a contract to sell, the Company was
able to meet the Value Maintenance Ratio as of December 31, 1998. It should

<PAGE>

be noted that, under the Indenture, the concept of Fair Market Value
generally is defined as the value that an independent arm's-length
purchaser, seeking to utilize such asset for its highest and best use,
would pay, taking into consideration the risks and benefits associated with
such use or development, current restrictions on development (including
zoning limitations, permitted densities, environmental restrictions, and
restrictive covenants) and the likelihood of changes to such restrictions;
provided, however, that with respect to any Fair Market Value determination
of all of the assets of the Company, such assets shall not be valued as if
sold in bulk to a single purchaser. There can be no assurance that the
Company will be able to sell its real estate assets for their aggregate
appraised value. Because of the size and diversity of the real estate
holdings of the Company and the uncertainty of the Hawaii real estate
market, it is likely that it would take a considerable period of time for
the Company to sell its assets. In recent years, the Company has sold some
of its real estate for less than their appraised value to meet cash needs.

The Company uses the effective interest method and as such interest on
the COLAs is accrued at the Mandatory Base Interest rate (4% per annum).
The Company has not generated a sufficient level of Net Cash Flow to incur
or pay Contingent Base Interest (interest in excess of 4%) on the COLAs
(see Note 3) from 1990 through 1998. Contingent Base Interest through 2008
is due and payable only to the extent of Net Cash Flow. Net Cash Flow for
any period is generally an amount equal to 90% of the Company's net cash
revenues, proceeds and receipts after payment of cash expenditures,
excluding federal and state income taxes and after the establishment by the
Company of reserves. At December 31, 2008, certain levels of Contingent
Base Interest may also be due and payable to the extent of Maturity Market
Value. Maturity Market Value generally means 90% of the excess of the Fair
Market Value of the Company's assets at maturity over its liabilities
(including Qualified Allowance (described in the next paragraph), but only
to the extent earned and payable from Net Cash Flow generated through
maturity) at maturity. Approximately $81.4 million of cumulative
deficiency of deferred Contingent Base Interest related to the period from
August 31, 1989 (Final Issuance Date) through September 30, 1999 has not
been accrued in the accompanying consolidated financial statements as the
Company believes that it is not probable at this time that a sufficient
level of Net Cash Flow will be generated in the future or that there will
be sufficient Maturity Market Value as of December 31, 2008 (the COLA
maturity date) to pay any such unaccrued deferred Contingent Base Interest.
The following table is a summary of Mandatory Base Interest and deferred
Contingent Base Interest (i.e. not currently due and payable) for the nine
months ended September 30, 1999 and the year ended December 31, 1998
(dollars are in millions):

Nine Months The Year
Ended Ended
September 30, December 31,
1999 1998
------------ ------------

Mandatory Base Interest paid. . . . . . . $ 7.2 8.8
Contingent Base Interest due and paid . . --
Cumulative deferred Contingent Base
Interest. . . . . . . . . . . . . . . . $ 81.4 120.7

Net Cash Flow was $0 for 1998 and is expected to be $0 for 1999.

Cumulative deferred Contingent Base Interest as discussed above is
calculated based upon the face amount of Class A and Class B COLAs
outstanding. The face amount of COLAs outstanding decreased to
approximately $139.4 million at September 30, 1999 from approximately
$220.7 million at December 31, 1998 resulting from the retirement of
approximately $81.3 million face of COLAs pursuant to the Class B COLA
Redemption Offer discussed below, and accordingly, the Cumulative deferred
Contingent Base Interest decreased from $120.7 million at December 31, 1998
to $81.4 at September 30, 1999.

<PAGE>

With respect to any calendar year, JMB Realty Corporation ("JMB"), an
affiliate of the Company, or its affiliates may receive a Qualified
Allowance in an amount equal to 1.5% per annum of the Fair Market Value of
the gross assets of the Company (other than cash and cash equivalents and
certain other types of assets as provided for in the Indenture) for
providing certain advisory services to the Company. The aforementioned
advisory services, which are provided pursuant to a 30-year Services
Agreement entered into between the Company and JMB in November 1988,
include making recommendations in the following areas: (i) the construction
and development of real property; (ii) land use and zoning changes; (iii)
the timing and pricing of properties to be sold; (iv) the timing, type and
amount of financing to be incurred; (v) the agricultural business; and (vi)
the uses (agricultural, residential, recreational or commercial) for the
land. However, the Qualified Allowance shall be earned and paid for each
year prior to maturity of the COLAs only if the Company generates
sufficient Net Cash Flow to pay Base Interest for such year in an amount
equal to 8%. Any portion of the Qualified Allowance not paid for any year
shall cumulate without interest and JMB or its affiliates shall be paid
such deferred amount in succeeding years, only after the payment of all
Contingent Base Interest for such succeeding year and then, only to the
extent that Net Cash Flow exceeds levels specified in the Indenture.

A Qualified Allowance for 1989 of approximately $6.2 million was paid
on February 28, 1990. Approximately $74.1 million of Qualified Allowance
related to the period from January 1, 1990 through December 31, 1998 has
not been earned and paid, and is payable only to the extent that future Net
Cash Flow is sufficient. Accordingly, because the Company does not believe
it is probable at this time that a sufficient level of Net Cash Flow will
be generated in the future to pay the Qualified Allowance, the Company has
not accrued for any Qualified Allowance payments in the accompanying
consolidated financial statements. JMB has informed the Company that no
incremental costs or expenses have been incurred relating to the provision
of these advisory services. The Company believes that using an incremental
cost methodology is reasonable. The following table is a summary of the
Qualified Allowance for the year ended December 31, 1998 (dollars are in
millions):

1998
------

Qualified Allowance calculated. . . . . . . . . . . . . . . $ 9.8
Qualified Allowance paid. . . . . . . . . . . . . . . . . . --
Cumulative deficiency of Qualified Allowance at end of year $ 74.1

After the maturity date of the COLAs, JMB will continue to provide
advisory services pursuant to the Services Agreement, the Qualified
Allowance for such years will continue to be 1.5% per annum of the Fair
Market Value of the gross assets of the Company and its subsidiaries, and
the Qualified Allowance will continue to be payable from the Company's Net
Cash Flow. Upon the termination of the Services Agreement, if there has not
been sufficient Net Cash Flow to pay the cumulative deficiency in the
Qualified Allowance, if any, such amount would not be due or payable to
JMB.

Upon maturity, holders of COLAs will be entitled to receive the
remaining outstanding principal balance of the COLAs plus unpaid Mandatory
Base Interest plus additional interest equal to certain levels of unpaid
Contingent Base Interest, to the extent of the Maturity Market Value of the
Company's assets at maturity over its liabilities (including Qualified
Allowance, but only to the extent earned and payable from Net Cash Flow
generated through maturity) at maturity, which liabilities have been
incurred in connection with its operations), plus 55% of the remaining
Maturity Market Value.

<PAGE>

RESULTS OF OPERATIONS

GENERAL:

The Company and its subsidiaries report their taxes as a part of the
consolidated tax return for Northbrook. The Company and its subsidiaries
have entered into a tax indemnification agreement with Northbrook, which
indemnifies the Company and its subsidiaries for responsibility for all
past, present and future federal and state income tax liabilities (other
than income taxes which are directly attributable to cancellation of
indebtedness income caused by the repurchase or redemption of securities as
provided for in or contemplated by the Repurchase Agreement).

Current and deferred taxes have been allocated to the Company as if
the Company were a separate taxpayer in accordance with the provisions of
SFAS No. 109 - Accounting for Income Taxes. However, to the extent the tax
indemnification agreement does not require the Company to actually pay
income taxes, current taxes payable or receivable (excluding income taxes
which are directly attributable to cancellation of indebtedness income
caused by the repurchase or redemption of securities as provided for in or
contemplated by the Repurchase Agreement) have been reflected as deemed
contributions to additional paid-in capital or distributions from related
earnings (deficit)/member's equity (deficit) in the accompanying
consolidated financial statements. As such, the deferred income tax
liabilities reflected on the Company's consolidated balance sheet are not
expected to result in cash payments by the Company.

YEAR 2000

The year 2000 issue is the result of computer programs being written
using two digits rather than four to define a year. Consequently, any
computer programs that have time-sensitive software may recognize a date
using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations
including, among other things, a temporary inability to process
transactions or engage in other normal business activities.

The Company is reviewing its computer systems for year 2000
compliancy. The Company has completed an internal assessment of its
information system technology and currently does not anticipate material
hardware upgrades; however, it had determined a need to upgrade portions of
the Company's software so that its computer systems would function properly
with respect to dates in the year 2000 and thereafter.

The Company has completed an internal review of its accounting, human
resources and payroll applications which are supported by approximately six
different major software vendors. Except for the golf course division, the
Company has received software upgrades for the financial applications and
has completed testing and implementation of the new software upgrades. The
Company has installed the software upgrade for the payroll application,
which is expected to be year 2000 compliant. However, the Company uses a
third party service bureau to process its payroll and it is not currently
possible to conduct testing to verify that the software provided will be
year 2000 compliant. The Company has not incurred and does not expect to
incur any costs with respect to the testing and implementation of the
software upgrades. The accounting systems at the golf courses are not yet
year 2000 compliant. The Company has completed the software and hardware
upgrades at its Kaanapali Golf Courses and currently expects to complete
the software and related hardware upgrades at the Waikele Golf Club by the
end of November 1999 at a cost of approximately $70,000 to $80,000.
However, in the event the Company's system reveals that, contrary to
software vendors' claims, the system upgrades or new software are not year
2000 compliant, the Company believes it has the ability to make the
necessary changes through the use of third party consultants as well as the
utilization of internal resources. The Company does not have an estimate
of the length of time which could potentially be required to make these
changes, nor an estimate of the costs involved to make such changes.

<PAGE>

The Company's Agriculture and Property operations (which include the
development and sales activities of the Company's land operations) and the
Company's Golf operations have reviewed their operational systems. Key
third party vendors with whom these operations have a material relationship
were contacted to determine their year 2000 readiness. While these vendors
have indicated that they are or expect to be year 2000 compliant by the end
of 1999, there can be no assurance that they will be successful in their
efforts to become year 2000 compliant. A disruption in service and/or
supplies may disrupt the Company's ability to process and deliver its
agricultural products to market, the conduct of its real estate activities
and/or its golf operations. A resulting loss in revenues might have a
material adverse effect on the financial position of the Company.

The Company's transfer agent has been upgrading its computer systems
so that its computer systems will function properly with respect to dates
in the years 2000 and thereafter. The Company's transfer agent has begun
testing its computer systems and will continue to test throughout 1999.
The Company has no contingency plans in place in the event that the
Company's transfer agent systems upgrades are not year 2000 compliant.

The Company has reviewed its non-information technology systems (such
as its telephone, utilities, sprinkler and alarm systems) and has contacted
the appropriate third party vendors to determine their year 2000
compliancy. The Company does not have an estimate of the cost, if any,
that may be required to make its non-information systems year 2000
compliant. In addition, the Company has begun contacting the various
banks, insurance companies and state regulatory agencies with whom the
Company has material relationships to determine their year 2000 readiness.
The entities contacted have indicated that they are currently implementing
and/or are testing the required changes to be year 2000 compliant.

If the steps taken by the Company and its vendors to be year 2000
compliant are not successful, the Company could experience various
operational difficulties. These could include, among other things, an
inability to process transactions to the correct accounting period,
difficulties in posting general ledger interfaces, an inability to process
computer-generated checks, bank transactions posted to the wrong periods,
and the failure of scheduling applications which are date sensitive.

The Company currently has no contingency plans in place in the event
it does not complete all phases of the year 2000 compliance program. The
Company plans to continue to monitor the on-going results of the review and
testing phases as well as the status of completion to determine whether
such a plan is necessary.

The foregoing discussion of year 2000 issues and the Company's
responses thereto is based upon information presently known and certain
assumptions and estimates (including those relating to costs and timing of
remediation) currently made by the Company, as well as statements and
representations made to the Company by its third party vendors. There are
various risks that assumptions and estimates made by the Company will not
prove to be correct, that delays in testing or remediation may occur and/or
that significant additional remediation efforts may be required. In
addition, the Company is also relying on the efforts and statements and
representations of third parties, in particular its third party software
vendors. Accordingly, the information concerning the year 2000 issues and
the Company's responses thereto, including the nature, extent, timing and
cost of the Company's remediation efforts, are subject to change and such
changes could be material. In addition, there is no assurance that the
software applications and packages currently believed to be year 2000
compliant will prove to be so after testing.

SENIOR DEBT. Interest expense decreased for the three and nine months
ended September 30, 1999 as compared to the three and nine months ended
September 30, 1998 due to a lower senior debt financing from affiliates
balance attributable to Northbrook's contribution of senior debt to capital
discussed above.

<PAGE>

AGRICULTURE SEGMENT:

The Company's Agriculture segment is responsible for activities
related to the cultivation, processing and sale of sugar cane and coffee.
Agriculture's revenues are primarily derived from the Company's sale of its
raw sugar. Reference is made to the "Liquidity and Capital Resources"
section of "Management's Discussion and Analysis of Financial Condition
and Results of Operations" for a discussion of potential uncertainties
regarding the price of raw sugar and the continuation of the Company's
sugar cane operations.

The Company's sugar plantations sell all their raw sugar production to
the Hawaiian Sugar and Transportation Company ("HSTC"), which is an
agricultural cooperative owned by the major Hawaii producers of raw sugar
(including the Company). Pursuant to a long term supply contract, HSTC is
required to sell, and the California and Hawaiian Sugar Company ("C&H") is
required to purchase, all raw sugar produced by the HSTC's cooperative
members. HSTC remits to its cooperative members the remaining proceeds
from its sugar sales after storage, delivery and administrative costs. The
Company recognizes revenues and related cost of sales upon delivery of its
raw sugar by HSTC to C&H.

As part of the Company's agriculture operations, the Company enters
into commodities futures contracts and options in raw sugar as deemed
appropriate to reduce the risk of future price fluctuations. These futures
contracts and options are accounted for as hedges and, accordingly, gains
and losses are deferred and recognized in cost of sales as part of the
production cost.

During the first nine months of 1999 and 1998, agriculture revenues
were $29.2 and $23.0 million, respectively.

Agricultural revenues and cost of sales increased for the nine months
ended September 30, 1999 as compared to the nine months September 30, 1998
due to the increase in tons produced and to the timing of sugar production
as a result of the delay of the sugar harvest season in 1998 attributable
to the timing of the sugar union negotiations and contract ratification.
For the nine months ended September 30, 1999, the Company sold
approximately 76,930 tons of sugar, a 32.9% increase over the same period
in 1998. The average price of sugar sold for the nine months ended
September 30, 1999 of approximately $364 represents a 3% decrease over the
average price for the nine months ended September 30, 1998. The Company
harvested approximately 13,288 and 6,980 acres for the nine months ended
September 30, 1999 and 1998, respectively.

Agricultural revenues and cost of sales decreased for the three months
ended September 30, 1999 as compared to the three months ended September
30, 1998 due to a decrease in the tons of sugar sold primarily attributable
to an overall decrease in yields per acres of sugar harvested of
approximately 49%. Approximately 50% of the decrease in production for the
three months ended September 30, 1999 is attributable to the shutdown of
sugar operations at Pioneer Mill; the remaining 50% decline is attributable
to the Kauai plantations which are moving toward the harvesting of one-year
cane versus two year can which significantly reduces planting efforts and
results in lower yields. Agricultural revenues for the three months ended
September 30, 1999 reflects a $1.3 million decrease attributable to sugar
sold for the six months ended June 30, 1999 as a result of the revised
estimate for the average price per ton of the 1999 sugar crop. The current
estimated return per ton of $345 represents a 3.7% decrease over the
average price for the three months ended September 30, 1998. For the three
months ended September 30, 1999, the Company sold approximately 29,312 tons
of sugar, a 41.4% decrease over the same period in 1998. The Company
harvested approximately 6,157 and 5,316 acres for the three months ended
September 30, 1999 and 1998, respectively. The average price of sugar sold
for the three months ended September 30, 1999 of approximately $303
represents a 15% decrease over the average price for the three months ended
September 30, 1998.

<PAGE>

The operating loss of $6.0 million and $5.7 million for the three and
nine months ended September 30, 1999 as compared to $2.2 and $4.6 million
for the three and nine months ended September 30, 1998, reflects higher
costs associated with the shutdown of Pioneer Mill partially offset by cost
reductions at both Kauai and Maui sugar plantations, the decrease in the
average price of sugar sold and the adjustment to sales for the six months
ended June 30, 1999 as discussed above.

GOLF SEGMENT:

The Company's golf segment is responsible for the management and
operation of the two golf courses at Kaanapali Golf Courses in Kaanapali,
Maui and the Waikele Golf Club on Oahu.

Golf revenues were $3.6 and $11.4 million, respectively, during the
three and nine months of 1999 as compared to $3.3 million and $11.2 million
for the three and nine months ended 1998. During the first nine months of
1999, approximately 144,000 rounds of golf were played as compared to
143,000 during the first nine months of 1998.

Golf cost of sales were $2.2 and $6.5 million during the three and
nine months of 1999 as compared to $2.3 million and $7.1 million for the
three and nine months ended 1998. Golf operating expenses of $976 and
$1,122 million during the first nine months of 1999 and 1998, consisted
primarily of depreciation expense.

The increase in the operating income of $3.4 and $.9 million during
the first three and nine months of 1999 as compared to $2.7 and $.5 million
during the first three and nine months of 1998 was due primarily to the
increase in revenues and decrease in cost of sales (as discussed above).

PROPERTY SEGMENT:

The Company's Property segment is responsible for land planning and
development activities; obtaining land use, zoning and other governmental
approvals; selling or financing developed and undeveloped land parcels.

Revenues decreased to $5.7 million during the first nine months of
1999 from $48.7 million during the first nine months of 1998. Land sales
included revenues for the nine months ended September 30, 1999 of
approximately $5.7 million from the sale of approximately 800 acres on Maui
and Kauai. Land sales included revenues for the nine months ended
September 30, 1998 of approximately $16 million from the sale of the 6,700
acre Kealia parcel on Kauai, $9.6 million from the sale of the 740 acre
Olowalu parcel on Maui, $3.8 million of land sales related to Kaanapali
Golf Estates and $1.9 million primarily from the sale of unentitled
agricultural and conservation land parcels on Kauai and Hawaii.

During the first nine months of 1999, property cost of sales were $8.1
million as compared to $37 million in the first nine months of 1998. The
$28.9 million decrease in costs was due primarily to a decrease in sales
volume associated with land parcels sold (as discussed above).

Property sales and cost of sales decreased for the three and nine
months ended September 30, 1999 as compared to the three and nine months
ended September 30, 1998 due to lower sales volume. Operating income
improved primarily due to slightly improved margins realized on property
sold during 1999 and lower general and administrative expenses.

(a) OAHU.

On the island of Oahu, the Company owns approximately 150 acres of
land classified as urban. After the closure of the Oahu Sugar plantation
in 1995, the Company began developing the 64-acre mill site located in
Waipahu, which is approximately 10 miles west of downtown Honolulu near
Pearl Harbor. The Company received county zoning approval for a light
industrial subdivision on the property.

<PAGE>

In November 1998, the Company sold a portion of this mill site
property, which served as collateral for a $10 million loan from City Bank
for an approximate sales price of $7.7 million in cash (plus 2% of the
gross sales price of subsequent parcel sales of all or any portion of the
property by the purchaser) and paid $6 million of the sales proceeds as a
principal reduction on the loan. The purchaser assumed responsibility for
completion of the infrastructure requirements for this portion of the mill-
site development project. The Company received a one-year extension on
repayment of the $4 million remaining balance of the loan which is secured
by another parcel at the mill-site. The extended loan bears interest at
the bank's base rate (8.25% at September 30, 1999) plus 1.25% and matures
on December 1, 1999. The Company has reached an agreement with the bank
for an additional one year extension on $3 million of the $4 million loan.
The Company made a $1 million loan payment on December 2, 1999. The new
extended loan bears interest at the bank's base rate plus 1.25% and matures
on December 1, 2000.

The Company is marketing the remaining land in bulk at the mill-site
development. The Company does not anticipate expending funds for
infrastructure at this development.

The Company also owns the Waikele Golf Course located at the Company's
completed Waikele project. Waikele is located directly north of the Oahu
Sugar mill site development in Central Oahu. The Waikele Golf Course has
experienced a significant drop in play from eastbound (primarily Japanese)
tour groups which has depressed rounds played, average rate and, as a
result, net operating income. The Company has developed and implemented a
marketing plan to return the golf course to its previous levels of
profitability. It is difficult, however, to predict how effective these
efforts will be. The Waikele Golf Course generated approximately $3.5
million and $3.9 million, respectively, in revenues during the first nine
months of 1999 and 1998, respectively.

(b) MAUI.

In general, the development of the Company's land on Maui is expected
to be long-term in nature. Maui is less populated than Oahu and more
dependent on the resort/tourism industry, so much of the Company's land is
intended for resort and resort-related uses. Due to overall economic
conditions and trends in tourism, demand for these land uses has generally
been weak. The Company's homesite inventory on Maui, which is targeted to
the second home buyer, has experienced slower sales activity over the past
five years than originally expected. Recent demand for these parcels has
improved and the Company has completed the sale of one parcel in October
and is working with perspective buyers on other parcels. The Company is
continuing to evaluate its plans and the timing of development of its land
holdings in light of the current weak market demand and the capital
resources needed for future development.

The Company has determined that the focus of its development efforts
should be on its Kaanapali/Honokowai land holdings (approximately 3,200
acres) on Maui. Although additional governmental approvals are required for
most of these lands, approximately 900 acres of the Company's
Kaanapali/Honokowai land holdings already have some form of entitlements.
The Company believes its development efforts are best concentrated in this
area where it has certain development approvals already secured.

The Company's Kahoma and Launiupoko properties (in total,
approximately 7,000 acres) are considered to be better suited in the near
term for agricultural uses and possibly for lower density, more rural
developments. The Company has decided to sell certain portions of these
land holdings as unentitled parcels, and may consider selling additional
portions of these lands based upon market conditions and the cash needs of
the Company. (See also discussion of land sales in "Management Discussion
and Analysis of Financial Condition and Results of Operations - General".)

Earlier this year, the Company began a new approach to planning for
its Kaanapali lands referred to as community-based planning ("CBP"). This

<PAGE>

process works to involve members from all aspects of the West Maui
community in developing an acceptable plan for the Company's Kaanapali land
holdings. CBP differs from simply obtaining public input in that CBP
actually gives the community a direct role in the Company's planning
process. CBP has been used successfully in several communities on the
mainland such as in Weston, Florida. Management is optimistic that a plan
can be developed that meets the Company's long-term financial objectives
and will be supported by a broad cross section of the community.

The Company owns and operates the Royal Kaanapali Golf Courses
("RKGC"), which are two 18-hole golf courses located at the Kaanapali Beach
Resort on West Maui. The courses occupy approximately 320 acres of land.
The two Kaanapali golf courses generated approximately $7.9 million and
$7.3 million, respectively, in revenues during the first nine months of
1999 and 1998, respectively. (Reference is made to Note 4 concerning the
default notice issued as of January 1, 1999 by the lender concerning the
indebtedness secured by the golf courses.)

KAANAPALI GOLF ESTATES. The Company is marketing Kaanapali Golf
Estates ("KGE"), a residential community that is part of the Kaanapali
Beach Resort in West Maui. KGE is divided into several parcels and is
approved for 340 homesites of which the Company has sold approximately 90
homesites through individual lot and bulk parcel sales.

In May 1997, the Company obtained final subdivision approval for a 32-
lot subdivision of one such parcel, referred to as "Parcel 17B". The
Company commenced on-site construction of the subdivision improvements for
Parcel 17B in August 1997 and completed these improvements in March 1998 at
a cost of approximately $1.7 million. During 1997, the Company generated
revenues of approximately $2.8 million from the sale of 18 lots at Parcel
17B. During 1998, the Company generated revenue of approximately $2.3
million from the sale of the remaining 14 lots at Parcel 17B.

In May 1998, the Company sold Parcel 18, an 18-lot subdivision in KGE,
in bulk for $1.8 million.

In October 1999, the Company sold in bulk the 17 acre parcel 21 for
$4.5 million. Parcel 16 was listed for sale as of September 30, 1999.

NORTH BEACH. In October 1998, the Company received the final county
approval needed to develop the Kaanapali Ocean Resort ("KOR"), a 280 unit
time share project on the 14 acre Lot 1 ("KOR Site") of Kaanapali North
Beach. In connection with the special management area use permit with the
County of Maui ("SMA Permit") for KOR, the Company signed a settlement
agreement with certain Maui citizens who were opposing the project in
"contested case hearings". Additionally, several opposing citizens who did
not enter into the settlement agreement signed letters agreeing to withdraw
from the contested case hearings. The Company submitted the (ultimately
approved) settlement agreement to the Maui Planning Commission in October
1998. Key provisions of the settlement agreement include the Company's
obligation to provide a new 10-acre public recreation area on North Beach,
a maximum limit of 1,950 units density on North Beach (versus the existing
3,200 units) and a requirement to implement certain drainage improvements
associated with the development of the Company's remaining Kaanapali lands.

Concurrent with construction of KOR, the Company plans to begin
construction of improvements for a 13-acre public park at Wainee, Maui.
The park land and improvements will be donated by the Company to the County
of Maui.

The Company completed the purchase of Tobishima Pacific, Inc.'s
("TPI") 50% ownership interest in North Beach. The Company and TPI were
unable to agree on key operating decisions related to the development of
KOR and the future development plan for the entire North Beach property.
To break the deadlock on these issues, the Company exercised a buy/sell
option using a $12 million stated purchase price, and TPI elected to sell
its interest. The Company financed with TPI 80% of the purchase price for
TPI's interest in North Beach and signed a note and first mortgage in favor
of TPI for $9.6 million for the balance. The note is payable in five
equal, annual principal installments beginning in September 1999, with in-

<PAGE>

terest of 8.5% payable quarterly. In January 1999, the Company paid TPI
$2.2 million on its note to release Lot #1 for KOR and the new 10-acre
public recreation area at North Beach and an additional $1.9 million in
September 1999 as required under the terms of the note.

In February 1997, the Company formed a limited partnership with an
affiliate of a time share company. The new limited partnership KOR, is
owned 85% by subsidiaries of the Company and 15% by Kaanapali Partners
Limited Partnership, an affiliate of the owners of The Ridge Tahoe resort
in Nevada. The Company is working to finalize construction plans and
obtain financing for KOR. In order to obtain the necessary project
financing, a considerable level of cash equity will be needed. The Company
has had discussions with several potential investors who could provide the
cash needed to satisfy the project lender's requirements. The Company
anticipates admitting such an investor into the existing partnership with
the time-share management group. However, depending upon the terms of the
investor transaction, the existing partnership agreement may need to be
restructured. The Company believes that the ground breaking for this
project will occur in the first half of 2000. Assuming development
proceeds, sales of time share intervals are scheduled to begin four to six
months of commencement of construction.

NORTH BEACH MAUKA. The Company has plans for an additional 18-hole
golf course, condominiums, commercial/retail and residential uses. The
Company also plans to evaluate adding a significant time-share component to
the development plans for this 318-acre parcel. Currently, the Company has
Community Plan approvals and R-3 zoning (residential, minimum 10,000 square
foot lots) for North Beach Mauka. State urbanization is required, along
with final zoning and subdivision.

PUUKOLII VILLAGE. The Company has regulatory approval to develop a
project, known as "Puukolii Village", on approximately 249 acres located
"Mauka" ("towards the mountains") of Kaanapali Beach Resort. A significant
portion of this project will be affordable housing. Development of most of
Puukolii Village cannot commence until after completion of the planned
Lahaina/Kaanapali bypass highway. The proposed development of Puukolii
Village is expected to satisfy the Company's affordable housing
requirements in connection with its Kaanapali/Honokowai land use
entitlements.

For the portion of Puukolii Village that is not dependent upon
completion of the Lahaina/Kaanapali bypass highway, the Company has
unsuccessfully attempted to sell several residential parcels to home
builders and multi-family residential developers. Until such time that the
Company reaches an acceptable agreement with a housing developer, limited
funds will be expended on infrastructure for Puukolii Village.

MAUI INFRASTRUCTURE COSTS. In connection with certain of the
Company's land use approvals on Maui, the Company has agreed to provide
employee and affordable housing and to participate in the funding of the
design and construction of the planned Lahaina/Kaanapali bypass highway.
The Company has entered into an agreement with the State of Hawaii
Department of Transportation covering the Company's participation in the
design and construction of the bypass highway. In conjunction with state
urbanization of the Company's Kaanapali Golf Estates project, the Company
committed to spend up to $3.5 million, (of which approximately $.8 million
has been spent as of September 30, 1999) toward the design of the highway.
Due to lengthy delays by the State in the planned start date for the bypass
highway, the Company recently funded approximately $1.1 million for the
engineering and design of the widening (from 2 to 4 lanes) of the existing
highway through the Kaanapali Beach Resort. The Company believes this $1.1
million will be credited against the $3.5 million commitment discussed
above. The Company's remaining commitment of another $6.7 million for the
construction of the bypass highway is subject to the Company obtaining
future entitlements on Maui and the actual construction of the bypass
highway. The development and construction of the bypass highway is expected
to be a long-term project that will not be completed until the year 2004 or
later.

<PAGE>

The Company has state urbanization and county zoning for a 552 acre
master-planned community known as the Lihue/Hanamaulu Town Expansion, which
includes approximately 1,800 affordable and market rate residential units,
commercial and industrial facilities and a number of community and other
public uses. The Company does not plan to pursue subdivision and building
permits for this project until the real estate market on Kauai improves.

The Company had approximately 460 acres of land on Kauai listed for
sale as of September 30, 1999. Additionally, approximately 1,400 acres are
currently under contract for sale. The Company may consider selling
additional portions of these lands based upon market conditions and the
cash needs of the Company. (See also discussion of land sales in the
"Liquidity and Capital Resources" section above.)

<PAGE>

PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS

Reference is made to the Commitments and Contingencies Section of
Notes for a detailed discussion regarding lawsuits which alleged in part
arose out of the operations of the Oahu Sugar Company, Limited ("Oahu
Sugar"), which discussion is hereby incorporated herein by reference.

On September 20, 1996, Oahu Sugar filed a lawsuit, Oahu Sugar v.
Walter Arakaki and Steve Swift, Case No. 96-3880-09, in the Circuit Court
of the First Circuit, State of Hawaii. In the lawsuit, Oahu Sugar alleged
that it entered into an agreement to sell to defendants certain sugar cane
processing equipment at Oahu Sugar's sugar cane mill in Waipahu. Oahu
Sugar alleged that defendants failed to timely dismantle and remove the
equipment, as required by the agreement, and that defendants were obligated
to pay Oahu Sugar rent for the area occupied by the equipment beyond the
time provided for by the parties. Oahu Sugar further alleged that it
provided notice to defendants that Oahu Sugar was entitled to treat the
equipment as abandoned property and to sell the equipment, because the
equipment had not been removed from the property in a timely fashion, as
required by the parties' agreement. In its complaint, Oahu Sugar sought,
among other things, declaratory relief that it was entitled to treat the
equipment as abandoned, damages for breach of contract, and rent under an
unjust enrichment theory.

Oahu Sugar's declaratory relief claim was settled in advance of trial.

Oahu Sugar obtained dismissals and directed verdicts on six of defendants'
claims. The remaining portions of the complaint and counterclaim proceeded
to a jury trial and verdict. On December 2, 1999, the jury denied Oahu
Sugar relief on its remaining claims and awarded the defendants
approximately $2.6 million in damages on their counterclaim. Oahu Sugar
intends to file post judgment motions in an effort to overturn the verdict
and will appeal if its motions are unsuccessful. Oahu Sugar continues to
believe that it is entitled to affirmation relief on its complaint and that
it has meritorious defenses to the counterclaim that it intends to pursue
vigorously. Oahu Sugar, Company, however, can provide no assurances that
it will be successful in obtaining affirmative relief or overturning the
verdict against Oahu Sugar.

On October 7, 1999, Oahu Sugar Company was named in a lawsuit
entitled, Akee, et al. v. Dow Chemical Company, et al., Civil No. 99-3757-
10, and filed in Hawaii State Court (Circuit Court of the First Circuit of
Hawaii). This multiple plaintiff toxic tort case names Oahu Sugar, but
Oahu Sugar has not yet been served, and a number of additional defendants
including several large chemical, petroleum and agricultural companies.
Plaintiffs allege several causes of action related to personal injuries
arising from exposure to allegedly multiple toxic fumigants. Plaintiffs
allege that Oahu Sugar and other defendants used these fumigants in their
agricultural operations and that the fumigants have contaminated the air,
soil and water in the area surrounding their residences. Plaintiffs seek
damages for various unspecified personal injuries/illnesses, emotional
distress, lost wages and wrongful deaths as well as damages for
unlawful/unfair or deceptive practices and punitive damages.

<PAGE>

Hawaii. Oahu Sugar has not yet been served. Plaintiff filed this
environmental action to assert several causes of action including (1)
clean-up and other response costs under the Comprehensive Environmental
Response, Compensation, and Liability Act ("CERCLA"); (2) owner/operator
liability, contribution and indemnity under Hawaii statutory law; (3)
strict liability for ultrahazardous activity; and (4) negligence. Plaintiff
alleges that defendant Oahu Sugar previously operated a sugar mill on
property currently owned by plaintiff, and used pesticides, herbicides,
fumigants, petroleum products and by-products and other hazardous chemicals
which were allegedly released into the soil and/or groundwater at the
subject property. Plaintiff seeks recovery of response costs it has
incurred and to be incurred, a declaration of the rights and liabilities
for past and any future claims, damages for lost property value, technical
consulting and legal costs in investigating the property, increased
construction costs, and attorneys' fees and costs.

On September 30, 1999, Oahu Sugar was named in a lawsuit entitled,
City and County of Honolulu v. Leppert, et al., Civil No. 99-3678-09, and
filed in Hawaii State Court, Circuit Court for the First Circuit of Hawaii.
Oahu Sugar has not been served. This case is the same case as the CERCLA
action above, except that it asserts causes of action under the Hawaii
Environmental Response Law, the state law equivalent of CERCLA. The alleged
specific causes of action include (1) owner/operator liability,
contribution and indemnity under Hawaii Revised Statue Section 128D-18; (2)
strict liability; (3) negligence, and, (4) declaratory relief on state
claims.

Other than the described above, the Company is not involved in any
material pending legal proceedings, other than ordinary routine litigation
incidental to its business. The Company and/or certain of its affiliates
have been named as defendants in several pending lawsuits. While it is
impossible to predict the outcome of the litigation that is now pending (or
threatened) and for which the potential liability is not covered by
insurance, the Company is of the opinion that the ultimate liability from
any of the litigation will not materially adversely affect the Company's
results of operations or its financial condition.

47A