-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BI4J5VlEi4matgoQ7tZrcsWalLBzFNDBRQOLibO51NtHKmr8f61flrX2saIM6Ap+ WDvfeQ7LQ3eNs/TsSUb6MA== 0000063330-96-000011.txt : 19960401 0000063330-96-000011.hdr.sgml : 19960401 ACCESSION NUMBER: 0000063330-96-000011 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 18 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960329 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MAUI LAND & PINEAPPLE CO INC CENTRAL INDEX KEY: 0000063330 STANDARD INDUSTRIAL CLASSIFICATION: CANNED, FRUITS, VEG & PRESERVES, JAMS & JELLIES [2033] IRS NUMBER: 990107542 STATE OF INCORPORATION: HI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-06510 FILM NUMBER: 96542006 BUSINESS ADDRESS: STREET 1: PO BOX 187 STREET 2: 120 KANE ST CITY: KAHULUI MAUI STATE: HI ZIP: 96732 BUSINESS PHONE: 8088773351 MAIL ADDRESS: STREET 1: PO BOX 187 CITY: KAHULUI STATE: HI ZIP: 96732 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended December 31, 1995 Commission file number 0-4674 MAUI LAND & PINEAPPLE COMPANY, INC. (Exact name of registrant as specified in its charter) HAWAII 99-0107542 (State or other jurisdiction (IRS Employer Identification Number) of incorporation or organization) P.O. Box 187 120 Kane Street KAHULUI, MAUI, HAWAII 96732-0187 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (808)877-3351 Securities registered pursuant to Section 12(g) of the Act: Common Stock, without Par Value (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value, as of February 1, 1996, of the voting stock held by nonaffiliates of the registrant: $50,934,000. Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at February 1, 1996 Common Stock, without Par Value 1,797,125 Shares Documents incorporated by reference: Parts I, II and IV -- Portions of the 1995 Annual Report to Stockholders. Part III -- Portions of the Proxy Statement, dated March 29, 1996. Exhibit Index--pages 17-20. PART I Item 1. Business (a) General Maui Land & Pineapple Company, Inc. is a Hawaii corporation, the successor to a business organized in 1909. The Company consists of a land- holding and operating parent company as well as its principal wholly-owned subsidiaries, Maui Pineapple Company, Ltd., Kapalua Land Company, Ltd., Kapalua Investment Corp., Kapalua Waste Treatment Company, Ltd., Kapalua Water Company, Ltd. and Honolua Plantation Land Company, Inc. Maui Pineapple Company, Ltd. and Kapalua Land Company, Ltd. are the major operating subsidiaries. The Company, as used herein, refers to the parent and all of its subsidiaries. (b) Financial Information About Industry Segments The information set forth under Note 13 to Consolidated Financial Statements on page 18 of the Maui Land & Pineapple Company, Inc. 1995 Annual Report to Stockholders is incorporated herein by reference. (c) Narrative Description of Business The Company's principal activities are Pineapple, Resort and Commercial & Property. (1) Pineapple In 1995 Maui Pineapple Company, Ltd. recorded an operating loss (before corporate expenses, interest expense and income taxes) of $3.5 million compared to an operating loss of $867,000 in 1994. During the year we focused on meeting case sales volume, pricing objectives, recovery goals and on lowering the unit cost per case. We did achieve higher pricing levels than in 1994, but we were unable to meet our objectives in the other three key measures of performance. In 1995 the Island of Maui experienced a severe drought with especially dry conditions on the Haliimaile plantation. Dry weather reduced fruit size and caused sunburned, porous fruit. This in turn lowered recovery in canned pineapple and juice products. The lower recovery resulted in fewer cases packed than originally planned, which raised per case production costs. We reduced some effects of the drought by using drip irrigation systems; however, there was not enough water to adequately irrigate the Haliimaile plantation. The Company's overall case volume declined by 5% compared to 1994. In total, canned fruit sales volume was unchanged compared with 1994. The grocery and government segments showed modest gains. Institutional sales moved down sharply due to several customers purchasing large inventories of canned pineapple at the end of 1994. Total juice sales volume declined by 11%. The grocery, government and institutional juice segments declined 5%, 82% and 4% respectively. We experienced the largest decline in the government segment due to the loss of the USDA and Department of Defense bids; they were awarded to smaller regional juice packers. Concentrate sales were down 26%, a planned volume reduction. Although sales were down slightly for the year, we did retain our customer base and were able to acquire a number of new customers late in the year. Mainland Jet Fresh and local fresh fruit sales declined in 1995. On May 30, 1995, the United States Department of Commerce announced the results of the antidumping investigation and imposed duties of between 2% and 51% on imports by Thailand pineapple companies. On June 30, 1995, the International Trade Commission ruled 6-0 in the Company's favor on final injury determination. All four Thai respondents have filed an appeal with the U.S. Trade Court in New York. They are challenging the Department of Commerce's methodology in calculating the duty. They make no challenge to the final determination on injury to the domestic industry. The Company also has filed an appeal with the same court to allow us to introduce new evidence to help the Department of Commerce defend its decision. We do not expect a decision on the appeal before December 1996. We believe the appeal by the Thai respondents adds a degree of uncertainty to the marketplace, which will dampen price increases until the matter is resolved. Many Thailand producers shipped additional inventory into the U.S. before the final antidumping determination. This oversupply of canned pineapple continued to exert downward pressure on prices and volume during the first half of the year. By year-end the situation had improved. Drought-related crop conditions in the Far East and the favorable antidumping decision reduced U.S. imports. As a result, most pineapple producers announced moderate fruit price increases beginning in the third quarter. These increases ranged from 8.5% for nationally branded products to 20% for regionally distributed imports. These conditions allowed Maui Pineapple Company to make its first significant price increase in four years. The increase began to impact revenues in the fourth quarter. In 1994 we commenced a modest consumer-focused marketing effort to promote awareness of Hawaiian pineapple. During 1995 we expanded on this effort in selected geographical areas of the U.S., positioning our product as the only 100% Hawaiian U.S.A. canned pineapple. We are moving toward our diversification objectives. Soon we will begin selling Costa Rican fresh pineapple to U.S. east coast customers under the label of Royal Coast. This addition of fresh pineapple allows us to provide a line extension to our existing east coast customer base. We are continuing research and development on fresh chilled pineapple and intend to enter this rapidly expanding market in 1996. Maui Pineapple Company, Ltd. is the operating subsidiary for pineapple. It owns and operates fully-integrated facilities for the production of pineapple products. Pineapple is cultivated on two company-operated plantations on Maui which provided approximately 76% of the fruit processed in 1995. The balance of fruit processed was purchased from independent growers. Two pineapple crops are normally harvested from each new planting. The first, or plant crop, is harvested approximately 18 to 23 months after planting, and the second, or ratoon crop, is harvested 12 to 14 months later. Harvested pineapple is processed at the Company's cannery in Kahului, Maui, where a full line of canned pineapple products is produced, including solid pineapple in various grades and styles, juice, and juice concentrates. The cannery operates most of the year; however, over 50% of production volume takes place during June, July and August. The metal containers used in canning pineapple are produced in the Company-owned can plant. Warehouses are maintained at the cannery site for inventory purposes. The Company sells pineapple products under buyers' labels principally to large grocery chains, other food processors, wholesale grocers, and to organizations offering a complete buyers' brand program to affiliated chains and wholesalers serving both retail and food service outlets. A substantial volume of its pineapple products is marketed through food brokers. Maui Pineapple Company, Ltd. is the sole supplier of private label, 100% Hawaiian canned pineapple products to United States supermarkets. In 1995, approximately 20 domestic customers accounted for about 51% of pineapple sales. Export sales, chiefly to Japan, Canada and Western Europe, amounted to approximately 7.1%, 6.2% and 5.2% of total pineapple sales in 1995, 1994 and 1993, respectively. Sales to the U.S. government amounted to approximately 13.1%, 11.8% and 8.5% of total pineapple sales in 1995, 1994 and 1993, respectively. The Company's pineapple sales office is in Concord, California. As a service to its customers, the Company maintains inventories of its products in public warehouses in the continental United States. The balance of its products are shipped directly from Hawaii to its customers. The Company sells its products in competition with both foreign and U.S. companies. Its principal competitors are two U.S. companies which produce sizable quantities of pineapple, a significant portion of which is produced in the Philippines. Producers in other foreign countries (particularly Thailand) are also a major source of competition. Foreign production has the advantage of lower hourly labor costs. Other canned fruits and fruit juices are also a source of competition. Generally, the price of the Company's products is influenced by supply and demand of pineapple and other fruits and juices. To grow and harvest its crops, operate its cannery and sell and market its product, the Company employed approximately 910 year-round employees and hired approximately 590 seasonal workers in 1995. (2) Resort Kapalua Land Company, Ltd. had an operating profit (before corporate expenses, interest expense and income taxes) of $7.3 million in 1995 compared with an operating loss of $2.2 million in 1994. Most of this improvement was due to the reversal of previously allocated losses from Kaptel Associates, The Ritz-Carlton Kapalua Hotel joint venture. Development activities other than the Kaptel joint venture improved by $900,000 over the previous year while profits from ongoing Resort operations declined by $500,000. Although The Ritz-Carlton Kapalua Hotel has consistently generated a positive cash flow from operations, beginning in February 1995 Kaptel was only able to make partial payment on its debt service and defaulted on its loan. NI Hawaii Resort, Inc. (NI), the major general partner, commenced negotiations with the lenders to acquire the loan and on October 31, 1995, the partners concluded an agreement to dissolve the partnership. As a result, we transferred our 25% ownership interest in the partnership to NI and reversed all of the previously allocated losses. This represents an increase in earnings of $5.0 million for 1995 compared to an allocated loss of $4.1 million in 1994. An amended management agreement was also negotiated with The Ritz- Carlton Hotel Company as the hotel operator and a revised ground lease was negotiated with us. Under the terms of the agreement, we retain ownership of the land (subject to a $65 million first mortgage) with a reduced rent, but with important controls related to the use of this property. Additionally, $4.75 million of off-site construction loan debt is to be repaid solely from ground rent and any balance remaining on the loan at January 1, 1999 will be canceled. We will not recognize any ground rent income until 1999. Since April of last year, the owners of the Kapalua Bay Hotel actively tried to sell the hotel, but were unsuccessful in their efforts. In December 1995, the owners filed bankruptcy under Chapter 11 and are presently still trying to conclude a sale. Under terms of our ground lease, we have a right of first refusal regarding any potential sale. Our primary interest is to make sure the hotel is properly positioned with strong financial ownership and experienced quality management. Other development activities at the Resort included the sale of one of the remaining five lots in Plantation Estates Phase I. As a result, Plantation Club Associates contributed $152,000 to operating profits. In 1994 the Resort's share of the loss from this joint venture was $766,000. Real estate activity within the Resort slowed during 1995, but prices remained stable. Capital expenditures for the Resort water system and sewer capacity decreased from $3.4 million in 1994 to $800,000 in 1995. Last year we completed payment on water system improvements needed to comply with the Environmental Protection Agency Safe Drinking Water Act. On December 12, 1995, the Public Utility Commission ruled favorably on our application for a rate increase for our water and waste treatment companies. This increase provides a fair return on our investment in water system infrastructure and will have a positive impact on our operating results going forward. We also continued our funding of the expansion of the Lahaina Sewage Treatment Plant and expect to make our final payment in 1996. This investment provides us with the required sewage capacity for future development. Resort on-going operations posted a profit of $2.3 million in 1995 compared with a profit of $2.8 million in 1994. Resort revenues were $34.3 million in 1995 compared to $34.1 million in 1994. Cash flow from Resort operations increased to $5.0 million from $4.4 million in 1994. Maui destination resorts experienced a modest increase in occupancy in 1995. Resort occupancy at Kapalua remained the same at 56%. This was well below the average occupancy for Maui as competition in the over-built luxury hotel market remains intense. In our recreation departments, the number of paid golf rounds declined by 2% from 1994 levels, but total golf and merchandise revenues were up slightly. Tennis play was comparable with prior year levels and profitability improved. Our Kapalua villa program continues to grow with a 7% increase in the number of units in the program, a 10% increase in the number of occupied rooms and a 7% improvement in profitability. The addition of a sales representative in February resulted in a noticeable impact on bookings late in the year. The Kapalua Resort development is a destination resort community in West Maui. The resort borders the ocean and includes two hotels, 528 condominium units, three residential subdivisions, three championship golf courses, two ten-court tennis facilities, a 22,000 square foot commercial shopping center, restaurants, a water utility and a waste transmission utility. Kapalua Land Company, Ltd. is the development and operating subsidiary for the Kapalua Resort. It operates the golf and tennis facilities, the commercial shopping center, a short-term vacation rental program (The Kapalua Villas) and certain retail outlets in the Kapalua Resort. It is the provider of certain services to the resort including shuttle, security and the maintenance of common areas. Kapalua Land Company, Ltd. also receives rental income from the lease of certain properties to third parties. Kapalua Realty Company, Ltd. (a wholly-owned subsidiary of Kapalua Land Company, Ltd.) is a general brokerage real estate company located within the resort. Kapalua Water Company, Ltd. and Kapalua Waste Treatment Company, Ltd. (wholly-owned subsidiaries of the Company) are public utilities providing water and waste transmission services to the Kapalua Resort. Kapalua Land Company, Ltd. and Rolfing Partners formed a joint venture in 1988 to finance and develop a third 18-hole golf course and Plantation Estates Phase I and Phase II, two residential development projects at Kapalua. Four lots in Plantation Estates Phase I and allocated planning and offsite costs related to Plantation Estates Phase II remain in inventory at December 31, 1995. Kapalua Investment Corp. (KIC), a wholly-owned subsidiary of the Company, was a general partner in Kaptel Associates, the partnership that owned The Ritz-Carlton Kapalua Hotel. In October of 1995 KIC transferred its 25% interest in Kaptel to the major general partner, NI Hawaii Resorts, Inc. The Kapalua Resort faces substantial competition from existing and planned resort developments throughout Hawaii and the world. Kapalua is adjacent to the Napili resort area and is approximately five miles from the Kaanapali resort area. The Company employed approximately 370 employees in its resort operations at December 31, 1995. (3) Commercial & Property The Company's Commercial & Property business segment produced a substantially lower operating profit in 1995 on about the same level of revenues as compared to 1994. Revenues were $10.1 million compared to $10.6 million in 1994. Operating profit (before corporate expenses, interest expense and income taxes) was $3.6 million compared to $5.4 million in 1994. Land sales arising from four transactions contributed a total of $3.4 million profit and cash flow in 1995. The largest of these, the final payment from the State of Hawaii for the 50-acre parcel taken under condemnation for the King Kekaulike High School, was received in June and amounted to $1.8 million. Three other transactions involved the sale of homes on Baldwin Avenue in Makawao which generated $1.6 million in operating profit and cash flow. Kaahumanu Center's results were lower than expected due to the depressed level of retail sales on Maui caused by the relatively weak local economy. Job layoffs in the sugar industry, a low level of construction activity and continued weakness in the visitor industry all combined in 1995 to result in a poor business environment for retailers on the Island. Kaahumanu Center, while achieving a dominant position as the largest retail center, was negatively affected throughout the year by the weak economy. While Kaahumanu Center's main market has been and will continue to be Island residents, the Center has improved its attractions for Maui's visitors. JTB, Japan's largest tour company, has signed a lease and started construction of its "Oli Oli Station," a briefing and processing facility for JTB's group tour business. Approximately 50,000 visitors are expected to use this facility in its first year of operation. Kaahumanu Center is also the terminus for the West Maui, South Maui and Airporter bus systems, effectively Maui's only mass transportation system. Commercial & Property includes Kaahumanu Center, Napili Plaza and other non-resort property rentals and sales. Kaahumanu Center is a regional shopping mall and office building located in Kahului on the Island of Maui. On December 31, 1995, 94% of the available gross leasable area was occupied by 114 tenants. The Center's primary competitor is the Maui Mall which is located within one mile of Kaahumanu Center. Napili Plaza is a 44,000 square foot retail and commercial office center located in West Maui. The first tenants in Napili Plaza began operation in January of 1992. As of December 31, 1995, 80% of the gross leasable area was occupied by 18 tenants. Napili Plaza faces competition from several other retail locations in the Napili area. In June of 1993 Kaahumanu Center Associates (KCA) was formed to finance the expansion of and to own and operate the Kaahumanu Center. KCA is a partnership between the Company as general partner and the Employees' Retirement System of the State of Hawaii (ERS) as a limited partner. As of April 30, 1995, the Company and ERS each have a 50% ownership interest in KCA. Prior to that, the ownership interests were 99% for the Company and 1% for ERS. The renovation which was completed in November of 1994, expanded the Center from approximately 315,000 to 572,000 square feet of gross leasable area. (4) Other Information The Company engages in continuous research to develop techniques to reduce costs through crop production innovations. Improved production systems have resulted in increased productivity by the labor force. Research and development expenses approximated $410,000 in 1995, $375,000 in 1994 and $416,000 in 1993. The Company has reviewed its compliance with Federal, State and local provisions which regulate the discharge of materials into the environment. It does not expect any material financial impact as a result of compliance with these laws. The Company's method of disposing of pineapple processing waste water utilizes underground injection wells. In recent years, such methods have come under the scrutiny of the regulatory agencies. The Company's capital expenditure budget for 1996 includes $2 million for a system which will totally replace the existing method of disposing of processing waste water. In total, the Company employed approximately 1,940 people in 1995. (d) Financial Information About Foreign and Domestic Operations and Export Sales. Export sales only arise through the pineapple company. Export sales of pineapple products are made chiefly to Japan, Western Europe and Canada. For the last three years these sales did not exceed 10% of total consolidated revenues. Item 2. PROPERTIES The Company owns approximately 28,600 acres of land on the Island of Maui. This land, most of which was acquired from 1911 to 1932, is carried at cost. The Company believes it has clear and unencumbered marketable title to all of the preceding property except for the following: (1) a mortgage on the fee and leasehold interest of the 36-acre Ritz- Carlton Kapalua Hotel site, which secures a loan to the ground lessee for up to $65 million (See Note 3 to Consolidated Financial Statements in the Maui Land & Pineapple Company, Inc. 1995 Annual Report to Shareholders.); (2) a perpetual conservation easement granted to the State of Hawaii on a 13-acre parcel at Kapalua; (3) certain existing easements and rights-of-way that do not materially affect the Company's use of such property; (4) a mortgage on the three golf courses at Kapalua, which secures the Company's $22 million revolving credit arrangement; (5) a permanent conservation easement granted to The Nature Conservancy of Hawaii, a non-profit corporation, covering approximately 8,600 acres; and (6) a small percentage of the Company's land in various locations on which multiple claims exist and for which the Company has initiated quiet title actions. Approximately 22,400 acres of the Company's land are located in West Maui, approximately 6,200 acres are located at its Haliimaile plantation in central Maui, and approximately 28 acres are located in Kahului, Maui. The 22,400 acres in West Maui comprise a largely contiguous parcel which extends from the sea to an elevation of approximately 5,700 feet and includes nine miles of ocean frontage with approximately 3,300 lineal feet along sandy beaches, as well as agricultural and grazing lands, gulches and heavily forested areas. The Haliimaile property is situated at elevations between 1,000 and 3,000 feet above sea level on the slopes of Haleakala. Approximately 6,400 acres of Company-owned land are used directly or indirectly in the pineapple operations and approximately 1,500 acres are designated for the Kapalua resort. The Kahului acreage includes offices, a can manufacturing plant and pineapple processing cannery with interconnected warehouses at the cannery site where finished product is stored. The remaining land is primarily in pasture or forest reserve. Approximately 3,000 acres of leased land are used in the Company's pineapple operations. A major operating lease covers approximately 1,500 acres of land. The balance of the leased property is covered under eleven leases expiring variously through 2012. The aggregate land rental for these leases was $390,000 in 1995. Item 3. LEGAL PROCEEDINGS None. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDER MATTERS The information set forth under the caption "Common Stock" on page 19 of the Maui Land & Pineapple Company, Inc. 1995 Annual Report to Stockholders is incorporated herein by reference. Item 6. SELECTED FINANCIAL DATA The information set forth under the caption "Selected Financial Data" on page 20 of the Maui Land & Pineapple Company, Inc. 1995 Annual Report to Stockholders is incorporated herein by reference. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION "Management's Discussion and Analysis of Results of Operations and Financial Condition" on pages 21 through 23 of the Maui Land & Pineapple Company, Inc. 1995 Annual Report to Stockholders is incorporated herein by reference. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The "Independent Auditors' Report," "Consolidated Financial Statements" and "Notes to Consolidated Financial Statements" on pages 7 through 18 of the Maui Land & Pineapple Company, Inc. 1995 Annual Report to Stockholders are incorporated herein by reference. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information set forth under the captions "Compliance with Section 16(a) of the Exchange Act" and "Election of Directors" on pages 6 through 8 of the Maui Land & Pineapple Company, Inc. Proxy Statement, dated March 29, 1996, is incorporated herein by reference. The Company has the following executive officers: Principal Occupation Name During Last 5 Years Gary L. Gifford President & Chief Executive Officer since April (Age 48) 1995; Executive Vice President/Resort from 1987 to 1995. Paul J. Meyer Executive Vice President/Finance since 1984; (Age 48) Treasurer since 1994. Douglas R. Schenk Executive Vice President/Pineapple since 1995; (Age 43) Vice President/Pineapple from 1993 to 1995; Cannery Manager of Maui Pineapple Company, Ltd. from 1989 to 1993. Donald A. Young Executive Vice President/Resort since April 1995; (Age 48) Executive Vice President/Operations of Kapalua Land Company, Ltd. from 1992 to 1995; Vice President/Operations of Kapalua Land Company, Ltd. from 1985 to 1992. Scott A. Crockford Vice President/Retail Property since 1995; (Age 40) General Manager of Kaahumanu Center from 1989 to 1995. Julie L. Salady Vice President/Human Resources since 1995; (Age 32) Director of Human Resources from 1991 to 1995. Warren A. Suzuki Vice President/Land Management since October 1995; (Age 43) Vice President/Construction & Planning of Kapalua Land Company, Ltd. from May 1995 to October 1995; Director of Project Coordination of Kapalua Land Company, Ltd. from 1988 to 1995. Item 11. EXECUTIVE COMPENSATION The information set forth under the caption "Executive Compensation" on pages 9 through 11 of the Maui Land & Pineapple Company, Inc. Proxy Statement, dated March 29, 1996, is incorporated herein by reference. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information set forth under the caption "Security Ownership of Certain Beneficial Owners and Management" on pages 4 through 6 of the Maui Land & Pineapple Company, Inc. Proxy Statement, dated March 29, 1996, is incorporated herein by reference. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information set forth under the caption "Compensation Committee Interlocks and Insider Participation" on pages 13 to 14 of the Maui Land & Pineapple Company, Inc. Proxy Statement, dated March 29, 1996, is incorporated herein by reference. PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. Financial Statements The following Financial Statements and Supplementary Data of Maui Land & Pineapple Company, Inc. and subsidiaries and the Independent Auditors' Report are included in Item 8 of this report: Consolidated Balance Sheets, December 31, 1995 and 1994 Consolidated Statements of Operations and Retained Earnings for the Years Ended December 31, 1995, 1994 and 1993 Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and 1993 Notes to Consolidated Financial Statements (a) 2. Financial Statement Schedules The Financial Statements of Kaahumanu Center Associates for the Years Ended December 31, 1995, 1994 and Period from June 23, 1993 (Date of Formation) Through December 31, 1993 are filed as exhibits. The Financial Statements of Kaptel Associates for the Years Ended December 31, 1994 and 1993 are filed as exhibits. (a) (3) Exhibits Exhibits are listed in the "Index to Exhibits" found on pages 17 to 20 of this Form 10-K. (b) (3) Reports on Form 8-K No reports on Form 8-K were filed during the last quarter of the period covered by this report. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MAUI LAND & PINEAPPLE COMPANY, INC. March 29, 1996 By /s/GARY L. GIFFORD Gary L. Gifford President & Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. By /s/MARY C. SANFORD Date March 29, 1996 Mary C. Sanford Chairman of the Board By /s/RICHARD H. CAMERON Date March 29, 1996 Richard H. Cameron Vice Chairman of the Board By /s/PAUL J. MEYER Date March 29, 1996 Paul J. Meyer Exec. Vice Pres./Finance & Treasurer By /s/TED PROCTOR Date March 29, 1996 Ted Proctor Controller & Assistant Treasurer By /s/PETER D. BALDWIN Date March 29, 1996 Peter D. Baldwin Director By /s/JOSEPH W. HARTLEY, JR. Date March 29, 1996 Joseph W. Hartley, Jr. Director By /s/RANDOLPH G. MOORE Date March 29, 1996 Randolph G. Moore Director By /s/FRED E. TROTTER III Date March 29, 1996 Fred E. Trotter III Director INDEX TO EXHIBITS The exhibits designated by an asterisk (*) are filed herein. The exhibits not so designated are incorporated by reference to the indicated filing. All previous exhibits were filed with the Securities and Exchange Commission in Washington D. C. under file number 0-4674. 3. Articles of Incorporation and By-laws 3(i) Articles of Incorporation (Amended as of 4/19/79). Exhibit 3 to Form 10-K for the year ended December 31, 1980. 3(ii) By Laws (Amended as of 2/26/88). Exhibit (3ii) to Form 10-Q for the quarter ended September 30, 1994. 10. Material Contracts 10.1(i) Revolving and Term Loan Agreement, dated as of December 31, 1992. Exhibit (10)A to Form 10-K for the year ended December 31, 1992. (ii) First Loan Modification Agreement, dated and effective as of March 1, 1993. Exhibit (10)A to Form 10-Q for the quarter ended March 31, 1993. (iii) Second Loan Modification Agreement, dated September 8, 1993. Exhibit (10)B to Form 10-Q for the quarter ended September 30, 1993. (iv) Third Loan Modification Agreement, dated September 30, 1994. Exhibit (10)B to Form 10-K for the year ended December 31, 1993. (v) Fourth Loan Modification Agreement, dated March 8, 1994. Exhibit (10)A to Form 10-K for the year ended December 31, 1993. (vi) Fifth Loan Modification Agreement, dated as of December 31, 1994. Exhibit 10.1(vi) to Form 10-K for the year ended December 31, 1994. (vii) Sixth Loan Modification Agreement, effective as of March 31, 1995. Exhibit (10) to Form 10-Q for the quarter ended June 30, 1995. (viii)* Seventh Loan Modification Agreement, effective as of December 31, 1995. 10.2(i) Limited Partnership Agreement of Kaahumanu Center Associates, dated June 18, 1993. Exhibit (10)A to Form 10-Q for the quarter ended June 30, 1993. (ii) Cost Overrun Guaranty Agreement, dated June 28, 1993. Exhibit (10)B of Form 10-Q for the quarter ended June 30, 1993. (iii) Environmental Indemnity Agreement, dated June 28, 1993. Exhibit (10)C to Form 10-Q for the quarter ended June 30, 1993. (iv) Indemnity Agreement, dated June 28, 1993. Exhibit (10)D to Form 10-Q for the quarter ended June 30, 1993. (v) Direct Liability Agreement, dated June 28, 1993. Exhibit (10)E to Form 10-Q for the quarter ended June 30, 1993. (vi) Amendment No. 1 to Limited Partnership Agreement of Kaahumanu Center Associates. Exhibit (10)B to Form 8-K, dated as of April 30, 1995. (vii) Conversion Agreement, dated April 27, 1995. Exhibit (10)C to Form 8-K, dated as of April 30, 1995. (viii) Indemnity Agreement, dated April 27, 1995. Exhibit (10)D to Form 8-K, dated as of April 30, 1995. 10.3(i) Note Purchase Agreement between John Hancock Mutual Life Insurance Company and Maui Land & Pineapple Company, Inc., dated September 9, 1993. Exhibit (10)A to Form 10-Q for the quarter ended September 30, 1993. (ii) First Amendment to Note Purchase Agreement dated as of March 30, 1994. Exhibit (10)A to Form 10-Q for the quarter ended March 31, 1994. (iii)* Second Amendment to Note Purchase Agreement, dated as of November 13, 1995. 10.4(i) The following relate to the Ritz-Carlton Kapalua Hotel: Partnership Agreement; Development Agreement; Operating Agreement; Hotel Ground Lease; Supplemental Agreement; Construction Loan Agreement; Promissory Note; Real Property Mortgage; Leasehold Mortgage. Exhibit (10)A-I to Form 10-Q for the quarter ended September 30, 1990. (ii) Dissolution Agreement, dated October 31, 1995. Exhibit (10)A to Form 10-Q for the quarter ended September 30, 1995. (iii)* First Mortgage, Security Agreement, Financing Statement and Assignment of Rentals covering the fee simple interest and the leasehold interest, securing a loan of $65,000,000, dated February 24, 1996. (iv)* Subordination, Nondisturbance and Attornment Agreement (Ground Lessor), dated February 24, 1996. (v)* Hotel Ground Lease by and between Maui Land & Pineapple Company, Inc. (Lessor) and NI Hawaii Resort, Inc. (Lessee), effective January 1, 1996. (vi)* Amendment Relating to Off-Site Loan, dated January 9, 1996 and Effective January 1, 1995. (vii)* Letter Agreement, dated January 1, 1996, Re: Nonrecourse Open Account For Off-Site Improvements. (viii)* Agreement with NI Hawaii Resort, Inc. (Ground Lease), dated January 9, 1996. (ix)* Amendment and Restatement of Tennis Operating Agreement by and between Kapalua Land Company, Ltd. (Operator) and NI Hawaii Resort, Inc. (Owner), dated January 9, 1996. (x)* Assignment Agreement (Assignment of Amended and Restated Tennis Operating Agreement), dated January 9, 1996. (xi)* Golf Course Use Agreement by and between Maui Land & Pineapple Company, Inc. and NI Hawaii Resort, Inc. dated, January 9, 1996. (xii)* Memorandum of Understanding between Maui Hotels, Kapalua Investment Corp. and NI Hawaii Resort, Inc., effective October 31, 1995. (xiii)* Supplemental Agreement, entered into among Maui Hotels, Kapalua Investment Corp. and NI Hawaii Resort, Inc. as of February 15, 1996. (xiv)* Release of Real Property Mortgage, Security Agreement and Financing Statement, dated March 12, 1996. 10.5 Partnership Agreement of Plantation Club Associates, dated November 10, 1988. Exhibit (10)A to Form 10-K for the year ended December 31, 1988. 10.6 Fifteen million dollar ($15 million) Promissory Note, dated March 31, 1986, for the acquisition of Kaahumanu Center. Exhibit (10)C to Form 10-K for the year ended December 31, 1986. 10.7 Compensatory plans or arrangements (i) Executive Deferred Compensation Plan (revised as of 8/16/91). Exhibit (10)A to Form 10-Q for the quarter ended September 30, 1994. (ii) Executive Insurance Plan (Amended). Exhibit (10)A to Form 10-K for the year ended December 31, 1980. (iii) Remunerative agreement between Maui Land & Pineapple Company, Inc. and Paul J. Meyer, Executive Vice President/Finance. Exhibit (10)A to Form 10-Q for the quarter ended June 30, 1984. (iv) Supplemental Executive Retirement Plan (effective as of January 1, 1988). Exhibit (10)B to Form 10-K for the year ended December 31, 1988. 10.8 Hotel Ground Lease between Maui Land & Pineapple Company, Inc. and The KBH Company. Exhibit (10)B to Form 10-Q for the quarter ended September 30, 1985. 11. Statement re computation of per share earnings: Net Income (Loss) divided by weighted Average Common Shares Outstanding equals Net Income (Loss) Per Common Share. 13.* Annual Report to security holders. Maui Land & Pineapple Company, Inc. 1995 Annual Report. 21. Subsidiaries of registrant: All of the following were incorporated in the State of Hawaii: Maui Pineapple Company, Ltd. Kapalua Land Company, Ltd. Kapalua Investment Corp. Kapalua Water Company, Ltd. Kapalua Waste Treatment Company, Ltd. Honolua Plantation Land Company, Ltd. 27.* Financial Data Schedule. 99. Additional Exhibits. 99.1* Financial Statements of Kaahumanu Center Associates for the years ended December 31, 1995 and 1994 and period from June 23, 1993 (date of formation) through December 31, 1993. 99.2 Financial Statements of Kaptel Associates for the years ended December 31, 1994 and 1993. Exhibit 99.1 to Form 10-K for the year ended December 31, 1994. EX-10 2 SEVENTH LOAN MODIFICATION AGREEMENT SEVENTH LOAN MODIFICATION AGREEMENT, effective as of December 31, 1995 (the "Amendment"), by and among MAUI LAND & PINEAPPLE COMPANY, INC. (the "Borrower") and BANK OF HAWAII, a Hawaii banking corporation ("BKOH"), FIRST HAWAIIAN BANK, a Hawaii banking corporation ("FHB"), BANK OF AMERICA, NATIONAL TRUST AND SAVINGS ASSOCIATION, a national banking association ("BOA"), CENTRAL PACIFIC BANK, a Hawaii banking corporation ("CPB" and, together, with BKOH, FHB, and BOA, the "Lenders") and BANK OF HAWAII, as Agent for the Lenders (in such capacity, together with its successors in such capacity, the "Agent"), W I T N E S S E T H: WHEREAS, the Borrower, Lenders and Agent are parties to that certain Revolving and Term Loan Agreement, dated as of December 31, 1992, as amended by a First Loan Modification Agreement, dated as of March 1, 1993, and sup- plemented by letter agreements dated April 30, 1993 and June 24, 1993, and further amended by Second Loan Modification Agreement, dated September 8, 1993, by a Third Loan Modifi- cation Agreement, dated September 30, 1993, by a Fourth Loan Modification Agreement, dated March 8, 1994, by a Fifth Loan Modification Agreement, dated effective as of December 31, 1994, and by a Sixth Loan Modification Agreement, dated effective as of March 31, 1995, each among the Borrower and the Lenders (as so amended and supplemented, the "Loan Agree- ment"), pursuant to which the Lenders have made Loans to the Borrower on the terms and conditions stated therein; and WHEREAS, the Borrower, Lenders and Agent have agreed to amend the Loan Agreement and the Notes (as such term is defined in the Loan Agreement) for the purposes of, among other things, extending the maturity date of the Notes and amending and restating certain covenants of the Borrower set forth in the Loan Agreement, all as set forth in this Amendment; NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, each of the Borrower, Lenders and Agent agree as follows: SECTION 1. Definitions. Capitalized terms used herein and not otherwise defined herein shall have the mean- ings ascribed to them in the Loan Agreement. SECTION 2. Amendments to Loan Agreement. (a) Effective on and after the Effective Date (as such term is defined in Section 6 of this Amendment), Section 1.04a of the Loan Agreement is amended and restated in its entirety to read as follows: "1.04a 'Commitment Reduction Date' means each of the following dates: (i) the earlier of (a) January 1, 1996 and (b) the date that the Aggregate Loan Commitment is reduced to $22,000,000 or less (the earlier of such dates is herein referred to as the 'First 1996 Commitment Reduction Date'); (ii) December 31, 1996 (the 'Second 1996 Com- mitment Reduction Date'); (iii) each date on which the Borrower or any Subsidiary receives any amount in respect of the sale of any of its real estate assets; and (iv) each other date that the Aggregate Loan Commitment is to be reduced pursuant to the provisions of Section 2.06(A) of this Loan Agreement." (b) Effective on and after the Effective Date, Section 2.01 of the Loan Agreement is amended and restated in its entirety to read as follows: "2.01 General Terms. On the terms and pro- visions and subject to the satisfaction of the condi- tions stated in this Loan Agreement, each Lender hereby severally agrees to make Loans to the Borrower, from time to time from the date of this Loan Agreement to and including June 30, 1997 (the 'Revolving Loan Period'), each in a principal amount equal to such Lender's Indi- vidual Loan Commitment Percentage of the total amount to be borrowed on any occasion; provided, however, that (a) subject to the provisions of Section 2.06(A) of this Loan Agreement, the aggregate principal amount at any one time outstanding of all Loans hereunder shall not exceed the Aggregate Loan Commitment (i.e., $40,000,000 at any one time outstanding during the Initial Period and, at any one time outstanding on and after each Commitment Reduction Date and until the next Commitment Reduction Date, if any, the Aggregate Loan Commitment after giving effect to the reduction to occur on such Commitment Reduction Date), (b) no lender shall be obligated to make Loans to the Borrower which shall exceed, in the aggregate principal amount at any one time outstanding, such Lender's Individual Loan Commit- ment, (c) each advance of Loan proceeds hereunder shall be made by the several Lenders ratably, in a principal amount equal to such Lender's Individual Loan Commitment Percentage of the total amount to be borrowed on any occasion, (d) no Lender shall have any obligation or liability to the Borrower or any other Person as a result of the failure of another of the Lenders to observe any of its obligations under this Loan Agree- ment, and (e) no Lender (in its capacity as such) shall have any obligation or liability to the Borrower or any other Person as a result of the failure of the Agent to observe any of its obligations under this Loan Agreement or the Agency Agreement. During the Revolving Loan Period the Borrower may borrow, repay without penalty or premium and reborrow hereunder, either the full amount of the Aggregate Loan Commitment then in effect or any lesser sum, provided that any borrowing hereunder shall be in an amount not less than $500,000, and an integral multiple of $100,000, and provided that any voluntary prepayment hereunder shall be in an amount not less than $250,000, and an integral multiple of $50,000. Interest on the Loans shall be paid by the Borrower at the times and in the manner stated in the Notes. All of the out- standing principal balance of, and accrued but there- tofore unpaid interest on, the Loans shall be paid in full on June 30, 1997." (c) Effective on and after the Effective Date, Section 2.06(A) of the Loan Agreement is amended and restated in its entirety to read as follows: "A. Mandatory Reduction. On May 15, 1995, the Aggregate Loan Commitment was reduced to $23,000,000; and on each Commitment Reduction Date thereafter, the Aggregate Loan Commitment shall be reduced to the amount set forth below with respect to such Commitment Reduction Date: (1) At the close of business on the First 1996 Commitment Reduction Date, the Aggregate Loan Com- mitment in effect at the opening of business on such date shall be reduced to Twenty-two Million Dollars ($22,000,000.00); (2) At the close of business on the Second 1996 Commitment Reduction Date, the Aggregate Loan Com- mitment in effect at the opening of business on such date shall be reduced by Three Million Dollars ($3,000,000.00); (3) By the close of business on each date the Borrower or any Subsidiary receives any net sales pro- ceeds (i.e., gross sales proceeds less closing costs acceptable to the Lenders) in respect of the sale of any real estate assets referred to in clause (iii) of Section 1.04a of this Loan Agreement, the Borrower shall notify the Agent of such sale and the Borrower's receipt of such net sale proceeds and shall pay to the Lenders through the Agent 75% of the after-tax net proceeds so received by the Borrower as a mandatory prepayment of the outstanding principal amount of the Loans; and (4) The Aggregate Loan Commitment in effect shall be reduced by the close of business on the date of the earlier of (x) the date of the sale of the Napili Plaza project in an amount equal to the net sale proceeds of such sale and (y) the date of any permanent financing of the Napili Plaza project in an amount equal to the net mortgage loan proceeds of such permanent financing. The Borrower shall pay to the Lenders through the Agent no later than the close of business on each Commitment Reduction Date, as a mandatory prepayment of the aggre- gate outstanding principal amount of the Loans, an amount equal to the difference between (I) the aggregate outstanding principal amount of the Loans, minus (II) the Aggregate Loan Commitment as so reduced." (d) Effective on and after the Effective Date, Section 5.01(F) of the Loan Agreement is amended and restated in its entirety to read as follows: "(F) The Borrower will maintain: (1) At all times on and after January 1, 1994, a Current Ratio of not less than 1.90; (2) A Recourse Debt/Net Worth Ratio of not more than (a) 0.80 at December 31, 1995, March 31, 1996, and September 30, 1996, and (b) 0.70 at December 31, 1996 and thereafter (for the purposes of this covenant, KCA's debt approved by the Lenders pur- suant to the last sentence in Section 5.02(I) of this Agreement, and any KCA debt which is Nonrecourse to the Borrower, shall be disregarded); and (3) A minimum Net Worth of at least (a) $57,000,000 at December 31, 1995, and (b) an amount equal to the sum of (i) $57,000,000, plus (ii) the cumulative net profits (but no the net losses) of the Borrower, at January 1, 1996 and thereafter." (e) Effective on and after the Effective Date, Section 5.02(D) of the Loan Agreement is amended and restated in its entirety to read as follows: "(D) Neither the Borrower nor any Subsidiary will make any Capital Expenditures or any Investments, or both, in any of the fiscal years listed below in column (a) which, together with all other Capital Expendituresand Investments made by the Borrower and its Subsidiaries in any such fiscal year, will exceed in the aggregate the amount show opposite such fiscal year listed below in column (b): (a) (b) 1992 $14.0 Million 1993 $13.0 Million 1994 $11.0 Million 1995 $10.0 Million 1996 $ 9.5 Million 1997 and thereafter $ 9.0 Million" (f) Effective on and after the Effective Date, Section 5.02(H) of the Loan Agreement is amended and restated in its entirety to read as follows: "(H) Neither the Borrower nor any Subsidiary, without the prior written consent of all of the Lenders, will incur, agree to incur, assume, or in any manner become liable in respect of any Indebtedness for Bor- rowed Money (recourse or nonrecourse) other than the indebtedness evidenced by the Notes and this Loan Agreement and additional indebtedness which, together with the indebtedness evidenced by the Notes and this Loan Agreement, shall cause Total Debt to not exceed: (a) $66,000,000 in the aggregate principal amount as of December 31, 1993, and (b) $63,000,000 in the aggregate principal amount as of March 31, 1994, and (c) $65,000,000 in the aggregate principal amount as of June 30, 1994, and (d) $69,000,000 in the aggregate principal amount as of September 30, 1994, and (e) $57,000,000 in the aggregate principal amount as of December 31, 1994, and (f) $58,000,000 in the aggregate principal amount as of March 15, 1995, and (g) $53,000,000 in the aggregate principal amount as of May 5, 1995, and (h) $50,000,000 in the aggregate principal amount as of December 31, 1995, and (i) $40,000,000 in the aggregate principal amount as of December 31, 1996 and thereafter. For the purposes of this Section 5.02(H), KCA's debt approved by the Lenders pursuant to the last sentence in Section 5.02(I) of this Agreement, and any KCA debt which is Nonrecourse to the Borrower, including that portion subject to Borrower's Limited Payment Guaranty, shall not be deemed to constitute indebtedness of the Borrower or any Subsidiary." SECTION 3. Amendments to Notes. (a) Effective on and after the Effective Date, Section 2 of each of the Notes is amended and restated in its entirety to read as follows: "2. Interest Rates. Outstanding balances of principal under this Note, prior to the maturity (whether by acceleration or otherwise) of the indebtedness evidenced by this Note, shall bear interest at (i) during the period commencing on the date of this Note to and including December 31, 1993, a floating rate equal to the Base Rate in effect from time to time, (ii) during the period commencing on January 1, 1994 to and including May 15, 1995, a floating rate equal to one-half of one percentage point (0.5%), plus the Base Rate in effect from time to time, (iii) during the period commencing on May 15, 1995, to and including the earlier of (x) the date (the "Interest Reduction Date"), if any, that the Aggre- gate Loan Commitment is reduced to $15,000,000.00 and (y), if no Interest Reduction Date occurs prior to maturity, the date that the Loans are paid in full and the Aggregate Loan Commitment is termi- nated, a floating rate equal to one-quarter of one percentage point (0.25%), plus the Base Rate in effect from time to time, and (iv) if the Interest Reduction Date occurs prior to maturity, during the period commencing on the Interest Reduction Date, if any, to and including the date that the Loans are paid in full, a floating rate equal to the Base Rate in effect from time to time, computed in each case with daily adjustments, if required, it being the intent that such interest rate shall increase or decrease simultaneously with any increase or decrease in the Base Rate." (b) Effective on and after the Effective Date, Section 4(a) of each of the Notes is amended by deleting therefrom the date "June 30, 1996," and by inserting, in lieu thereof, the date "June 30, 1997." (c) Effective on and after the Effective Date, Section 4(b) of the Note held by Bank of Hawaii is amended and restated in its entirety to read as follows: "(b) In addition to the payments of interest mentioned above in paragraph 4(a) of this Note, (1) the Maker shall, from time to time, make all principal pay- ments or prepayments required to be made from time to time pursuant to Section 2.06(A) of the Loan Agreement, and (2) the Maker shall pay the entire outstanding balance of principal hereunder on June 30, 1997." (d) Effective on and after the Effective Date, Section 4(b) of the Note held by First Hawaiian Bank is amended and restated in its entirety to read as follows: "(b) In addition to the payments of interest mentioned above in paragraph 4(a) of this Note, (1) the Maker shall, from time to time, make all principal pay- ments or prepayments required to be made from time to time pursuant to Section 2.06(A) of the Loan Agreement, and (2) the Maker shall repay the entire outstanding balance of principal hereunder on June 30, 1997." (e) Effective on and after the Effective Date, Section 4(b) of the Note held by Bank of America National Trust and Savings Association is amended and restated in its entirety to read as follows: "(b) In addition to the payments of interest mentioned above in paragraph 4(a) of this Note, (1) the Maker shall, from time to time, make all principal pay- ments or prepayments required to be made from time to time pursuant to Section 2.06(A) of the Loan Agreement, and (2) the Maker shall repay the entire outstanding balance of principal hereunder on June 30, 1997." (f) Effective on and after the Effective Date, Section 4(b) of the Note held by Central Pacific Bank is amended and restated in its entirety to read as follows: "(b) In addition to the payments of interest mentioned above in paragraph 4(a) of this Note, (1) the Maker shall, from time to time, make all principal pay- ments or prepayments required to be made from time to time pursuant to Section 2.06(A) of the Loan Agreement, and (2) the Maker shall repay the entire outstanding balance of principal hereunder on June 30, 1997." SECTION 4. General Amendments. All references set forth in the Loan Agreement (including, without limitation, all exhibits, schedules and appendices thereto), the Notes, the Mortgage, the Agency Agreement, the Environmental Indemnity Agreement, the Addi- tional Security Mortgage and the other documents, instruments and agreements relating to the Loan Agreement, the Notes, the Mortgage, the Agency Agreement, the Environmental Indemnity Agreement, the Additional Security Mortgage or to the loans made under the Loan Agreement by the Lenders to the Borrower (collectively, the "Loan Documents") to (i) the Loan Agree- ment, is amended to mean and include the Loan Agreement, as heretofore amended, as amended by this Amendment, and as may be further amended, modified and supplemented from time to time by written agreement between the parties hereto, (ii) the Notes, are amended to mean and include the Notes, as heretofore amended, as amended by this Amendment, and as may be further amended from time to time, (iii) the Mortgage, is amended to mean and include the Mortgage, as amended from time to time, and (iv) the other Loan Documents, or any of them, are amended to mean and include such Loan Documents, as amended from time to time. SECTION 5. Representations, Warranties and Agreements. The Borrower hereby: (a) reaffirms each and all of its representa- tions and warranties set forth in Section 4.01 of the Loan Agreement as being true and correct on and as of the date hereof with the same force and effect as if such representa- tions and warranties were set forth in full herein (provided that the representations and warranties set forth in Section 4.01(F) of the Loan Agreement shall for the purposes hereof be deemed to be made with respect to the Borrower's financial statements most recently delivered to the Lenders pursuant to the Loan Agreement); (b) represents and warrants that no Event of Default and no event, which with the lapse of time, the giving of notice or both would constitute an Event of Default, has occurred and is continuing on and as of the date hereof; (c) represents and warrants that no material adverse change in the condition (financial or otherwise) of the Borrower has occurred since the periods covered by the Borrower's financial statements most recently delivered to the Lenders pursuant to the Loan Agreement; (d) represents and warrants that each of this Amendment, the Loan Agreement, as heretofore amended and as amended by this Amendment, and each of the Notes, as here- tofore amended and as amended by this Amendment has been duly authorized, executed and delivered by the Borrower and con- stitutes the legal, valid and binding obligation of the Bor- rower and is enforceable in accordance with its terms; (e) represents and warrants that the execu- tion, delivery and performance of this Amendment do not and will not violate articles of incorporation, by-laws, any ap- plicable laws, rules, regulations, orders, injunctions, writs or decrees or result in a breach of or constitute a default under any contract, agreement or instrument to which the Borrower is a party or by which the Borrower, or its proper- ties are bound, or result in the creation or imposition of any security interest in, or lien or encumbrance upon any property or assets of the Borrower, except in favor of the Lenders; and (f) represents and warrants that no consent or withholding of objection, approval or authorization of or declaration or filing with, or the taking of any other action by or in respect of any governmental body or regulatory au- thority or any other Person is required in connection with the execution, delivery and performance of this Amendment, other than as may have been obtained or effected prior to the date hereof, and in respect of which the Borrower shall have notified the Lenders in writing on or prior to the date hereof. SECTION 6. Effectiveness. Notwithstanding any- thing herein to the contrary, the amendments to the Loan Agreement, Notes and the other Loan Documents set forth in Sections 2, 3 and 4 of this Amendment, shall amend the pro- visions of the Loan Agreement, Notes and the other Loan Documents as of December 31, 1995 (the "Effective Date"), when each and all of the following conditions precedent shall have been satisfied in full: (a) Delivery of this Amendment. Each of the parties hereto shall have duly executed and delivered to the Agent this Amendment. (b) No Default. On and as of the Effective Date, no Event of Default shall have been declared by the Lenders under the Loan Agreement. (c) Payments; Charges; Fees. The Borrower shall have paid to the Lenders in accordance with the terms of the Loan Agreement all payments, charges and fees required to have been paid on or before the Effective Date by the terms of the Loan Agreement or the other Loan Documents, and in addition, shall have paid to the Agent for pro rata dis- tribution to the Lenders an extension fee in the amount of $25,000. (d) Consents. There shall have been obtained all third-party consents, if any, necessary or appropriate to effect the amendments and consummate the transactions set forth in this Amendment. SECTION 7. Limitations. The amendments to the Loan Agreement, the Notes and the other Loan Documents set forth hereinabove in Sections 2, 3 and 4 of this Amendment shall be limited precisely as written and shall not, except as expressly provided herein, be deemed otherwise to be a consent to any waiver, amendment or modification of any other terms or conditions of the Loan Agreement, the Notes or any of the other Loan Documents. The Loan Agreement, the Notes and other Loan Documents, heretofore amended and as amended hereby, are in all respects ratified and confirmed and shall remain in full force and effect. SECTION 8. Further Assurances. The Borrower shall take all such further actions and execute and deliver all such further documents and instruments as the Lenders may from time to time reasonably request to further evidence or effect the transactions contemplated by this Amendment. SECTION 9. Counterparts. This Amendment may be executed in two or more counterparts, each of which shall be an original hereof, but all of which together shall consti- tute but one and the same instrument. SECTION 10. Headings. The section headings in this Amendment have been inserted for convenience of refer- ence only and shall in no manner affect the meaning or interpretation of the various provisions hereof. SECTION 11. Governing Law. This Amendment shall be governed by, and construed in accordance with, the laws of the State of Hawaii. SECTION 12. Expenses of the Agent. Without in any way limiting the obligations of the Borrower under Section 7.04 of the Loan Agreement, the Borrower shall reimburse the Agent for all of the costs and expenses of the Agent in con- nection with the preparation of this Amendment, including, but not limited to, reasonable attorneys fees and expenses. IN WITNESS WHEREOF, the parties hereto have caused _____________________________________________________________ _ / / / / / / / / this Amendment to be duly executed on the date first-above written. MAUI LAND & PINEAPPLE COMPANY, INC. By: /S/ GLARY L. GIFFORD Its: PRESIDENT By: /S/ PAUL J. MEYER Its: EXECUTIVE VICE PRESIDENT BANK OF HAWAII, individually and as Agent By: /S/ GREGG E. LING Its: VICE PRESIDENT FIRST HAWAIIAN BANK By: /S/ LISA U. KUSHI Its: BRANCH MANAGER BANK OF AMERICA, NATIONAL TRUST AND SAVINGS ASSOCIATION By: /S/ RICHARD E. BRYSON Its: VICE PRESIDENT CENTRAL PACIFIC BANK By: /S/ ROBERT D. MURAKAMI Its: VICE PRESIDENT EX-10 3 Second Amendment to Note Purchase Agreement This Second Amendment to Note Purchase Agreement, dated as of November 13, 1995 (this "Amendment"), is made between John Hancock Mutual Life Insurance Company ("Purchaser") and Maui Land & Pineapple Company, Inc., a Hawaii corporation ("Company"). WHEREAS, Company and Purchaser are parties to that certain Note Purchase Agreement dated as of September 9, 1993, as amended by that certain First Amendment to Note Purchase Agreement dated as of March 30, 1994 (the "Note Purchase Agreement"); and WHEREAS, Company has requested that certain provisions of the Note Purchase Agreement be amended as set forth below; and WHEREAS, subject to the fulfillment of certain conditions, Purchaser is willing so to amend the Note Purchase Agreement; NOW, THEREFORE, in consideration of the mutual conditions and agreements set forth in this Amendment, Company and Purchaser hereby agree as follows: Section 1. Definitions Capitalized terms used but not defined in this Amendment shall have the meanings set forth in the Note Purchase Agreement. Section 2. Amendment Subject to the terms and conditions set forth below, the Note Purchase Agreement is hereby amended, effective September 29, 1995, by deleting the definition of "Net Worth" in Section 11.1 and inserting the following definition in its place: "Net Worth" shall mean, with respect to any Person, on the date such determination is to be made, the sum of Assets less Liabilities, provided, however, that in determining the Net Worth of Company and its Subsidiaries, the amount of non-cash losses incurred by Company and its Subsidiaries (without duplication) from their partnership interest in Kaptel Associates between January 1, 1995 and December 31, 1995 shall be added to the amount of Net Worth as determined above. Section 3. Conditions The amendment contained in Section 2 shall not be deemed to be of any force or effect unless and until the following conditions have been satisfied: 3.1 Representations and Warranties. All of the representations and warranties contained in Section 5 hereof are complete and accurate in all material respects as of the date hereof. 3.2 Guarantor Consents. Each of the Persons which executed the Guaranty shall have executed a consent, in form and substance satisfactory to Purchaser, in which each such Person consents to this Amendment and confirms the effectiveness of the Guaranty. Section 4. Termination This Amendment shall terminate, and no agreements provided for herein shall have any force or effect, if all of the conditions set forth in Section 3 hereof are not satisfied on or before November 17, 1995. Section 5. Representations and Warranties Company hereby represents and warrants to Purchaser that as of the date hereof (and all such representations and warranties shall survive the execution and delivery of this Amendment and any investigation thereof by Purchaser): 5.1 Representations and Warranties; No Defaults. All of the representations and warranties of Company set forth in the Note Purchase Agreement are true and correct as of the date hereof and, after giving effect to this Amendment, no Event of Default or Unmatured Event of Default under the Note Purchase Agreement has occurred and is continuing. 5.2 Authorization. The execution, delivery and performance of this Amendment by Company is within its corporate powers and has been duly authorized by all necessary corporate action. 5.3 Valid and Binding Obligation. This Amendment has been duly executed by Company and constitutes the legal, valid and binding obligation of Company, enforceable against Company in accordance with its terms. 5.4 No Conflicts. The execution, delivery and performance by Company of this Amendment will not (i) violate any provision of any statute, regulation, ordinance, order, injunction, decree or other requirement of any governmental legislative, administrative or judicial body or agency, (ii)violate any provision of Company's articles of incorporation or bylaws, (iii)cause or result in a default under or breach of any agreement, bond, note or indenture to which Company is a party or by which it or any of its properties or assets is or may be affected, or (iv)result in the creation or imposition of any Lien of any nature whatsoever upon any of the properties or assets owned or used by Company in the conduct of its business. 5.5 No Material Adverse Change. Since the date of the latest financial statements of Company delivered to Purchaser under the Note Purchase Agreement, no event has occurred involving a Material Adverse Change. 5.6 No Fee, etc. No fee or other consideration of any type is being paid by Company or any of its Subsidiaries to any other Person in connection' with the amendment or waiver of its agreements with such Person to reflect the change in definition of Net Worth reflected herein or substantially reflected herein. Section 6. Miscellaneous 6.1 Effect on Note Purchase Agreement. Except as expressly amended hereby, all of the terms and conditions of the Note Purchase Agreement are hereby ratified and confirmed in their entirety and shall continue in full force and effect. Except as specifically set forth herein, the execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of Purchaser under the Note Purchase Agreement or any of the Notes. On and after the date hereof. each reference in the Note Purchase Agreement to this "Agreement," "hereunder," "hereof," "herein" or words of like import. and each reference in the Guaranty or any of the Notes to the Note Purchase Agreement, shall mean and be a reference to the Note Purchase Agreement as amended hereby. 6.2 Headings. All titles and section headings used in this Amendment are used for purposes of convenience of reference only, and shall not be deemed to constitute a part hereof. 6.3 Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of Hawaii applicable to contracts made and to be performed in Hawaii. 6.4 Counterparts. This Amendment may be executed in multiple identical counterparts, and by the parties hereto in separate counterparts. each of which shall be deemed an original, and all of which together shall constitute one and the same agreement. IN WITNESS WHEREOF, the undersigned have executed this Second Amendment to Note Purchase Agreement as of the date first set forth above. MAUI LAND & PINEAPPLE COMPANY ,INC. By: /S/ PAUL J. MEYER Name: Paul J. Meyer Title: Executive Vice President/Finance JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY By: /S/ DANA DONOVAN Name: Dana Donovan Title: Senior Investment Officer EX-10 4 LAND COURT SYSTEM REGULAR SYSTEM Return By: Mail ( ) Pickup ( ) To: NI Hawaii Financial, Inc. 745 Fort Street, 8th Floor Honolulu, Hawaii 96813 Tax Map Key: 4-2-004-021 (2) Tax Map Key: 4-2-004-015 & 014 (2) 0129588.KYS FIRST MORTGAGE, SECURITY AGREEMENT, FINANCING STATEMENT AND ASSIGNMENT OF RENTALS securing Adjustable Interest Rate Loan THIS FIRST MORTGAGE, SECURITY AGREEMENT, FINANCING STATEMENT AND ASSIGNMENT OF RENTALS (this "Mortgage") made this 24TH day of FEBRUARY , 1996, by and among the following parties: A. The following parties, who are individually and collectively referred to herein as the "Mortgagor": 1. MAUI LAND & PINEAPPLE COMPANY, INC., a Hawaii corporation, whose principal place of business is 120 Kane Street, Kahului, Maui, Hawaii, and whose post office address is P.O. Box 187, Kahului, Maui, Hawaii 96732, who owns the title to the property described in ITEM ONE of EXHIBIT A attached hereto, hereinafter sometimes separately referred to as the "Ground Lessor" and the "Accommodation Mortgagor", and 2. NI HAWAII RESORT, INC., a Hawaii corporation whose address is 745 Fort Street, Honolulu, Hawaii 96813, who owns the title to the property described in ITEM TWO of EXHIBIT A attached hereto; B. NI HAWAII RESORT, INC., a Hawaii corporation, whose address is 745 Fort Street, 8th Floor, Honolulu, Hawaii 96813, hereinafter referred to as the "Borrower", in favor of and for the benefit of NI HAWAII FINANCIAL, INC., a Delaware corporation, whose address is 745 Fort Street, 8th Floor, Honolulu, Hawaii 96813, hereinafter called the "Mortgagee", WITNESSETH THAT: A. OBLIGATIONS AND LIABILITIES SECURED BY THIS MORTGAGE 1. THIS MORTGAGE DOES HEREBY SECURE the repayment of that certain loan (the "Loan") made by the Mortgagee to the Borrower in the principal amount of SIXTY FIVE MILLION AND NO/100 DOLLARS (U.S. $65,000,000.00), and all renewals, extensions and modifications thereof, together with interest thereon, and the payment (including, but not limited to, all sums expended or advanced pursuant to), the observance and the performance of, all covenants, conditions and agreements required to be paid, observed and performed by the Borrower under the following loan documents: (1) This Mortgage covering the property located at 1 Ritz-Carlton Drive, Kapalua, Hawaii; (2) That certain Promissory Note executed concurrently herewith by the Borrower, as Maker, such note and any renewals, extensions and modifications thereof being hereinafter referred to as the "Note"; (3) That certain Security Agreement with a Financing Statement (UCC-1) thereof covering all contracts, permits and authorizations respecting the management and operation of, and all furniture, furnishings, fixtures, equipment, appliances and other personal property, located at 1 Ritz- Carlton Drive, Kapalua, Hawaii and also covering that certain Golf Course Agreement providing for the terms and conditions for the use of the Bay Course, the Village Course and the Plantation Course located at the Kapalua Resort which is located at Kapalua, Maui, Hawaii and that certain Amended and Restated Tennis Operating Agreement, providing for the terms and conditions for the use of The Village Tennis Center and the Tennis Garden located at the Kapalua Resort which is located at Kapalua, Maui, Hawaii; (4) That certain First Security Assignment, Subordination, Nondisturbance and Attornment Agreement made by Mortgagor and Kapalani L.P., a Delaware limited partnership, covering that certain Amended and Restated Operating Agreement covering the Ritz-Carlton, Kapalua Hotel located at 1 Ritz-Carlton Drive, Kapalua, Hawaii; and (5) Any other instruments or agreements executed by any party concurrently herewith in connection with the loan documents and securing the Loan, all of the foregoing loan documents, together with all future modifications thereof, being hereinafter collectively referred to as the "Loan Documents"; 2. THIS MORTGAGE DOES ALSO HEREBY SECURE the payment to the Mortgagee of all other sums now or hereafter loaned or advanced by the Mortgagee to the Borrower, expended by the Mortgagee for the account of the Borrower, or otherwise owing by the Borrower to the Mortgagee on any and every account whatsoever related to this Mortgage; and 3. THIS MORTGAGE DOES ALSO HEREBY SECURE any judgment issued by any Court in favor of the Mortgagee or the Mortgagee's assigns against the Borrower related to or arising out of any default of the Borrower under the Loan Documents. B. GRANT OF MORTGAGE 1. THE GROUND LESSOR DOES HEREBY grant, bargain, sell, assign and convey unto the Mortgagee, its successors and assigns, all of the Ground Lessor's right, title and interest in and to the following: (1) All of the real property and lessor's interest in the Hotel Ground Lease thereon (collectively the "Real Property") described in ITEM ONE of EXHIBIT A, attached hereto and made a part hereof by this reference, subject to the encumbrances (the "Encumbrances"), if any, set forth on such Exhibit; provided, however, that prior to any Event of Default under this Mortgage, the Ground Lessor shall have the right to collect and retain any rent, profits or proceeds from the Real Property; and (2) Any and all awards or payments, including interest thereon, and the right to receive the same, which may be made with respect to the Real Property and the Premises and improvements as a result of (a) the exercise of the right of eminent domain, (b) the alteration of the grade of any street or (c) any other injury to or decrease in the value of the Real Property or the Premises and improvements to the extent of all amounts which may be secured by this Mortgage at the date of receipt of any such award or payment by the Mortgagee, and of the reasonable counsel fees, costs and disbursements incurred by the Mortgagee in connection with the collection of such award or payment, the Ground Lessor agreeing to execute and deliver, from time to time, such further instruments as may be required by the Mortgagee to confirm such assignment to the Mortgagee of any such award or payment, SUBJECT, HOWEVER, to the provisions and limitations of Paragraph H.12 of this Mortgage; 2. THE BORROWER DOES HEREBY grant, bargain, sell, assign and convey unto the Mortgagee, its successors and assigns, all of the Borrower's right, title and interest in and to the following: (1) All of the lessee's interest in the Hotel Ground Lease (the "Lease") described in ITEM TWO of EXHIBIT A, attached hereto and made a part hereof by this reference, together with the estate created thereby, subject to the encumbrances (the "Encumbrances"), if any, set forth on such Exhibit. (2) All buildings and improvements now located on the Real Property and the premises demised by the Lease (the "Premises") and any and all buildings, improvements and building materials that may be placed thereon during the existence of this Mortgage and all rents, royalties, profits, revenues, income and other benefits arising from the use or enjoyment of all or any portion of such property or any contract pertaining to the use or enjoyment thereof; (3) All furniture, furnishings, machinery, appliances, apparatus, equipment, inventory, fittings, fixtures and articles of personal property of every kind and nature whatsoever, other than consumable goods, now or hereafter located in or upon the Real Property, the Premises or any part thereof or wherever located (hereinafter called "Equipment") and now owned or hereafter acquired by the Borrower including all of the proceeds deriving therefrom and all of the right, title and interest of the Borrower in and to any Equipment which may be subject to any retail installment contract, conditional sale contract or security agreement superior in lien and security interest to the lien and security interest of this Mortgage, it being understood and agreed that all of the Equipment is part and parcel of the improvements on the Real Property and the Premises and appropriated to the use thereof, and whether affixed or annexed or not, shall for the purpose of this Mortgage be deemed conclusively to be conveyed hereby, the Borrower agreeing to execute and deliver, from time to time, such further instruments as may be requested by the Mortgagee to confirm the lien and security interest of this Mortgage on the Equipment; (4) Any and all awards or payments, including interest thereon, and the right to receive the same, which may be made with respect to the Real Property and the Premises and improvements as a result of (a) the exercise of the right of eminent domain, (b) the alteration of the grade of any street or (c) any other injury to or decrease in the value of the Real Property or the Premises and improvements to the extent of all amounts which may be secured by this Mortgage at the date of receipt of any such award or payment by the Mortgagee, and of the reasonable counsel fees, costs and disbursements incurred by the Mortgagee in connection with the collection of such award or payment, the Borrower agreeing to execute and deliver, from time to time, such further instruments as may be required by the Mortgagee to confirm such assignment to the Mortgagee of any such award or payment; (5) All right, title and interest of the Borrower in and to any and all rental agreements, contracts for use and all rights to rents, royalties, profits, revenues, income and other benefits arising from the use or enjoyment of all or any portion of the Real Property, the Premises or any part thereof or any contract pertaining to the use or enjoyment thereof; (6) All right, title and interest of the Borrower in and to: (a) all leases, partial assignments, subleases and other contracts of conveyance covering all or any portion of the Real Property, the Premises or the Equipment, and any and all modifications and extensions thereof; (b) all binders or policies of insurance of any kind covering all or any portion of such real property or the Equipment, and any riders, amendments, extensions, renewals, supplements or revisions thereof; (c) any and all accounts (as defined in Section 490:9-106, Hawaii Revised Statutes) which may in any way pertain to the business of the Borrower; and (d) any and all general intangibles (as defined in Section 490:9-106, Hawaii Revised Statutes) including contracts, permits, licenses, certificates, authorizations, refunds, rebates, security deposits, trademarks and trade names, which may in any way pertain to business of the Borrower; the items of collateral described in this subparagraph being hereinafter called the "Collateral"; (7) All right, title and interest of the Borrower in and to any and all Agreements of Sale or similar instruments which may hereafter arise out of or attach to the Real Property, the Premises or any part thereof; (8) All of the estate, right, title and interest of the Borrower, both at law and in equity, therein and thereto, and in and to: (a) any deposit of cash, securities or other property which may be held at any time and from time to time by the lessor under the Lease to secure the performance by the Borrower of the covenants, conditions and agreements to be performed by the Borrower thereunder, and (b) any option to purchase the fee simple title to the Real Property, the Premises, or any greater interest therein than the Borrower now owns; and (c) any and all other, further or additional title, estate, interest or right which may at any time be acquired by the Borrower in or to the Premises, the Borrower hereby agreeing that if the Borrower shall, at any time prior to payment in full of all indebtedness secured hereby, acquire the fee simple title or any other or greater estate than the Borrower now owns in the Premises, then, and in that event, the lien of this Mortgage shall attach, extend to, cover and be a lien upon such fee simple title or other greater estate, and that the Borrower will execute, acknowledge and deliver such instruments as the Mortgagee may reasonably require to accomplish such result; and (9) All rights of the Borrower and the Borrower's bankruptcy trustee to deal with the Lease, which rights may arise as a result of the commencement of a proceeding under the federal bankruptcy laws by or against (a) the Borrower or (b) the lessor under the Lease, including, without limitation, the right to assume or reject, or compel the assumption or rejection of the Lease pursuant to 11 U.S.C. Sec. 365(a) or any successor law, the right to seek and obtain extensions of time to assume or reject the Lease, and the right to elect whether to treat the Lease as terminated by the lessor's rejection of the Lease or to remain in possession of the Mortgaged Property and offset damages pursuant to 11 U.S.C. Sec. 365(h)(1) or any successor law, the items of collateral described in this paragraph being hereinafter called the "Collateral"; TO HAVE AND TO HOLD all of the above-described Real Property, Equipment, Collateral, awards, payments and other property together with all rights, privileges and appurtenances thereto belonging (all of such property being hereinafter referred to as the "Mortgaged Property") unto the Mortgagee, for the unexpired term or extended term of the Lease (or if the Borrower shall acquire the fee simple title, then, absolutely and forever); SUBJECT, HOWEVER, to the Encumbrances, if any. C. THIS MORTGAGE IS GRANTED UPON THE FOLLOWING CONDITIONS: (1) These presents shall be void: (a) if the Borrower shall well and truly pay, or cause to be paid, to the Mortgagee the principal amount of the Note, with interest, fees, charges and premium, if any, according to its provisions and effect, and if the Borrower shall discharge, or cause to be discharged, any and all obligations that now or hereafter may be or become owing, directly or contingently, by the Borrower to the Mortgagee under the Loan Documents, whether or not the same are mature, of which obligations the books of the Mortgagee shall be prima facie evidence; and (b) if the Borrower shall observe and perform, or cause to be observed or performed, all of the covenants, conditions and agreements to be observed and performed by the Borrower under this Mortgage and under the other Loan Documents; and (c) if the Borrower shall pay, or cause to be paid, the costs of release. (2) Subject to the terms hereof, until the happening of an Event of Default, as hereinafter defined, the Mortgagor shall be permitted to use and possess the Mortgaged Property and to use and receive the rents, issues, profits, revenues and other income thereof. D. EVENTS OF DEFAULT The occurrence of any one or more of the following events shall constitute events of default ("Events of Default"): (1) Default shall be made by the Borrower in the payment of principal, interest, fees or charges when due on the Note or any other obligation secured hereby; or (2) Default shall be made by the Borrower in the due and punctual observance or performance of any other covenant, agreement, obligation or condition required to be observed or performed by the Borrower under this Mortgage or the Note or any of the other Loan Documents and such default shall not have been remedied within twenty (20) days after the occurrence of the default; or (3) The Borrower shall become insolvent or shall be voluntarily or involuntarily dissolved or shall admit in writing the Borrower's inability to meet the Borrower's debts as they become due, or the Borrower shall file a voluntary petition in bankruptcy, or make an assignment for the benefit of creditors, or consent to the appointment of a receiver or trustee for all or a substantial part of the Borrower's properties, or file a petition, answer or other instrument seeking or acquiescing to the arrangement of the Borrower's debts, or other relief under the federal bankruptcy laws or any other applicable law for the relief of debtors of the United States of America or any state or territory thereof; or (4) A decree or order of a court having jurisdiction in the Mortgaged Property shall be entered (i) adjudging the Borrower to be bankrupt or insolvent, or (ii) appointing a receiver or trustee or assignee in bankruptcy or insolvency of the Borrower or the Borrower's properties, or (iii) directing the winding up or liquidation of the Borrower's affairs; or (5) Any representation or warranty made by the Borrower herein or otherwise in connection with the Loan shall be untrue in any material respect; or (6) The Borrower shall default in any other obligation secured hereby, and such default shall continue for a period of twenty (20) days after the same shall become due and payable; or (7) The forfeiture or seizure by any governmental authority under 18 U.S.C. Sec. 981, or under any other federal, state, or other law, of any of the Mortgaged Property or any of the properties which are covered by the security instruments which are part of the Loan Documents; or (8) The failure of the Borrower to file cash transaction receipts as required by federal law; or (9) The failure of the Borrower to observe any state, federal, or other law, including but not limited to 18 U.S.C. Sec. 1956(a)(3). E. REMEDIES FOR DEFAULT UPON THE OCCURRENCE OF ANY ONE OR MORE OF EVENTS OF DEFAULT, THEN, AND IN ANY SUCH EVENT, BUT SUBJECT TO THE RIGHT OF THE LESSOR UNDER THE LEASE TO CURE ANY DEFAULT UNDER THE PROVISIONS OF SECTION 5.9 OF THE LEASE, (1) The Mortgagee may, without notice, presentment or demand, declare the unpaid principal amount of the Note and any interest thereon accrued and unpaid to be immediately due and payable, and such principal amount and interest shall thereupon become and be immediately due and payable, and shall thereafter bear interest until fully paid at the rate specified in the Note to be paid in the event of a default; (2) The Borrower, upon demand of the Mortgagee, shall forthwith surrender, or cause to be forthwith surrendered, to the Mortgagee the actual possession of the Mortgaged Property and, to the extent permitted by law, the Mortgagee itself or such officers or agents as the Mortgagee may appoint: (a) may enter and take possession of the Mortgaged Property, together with the books, papers and accounts of the Mortgagor relating thereto; (b) may exclude the Mortgagor, and the Mortgagor's agents and servants therefrom; (c) may hold, operate and manage the same and from time to time make all needful repairs and such alterations, additions, advances and improvements as the Mortgagee shall deem appropriate; and (d) may receive tolls, rents, revenues, issues, income, product and profits thereof and out of the same may pay all proper costs and expenses of so taking, holding and managing the same, including reasonable compensation to the Mortgagee's agents, attorneys and counsel, and any taxes and assessments and other charges prior to the lien and security interest of this Mortgage, which the Mortgagee shall deem necessary or desirable to pay, and all expenses of such repairs, alterations, additions and improvements, and other disbursements made by the Mortgagee pursuant to the terms hereof, and may apply the remainder of the monies so received by the Mortgagee to the payment of any sums secured hereby, including but not limited to, the unpaid principal of, and interest on, the Note; (3) The Mortgagee may, either with or without first taking possession, proceed by action or actions at law or in equity, or by any other appropriate remedy, to enforce payment of the Note or performance of any other obligation secured hereby, and to foreclose this Mortgage, and to sell, in whole, or to the extent permitted by law, in part, the Mortgaged Property under the judgment or decree of a court or courts of competent jurisdiction; (4) Upon the institution of judicial proceedings to enforce its rights hereunder, the Mortgagee, to the extent permitted by law, shall be entitled as a matter of right to the ex parte appointment (without bond) of a receiver or receivers of the Mortgaged Property, and of the tolls, rents, revenues, issues, income, product and profits thereof, pending such proceedings, with such powers as the court making such appointment shall confer; and (5) The Mortgagee shall have the right to enforce one or more remedies hereunder, or any other remedy the Mortgagee may have under the other Loan Documents, successively or concurrently, including, but not limited to, the right to foreclose this Mortgage with respect to any portion of the Mortgaged Property, if the operation of the remaining portion thereof is not thereby rendered unlawful under the then applicable laws, rules and regulations of the governmental authorities having jurisdiction in the premises, without thereby impairing the lien of this Mortgage on the remainder of the Mortgaged Property or affecting the remedies of the Mortgagee available with respect thereto, subject, however, to any limitations on any such remedies as may be specifically provided in the Lease. (6) Notwithstanding any provision to the contrary in this Mortgage, the Mortgagee shall not transfer, sell or convey the Mortgaged Property at public auction in a judicial foreclosure, unless such transfer, sale or conveyance includes both the fee and leasehold interest described in ITEM ONE and ITEM TWO, respectively, of EXHIBIT A attached hereto. (7) The Mortgagee shall also not transfer, sell or convey the buildings and improvements located on the Real Property unless such transfer, sale or conveyance also includes the leasehold interest described in ITEM TWO of EXHIBIT A attached hereto. F. JUDICIAL SALE OF MORTGAGED PROPERTY 1. Acceleration. Upon any sale under judgment or decree in any judicial proceedings for foreclosure for enforcement of this Mortgage, the unpaid principal amount of the Note, the unpaid interest thereon, and all other obligations hereby secured, if not previously due, shall at once become and be immediately due and payable. 2. The Mortgagee's Right to Bid and Purchase. Upon any such sale, the Mortgagee may bid for and purchase the Mortgaged Property or any part thereof, and, upon compliance with the terms of sale, may hold, retain and possess and dispose of such property in its absolute right without further accountability, and the Mortgagee, at any such sale may, if permitted by law, after allowing for the proportion of the total purchase price required to be paid in cash for the costs and expenses of the sale, commissioner's compensation and other charges, in paying the purchase money, turn in the Note, including interest thereon, in lieu of cash, up to the amount which shall, upon distribution of the net proceeds of such sale, be payable thereon. The Mortgagee shall be permitted to bid at any public auction held to sell the Mortgaged Property without payment of a deposit or down payment of any kind. The Mortgagee shall not be required at confirmation of any public auction sale to extend credit or financing of any kind to the Borrower or any other party that may acquire the Mortgaged Property. 3. Borrower or Affiliates Prohibition From Being a Purchaser. Notwithstanding Paragraph F.2, above, the Borrower and its Affiliates shall not directly or indirectly be a purchaser at any foreclosure sale of this Mortgage. 4. Application of Proceeds. Upon the judicial foreclosure sale of both the fee estate and the Lease (Item One and Item Two of EXHIBIT A attached hereto), the Court shall apply the proceeds of any such sale, as follow: First, to the costs and expenses of such sale and all proceedings in connection therewith, including, but not limited to, counsel fees; Next, to the payment of any unreimbursed disbursements made by the Mortgagee for taxes or assessments, rents or other payments under the Lease, or other charges prior to the lien of this Mortgage; Next, to the payment of all other unreimbursed disbursements and expenses and unpaid charges and fees due and owing to the Mortgagee under the provisions of this Mortgage or any of the other Loan Documents (excluding any late fees under the Note); Next, to the payment of the unpaid principal sum (in a principal amount not to exceed $65,000,000.00) of and interest computed on the non-default interest rate on the Note (i.e. at the contract rate); Next, to the Ground Lessor to the extent of the appraised fair market value of the Ground Lessor's fee estate in the Premises as of the date the Mortgagee commenced the foreclosure. The appraised fair market value of the Lessor's fee estate in the Premises shall be as determined by the court appointed appraiser pursuant to the judicial foreclosure proceedings; Next, to the Ground Lessor in an amount equal to all accrued and unpaid lease rents and other amounts owed under the Lease; Next, to the Mortgagee for any interest computed at the default interest rate provided in the Note, less the contract interest distributed above, and any late fees due under the Note, and The remainder, to the Borrower. It is understood and agreed that following the occurrence of an Event of Default hereunder and/or in the payment of rent under the Lease, if the Borrower shall pay amounts under the indebtedness secured by any junior mortgage lien on the Mortgaged Property, all such payments shall, for purposes of computation of the distributions above, be deemed to have been paid under the Note. 5. Perpetual Bar of the Mortgagor's Title. Any such sale shall, to the extent permitted by law, be a perpetual bar, both at law and in equity, against the Mortgagor and all persons, partnerships, corporations and other entities lawfully claiming by or through or under the Mortgagor; and the Mortgagee is hereby irrevocably appointed the true and lawful attorney of the Mortgagor, in the Mortgagor's name and stead, for the purpose of effectuating any such sale, to execute and deliver all necessary deeds, conveyances, assignments, bills of sale and other instruments with power to substitute one or more persons, partnerships, corporations or other entities with like power; provided, that the Mortgagor shall ratify and confirm any such sale or transfer if required by the Mortgagee by delivering all proper conveyances or other instruments to such persons, partnerships, corporations or other entities as may be designated in any such request. 6. No Hindrance. In case of the occurrence of any Event of Default, neither the Mortgagor nor anyone claiming by, through or under the Mortgagor, to the extent the Mortgagor may lawfully so agree, shall or will set up, claim or seek to take advantage of any appraisement, valuation, stay, extension or redemption laws now or hereafter in force in any locality where any of the Mortgaged Property is situated, in order to prevent or hinder the enforcement or foreclosure of this Mortgage, or the absolute sale of the Mortgaged Property, or the final and absolute putting into possession thereof, immediately after such sale, of the purchasers thereof; and the Mortgagor, for the Mortgagor and all who may claim under the Mortgagor, hereby waives, to the full extent that the Mortgagor may lawfully so do, the benefit of all such laws, and any and all right to have the estate comprised in the security intended to be created hereby marshalled upon any foreclosure of the lien hereof and agrees that the Mortgagee or any court having jurisdiction to foreclose such lien may sell the Mortgaged Property as an entirety. 7. Abandonment of Proceedings. In case the Mortgagee shall have proceeded to enforce any right hereunder and such proceedings shall have been discontinued or abandoned for any reason, then in every such case, the Mortgagor and the Mortgagee shall be restored to their former positions and rights hereunder with respect to the Mortgaged Property, and all rights, remedies and powers of the Mortgagee shall continue as if no such proceedings had been taken. No remedy herein reserved to the Mortgagee is intended to be exclusive of any other remedy, but each and every such remedy shall be cumulative and shall be in addition to any other remedy given hereunder or now or hereafter existing at law or in equity, or by statute. 8. No Impairment. Nothing in this Mortgage, the Note or any of the other Loan Documents shall affect or impair the right, which is unconditional and absolute, of the holder of the Note to enforce payment of the principal of, and interest and other charges on, the Note at or after the date therein expressed as the date when the same shall become due, or the obligation of the Borrower, which is likewise unconditional and absolute, to pay such amounts at the respective times and places therein expressed. G. THE BORROWER'S WARRANTIES. 1. The Borrower's Warranties on Title to Lease and the Premises. The Borrower hereby warrants and represents that: a. the Mortgagor is the lawful owner of the Mortgaged Property and has good right to assign the same as aforesaid; b. the rentals now accrued and due under the Lease are fully paid and the Lease is on the date hereof in all respects in good standing under the terms thereof and valid and in full force and effect; c. the Mortgagor's interest in and to Mortgaged Property is free and clear from all encumbrances and liens, except for the Encumbrances, if any; d. the Borrower will WARRANT AND DEFEND the Mortgaged Property unto the Mortgagee forever against the lawful claims and demands of all persons whomsoever, except for the Encumbrances, if any; and e. the Mortgaged Property is free of any flammable explosives, radioactive materials, asbestos, organic compounds known as polychlorinated biphenyls, chemicals known to cause cancer or reproductive toxicity, pollutants, contaminants, hazardous wastes, toxic substances or related materials, including, without limitation, any substances defined as or included in the definition of "hazardous substances," "hazardous wastes," "hazardous materials," or "toxic substances" (collectively, "Hazardous Materials") under any federal, state or local laws, ordinances or regulations, now or hereafter in effect, relating to environmental conditions, industrial hygiene or Hazardous Materials on, under or about the Mortgaged Property, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Clean Water Act, 33 U.S.C. Section 1251, et seq., the Clean Air Act, 42 U.S.C. Section 7401, et seq., the Toxic Substances Control Act, 15 U.S.C. Sections 2601 through 2629, the Safe Drinking Water Act, 42 U.S.C. Sections 300f through 300j, and any similar state and local laws and ordinances and the regulations now or hereafter adopted, published and/or promulgated pursuant thereto (collectively, the "Hazardous Materials Laws"). The Mortgaged Property is not currently used in a manner, and no prior use (by the Mortgagor, prior owners or any tenant) has occurred, which violates any Hazardous Materials Laws. Neither the Mortgagor nor any tenant has received any notice from a governmental agency for violation of Hazardous Materials Laws. 2. The Borrower's Warranties on Title to Equipment and Collateral. The Borrower further warrants and represents that: a. the Mortgagor is the lawful and absolute owner of the Equipment and Collateral and has good right to transfer the same as security under this Mortgage, subject to the Encumbrances, if any; b. the Equipment and Collateral is free and clear of all defects of title, security interests, liens and encumbrances, except for the Encumbrances, if any; and c. the Borrower will WARRANT AND DEFEND the Equipment and Collateral against the claims and demands of all persons, whomsoever, except for the Encumbrances, if any. H. THE BORROWER'S COVENANTS. The Borrower hereby covenants and agrees with the Mortgagee as follows: 1. Payment of Secured Obligations. The Borrower will pay, or cause to be paid, to the holder of the Note the principal and interest due thereunder, and all fees, charges and other sums payable under the Loan Documents, all according to the provisions thereof, and will also pay and discharge, or cause to be paid and discharged, any and all obligations that are now or hereafter may be or become owing by the Borrower to the Mortgagee under the Loan Documents and on any and every other account related to this Mortgage, together with interest, fees, charges and other sums payable thereon as may be specified with respect thereto. 2. Payment of Real Property Taxes, Assessments, etc. The Borrower will punctually pay and discharge, or cause to be paid and discharged, from time to time as the same shall become due, all real property taxes, rates, assessments, impositions, duties, water rates, sewer rates and other charges of every description to which the Mortgaged Property, or any part thereof, or any improvements thereon, may during the term of this Mortgage become liable by authority of law, the payment of which shall be secured by this Mortgage; PROVIDED, HOWEVER, that real property taxes may be paid in semiannual installments and improvement or betterment assessments may be paid in annual installments, upon condition that, in each case, the same are not allowed to become delinquent, and that Borrower will, upon request of the Mortgagee, deposit or cause to be deposited a copy of the receipts therefor with the Mortgagee not later than the final date such taxes, assessments and charges may be paid without penalty. 3. Observance of Laws. The Borrower will duly observe and conform to all current and future laws, rules and regulations made by any governmental authority, and all valid requirements of any regulatory body which may have or acquire jurisdiction (collectively the "Laws"), which apply or relate to the Mortgaged Property, or the Mortgagor's activities at the Mortgaged Property, including, but not limited to (a) the construction and maintenance of such facilities for parking of vehicles as may from time to time be required in order to comply with any applicable Laws and (b) all Laws which now or hereafter require retrofitting or alterations or additions to the Mortgaged Property. The Borrower shall indemnify the Mortgagee, its directors, officers, employees, agents, successors and assigns from and against, any loss, damage, cost, expense or liability directly or indirectly arising out of or attributable to the Borrower's failure to comply with the provisions of this paragraph or any other provision of this Mortgage concerning compliance with Laws including, without limitation: (i) all foreseeable and unforeseeable consequential damages; (ii) the costs of any required or necessary remediation or compliance; and (iii) all reasonable costs and expenses incurred by the Mortgagee in connection with clauses (i) and (ii), including, without limitation, reasonable attorneys' fees. The indemnification provision of this paragraph shall survive (a) the repayment of the Note secured by this Mortgage, (b) any foreclosure of this Mortgage, and (c) any deed or assignment of the Mortgaged Property in lieu of foreclosure. 4. Maintenance and Inspection. The Borrower will keep and maintain, or cause to be kept and maintained, all buildings, structures and improvements now located or hereafter constructed on the Mortgaged Property in good repair, working order and condition. The Mortgagor will permit the Mortgagee and any persons authorized by the Mortgagee to enter and inspect the Mortgaged Property at all reasonable times. 5. Waste, Unlawful Use, etc. The Borrower will absolutely not commit or suffer, or will prevent the committing or suffering of, any strip or waste, or unlawful, improper or offensive use of the Mortgaged Property, or any act or negligence whereby such property or any interest therein shall become liable to seizure or attachment or mesne or final process of law or whereby the lien provided hereby shall be impaired. 6. Sale, Transfer, Lease, etc. a. The Borrower will absolutely refrain from leasing, or will prevent the leasing of, the Mortgaged Property or any interest therein without first obtaining the prior written consent of the Mortgagee, except for leases of portions of the Mortgaged Property to tenants in the ordinary course of the Borrower's business. The Borrower shall furnish, or cause to be furnished, to the Mortgagee promptly upon execution thereof copies of all leases executed by the Borrower as sublessor covering any portion or portions of the Mortgaged Property. b. In the event of a sale (including a sale by way of an Agreement of Sale or similar instrument), assignment, conveyance or other transfer of any of the Borrower's interest in the Mortgaged Property secured by this Mortgage (a "Transfer"), at the closing of such Transfer or on the effective date of such Transfer, whichever occurs first, the Borrower shall pay, or cause to be paid, to the Mortgagee all amounts due and owing under the Note and the Loan Documents up to the date of such closing or Transfer, including principal and interest. The provisions of this paragraph shall constitute a continuing covenant or condition, and any failure on the part of the Mortgagee to exercise the Mortgagee's option to declare all indebtedness due and payable on the occurrence of any one event hereinabove mentioned shall not prejudice the right of the Mortgagee to declare the indebtedness hereby secured at once due and payable on the occurrence of any other event hereinabove mentioned. 7. Compliance with and Preservation of the Lease. a. The Borrower will: (1) pay, or cause the payment of, the rent reserved by the Lease as the same becomes due and payable; (2) promptly perform and observe, or cause the observance and performance of, all of the covenants, conditions and agreements required to be performed and observed by the lessee under the Lease, and do all things necessary to preserve and keep unimpaired its rights thereunder; (3) promptly notify, or cause the notification of, the Mortgagee in writing of any default by the Borrower in the performance or observance of any of the covenants, conditions and agreements on the part of the lessee to be performed or observed under the Lease or of the occurrence of any event which, regardless of the lapse of time, would constitute a default thereunder; (4) promptly notify, or cause the notification of, the Mortgagee in writing of the giving of any notice by the lessor under the Lease of the default of the lessee thereunder in the performance or observance of any of the covenants, conditions and agreements on the part of the lessee to be performed or observed under the Lease and promptly deliver, or cause to be delivered, to the Mortgagee, a copy of each such notice given by the lessor to the lessee under the Lease; (5) promptly notify, or cause the notification of, the Mortgagee in writing of the commencement of a proceeding under the federal bankruptcy laws by or against the Borrower or the lessor under the Lease; (6) if any of the indebtedness secured hereby remains unpaid at the time when notice may be given by the lessee under the Lease of the exercise of any right to renew or extend the term of the same, promptly give notice, or cause the giving of notice, to the lessor under the Lease of the exercise of such right of extension or renewal; (7) in case any proceeds of insurance upon the Mortgaged Property or any part thereof are deposited with any person other than the Mortgagee pursuant to the requirements of the Lease, promptly notify, or cause the notification of, the Mortgagee in writing of the name and address of the person with whom such proceeds have been deposited and the amount so deposited; (8) promptly after the execution and delivery of this Mortgage, notify, or cause the notification of, the lessor under the Lease in writing of the execution and delivery hereof and of the name and address of the Mortgagee and deliver a copy of this Mortgage to the lessor; and (9) promptly notify, or cause the notification of, the Mortgagee in writing of any request made by either party to the Lease to the other party thereto for arbitration or appraisal proceedings pursuant to the Lease, and of the institution of any arbitration or appraisal proceedings and promptly deliver, or cause to be delivered, to the Mortgagee a copy of the determination of the arbitrators or appraisers in each such proceeding. b. The Borrower will not (i) surrender the Lease and/or the Borrower's leasehold estate and interest therein, (ii) voluntarily terminate or cancel the Lease, or (iii) without the prior written consent of the Mortgagee, modify, change, supplement, alter or amend the Lease, either orally or in writing. c. As further security for the repayment of the indebtedness secured hereby and for the performance of the covenants, conditions and agreements contained in this Mortgage and in the Lease, the Borrower hereby assigns to the Mortgagee all of its rights, privileges and prerogatives as lessee under the Lease to terminate, cancel, modify, change, supplement, alter or amend the Lease and any such termination, cancellation, modification, change, supplement, alteration or amendment of the Lease, without the prior written consent thereto by the Mortgagee, shall be void and of no force and effect. d. Without limiting the generality of the foregoing, the Borrower will not reject, or will prevent the rejection of, the Lease pursuant to 11 U.S.C. Sec. 365(a), as amended, or any successor law, or allow the Lease to be deemed rejected by inaction and lapse of time, and will not elect, or will prevent the election, to treat the Lease as terminated by the lessor's rejection of the Lease pursuant to 11 U.S.C. Sec. 365(h)(1), as amended, or any successor law, and as further security for the repayment of the indebtedness secured hereby and for the performance of the covenants, conditions and agreements contained in this Mortgage and in the Lease, the Borrower hereby assigns to the Mortgagee all of the rights, privileges and prerogatives of the Borrower and the Borrower's bankruptcy trustee to deal with the Lease, which rights may arise as a result of the commencement of a proceeding under the federal bankruptcy laws by or against the Borrower under the Lease, and any exercise of such rights, privileges or prerogatives by the Borrower or the Borrower's bankruptcy trustee without the prior written consent thereto by the Mortgagee shall be void and of no force and effect. e. So long as there is no breach of, or default under, any of the covenants, conditions or agreements contained in this Mortgage to be performed by the Borrower, or in the performance by the Mortgagor of any of the covenants, conditions and agreements in the Lease to be performed by the lessee thereunder, the Mortgagee shall have no right to terminate, cancel, modify, change, supplement, alter or amend the Lease. f. No release or forbearance of any of the Borrower's obligations as lessee under the Lease, whether pursuant to the Lease or otherwise, shall release the Borrower from any of its obligations under this Mortgage, including, but not limited to, the Borrower's obligations with respect to the payment of rent as provided for in the Lease and the observance and performance of all of the covenants, conditions and agreements contained in the Lease to be observed and performed by the lessee thereunder. g. Unless the Mortgagee shall otherwise expressly consent in writing, the fee title to the Premises demised by the Lease and the leasehold estate thereunder shall not merge but shall always remain separate and distinct, notwithstanding the union of such estates either in any Mortgagor or in a third party by purchase or otherwise. 8. Restoration of Improvements. The Borrower will promptly restore, replace, rebuild or reinstall, or cause to be restored, replaced, rebuilt or reinstalled, any part of the buildings, structures, improvements, and Equipment now or hereafter constructed, placed, built or installed on the Mortgaged Property, which may be damaged or destroyed by any casualty whatsoever. 9. Future Liens and Mortgages. a. No Liens. The Borrower will absolutely not create, suffer to be created or permit to remain, or will prevent the creation, the suffering of the creation, or the permitting to remain, upon the Mortgaged Property, or any part thereof, or the income therefrom, any mechanics', materialmen's, laborers', tax, statutory or other lien or charge, except the Encumbrances, and liens for taxes and assessments not yet payable or payable without penalty so long as payable; provided that nothing contained in this paragraph shall be deemed to require the Borrower to pay, or cause to be paid, any tax, assessment or charge, or to satisfy any involuntary lien, so long as the Borrower in good faith by appropriate action diligently pursued shall contest, or cause to be contested, the validity thereof (provided the security afforded by this Mortgage shall not thereby be subjected to any sale, forfeiture or loss, or reasonable probability thereof). b. Future Mortgages of the Borrower. The Borrower will absolutely not, without the prior written consent of the Mortgagee, create, suffer to be created or permit to remain upon the Mortgaged Property, or any part thereof, or the income therefrom, any junior or subordinate mortgage lien. c. Future Mortgages of the Ground Lessor. The Ground Lessor may, without any consent of the Mortgagee, mortgage or further encumber the Real Property. 10. No Impairment of Value of Mortgaged Property. No building, improvements, Equipment, or other property now or hereafter covered by the lien of this Mortgage shall be removed, demolished or altered in such manner as to diminish materially the value of the Mortgaged Property, without the prior written consent of the Mortgagee. The Borrower will absolutely refrain from initiating, joining in or consenting to, or shall prevent the initiation of, joinder of or consent to, any change in any private restrictive covenant, land use classification, zoning ordinance or other public or private restrictions limiting or defining the use which may be made of the Mortgaged Property or any part thereof. 11. Insurance. a. The Borrower shall, during the term of this Mortgage, at the Borrower's sole cost and expense and for the mutual benefit of the Borrower and the Mortgagee: (1) keep, or cause to be kept, any structures, buildings and other improvements now located or hereafter constructed on the Mortgaged Property and all Equipment and the interests and liabilities incident to the ownership thereof, insured against loss, destruction and damage by fire and all causes of loss by effecting and maintaining, or causing to be effected and maintained, a commercial property insurance policy or policies written on the Insurance Service Office (commonly referred to as "ISO") "Special Form" used in the State of Hawaii or its equivalent, with an amount of coverage equal to 100% of the replacement cost of such structures, buildings and improvements, and including the following endorsements: (i) replacement cost coverage, (ii) agreed amount, and (iii) building ordinance coverage insuring against contingent liability from the operation of federal, state or county laws, statutes, ordinances or regulations concerning the buildings, structures or improvements on or about the Mortgaged Property, demolition of such buildings, structures or improvements and increased cost of construction of such buildings, structures or improvements. Additionally, the Borrower shall procure, or cause to be procured, a difference-in-conditions policy to include flood, earthquake, wind, backup of sewers, broad collapse coverage, and building ordinance coverage with a limit of liability determined to be prudent by the Mortgagee. If the Mortgaged Property is located in an identified flood hazard area as now or hereafter designated by the United States Department of Housing and Urban Development, the Borrower shall also procure flood insurance required under the provisions of the Flood Disaster Protection Act; (2) effect and maintain, or cause to be effected and maintained, to the extent reasonably available, commercial general liability insurance (occurrence form), including coverage for premises/operations, independent contractors, contractual liability, personal injury, employees as additional insureds, broad form property damage, with combined single limits of liability for bodily injury and property damage of at least $1,000,000.00 per occurrence and $2,000,000.00 general aggregate or such higher limits as the Mortgagee may from time to time require. (3) effect and maintain, or cause to be effected and maintained, rental (business interruption) insurance in such amounts as may be required by Mortgagee; (4) effect and maintain, or cause to be effected and maintained, all such other insurance insuring all insurable properties constituting part of the Mortgaged Property, and all insurable activities of the Borrower in connection with the Mortgaged Property, against all other risks usually insured against by persons owning and operating like properties in the locality where the Mortgaged Property is located; and (5) all such other forms of insurance as shall reasonably be required from time to time by Mortgagee or by governmental authority or regulation. b. All insurance required under subparagraph a, above, shall be kept, effected and maintained in such manner, form and amount as shall be approved by the Mortgagee, and the Borrower shall deposit a copy of the policy or policies therefor with the Mortgagee. In the event of foreclosure or sale of the Mortgaged Property, all interest of the Borrower in such insurance and the policies therefor and the monies payable thereunder shall pass to the purchaser or assignee of the Mortgaged Property. All insurance required under subparagraph a, above, shall be effected and maintained under valid and enforceable policies issued by insurance companies authorized to do business in the State of Hawaii. All such policies or other contracts for such insurance issued by the respective insurers shall, to the extent obtainable, be without contribution and contain an endorsement or agreement of the insurer that the policy or other contract shall not be cancelled or materially changed without at least thirty (30) days' prior written notice to the Mortgagee. c. All losses and monies payable to the Borrower under the insurance required under subparagraph a, above, shall be payable to the Mortgagee pursuant to a standard mortgage clause and lender's loss payable clause and shall be applied by the Mortgagee, at its option, either to rebuilding or repair of the loss, destruction or damage, or in the reduction of any indebtedness hereby secured. Any other insurance procured on such structures or improvements shall be payable as directed, and shall be claimable by, the Mortgagee. The Mortgagee's right to apply the proceeds is subject to the requirements of Hawaii law. d. The Mortgagee shall not be responsible for such insurance or for the collection of any insurance proceeds, or for the insolvency of any insurer or insurance underwriter. e. All such policies or other contracts for such insurance shall provide that the insurance shall not be invalidated as to the interest of the Mortgagee by any act or neglect of any person owning the property insured, or by any foreclosure or other proceedings, or notice of sale, or by any change in the title or ownership of the insured properties, or by occupation of any insured structures for purposes more hazardous than permitted by such policy or contract. f. Upon the execution of this Mortgage and thereafter not less than ten (10) days prior to the expiration date of the expiring policies or contracts, the originals or certified copies of all policies or contracts for insurance (or certificates therefor) of the character described in subparagraph a, above, shall be deposited with the Mortgagee. g. In the event of loss or physical damage to the Mortgaged Property, the Borrower shall give, or cause to be given, immediate notice thereof to the Mortgagee, and the Mortgagee may make proof of loss if the same is not made promptly by the Borrower. h. All insurance coverage required under this Mortgage shall be subject to availability with responsible insurance companies authorized to do business in the State of Hawaii. Where such coverage is not (or is no longer) available, the Borrower shall purchase, effect and maintain, or cause to be purchased, effected and maintained, such other insurance coverage as is acceptable to the Mortgagee. i. If the Borrower fails to effect and maintain, or fails to cause to be effected and maintained, insurance coverage as described above, the Mortgagee may, at the Mortgagee's option, obtain insurance coverage to protect the Mortgagee's rights in the Mortgaged Property as described in this Mortgage. 12. Condemnation. a. If the Mortgaged Property or any part thereof shall be condemned, the Mortgagee may appear and defend any such suit and the Mortgagee is hereby irrevocably authorized to collect all of the proceeds and apply the same upon any obligation secured hereby. All costs, expenses and attorneys' fees paid or incurred by the Mortgagee in the course of such proceedings shall constitute an advance hereunder. b. Notwithstanding any taking by eminent domain, alteration of the grade of any street or other injury to or decrease in value of the Mortgaged Property by any public or quasi-public authority or corporation, the Borrower will continue to pay, or cause to be paid, interest on the entire principal sums hereby secured until an award or payment from such authority or corporation shall have been actually received by the Mortgagee, and any reduction in the principal sum resulting from the application by the Mortgagee of such award or payment as hereinafter set forth shall be deemed to take effect only on the date of such receipt. Subject to the rights of the lessor under the Lease to receive or direct the disposition of condemnation proceeds in Paragraph 12.c, below, any such award or payment shall be applied in such proportions and priority as the Mortgagee, in the Mortgagee's sole discretion, may elect, to the payment of principal and interest on the Note, whether or not then due and payable, or any sums secured by this Mortgage, or to the payment to the Borrower, on such terms as the Mortgagee may specify, to be used for the sole purpose of altering, restoring or rebuilding any part of the Mortgaged Property which may have been altered, damaged or destroyed as a result of any such taking, alteration of grade or other injury to the Mortgaged Property. If, prior to the receipt by the Mortgagee of such award or payment, the Mortgaged Property shall have been sold on foreclosure of this Mortgage, the Mortgagee shall have the right to receive such award or payment to the extent of the mortgage debt remaining unsatisfied after such sale of the Mortgaged Property, with legal interest thereon and reasonable attorneys' fees, costs and disbursements incurred by the Mortgagee in connection with the collection of such award or payment. Should all or any part of the Mortgaged Property be taken by eminent domain, the Borrower hereby assigns to the Mortgagee, and forthwith upon payment thereof will cause to be deposited with the Mortgagee, the award for any Mortgaged Property so taken, excluding, however, any portion of any award to which the lessor under the Lease may be entitled provided in Subparagraph 12.c, below. c. The portion of the condemnation proceeds allocated to the fee simple interest shall be allocated between the Ground Lessor and the Borrower in accordance with the allocation made by an appraisal made by an appraiser mutually chosen by the Ground Lessor, the Borrower and the Mortgagee. If such choice is not made within thirty (30) days of the initial demand by any of such parties for a choice of appraiser, the appraisal shall be made in accordance with the provisions for appraisal set forth in Section 12.1(b) of the Lease. 13. Notice of Deposit of Insurance or Condemnation Proceeds. The Borrower will, in case any proceeds of insurance upon the Mortgaged Property or any part thereof, or the proceeds of any award for the taking in eminent domain of the Mortgaged Property or any part thereof, are deposited with any person other than the Mortgagee, promptly notify, or cause the notification of, the Mortgagee in writing of the name and address of the person with whom such proceeds have been deposited and the amount so deposited. 14. Application of Payments. The Mortgagee shall have the right and is hereby expressly authorized to apply any rents, issues, profits and any other payments collected and received pursuant to the provisions of this Mortgage to the payment of any indebtedness of the Borrower to the Mortgagee hereby secured in any order which the Mortgagee may determine, and any such application shall in all respects be binding upon the Borrower. 15. The Mortgagee's Right of Set-Off. Upon the happening of any event entitling the Mortgagee to foreclose this Mortgage, or if the Mortgagee shall be served with garnishee process in which the Borrower shall be named as defendant, whether or not the Borrower shall be in default hereunder at the time, the Mortgagee may, but shall not be required to, set off any indebtedness owing by the Mortgagee to the Borrower against any indebtedness secured hereby, without first resorting to the Mortgaged Property and without prejudice to any other rights or remedies of the Mortgagee or the lien of the Mortgagee on the Mortgaged Property. 16. Possession by the Borrower After Sale. In the event of a sale of the Mortgaged Property, or any part or parts thereof, under and by virtue of the provisions of this Mortgage, the purchaser or purchasers thereof shall have immediate and peaceable possession of the same, and if the Borrower shall remain in possession after the effective date of such sale, such possession shall be construed as a tenancy at sufferance only, giving unto the purchaser all remedies, by way of summary possession or otherwise, conferred by law in such case. 17. Acknowledgment of Mortgaged Indebtedness. Within five (5) days after request by the Mortgagee in writing, the Borrower will furnish, or caused to be furnished, to the Mortgagee or to any proposed assignee of this Mortgage a written statement, duly acknowledged, of the amount due under this Mortgage and whether any offsets, counterclaims or defenses exist against the mortgaged indebtedness. 18. Further Instruments. The Borrower will, upon reasonable request of the Mortgagee, execute and deliver, or cause the execution and delivery of, such further instruments and do such further acts as may be necessary or proper to carry out more effectively the purpose of this Mortgage and to subject the Mortgaged Property to the lien hereof, and any renewals, additions, substitutions, replacements or betterments thereto. 19. Right of the Mortgagee to Prevent or Remedy Default. If the Borrower shall fail to observe or perform, or cause to be observed or performed, any of the terms, covenants and conditions required to be observed and performed by the Borrower under this Mortgage, unless the Borrower shall be engaged in good faith by appropriate action diligently pursued in contesting, or causing to be contested, the existence of such default and the security afforded by this Mortgage shall not thereby be subjected to any sale, forfeiture or loss, or reasonable probability thereof, the Mortgagee may (but shall not be obligated to): (i) take any action the Mortgagee deems necessary or desirable to prevent or remedy any such default by the Borrower, or to otherwise protect the security of this Mortgage, and (ii) enter in and upon the Mortgaged Property or any part thereof to such extent and as often as the Mortgagee, in its sole discretion, deems necessary or desirable in order to prevent or to remedy any such default by the Borrower or otherwise to protect the security of this Mortgage, and the Mortgagee may pay and advance for the account of the Borrower such sums of money as the Mortgagee, in Mortgagee's sole discretion, deems necessary for any such purpose. 20. Right of the Mortgagee to Participate in Action Affecting Security. The Mortgagee may appear in and defend in any action or proceeding at law or in equity affecting the Lease or purporting to affect the security of this Mortgage, and in such event (except where the effect on the Lease or the purported defect affecting the security hereof arises or results exclusively from any act or omission of the Mortgagee), the Mortgagee shall be allowed and paid, and the Borrower hereby agrees to pay, or cause the payment of, all of the Mortgagee's costs, charges and expenses, including cost of evidence of title and reasonable attorneys' fees, incurred in such action or proceeding in which the Mortgagee may appear. 21. Right of the Mortgagee to Extend Time of Payment, Substitute, Release Security, etc. Without affecting the liability of any person, including the Borrower, for the payment of any indebtedness secured hereby, or the lien or security interest of this Mortgage on the Mortgaged Property (or the remainder thereof), for the full amount of any indebtedness unpaid, the Mortgagee may from time to time, without notice and without affecting or impairing any of its rights under this Mortgage: a. release any person liable for the payment of any of the indebtedness; b. extend the time or otherwise alter the terms of payment of any of the indebtedness or accept a renewal note or notes to evidence such an extension or alteration; c. accept payments or prepayments of principal without reducing the aggregate amount secured by this Mortgage, and make subsequent advances to the Borrower up to the amount described herein; provided, however, that the principal amount outstanding under the Note shall not exceed SIXTY FIVE MILLION AND NO/100 DOLLARS (U.S. $65,000,000.00) at any time; d. accept additional security therefor of any kind, including (but not limited to) deeds of trust, mortgages and security agreements; e. alter, substitute or release any property securing the indebtedness; provided, however, that the Mortgagee shall not release the leasehold interest from this Mortgage unless the fee interest is also released; f. resort for the payment of the indebtedness secured hereby to any securities therefor in such order and manner as it may see fit; g. join in granting any easement or creating any restriction thereon; and h. join in any extension or subordination or other agreement affecting this Mortgage or the lien or charge thereof. 22. The Mortgagee's Expenses for Protection of Security. The Borrower shall pay, or cause to be paid, to the Mortgagee, upon demand, all advances, costs, expenses (including, without limitation, rents and other payments under the Lease) and attorneys' fees which the Mortgagee may make, pay or incur under any provision of this Mortgage for the protection of the security of the Mortgagee, or any of the rights of the Mortgagee in connection with the Mortgaged Property, or in foreclosure proceedings commenced and subsequently abandoned, or in any dispute or litigation in which the Mortgagee or the holder of the Note may become involved by reason of or arising out of this Mortgage, or the other Loan Documents. Such amounts shall bear interest until paid at the rate specified in the Note to be paid in the event of a default, shall be additional charges upon the Mortgaged Property, shall be equally secured hereby and shall be a lien on the Mortgaged Property prior to any rights or claims upon the Mortgaged Property subordinate to the lien of this Mortgage. 23. Partial Releases. The Borrower agrees that the Mortgagee may release, for such consideration or none, as the Mortgagee may require, any portion of the Mortgaged Property without, as to the remainder of the Mortgaged Property, in any way impairing or affecting the lien, security interest and priorities herein provided for the Mortgagee compared to any subordinate lien holder or secured party; provided, however, that the Mortgagee shall not release the leasehold interest from this Mortgage unless the fee interest is also released. 24. Reserve Fund. If requested by the Mortgagee, the Borrower will pay, or cause to be paid, to the Mortgagee, together with and in addition to the monthly payments of interest and/or principal payable under the terms of the Note, until all obligations secured hereby are fully paid, a sum equal to the real property taxes, assessments, rentals and insurance premiums applicable to the Mortgaged Property (all as estimated by the Mortgagee), less all sums already paid therefor, divided by the number of months to elapse before one month prior to the date when such taxes, assessments, rentals and premiums will become due and payable. Such sums shall be held by the Mortgagee, without interest, to pay such taxes, assessments, rentals and premiums as and when the same shall become due and payable. If the total of such payments shall exceed the amount necessary to pay such taxes, assessments, rentals and premiums, such excess may, at the Mortgagee's option, be released to the Borrower or applied on any indebtedness secured hereby or be credited by the Mortgagee on subsequent payments to be made by the Borrower. If, however, the total of such payments shall not be sufficient to pay such taxes, assessments, rentals and premiums when the same shall become due and payable, then the Borrower shall pay, or cause to be paid, to the Mortgagee any amount necessary to make up the deficiency on or before the date when payment of such taxes, assessments, rentals and premiums shall be due. If at any time the Borrower shall tender to the Mortgagee, in accordance with the provisions hereof, full payment of the entire indebtedness secured hereby, the Mortgagee shall, in computing the amount of indebtedness, credit to the account of the Borrower any balance remaining in the funds accumulated under the provisions of this paragraph. If there be a default under the provisions of this Mortgage or any of the other Loan Documents, and thereafter a sale of the Mortgaged Property in accordance with the provisions hereof, or if the Mortgagee, acquires the property otherwise after default, the Mortgagee, at the Mortgagee's option, and at the time of the commencement of such proceeding, or at the time the property is otherwise acquired, may apply the balance then remaining in the funds accumulated under the provisions of this paragraph as a credit against any sums or charges secured hereby, including, but not limited to, the amount of principal, interest, charges and fees then remaining unpaid under the Loan Documents. 25. Loss, Destruction, etc. of the Note. The Borrower will, in the event of the Note shall be mutilated, destroyed, lost or stolen, deliver to the Mortgagee, in substitution therefor, a new Note containing the same terms and conditions as the old Note with a notation thereon of the unpaid principal and accrued unpaid interest. The Borrower shall be furnished with satisfactory evidence of the mutilation, destruction, loss or theft of the Note. 26. Governmental Approvals. The Borrower will, at all times during the continuance of the Mortgage, maintain or cause to be maintained in full force and effect all governmental and municipal approvals and permits which are required to comply with all environmental, ecological and other governmental requirements relating to the Mortgaged Property or to the occupancy thereof. 27. Documentary Stamps. If at any time the State of Hawaii or the United States of America shall require internal revenue stamps to be affixed to the Note or this Mortgage, the Borrower will pay for, or cause to be paid for, the same with any interest or penalties imposed in connection therewith. 28. Tax on Mortgage or Debt. In the event of the adoption or amendment of any law of the State of Hawaii after the date of this instrument, other than a law providing for the imposition of a tax on, according to, or measured by income, which shall in any way change the manner of taxation or of the collection of taxes on mortgages or debts secured by mortgages, to the end that, directly or indirectly, the Mortgagee shall be required to pay on account of this Mortgage or the indebtedness secured hereby, any tax other than taxes of the kind or character now imposed thereon by the laws of the State of Hawaii, and other than a tax on, according to or measured by income, the holder of this Mortgage, at any time after such adoption or amendment of such law, may give written notice to Borrower that such holder elects to have the indebtedness secured by this Mortgage become due and payable. If such notice be given, the said indebtedness shall become due, payable and collectible at the expiration of thirty (30) days; PROVIDED, HOWEVER, that such requirement of payment shall be ineffective if the Borrower is permitted by law to pay the whole of such tax in addition to all other payments required hereunder, without any penalty accruing to the holder of the Note, and if the Borrower in fact pays such tax prior to the date upon which payment is required by such notice. 29. Hazardous Materials. The Borrower will keep and maintain, or cause to be kept and maintained, the Mortgaged Property, including, without limitation, the groundwater on or under the Mortgaged Property, in compliance with, and shall not cause or permit the Mortgaged Property to be in violation of, any Hazardous Materials Laws. The Borrower shall not use, generate, manufacture, treat, handle, refine, produce, process, store, discharge, release, disposed of or all to exist, or shall prevent the using, generating, manufacturing, treating, handling, refining, producing, processing, storing, discharging, releasing, disposing of or allowing to exist, on, under or above the Mortgaged Property, any Hazardous Materials. The Borrower shall immediately advise, or cause the immediate advising of, the Mortgagee in writing of (a) any and all enforcement, clean up, removal, mitigation, or other governmental or regulatory action instituted, contemplated or threatened pursuant to any Hazardous Materials Laws affecting the Mortgaged Property, (b) all claims made or threatened by any third party against Borrower or the Mortgaged Property relating to damage, contribution, cost recovery, compensation, loss or injury resulting from any Hazardous Materials (the matters set forth in clauses (a) and (b) above are hereinafter referred to as "Hazardous Materials Claims") and (c) the Borrower's discovery of any occurrence or condition on the Mortgaged Property or any real property adjoining or in the vicinity of the Mortgaged Property which could subject the Borrower or the Mortgaged Property to any restrictions on ownership, occupancy, transferability or use of the Mortgaged Property under any Hazardous Materials Laws. The Borrower shall indemnify the Mortgagee, its directors, officers, employees, agents, successors and assigns from and against, any loss, damage, cost, expense or liability directly or indirectly arising out of or attributable to the use, generation, manufacture, treatment, handling, refining, production, processing, storage, release, threatened release, discharge, disposal, or presence of Hazardous Materials on, under or about the Mortgaged Property, including, without limitation: (i) all foreseeable and unforeseeable consequential damages; (ii) the costs of any required or necessary repair, clean up or detoxification of the Mortgaged Property, and the preparation and implementation of any closure, remedial or other required plans; and (iii) all reasonable costs and expenses incurred by the Mortgagee in connection with clauses (i) and (ii), including, without limitation, reasonable attorneys' fees. The indemnification provisions of this paragraph shall survive (a) the repayment of the Note secured by this Mortgage, (b) any foreclosure of this Mortgage, and (c) any deed or assignment of the Mortgaged Property in lieu of foreclosure. 30. ADA Compliance. So long as this Mortgage remains outstanding, the Borrower will, at the Borrower's own cost and expense, in respect of the Mortgaged Property and in respect of the Borrower's activities at or within the Mortgaged Property: (a) comply with all requirements of the federal Americans with Disabilities Act, including future amendments (the "ADA") and the rules now or in the future promulgated under the ADA (the "Rules"), to the extent applicable to the Borrower's ownership, management, operation, leasing, use, construction, reconstruction, repair, remodeling, rehabilitation or alteration of the Mortgaged Property, or any part thereof; (b) immediately provide to the Mortgagee written notice (and immediately provide to the Mortgagee copies) of any and all notices of actual, potential or alleged violations of the ADA or the Rules and any and all governmental investigations or regulatory or private actions instituted or threatened, regarding the ADA or the Rules; and (c) furnish to the Mortgagee, from time to time whenever reasonably requested by the Mortgagee, an ADA Compliance Assessment (the "ADA Compliance Assessment"), in form reasonably acceptable to the Mortgagee, made by an architect or engineer, or other professional acceptable to the Mortgagee in its sole discretion, having a good repute for skill and experience in the field of ADA compliance and otherwise reasonably acceptable to the Mortgagee ("ADA Consultant"). If the ADA Compliance Assessment shows that there are architectural barriers, including communication barriers that are structural in nature within the Mortgaged Property or the access to the Mortgaged Property, then the Borrower, at the Mortgagee's request, shall also provide to the Mortgagee a plan reasonably satisfactory to the Mortgagee, for the removal of such barriers to the extent that such removal is readily achievable. In no event shall the Mortgagee's acceptance of the ADA Compliance Assessment or plan be deemed a representation by the Mortgagee that such plan is in compliance with the ADA or the Rules. Prior to undertaking any alterations or new construction on the Mortgaged Property the Borrower, in addition to all other requirements for such alterations or new construction contained in the Mortgage or the other Loan Documents, shall provide to the Mortgagee a certification by an ADA Consultant that the plans and specifications for the alteration or new construction comply with the ADA and Rules. 31. No Violation of Forfeiture Laws. The Borrower warrants and covenants as follows: a. The Borrower will not violate any federal, state, or other governmental law, including but not limited to 18 U.S.C. Sec. 1956(a)(3), that may in any way affect or impair the value of the Mortgaged Property or the properties covered by the security instruments which are part of the Loan Documents or the Mortgagee's priority therein; b. To the best of the Borrower's knowledge, there has been no violation of any federal, state, or other law affecting or impairing the value of the Mortgaged Property or the properties covered by the security instruments which are part of the Loan Documents; and c. The Borrower shall make every good faith effort to prevent any violation of any federal, state, or other governmental law, including but not limited to 18 U.S.C. Sec. 1956(a)(3), that may in any way affect or impair the value of the Mortgaged Property or the properties covered by the security instruments which are part of the Loan Documents or the Mortgagee's priority therein. In the event that the Mortgagee has reasonable cause to believe that any portion of the Mortgaged Property or any other collateral securing the Loan might be or become subject to forfeiture under any of the foregoing laws, the Borrower agrees that the Mortgagee may, in its sole discretion, and addition to its other remedies under this Mortgage and at law or in equity, refuse to make any further disbursements of Loan proceeds, of any kind whatsoever, until the Mortgagee no longer has any reasonable belief that any portion of the Mortgaged Property or any other collateral securing the Loan is subject to or may become subject to forfeiture under any of the foregoing laws. 32. Accounts and Records. The Borrower will maintain a standard modern system of accounting administered in accordance with generally accepted accounting principles. The Mortgagee shall have the right to examine the books of account of the Borrower to the extent that they pertain to this Mortgage and the Mortgaged Property, and to discuss the affairs, finances and accounts of the Borrower to such extent, all at such reasonable times and intervals as the Mortgagee may desire. The Borrower will furnish to the Mortgagee, within ninety (90) days after the close of each fiscal year, a balance sheet of the Borrower and a statement of earnings of the Borrower as at the end of and for each year, prepared in accordance with generally accepted accounting principles consistently applied. Upon the request of the Mortgagee, the Borrower will provide the Mortgagee with convenient facilities for the audit of such data and information. 33. Reappraisals. The Mortgagee shall have the right to obtain, at the Borrower's expense, reappraisals of the Mortgaged Property from any licensed or certified appraiser designated by the Mortgagee, from time to time (a) whenever such reappraisal may be required by any law, rule or regulation applicable to the Mortgagee or the conduct of the Mortgagee's business, or may be requested or directed by any governmental authority charged with the administration of such law, rule or regulation or the Mortgagee's compliance therewith, whether or not such request or direction has the force of law, or (b) whenever the Mortgagee has reasonable cause to believe that the then-current loan-to-value ratio for (i) the Loan or (ii) the aggregate of all loans or other obligations secured by the Mortgaged Property exceeds the loan-to-value ratio for (i) the Loan or (ii) such aggregate, originally required by the Loan Documents or by the Mortgagee's commitment to make the Loan, or (c) whenever reasonably deemed appropriate by the Mortgagee following the occurrence or during the continuance of an Event of Default. I. ASSIGNMENT OF RENTALS. The Borrower does hereby assign, transfer, deliver and set over unto the Mortgagee and its successors and assigns, absolutely: FIRST: All of the right, title and interest of the Borrower in and to any and all subleases (the "Subleases") now or hereafter executed covering portions of the Mortgaged Property, and all extensions, renewals and modifications of the Subleases; SECOND: All rentals and other sums payable by the lessees under the Subleases and all extensions, renewals, supplements or modifications thereof; THIRD: All rights, powers, security, privileges, options, remedies and other benefits of the Borrower, as lessor under the Subleases, including, but not limited to, the right to demand, collect and receive all rentals and all sums due and which may become due or payable to the lessor thereunder, whether as rentals, the proceeds of insurance or otherwise (all articles of property described in Items FIRST, SECOND and THIRD being hereinafter sometimes called the "Assigned Property"); TO HAVE AND TO HOLD the same unto the Mortgagee and its successors and assigns, absolutely; 1. THE BORROWER'S WARRANTIES. The Borrower warrants and represents as follows: a. the Borrower is the lawful and absolute owner of all of the Assigned Property leased or to be leased and has good right to assign the sublessor's interest in the Subleases and the rentals and other sums payable thereunder; b. the Subleases are, and future Subleases will be, valid, legally binding upon the parties thereto and are enforceable in accordance with its provisions; c. the Subleases are in full force and effect, not in default, and have not been amended or modified; d. except for this Mortgage, the Borrower has not sold, assigned, transferred, mortgaged, pledged or otherwise encumbered the Subleases or the rentals, income and profits due or to become due thereunder; and e. there has been no prepayment or anticipation of rentals provided for in the Subleases for a period in excess of one (1) month; and that there are no offsets, counterclaims or defenses to the Borrower's rights to the rentals now due or to become due under the Subleases. 2. THE BORROWER'S COVENANTS. The Borrower hereby covenants and agrees with and for the benefit of the Mortgagee as follows: a. Absolute Assignment. This Mortgage is not an assignment for security purposes, nor a pledge of rents for additional security, but an outright, immediate and absolute assignment of the Borrower's interest in the Subleases. b. Preservation and Enforcement of Subleases. The Borrower will fully and faithfully abide by, observe and perform each and every covenant, condition and obligation to be observed and performed by the lessor under the Subleases and, at the sole cost and expense of the Borrower, shall enforce or secure the observance and performance of each and every covenant, condition and obligation to be observed and performed by the lessees under the Subleases. Without the prior written consent of the Mortgagee, the Borrower will absolutely refrain from modifying, altering, waiving, cancelling or extending the term or any of the provisions of any Lease or accept a surrender thereof; nor will the Borrower anticipate for more than one (1) month the rents under the Lease, or waive, excuse, condone or in any manner release or discharge the lessee from any obligation thereunder, including, but not limited to, the obligation to pay the rentals provided for thereunder in the manner and at the place and time specified therein. If requested by the Mortgagee, the Borrower shall deliver to the Mortgagee estoppel certificates, in form and substance satisfactory to the Mortgagee, duly executed by the lessees under the Subleases. c. Legal Proceedings. The Borrower will, at the Borrower's sole cost and expense, appear in and defend any action or proceeding arising under, growing out of or in any manner connected with any Lease or the obligations, duties or liabilities of the lessor and lessee thereunder; PROVIDED, that the Mortgagee may appear in and defend any such action or proceeding, and the Borrower shall pay all costs and expenses of the Mortgagee, including, but not limited to, attorneys' fees, in any such action or proceeding in which the Mortgagee may appear. d. Right of the Mortgagee to Prevent or Remedy Default. If the Borrower fails to make any payment or to observe and perform any of the covenants, conditions or obligations herein provided, then the Mortgagee may, but without obligation so to do and without notice to or demand on the Borrower and without releasing the Borrower from any obligation hereunder, take any action the Mortgagee deems necessary or appropriate to prevent or remedy such default or otherwise to protect the Assigned Property, including, but not limited to, (a) appearing in and defending any action or proceeding purporting to affect any Lease, the rentals payable thereunder or the rights or powers of the Mortgagee or (b) observing and performing any covenant, condition or obligation of the lessor under the Lease. e. The Mortgagee's Expenses. The Borrower shall pay to the Mortgagee upon demand, all advances, costs, expenses and attorneys' fees which the Mortgagee may make, pay or incur under any provision of this Mortgage for the protection of any of the rights of the Mortgagee hereunder, or in any dispute or litigation in which the Mortgagee may become involved by reason of or arising out of this Mortgage. Such amounts shall bear interest until paid at the rate provided in the Note to be paid in the event of a default thereunder, shall be additional charges upon the Mortgaged Property, shall be equally secured hereby and shall be a lien on the Mortgaged Property prior to any rights or claims upon the Mortgaged Property subordinate to the lien of this Mortgage. f. Grant of License to the Borrower for Collection of Rentals. The Mortgagee hereby grants to the Borrower a revocable license to collect, but not more than one (1) month prior to accrual, all rentals and other sums payable under the Subleases, and to hold the same as a trust fund to be applied, first, to the payment of any advances, costs, expenses and attorneys' fees made, paid or incurred by the Mortgagee for the protection of its rights and security under the Loan Documents; second, to the payment of charges, interest and principal becoming due under the Note and to the payment of all other sums now or hereafter loaned or advanced by the Mortgagee to the Borrower and hereby secured, expended by the Mortgagee for the account of the Borrower, or otherwise owing by the Borrower to the Mortgagee on any and every account whatsoever; third, to the satisfaction of any obligations owing by the lessor to the lessee under any Lease; and the remainder, if any, may be used for the Borrower's own purposes. The Mortgagee may revoke this license at any time by written notice to the Borrower (this license being automatically revoked without notice upon the occurrence of a default under any of the Loan Documents). g. Collection of Rentals by the Mortgagee. Upon the revocation of the license granted by the Mortgagee to the Borrower pursuant to the preceding paragraph I.2.f of this Mortgage, or upon the occurrence of a default under any of the Loan Documents, the lessees under the Subleases shall be required to pay all of the rentals directly to the Mortgagee and such rentals shall be applied by the Mortgagee, first, to the payment of any advances, costs, expenses and attorneys' fees made, paid or incurred by the Mortgagee for the protection of its rights and security under the Loan Documents; second, to the payment of the unpaid charges, interest and principal on the Note and to the payment of all other sums now or hereafter loaned or advanced by the Mortgagee to the Borrower, expended by the Mortgagee for the account of the Borrower, or otherwise owing by the Borrower to the Mortgagee on any and every account whatsoever; and the remainder, if any, shall be paid to the Borrower. h. The Mortgagee not Obligated to Perform Under Subleases; Indemnity. The Mortgagee shall not be obligated to perform or discharge, nor does the Mortgagee hereby undertake to perform or discharge, any obligation, duty or liability under the Subleases, or under or by reason of this Mortgage, and the Borrower shall and does hereby agree to indemnify and to hold the Mortgagee harmless from any and all liability, loss or damage (to the extent such liability, loss or damage does not arise out of any wrongful act or omission by the Mortgagee) which the Mortgagee may incur under any Lease or under or by reason of this Mortgage and from any and all claims and demands whatsoever which may be asserted against the Mortgagee by reason of any alleged obligation or undertaking on the Mortgagee's part to perform or discharge any of the covenants, conditions or obligations contained in any Lease. Should the Mortgagee incur any such liability, loss or damage in the defense of any such claims or demands, the amount thereof, including, but not limited to, costs, expenses and reasonable attorneys' fees, the Borrower shall reimburse such amounts to the Mortgagee upon demand. i. Future Subleases. Until every covenant, condition and obligation of the Borrower under the Loan Documents shall have been fully paid, observed and performed, the Borrower shall, and does hereby, assign and transfer to the Mortgagee absolutely any and all future leases demising part or all of the Mortgaged Property upon the same or substantially the same terms and conditions as are herein contained, and will make, execute, acknowledge and deliver to the Mortgagee, upon demand, any and all instruments that may be requested by the Mortgagee therefor. j. Liens. The Borrower will maintain the valid security interest of the Mortgagee in the Assigned Property and the sums due thereunder, free and clear of all liens, claims and encumbrances that may be made prior to or on a parity with the security interest of the Mortgagee therein. k. Reassignment. Upon the payment, observance and performance by the Borrower of all of the obligations under the Loan Documents, the Mortgagee shall reassign the Assigned Property to the Borrower, without recourse; PROVIDED, HOWEVER, that the Borrower shall pay for the costs of such reassignment. J. MODIFICATIONS TO LEASE. It is understood and agreed by and between the Ground Lessor and Mortgagee that, so long as this Mortgage (and any renewal, extension, modification or amendment thereof) shall remain in force and effect, certain terms and provisions of that certain Lease described in ITEM TWO of EXHIBIT A of this Mortgage (the "Lease") shall be superseded and/or modified in the following respects: 1. The provisions of Sections 5.1 and 5.2(e) of the Lease relating to a qualified purchaser are hereby amended to define the term "qualified purchaser" in the case of a judicial foreclosure of this Mortgage to mean a person who (i) shall not as its primary business, own, lease or operate any casino or gambling facility if such business, ownership, leasing or operation might reasonably impair the ability of the Lessee under the Lease or the Hotel Operator (as defined in the Lease), as applicable, to obtain or retain any necessary regulatory approvals for the operation of the Hotel (as defined in the Lease); (ii) may not own or operate a distillery, winery or brewery or a distributorship of alcoholic beverages if such ownership or operation might reasonably impair the ability of the Lessee under the Lease or said Hotel Operator, as applicable, to obtain or retain liquor licenses for said Hotel; and (iii) shall have sufficient financial capability to carry out its obligations under the Lease. 2. Section 5.2(c) is modified as follows: a. The forty-five (45) day time period in the paragraph is extended to sixty (60) days. b. Subparts (i), (ii) and (iii) are modified such that the determination of whether a default is susceptible of being cured by the mortgagee shall be made by Mortgagee in its sole discretion; provided, that the Mortgagee shall give to the Ground Lessor a prompt written notice of such determination after any such determination is made. 3. The following phrase shall be added to and modify the end of the first sentence in Section 5.2(e): ", but only payable when due for those amounts thereafter accruing." 4. The provisions of Section 5.7 of the Lease shall be deleted in their entirety in the event that any purchaser under a judicial foreclosure sale under this Mortgage shall acquire title to the lessee's interest in the Lease. 5. As between Mortgagor and Mortgagee, the provisions set forth above shall control in the event of any conflict between the provisions of this Mortgage and the Lease, and with respect to Paragraph J.4 above, as between the Lessee and the Ground Lessor under the Lease. K. MISCELLANEOUS PROVISIONS: 1. No Waiver. Any failure by the Mortgagee to insist upon the strict performance by the Borrower or the Mortgagor of any of the terms and provisions hereof shall not be deemed to be a waiver of any of the terms and provisions hereof, and the Mortgagee, notwithstanding any such failure, shall have the right thereafter to insist upon the strict performance by the Borrower or the Mortgagor of any and all of the terms and provisions of this Mortgage to be performed by the Borrower or the Mortgagor. 2. Security Agreement and Financing Statement Under Uniform Commercial Code. This Mortgage shall constitute a security agreement and financing statement under the Uniform Commercial Code, as enacted in Hawaii; and the Borrower, as debtor, hereby grants to the Mortgagee, as secured party, a security interest in any or all of the Mortgaged Property, including, but not limited to, the Equipment and Collateral, in addition to a mortgage lien upon the same as part of the realty. The Borrower will assist, or cause the assistance, in the preparation of and will execute from time to time, alone or with the Mortgagee, and deliver, file and record, any financing or continuation statements, mortgages or other instruments, and do such further acts as the Mortgagee may request to establish, maintain and perfect the security interests of the Mortgagee in the Mortgaged Property, including (but not limited to) the Equipment, and all renewals, additions, substitutions, improvements to the same and the proceeds thereof, and otherwise to protect the same against the rights and interests of third parties. The terms of this Mortgage shall be deemed commercially reasonable within the meaning of the Uniform Commercial Code. 3. Definitions. The terms "advances," "costs" and "expenses" shall include, but shall not be limited to, reasonable attorneys' fees whenever incurred. The terms "indebtedness" and "obligations" shall mean and include, but shall not be limited to all claims, demands, obligations and liabilities whatsoever, however arising, whether owing by the Borrower, individually or as a partner, or jointly or in common with any others, and whether absolute or contingent, and whether owing by the Borrower as principal debtor or as accommodation maker or as indorser, liquidated or unliquidated, and whenever contracted, accrued or payable. 4. Paragraph Headings. The headings of paragraphs herein are inserted only for convenience and shall in no way define, describe or limit the scope or intent of any provisions of this Mortgage. 5. Parties in Interest. As and when used herein, the term "Mortgagor" shall mean and include the Mortgagor above-named, their respective successors and assigns; the term "Borrower" shall mean and include the Borrower above-named, its successors and assigns; the term "Mortgagee" shall mean and include the Mortgagee above-named and its successors and assigns; and the use of any gender shall include all genders. 6. Applicable Laws. This Mortgage shall be governed by and shall be construed and interpreted under and pursuant to the laws of the State of Hawaii. If any provision of this Mortgage is held to be invalid or unenforceable, such will not affect the validity or enforceability of the other provisions of this Mortgage. 7. Notices. All notices, demands or documents which are required or permitted to be given or served under this Mortgage shall be in writing and personally delivered or sent by registered or certified mail addressed as set forth on page 1 of this Mortgage. Such addresses may be changed by addressee by serving notice as provided above. Service of any such notice shall be deemed complete on the earlier to occur of the actual date of delivery or three (3) days after mailing. 8. Additional Security for the Note. The Mortgagee may have received additional mortgages and/or security instruments to protect the Mortgagee against possible losses that might result if the Note is not paid in full when due or otherwise paid in accordance with its terms and provisions. In such event, the Borrower agrees that if a default occurs under either the Note, this Mortgage or such additional mortgages and/or security instruments, such default shall be a default under all of such instruments and that the Mortgagee is free to decide which mortgage or security instrument to take action against first and which order to take these actions. The Borrower waives any rights the Borrower might have under the law to interfere with the Mortgagee's decisions on the order of actions the Mortgagee takes against the mortgages and/or security instruments. 9. Limitation of Liability of Accommodation Mortgagor. a. In this Section, MAUI LAND & PINEAPPLE COMPANY, INC., a Hawaii corporation, whose principal place of business is 120 Kane Street, Kahului, Maui, Hawaii, and whose post office address is P.O. Box 187, Kahului, Maui, Hawaii 96732, shall be referred to as the "Accommodation Mortgagor". b. The Accommodation Mortgagor has executed this Mortgage as an accommodation to the Borrower. The Accommodation Mortgagor acknowledges that because of the Accommodation Mortgagor's benefits arising out of the Loan, which provides the funds to refinance an existing loan which is secured by the Accommodation Mortgagor's interest in the Mortgaged Property, the Accommodation Mortgagor will derive a substantial and valuable benefit from the Loan to the Borrower; that the Accommodation Mortgagor is making this Mortgage for the benefit of the Mortgagee as an essential inducement to the Mortgagee to make the Loan to the Borrower; and that without this Mortgage, the Mortgagee would not have made the Loan to the Borrower. c. The Accommodation Mortgagor's execution and delivery of this Mortgage is not intended to, and shall not, make the Accommodation Mortgagor personally liable or obligated to the Mortgagee. The Accommodation Mortgagor is delivering this Mortgage only to secure the Borrower's promises and performances under the Note and any of the Loan Documents and not to become personally liable or obligated under the Loan Documents. d. Notwithstanding any provision to the contrary in this Mortgage, it is agreed and understood that the Accommodation Mortgagor is not personally liable under any covenants of the Note, this Mortgage or other Loan Documents for the payment of any indebtedness. In any action or proceeding brought on this Mortgage in which a money judgment is sought, the Mortgagee will look solely to the Borrower and to the Mortgaged Property for payment of the obligations hereby secured and, expressly agrees to waive any right to seek or obtain a deficiency judgment against the Accommodation Mortgagor. e. The Accommodation Mortgagor authorizes and directs the Mortgagee to disburse 100% of the Loan proceeds solely to the Borrower and to disburse none of the Loan proceeds to the Accommodation Mortgagor. f. Even though the Accommodation Mortgagor has not received, and will not receive, any of the Loan proceeds, the Accommodation Mortgagor understands and agrees that if a default occurs under the Loan Documents, the Mortgaged Property which the Accommodation Mortgagor has delivered to the Mortgagee under this Mortgage may be sold to pay in full the amounts due and payable under the Note and the Loan Documents. g. The Accommodation Mortgagor agrees to waive any right which the Accommodation Mortgagor may have to require the Mortgagee to (a) demand payment of amounts due (known as "presentment"); (b) give notice that amounts due have not been paid (known as "notice of dishonor"); and (c) obtain an official certification of nonpayment (known as "protest"). h. The Accommodation Mortgagor agrees to be bound by the provisions of Paragraph 21 of Section H, above, and that the Mortgagee may do any of the things set forth in those paragraphs without affecting or diminishing any of the Mortgagee's rights under this Mortgage. i. The Borrower acknowledges that the execution and delivery of this Mortgage by the Accommodation Mortgagor is being made strictly as an accommodation to the Borrower. 10. Counterpart Signatures. This Mortgage may be executed in counterparts, each of which shall be deemed an original regardless of the date of its execution and delivery. All of such counterparts together shall constitute one and the same document, binding all of the parties hereto, notwithstanding all of the parties are not signatory to the original or the same counterparts. For all purposes, including, without limitation, recordation, filing and delivery of this document, duplicate unexecuted and unacknowledged pages of the counterparts may be discarded and the remaining pages assembled as one document. IN WITNESS WHEREOF, the parties hereto have executed these presents as of the day and year first above written. MAUI LAND & PINEAPPLE COMPANY, INC. By /S/ DON YOUNG Don Young Its Executive Vice President By /S/ PAUL J. MEYER Paul J. Meyer Its Executive Vice President/Finance "Mortgagor, Ground Lessor and Accommodation Mortgagor" NI HAWAII RESORT, INC. By /S/ TORU OKUYAMA Toru Okuyama Its Vice President "Mortgagor and Borrower" NI HAWAII FINANCIAL, INC. By /S/ TORU OKUYAMA Toru Okuyama Its Vice President "Mortgagee" STATE OF HAWAII ) ) SS: COUNTY OF MAUI ) On this 24TH day of FEBRUARY , 1996, before me appeared DON YOUNG and PAUL J. MEYER, to me personally known, who, being by me duly sworn, did say that they are the Executive Vice President and Executive Vice President/Finance, respectively, of MAUI LAND & PINEAPPLE COMPANY, INC., a Hawaii corporation; that said instrument was signed in the name and on behalf of said corporation by authority of its Board of Directors; and said officers acknowledged that they executed said instrument as the free act and deed of said corporation. /S/ DEBRA A. MAHON Notary Public, State of Hawaii My Commission expires: OCT. 1, 1996 STATE OF HAWAII ) ) SS: COUNTY OF MAUI ) On this 24TH day of FEBRUARY , 1996, before me appeared TORU OKUYAMA, to me personally known, who, being by me duly sworn did say that he is the Vice President of NI HAWAII RESORT, INC., a Hawaii corporation; that said instrument was signed in the name and on behalf of said corporation by authority of its Board of Directors; and said officer acknowledged that said officer executed said instrument as the free act and deed of said corporation. /S/ DEBRA A. MAHON Notary Public, State of Hawaii My Commission expires: OCT. 1, 1996 STATE OF HAWAII ) ) SS: COUNTY OF MAUI ) On this 24TH day of FEBRUARY , 1996, before me appeared TORU OKUYAMA, to me personally known, who, being by me duly sworn did say that he is the Vice President of NI HAWAII FINANCIAL, INC., a Delaware corporation; that said instrument was signed in the name and on behalf of said corporation by authority of its Board of Directors; and said officer acknowledged that said officer executed said instrument as the free act and deed of said corporation. /S/ DEBRA A. MAHON Notary Public, State of Hawaii My Commission expires: OCT. 1, 1996 EX-10 5 LAND COURT SYSTEM REGULAR SYSTEM Return By: Mail ( ) Pickup ( ) To: Diana S. Barber, Esq. The Ritz-Carlton Hotel Company, L.L.C. 3414 Peachtree Road, N.E. Suite 300 Atlanta, Georgia 30326 Tax Map Key: 4-2-004-021 (2) Tax Map Key: 4-2-004-015 & 014 (2) 0129600.KYS SUBORDINATION, NONDISTURBANCE AND ATTORNMENT AGREEMENT (GROUND LESSOR) THIS SUBORDINATION, NONDISTURBANCE AND ATTORNMENT AGREEMENT (hereinafter referred to as this "Agreement"), made and entered into as of the 24TH day of FEBRUARY , 1996, but effective January 1, 1996, by and among NI HAWAII RESORT, INC., a Hawaii corporation (hereinafter referred to as "Owner"), KAPALANI, L.P., a Delaware limited partnership (hereinafter referred to as "Operator"), and MAUI LAND & PINEAPPLE COMPANY, INC., a Hawaii corporation (hereinafter referred to as "Ground Lessor") (which terms "Owner", "Operator" and "Ground Lessor" shall include the successors and assigns of the respective parties). WITNESSETH THAT: WHEREAS, Ground Lessor has leased to Owner that certain real property described on EXHIBIT A, attached hereto and incorporated herein by this reference (such real property and the improvements located or to be located thereon are hereinafter collectively referred to as the "Property") pursuant to that certain Hotel Ground Lease dated January 9, 1996, but effective as of January 1, 1996 (the "Lease Agreement"); and WHEREAS, Owner and Operator have entered into that certain Amended and Restated Operating Agreement, effective January 1, 1996 (hereinafter referred to as the "Operating Agreement") providing the terms, conditions and limitations under which Operator will manage a luxury hotel located upon the Property on behalf of Owner; and WHEREAS, Operator desires that Ground Lessor recognize Operator's rights under the Operating Agreement in the event of enforcement of Ground Lessor's rights under the Lease Agreement, and Operator is willing to subordinate the Operating Agreement to the Lease Agreement and to attorn to a transferee of the Property, if any, upon enforcement of Ground Lessor's rights under the Lease Agreement if such transferee will recognize Operator's rights under the Operating Agreement. NOW, THEREFORE, for and in consideration of the premises and the mutual promises and covenants of the parties hereunder, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. The Operating Agreement and the rights of Operator thereunder are and shall at all times be subordinate to the Lease Agreement and to any and all renewals, modifications, consolidations, replacements and extensions thereof, subject to the terms and conditions set forth in this Agreement. 2. So long as the Operating Agreement is in full force and effect and Operator is not in default under Article 11 thereof (beyond any periods given Operator to cure such default), Operator's rights and privileges under the Operating Agreement shall not be terminated, disturbed, diminished or interfered with by any steps or proceedings taken by Ground Lessor in the exercise of any of Ground Lessor's rights under the Lease Agreement. 3. If the interest of Ground Lessor in the Property shall be transferred by any reason whatsoever and so long as the Operating Agreement is in full force and effect and Operator is not in default under Article 11 thereof (beyond any periods given Operator to cure such default), the Operating Agreement and all rights of Operator thereunder shall continue in full force and effect and shall not be terminated, disturbed, diminished or interfered with by the transferee of said interest of Ground Lessor except in accordance with the terms of the Operating Agreement and in such event, Operator shall be bound to such transferee (which may include, without limitation, Ground Lessor) under all of the terms, covenants and conditions of the Operating Agreement for the remainder of the Operating Term (as defined in the Operating Agreement) and any extensions thereof with the same force and effect as if such transferee were the "Owner" under the Operating Agreement; provided, however, that Operator shall be under no obligation to pay any sums to such transferee or otherwise perform under the Operating Agreement until (x) Operator receives written notice from Ground Lessor that such transferee has succeeded to the interest of Owner under the Operating Agreement or the Lease Agreement as the case may be, and (y) such transferee shall have agreed to be bound to Operator under the terms, covenants and conditions of the Operating Agreement, except that such transferee shall not be (i) liable for any liability, obligation, act or omission of any prior owner of the Property (including Ground Lessor and Owner) or (ii) bound by any sums which Operator might have paid to any prior owner of the Property (including Ground Lessor and Owner) or (iii) bound by any amendment or modification of the Operating Agreement made without the consent of Ground Lessor. 4. Any notice or other communication which is provided for or required by Ibis Agreement must be in writing and may be delivered in person to any party or may be sent by courier or registered or certified U.S. mail, with postage prepaid, return receipt requested. Any such notice or other written communication shall be deemed received by the party to whom it is sent (i) in the case of personal delivery, on the date of delivery to the party to whom such notice is addressed as evidenced by a written receipt signed on behalf of such party, (ii) in the case of courier delivery, the date receipt is acknowledged by the party to whom such notice is addressed as evidenced by a written receipt signed on behalf of such party, and (iii) in the case of registered or certified mail the date receipt of acknowledgement on the return receipt for such notice. For purposes of notices, the addresses of the parties hereto shall be as follows, which address may be changed at any time by written notice given in accordance with this provision: If to Owner: NI Hawaii Resort, Inc. c/o 745 Fort Street 8th Floor, Hawaii Tower Honolulu, Hawaii 96813 Attention: _________________________________________ If to Operator: Kapalani, L.P. c/o The Ritz-Carlton Hotel Company, L.L.C. 3414 Peachtree Road 300 Monarch Plaza Atlanta, Georgia 30326 Attn: General Counsel If to Ground Lessor: Maul Land & Pineapple Company, inc. 120 Kane Street Post Office Box 187 Kahului, Maui, Hawaii 96732 Attention: Executive Vice President Failure of, or delay in delivery of any copy of a notice or other written communication shall not impair the effectiveness of such notice or written communication given to any party to this Agreement as specified herein. The parties agree that upon giving any notice or other written communication in accordance with the foregoing procedure they snail each then use their reasonable efforts to advise the other party by telephone that a written communication has been sent under this Agreement; such telephonic advice shall not impair the effectiveness of any written communication otherwise given in accordance with this Section. 5. This Agreement may not be altered, modified or amended except in writing signed by all of the parties hereto. 6. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. 7. This Agreement may be executed in counterparts, each of which shall be deemed an original regardless of the date of its execution and delivery. All of such counterparts together shall constitute one and the same document, binding all of the parties hereto, notwithstanding all of the parties are not signatory to the original or the same counterparts. For all purposes, including, without limitation, recordation, filing and delivery of this document, duplicate unexecuted and unacknowledged pages of the counterparts may be discarded and the remaining pages assembled as one document. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers as of the date and year first above written. OWNER: NI HAWAII RESORT, INC., a Hawaii corporation By /S/ TORU OKUYAMA Toru Okuyama Its Vice President OPERATOR: KAPALANI, L.P., a Delaware limited partnership By CORPORATE GENERAL, INC., a Delaware corporation, as General Partner By /S/ J. RICHARD STEPHENS J. Richard Stephens Its Executive Vice President GROUND LESSOR: MAUI LAND & PINEAPPLE COMPANY, INC. By /S/ DON YOUNG Don Young Its Executive Vice President By /S/ PAUL J. MEYER Paul J. Meyer Its Executive Vice President/Finance STATE OF HAWAII ) ) SS: COUNTY OF MAUI ) On this 24TH day of FEBRUARY , 1996 before me appeared TORU OKUYAMA, to me personally known, who, being by me duly sworn did say that he is the Vice President of NI HAWAII RESORT, INC., a Hawaii corporation; that said instrument was signed in the name and on behalf of said corporation by authority of its Board of Directors; and said officer acknowledged that said officer executed said instrument as the free act and deed of said corporation. /S/ DEBRA A. MAHON Notary Public, State of Hawaii My Commission expires: OCT. 1, 1996 STATE OF CALIFORNIA ) ) SS. COUNTY OF ) On this 26TH day of FEBRUARY , 1996, before me appeared J. RICHARD STEPHENS, to me personally known, who, being by me duly sworn, did say that he is the Executive Vice President of CORPORATE GENERAL, INC., a Delaware corporation, the general partner of KAPALANI, L.P., a Delaware limited partnership, and that said instrument was signed in the name and on behalf of said corporation by authority of its Board of Directors and said officer acknowledged said instrument as the free act and deed of said corporation as such general partner of said general partnership. /S/ RENE R. RUSSELL Notary Public, State of California My Commission expires: 02/05/00 STATE OF HAWAII ) ) SS: COUNTY OF MAUI ) On this 24TH day of FEBRUARY , 1996, before me appeared DON YOUNG and PAUL J. MEYER, to me personally known, who, being by me duly sworn, did say that they are the Executive Vice President and Executive Vice President/Finance, respectively, of MAUI LAND & PINEAPPLE COMPANY, INC., a Hawaii corporation; that said instrument was signed in the name and on behalf of said corporation by authority of its Board of Directors; and said officers acknowledged that they executed said instrument as the free act and deed of said corporation. /S/ DEBRA A. MAHON Notary Public, State of Hawaii My Commission expires: OCT. 1, 1996 EX-10 6 HOTEL GROUND LEASE (THE RITZ-CARLTON, KAPALUA) BETWEEN MAUI LAND & PINEAPPLE COMPANY, INC. (LESSOR) AND NI HAWAII RESORT, INC. (LESSEE) HOTEL GROUND LEASE THIS HOTEL GROUND LEASE is made this 9th day of January, 1996 but effective as of January 1, 1996 (the "Effective Date"), except for Sections 3.1 and 3.4(a) which shall be effective January 1, 1995, by and between MAUI LAND & PINEAPPLE COMPANY, INC., a Hawaii corporation, whose principal place of business is 120 Kane Street, Kahului, Maui, Hawaii, and whose post office address is P.O. Box 187, Kahului, Maui, Hawaii 96732, hereinafter called the "Lessor", and NI HAWAII RESORT, INC., a Hawaii corporation whose address is 745 Fort Street, Honolulu, Hawaii 96813, hereinafter called the "Lessee". This instrument is sometimes referred to herein as "this Lease", and may be referred to as the "Lease." W I T N E S S E T H: In consideration of the respective and mutual covenants of Lessor and Lessee and the rent set forth in this Lease below, Lessor and Lessee hereby agree to all of the following terms, conditions and covenants. ARTICLE I Definitions 1.1 Use of Defined Terms. For purposes of construing and interpreting this Lease, the terms defined in Section 1.2 and 1.3 when written with initial capital letters in this Lease shall have the meaning given such terms in those sections. The terms defined in Sections 1.2 and 1.3 may be used in the singular or plural or in varying tenses or forms, but such variation shall not affect the meaning of such terms set forth in those sections so long as those terms are written in initial capital letters. When such terms are used in this Lease but are written without initial capital letters, such terms shall have the meaning they have in common usage; provided, however, that where legal, technical or trade terms are used and the context in which such terms are used indicates that such terms are to be given their legal, technical or trade usage meanings, such terms shall be given such legal, technical or trade usage meanings. 1.2 Term. "Term" shall mean the term of this Lease which shall commence as of the Effective Date of this Lease, except for Sections 3.1 and 3.4 which shall be effective January 1, 1995, and terminate at midnight on December 31, 2094. (a) Affiliated Concessionaires. An "Affiliated Concessionaire" is a Concessionaire in which any one of (i) Lessee, (ii) Lessee's general or limited partners, if any, (iii) Affiliates of Lessee or Lessee's general or limited partners, (iv) any shareholder of Lessee, of Lessee's general or limited partners or an Affiliate of Lessee or its general or limited partners holding alone or in the aggregate more than twenty-five percent (25%) of the stock of any one such entity, (v) employees or agents of Lessee, Lessee's general or limited partners or Affiliate of Lessee or Lessee's general or limited partners, or (vi) immediate family members of officers of Lessee, Lessee's general or limited partners, or any Affiliates of Lessee or its general or limited partners, (vii) immediate family members of shareholders owning alone or in the aggregate more than twenty- five percent (25%) of the stock of any one of Lessee, Lessee's general or limited partners or any Affiliate of Lessee or Lessee's general or limited partners or (viii) Affiliates of the persons or entities set forth in clauses (i) through (vii) above, have an ownership-interest, whether equitable or otherwise. (b) Affiliates. An "Affiliate" of a person or entity is a person or entity that directly or indirectly controls, is controlled by, or is under common control with, such person or entity. The term "control", as used in the immediately preceding sentence means, with respect to an entity that is a corporation, the right to the exercise, directly or indirectly, of more than fifty percent (50%) of the voting rights attributable to the shares of the controlled corporation, and with respect to a person or entity that is not a corporation, the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of the controlled person or entity. (c) AIA General Conditions. The "AIA General Conditions" shall mean the standard general conditions of the standard form AIA construction agreement. (d) Amendment and Restatement of Tennis Operating Agreement. The "Amendment and Restatement of Tennis Operating Agreement" shall mean the unrecorded agreement effective as of January 1, 1996, and any amendment thereto, between Kapalua Land Company, Ltd. and Lessee with respect to tennis play. (e) Commencement of Construction. "Commencement of Construction" shall mean "visible commencement of operations" as that term is defined in Section 507-41 of the Hawaii Revised Statutes in effect on the date of this Lease. (f) Completed. A structure, improvement, building or room which is "Completed" is a structure, improvement, building or room for which a "certificate of occupancy" has been issued by the appropriate governmental authority. The "Completion" of a structure, improvement, building or room shall mean the issuance of a "certificate of occupancy" by the appropriate governmental agency for such structure, improvement, building or room. (g) Concessionaire. "Concessionaire" shall mean a person or entity, including without limitation a shopkeeper, retailer or provider of services which has entered into a sublease, concession agreement, contract, license or similar agreement with Lessee for the transaction of business on or from the Premises or the operation of the Hotel. (h) Declaration of Covenants, Conditions, and Restrictions. "Declaration of Covenants, Conditions, and Restrictions" shall mean the Declaration described in Exhibit "A". (i) Estimated Monthly Percentage Rent. "Estimated Monthly Percentage Rent" shall be the amount computed by multiplying the Gross Revenues for the month by the percentage rate under Section 3.4. (j) Golf Course Use Agreement. The "Golf Course Use Agreement" shall mean the unrecorded agreement effective January 1, 1996, and any amendment thereto, between Lessor and Lessee, with respect to golf course use. (k) Gross Annual Percentage Rent. "Gross Annual Percentage Rent" shall have the definition set forth in Section 3.4. (l) Gross Revenues. "Gross Revenues" shall have the definition set forth in Section 3.2. (m) Hotel. "Hotel" shall mean the hotel known as of January 1, 1996 as The Ritz-Carlton, Kapalua, together with lobbies, kitchens, dining rooms, bars, swimming pool, landscaping, parking areas, roadways, walkways and all other facilities and improvements now or hereafter constructed and situated on the Premises. (n) Hotel Operating Agreement. ".Hotel Operating Agreement" shall mean an agreement between Lessee and Hotel Operator for the operation and management of the Hotel. (o) Hotel Operator. "Hotel Operator" shall mean Kapalani, L.P., a Delaware limited partnership, or its successor or successors as permitted by Section 8.8(b). (p) Hotel Room. "Hotel Room" shall mean the smallest room or combination of rooms in the Hotel which may be rented to overnight guests. (q) Kapalua Resort Area. The "Kapalua Resort Area" shall mean the existing and proposed development of the Kapalua area on Maui, more particularly set forth in the Kapalua Master Plan as filed with the County of Maui Planning Department and amended from time to time. (r) Land. Land" shall mean the land included in the Premises exclusive of any improvements existing at any time on such land. (s) Lease Year, Rental Year and Year. The terms Lease Year," "Rental Year," and "Year" as used herein shall mean a time period of 12 calendar months. (t) Lessor's Cost of Money. "Lessor's Cost of Money" for any period during the Term shall mean an annual rate of interest equal to the lesser of: (i) two percent (2%) over the prime interest rate for such period of time, which shall be the prime interest rate then in effect or announced by Manufacturers Hanover Trust Company or any successor thereto or other major national bank directed by Lessor if such bank ceases to announce a prime rate, or (ii) the maximum per annum rate of interest permitted to be charged by then applicable law. (u) Person. "Person" shall mean an individual, partnership, corporation, trust, unincorporated association, joint stock company, or other entity or association. (v) Preconditions for Construction. The "Preconditions for Construction" shall mean all of the conditions set forth in subsections 4.2(a) through 4.2(d). (w) Premises. The "Premises" shall mean the land described in Exhibit "A" (including the Tennis Site) attached hereto and incorporated herein by reference and all rights, easements, privileges and appurtenances belonging or appertaining to such land on the date hereof or at any time thereafter. (x) Qualified Purchaser. Qualified Purchaser" shall have the definition set forth in Section 11.7(a). (y) Quiet Hours. "Quiet Hours" shall mean the hours between 10 p.m. and 7 a.m. each day. (z) Record and File. To "Record" a document shall mean to record such document in the Bureau of Conveyances of in the State of Hawaii. To "File" a document shall mean to file such document in the Office of the Assistant Registrar of the Land Court of the State of Hawaii. (aa) Tennis Center. "Tennis Center" shall mean the approximate ten-court tennis center on the Tennis Site. (ab) Tennis Site. "Tennis Site" shall mean that portion of the Premises on which the Tennis Center is built. ARTICLE II Demise and Quiet Enjoyment; Interrelationship of Interests 2.1 Demise. In consideration of the Lessee's agreement to, and acceptance of, the terms, conditions and covenants of this Lease and the rent set forth in this Lease below, Lessor hereby leases the Premises to Lessee for the Term, subject to all of the terms and conditions of this Lease. 2.2 Quiet Enjoyment. Upon observance and performance by Lessee of the covenants and conditions of this Lease and the Declaration of Covenants, Conditions and Restrictions, Lessor hereby covenants with the Lessee that the Lessee shall peaceably hold and enjoy the Premises for the Term without hindrance or interruption by the Lessor or any other person or persons claiming by, through, or under Lessor except as in this Lease expressly provided. 2.3 Interrelationship of Interests. The Lessor and the Lessee covenant and agree that the interest of the Lessee in the Hotel on the Premises and the interest of the Lessee in this Lease are not separately transferable by the Lessee. Thus, under no circumstances, may the Hotel be separated from the leasehold interest in the Premises; and the Hotel may only be transferred or encumbered together with the leasehold interest in the Premises. During the Term of this Lease, Lessee shall own all right, title, and interest in and to all improvements on the Premises and shall retain all rights to depreciation deductions and tax credits arising from the ownership of such improvements. However, upon termination of this Lease, title to all improvements in the Premises shall thereupon revert to the Lessor subject to Section 10.1. ARTICLE III Rental 3.1 Lessee to Pay Net Rent. Throughout the Term, Lessee shall pay to Lessor the annual minimum and percentage rents set forth in Sections 3.3 and 3.4 in the manner set forth in this Article, net of any and all taxes, rates, assessments, charges, impositions, and expenses payable under this Lease and without deductions of any kind whatsoever. Minimum and percentage rent shall not be reduced or abated except as expressly provided in this Lease. 3.2 Gross Revenues, Defined. The term "Gross Revenues" shall mean all revenues, receipts and income of any kind derived directly or indirectly by the Lessee in the form of cash, property or services (i.e., barter, "contra," accounts, and such alternatives to cash payments, which together with property and services, shall be valued at their fair market value) from or in connection with the Hotel or the Tennis Center (including any loss of income insurance proceeds paid to the Lessee or the Lessor in the event of casualty to the Hotel, or as a result of the occurrence of any other event making use of all or a portion of the Hotel impossible or impractical), and rentals or other payments under the Amendment and Restatement of Tennis Operating Agreement and/or the Golf Course Use Agreement, and from any condominium units managed by the Lessee in the Kapalua Resort Area, and from Concessionaires (but not including their gross receipts), whether on a cash basis or credit, paid or collected, determined in accordance with generally accepted accounting principles and Uniform System; excluding, however: (i) funds furnished by the Owner under the Hotel Operating Agreement, (ii) interest accrued on amounts in the reserve under the Hotel Operating Agreement, (iii) federal, state and municipal excise, sales, use and room taxes collected directly from patrons and guests or as part of the sales price of any foods, services or displays, such as gross receipts, admissions, cabaret or similar or equivalent taxes and paid over to federal, state or municipal governments, (iv) gratuities, (v) proceeds of insurance (excluding loss of income insurance proceeds which shall be included as a part of Gross Revenues) and condemnation, (vi) value of free or any discounted portion of rooms or services under the Amendment and Restatement of Tennis Operating Agreement and/or the Golf Course Use Agreement or complimentary policies of the Hotel approved by the Lessor, (vii) any loan proceeds, and (viii) proceeds from the sale of the Hotel or the improvements and furniture, fixtures and equipment owned by the Lessee. When there are Affiliated Concessionaires operating at the Hotel, if the rental rate to any Affiliated Concessionaire is lower than the rental rate which is being charged another third party, non-Affiliated Concessionaires operating a business similar to those of the Affiliated Concessionaires in a location at the Hotel similar to that of the Affiliated Concessionaire, the Gross Revenues from such Affiliated Concessionaire shall be deemed to be the same as the rental rate being charged such other Concessionaire, and Gross Revenues shall be computed as so determined. If there is no third party non-Affiliated Concessionaire operating a similar business in a similar location to that of an Affiliated Concessionaire, then for purposes of determining Gross Revenues, the Gross Revenues from such Affiliated Concessionaire shall be determined according to rental rates that would have been charged to a non-Affiliated Concessionaire in an "arm's length" negotiation to acquire the same concession for the same business in the same location as given such Affiliated Concessionaire. Gross Revenues shall be reduced for actual bad debts reasonably determined to be uncollectible by the Lessee, which reduction shall not include payments for any bad debt reserve or sinking fund or similar fund or reserve, for bad debts. If any debts previously deducted as uncollectible shall subsequently be collected, such collected amounts shall be included in Gross Revenues in the fiscal year collected after deducting reasonable collection expenses actually incurred. "Gross Revenues" shall be determined on an annual basis, except that in computing Estimated Monthly Percentage Rent, Gross Revenues shall be determined either just for that month or on a quarterly basis, as the case may be. 3.3 Minimum Rent. Commencing January 1, 1996, and continuing through the Term of this Lease, the Lessee shall pay a minimum rent of the higher of $5,000 per year, payable in arrears, or the percentage rent payable under Section 3.4, below. 3.4 Percentage Rent. (a) For each calendar year or portion thereof during the period from January 1, 1995 through December 31, 1998, the percentage rent shall be an amount equal to 2.5% of the Gross Revenues for that year, or a prorated amount for any portion of such year. (b) For each year during the period from January 1, 1999, through December 31, 2094, the percentage rent shall be an amount equal to 1% of Gross Revenues for that year; provided, however, if the total Gross Revenues for any twelve (12) consecutive calendar months during this period exceeds $60,000,000, the percentage rent for the remainder of the Term shall increase, effective the first month following such twelve (12) consecutive months, to an amount equal to 1.5% of Gross Revenues. (c) Records and Annual Statement. Lessee shall maintain and keep full and accurate records on the Premises of all business under the control of Lessee done or transacted in, upon or from the Premises which may reasonably assist Lessor in determining the percentage rent to be paid by Lessee under this Lease, and shall retain and preserve such records on the Premises(or the Island of Maui) for at least five (5) years after submission of the annual audited statement provided for in this paragraph and permit Lessor upon reasonable advance notice to inspect such records at any and all reasonable times during business hours. Lessor shall also be given access at the Hotel upon reasonable advance notice at any and all reasonable times during business hours to any other books or records of Lessee, and to any other books or records of Concessionaires, including but not limited to Affiliated Concessionaires, that may be necessary to enable Lessor to make a full and proper audit of the Gross Revenues derived from all business done in, upon or from the Premises. The Lessee shall submit to the Lessor on or before the expiration of ninety (90) days following the end of each calendar year of the Term after the commencement of the 1st Rental Year of the Term, a complete statement (the "Annual Statement") audited and signed by a certified public accountant firm of recognized national and industry stature, entirely at Lessee's sole expense; provided, however, Lessor and Lessee agree and acknowledge that Lessee may fulfill such requirement for an audited Annual Statement if Lessee provides to Lessor the audited and signed Annual Statement given by the then current Hotel Operator to Lessee pursuant to the terms of any hotel operating agreement by and between the then current Hotel Operator and Lessee. The Annual Statement shall be certified and signed by an officer of Lessee, showing in reasonable detail satisfactory to the Lessor Gross Revenues, prior to the deductions and exclusions from Gross Revenues permitted under Section 3.2, and a reasonably detailed statement of the deductions and exclusions from Gross Revenues claimed by the Lessee, for the preceding year, and the amount of Gross Annual Percentage Rent due under this Lease for such year. The Lessor agrees to treat all such information, records and reports as confidential and, except in response to a valid court subpoena or proceeding, shall not divulge any of the same to third parties without the prior written consent of the Lessee, which consent may be unreasonably withheld. In addition to the Annual Statement, Lessor shall have the right to audit, at Lessor's expense except as provided in the immediately following sentence, all records of Lessee and Concessionaires relating to the Hotel and the concessions, and statements furnished by the Lessee for purposes of determining percentage rent. If such an audit shall reveal errors or improper entries or similar facts which result in a difference in annual percentage rent exceeding two percent (2%), all costs of such audit shall be borne by the Lessee. The Lessor's right to audit shall include the right to take such steps as are generally deemed proper in auditing practices and shall include the right to audit Concessionaires, including but not limited to Affiliated Concessionaires. Lessee shall cooperate in any audit made by Lessor. After completion of the audit, whichever party is then owing money for an adjusting refund to the other by the audit shall pay the amount shown to be due for such refund by the within fourteen (14) days after completion of the audit by cash payment to Lessor (together with interest in accordance with Section 11.13 from the date the moneys should have been paid) or by credit against the next monthly rents due if to Lessee. Completion of the audit shall be deemed to occur at the time of delivery of the auditor's report to both Lessor and the Lessee. If the Lessor is due an adjusting refund, the Lessee shall pay the same in cash to the Lessor (together with interest in accordance with Section 11.13 from the date the rent adjustment should have been paid) at the time of delivery of the Annual Statement. (d) Accounting Method. Lessee shall keep its books of account in accordance with generally accepted accounting principles. 3.5 Access to Guest Lists. Lessee understands that Lessor may desire from time to time to distribute information with respect to the Kapalua Resort Area ("KRA Advertising") to former guests of the Hotel. Lessor understands that (i) Lessee is vitally interested in the image of the Hotel and the Kapalua Resort Area presented to former and prospective guests of the Hotel, and (ii) Lessee's guest lists constitute valuable and confidential trade secrets of Lessee. Accordingly, Lessor shall not be entitled to such guest lists but may require Lessee to distribute, at Lessor's cost, any KRA Advertising to the persons listed on Lessee's guest lists provided that such KRA Advertising consists of advertising and promotion of the Kapalua Resort Area or projects located therein, is of a first-class nature and quality consistent with the Kapalua luxury resort image, and does not refer to any hotel other than the Hotel or to any villa, condominium and/or apartment rental program other than that operated by Lessee. Any questionnaires must be general without naming the Hotel. 3.6 Gross Excise Tax. In addition to the rents, taxes and all other charges of every description payable hereunder, the Lessee shall pay the Lessor, as additional rent, together with each payment of rent or any other payment required hereunder, an amount equal to the amount of excise taxes payable by the Lessor pursuant to the State of Hawaii General Excise Tax Law, as it may be amended from time to time, or any successor or similar law, assessed or based on gross income of every description actually or constructively received (to the extent taxed) by the Lessor under this Lease, including without limiting the generality of the foregoing: (i) the rents payable hereunder; (ii) any amount directly or constructively received by the Lessor (to the extent so taxed) by reason of payment by the Lessee to the Lessor, governmental agency or others of real property taxes, insurance premiums or any other charges or costs hereunder, (iii) amounts paid to Lessor pursuant to this provision. Said amount payable to Lessor shall take the character of the gross income on which it is based and shall be an amount which, when added to such rental or other payment, shall yield to the Lessor, after deduction of all such tax payable by the Lessor with respect to all such rent and other payments, a net amount equal to that which the Lessor would have realized from such payments had no such tax been imposed. 3.7 Payment. (a) Percentage Rent. Annual percentage rent for each year for which such rent is due as provided in Section 3.4 shall be paid in monthly installments of "Estimated Monthly Percentage Rent", computed for each month of such year, due on the 12th day of the month after the month for which the Estimated Monthly Percentage Rent is computed. Any adjusting payments required will be made at the calendar year end at the time of delivery to Lessor of the Annual Statement. If the Lessee is due an adjusting refund from the Lessor, the Lessor will make a like credit against the next monthly rents unless the Lessor disputes the Annual Statement. If the Lessor is due an adjusting refund, the Lessee shall pay the same in cash to the Lessor (together with interest in accordance with Section 11.13 from the date the rent adjustment should have been paid) at the time of delivery of the Annual Statement. (b) Currency; Agent. All rent and all other charges payable by Lessee under this Lease shall be paid in lawful currency of the United States of America to the Lessor or to such agent as shall be designated by the Lessor in written notice to the Lessee at least twelve (12) days prior to any rent payment due date. 3.8 Late Payment. If Lessee fails to pay the percentage rent within ten (10) days after such rent is due, Lessor shall be entitled to a "late charge" equal to four percent (4%) of the rent due to compensate Lessor for the administrative burden of handling the late payment of rent. In addition, interest shall be charged on such rent in accordance with Section 11.13. 3.9 Off-Site Improvements; Loan; Employee Housing. (a) Lessor has completed all off-site improvements described in Exhibit "B" attached hereto and incorporated herein by reference (the "Off-Site Improvements"), all in accordance with applicable government requirements. Lessor and Lessee shall, subject to Lessor's and Lessee's approval, join in any grant of easements which may be necessary to bring any utility services from the boundaries of the Land to the improvements thereon. Lessor expressly acknowledges and agrees that it shall maintain, at Lessor's sole expense, all Off-Site Improvements owned by Lessor. (b) Lessor borrowed a principal amount of FOUR MILLION SEVEN HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS ($4,750,000) for the costs of the Off-Site Improvements (the "Off-Site Improvements Loan"). The rights of the Lender under the Off-Site Improvement Loan are held by Lessee. The Off-Site Improvements Loan is evidenced by that certain non-recourse open account as provided in Exhibit "C" which is attached hereto and incorporated herein by this reference. The Off-Site Improvements Loan is secured by the rent under this Lease and shall be repaid by Lessee offsetting rent under this Lease in accordance with the terms set forth in Exhibit "C." Until the earlier to occur of 1) such Off-Site Improvements Loan being paid in full or deemed paid in full; or 2) January 1, 1999, Lessee shall have a first priority claim on all such rent for the purpose of effecting such offset, and Lessee agrees not to assign, pledge or otherwise encumber its right to such rents without making any such assignment, pledge or other encumbrance expressly subject to the first priority of such offset. The Lessee may offset rent under this Lease in whole or in part against any payments due thereunder. ARTICLE IV Construction of Improvements 4.1 Construction Requirements. Prior to Commencement of Construction on the Premises of any construction for material extension and/or alterations on the outside dimension of the Hotel in excess of ONE MILLION AND NO/100 DOLLARS ($1,000,000) ("Construction"), Lessee shall comply with all of the conditions set forth in Sections 4.1(a) and 4.1(b) and all of the other conditions (the "Preconditions for Construction") set forth in Sections 4.2(a) through 4.2(d); provided, however, this section 4.1 shall not apply to any interior additions and/or improvements to the Hotel of THREE MILLION AND NO/100 DOLLARS ($3,000,000) or less, interior renovations, any exterior maintenance, and any furniture, fixtures, and equipment. (a) Lessor's Approval. Lessee shall inform Lessor of the nature of any Construction which Lessee is then planning to construct on the Premises prior to Commencement of Construction thereof. Lessee shall, prior to commencing any Construction, submit a copy of the layout, location, elevation and renderings ("Plans") for such Construction for Lessor's approval, which shall not be unreasonably withheld. Lessor shall approve or disapprove the Plans within thirty (30) days after Lessee delivers them to Lessor. If Lessee does not receive written disapproval of the Plans within such thirty (30) day period, the Plans shall be deemed approved by the Lessor. If Lessor disapproves in writing of such Plans, Lessor shall, within such thirty (30) day period, give the Lessee in reasonable detail the reasons why. All such Plans shall also conform to the provisions of the Declaration of Covenants, Conditions and Restrictions pertaining to the Premises. (b) Lessee's Notification of Architect and Contractor. The Lessee shall notify the Lessor of the identity of the architect and contractor to be utilized for the Construction. 4.2 Pre-Conditions for Construction. Prior to construction on the Premises of any Construction, Lessee shall comply with all of the conditions set forth in Sections 4.2(a) through 4.2(d) (the "Preconditions for Construction"). (a) Performance and Payment Bonds. Lessee shall deposit with the Lessor certificates or other satisfactory evidence that the contractor has procured one or more customary payment and performance bonds for a total amount not less than one hundred percent (100%) of the total cost of the Construction, naming the Lessor and Lessee as co-obligees, in customary form and content and with a surety or sureties approved by Lessor and authorized to do business in Hawaii, guaranteeing the full and faithful performance of the construction contract for such construction free and clear of all mechanics' and materialmen's liens and the full payment of all subcontractors, labor and materialmen. (b) Governmental Approvals. Lessee shall furnish Lessor with evidence (which may be in form of an opinion of counsel reasonably satisfactory to Lessor) that all governmental approvals necessary to commence the construction have been obtained including without limitation the issuance of a building permit for such construction. (c) Financing Commitments. Lessee shall provide Lessor with a construction budget for proposed construction projects and evidence that there are funds available and committed to Lessee sufficient to pay for one hundred percent (100%) of the total direct and indirect costs of construction of the entire construction. Such evidence may include, but not be limited to, an executed copy of the building loan agreement or its equivalent, and an executed copy of Acceptable Loan Commitments for interim financing for such construction and any permanent financing necessary to permit the Lessee to finance the repayment of the interim loan. If any financing which is proposed under Section 5.7 permits secondary financing, such fact shall be grounds for disapproval of such proposed financing by Lessor. (d) Construction Liability Insurance. In addition to the requirements of part A of Article VI and the requirements of parts B and C of Article VI, beginning with the Commencement of Construction and continuing until all construction is completed, Lessee shall maintain a comprehensive general liability insurance policy in customary form and content and with an insurance company authorized to do business in Hawaii and insuring the Lessor and Lessee against at least all of the following: loss or damage to third parties or their property from excavation, pile driving, loss of subterranean support, boiler explosion as well as all other hazards normally insured against in the construction industry. Prior to the Commencement of Construction, Lessee shall deliver to Lessor certificates of insurance certifying that such insurance is in full force and effect. 4.3 Change Orders. (a) Throughout the course of any Construction for which Lessee is required under this Lease to comply with the requirements of Sections 4.1(a) and 4.1(b) above, any proposed substantial and material variation in such Plans previously approved by Lessor shall be made pursuant to supplemental plans and specifications and "change orders", as that term is defined in the AIA General Conditions, and Lessee shall submit for the Lessor's approval in the same manner as in Section 4.1(a) and retention copies of any and all such supplemental plans and specifications and proposed change orders and obtain such approval before undertaking any such Construction. (b) If the Lessee proposes to enter into an "additive change order" as that term is used in the AIA General Conditions, which additive change order would have the effect of depleting entirely the amount provided for contingencies in the construction budget, then prior to the execution of such additive change order, Lessee shall make funding arrangements reasonably satisfactory to Lessor to fund the additional sums required to cover the amount by which the construction budget, after all contingencies have been depleted or committed, is increased by the additive change order. Lessee must make such funding arrangements reasonably satisfactory to lessor prior to the execution of any such additive change order. 4.4 Force Majeure. If any performance or condition required to be completed by Lessor or Lessee under the terms of this Lease is delayed by war, riots, insurrection, earthquake, fire, flood, Acts of God, or other similar disaster, by governmental ruling, regulation or law, by strike in the State of Hawaii or on the Island of Maui, or by general transportation or shipping strikes, or by strikes or shortages which affect the delivery of materials critical to construction on the Premises, which conditions are not within such party's control and are not such party's fault, then the time for the completion of such performance or such condition shall be extended by a time period equal to the duration of such delay; provided, however, that the Lessee's obligations to pay any and all sums due under this Lease, including but not limited to percentage rent, shall not be affected by any such extension and the time for payment of such sums shall not be so extended; and provided further, that in no event shall the Term be so extended. 4.5 Minimum Interference During Construction. (a) During the portion of the Term while any construction on the Premises is underway, Lessee shall take all steps and precautions reasonably possible to provide that Lessee's construction activities do not interfere with the operation of the Kapalua Resort Area or result in inconvenience to guests, tenants and residents in the Kapalua Resort Area, including but not limited to the following: (i) Except under emergency conditions, Lessee shall obtain the Lessor's approval, which approval will not be unreasonably withheld, for any anticipated disruption of water, electricity, sewerage, traffic or other utility services to such guests, tenants or residents at least fourteen (14) days prior to such disruption. Lessee shall minimize the frequency and duration of such disruptions and shall notify (through the Hotel Operator, if a hotel, and through the condominium association, if a condominium project) all affected utility users at least ten (10) days prior to such disruption. (ii) If Lessee's construction activities result in damage to water or sewer lines, electrical systems, streets or other utility systems, Lessee shall immediately notify Lessor of such damage. If such damage occurs, Lessor may either (1) require that Lessee immediately repair such damage at Lessee's sole expense or (2) repair such damage and require that Lessee pay all of Lessor's reasonable expenses. Lessor and Lessee agree that in addition to repair or payment of expenses as set forth in the immediately preceding sentence, if such damage to any utility facilities results in an interruption in utility services not approved and announced as provided in clause (i) above, Lessee shall also pay for such interruption any actual damages incurred. (iii) If piles must be driven during any construction on the Premises, Lessee shall take all reasonable precautions to reduce noise and shall use the quietest pile driving equipment reasonably available in Hawaii under the then current state of technology and shall engage in such activity only between the hours of 9 o'clock a.m. and 4 o'clock p.m. (iv) Lessee shall institute noise and dust controls at all times during the construction to minimize the emission of noise and dust on or from the Premises, including but not limited to observing and requiring compliance with the Lessor's Quiet Hours. Lessee shall incorporate appropriate provisions in its construction contract to implement the conditions set forth in subsections (i) through (iv) above, including without limitation, a provision requiring that Lessee's contractor comply with Lessee's noise and dust controls. Lessee agrees that Lessee's covenant to indemnify Lessor set forth in Section 11.9 below shall include the indemnification of Lessor for any liability or expenses arising from dust, noise, or utility interruptions caused by construction on the Premises. (b) If Lessor has any construction activities of its own which affect the Premises, Lessor shall also comply with the provisions of Section 4.5(a). 4.6 Risk of Obtaining Governmental Approvals for Construction. It is specifically understood and agreed that the risk of obtaining all governmental approvals needed for construction, including but not limited to the risk of down- zoning of the Premises, is on the Lessee. Failure to obtain such approvals and Lessee's resulting inability to construct any improvements shall in no event terminate the Lessee's obligation to make the payments required in this Lease, including but not limited to the obligation for rent, or extend the time for or reduce the amount of any rental or other payment due under the Lease. 4.7 Delivery of Plans and Specifications Upon Completion. After completion of any construction on the Premises required to be made under the Preconditions for Construction, Lessee shall provide Lessor with a copy of a complete set of plans and specifications for the entirety of such construction certified by a licensed professional architect as showing the completed construction "as built", all at Lessee's sole expense. ARTICLE V 5.1 Right to Mortgage. Lessee may, from time to time, with the consent of Lessor, which consent shall not be unreasonably withheld, hypothecate, mortgage, pledge or alienate Lessee's leasehold estate and rights hereunder as security for payment of any indebtedness of Lessee to any bank, insurance company or other established lending or financial institution or institutions. The holder or holders of any such lien, as well as any lenders of loans made pursuant to Section 5.7 hereof shall be referred to herein as "Leasehold Mortgagees." A Leasehold Mortgagee or its assignees may enforce such lien and acquire title to the leasehold estate in any lawful way and, pending foreclosure of such lien, the Leasehold Mortgagee or its assigns may take possession of and operate the Premises, performing all obligations to be performed by Lessee, and upon foreclosure of such lien by power of sale or judicial foreclosure, the Leasehold Mortgagee may sell and assign the leasehold estate hereby created but any such purchaser or assignee must be a qualified assignee within the meaning of Section 11.7(a) below ("Qualified Purchaser"). Any Person acquiring such leasehold estate shall be liable to perform the obligations imposed on Lessee by this Lease only during the period such Person has ownership of said leasehold estate or possession of the Premises. 5.2 Notice to and Rights of Leasehold Mortgages. (a) When giving notice to Lessee with respect to any default hereunder, Lessor shall also serve a copy of each such written notice upon any Leasehold Mortgagee who shall have given Lessor a written notice specifying its name and address. If Lessee shall default in the performance of any of the terms, covenants, agreements and conditions of this Lease on Lessee's part to be performed, any Leasehold Mortgagee shall have the right, within the grace period available to Lessee for curing such default, plus such additional grace periods which may be allotted to the Leasehold Mortgagee, to cure or make good such default or to cause the same to be cured or made good whether the same consists of the failure to pay rent or the failure to perform any other obligation and Lessor shall accept such performances on the part of any Leasehold Mortgagee as though the same had been done or performed by the Lessee. (b) In case of a default by Lessee in the payment of money, Lessor will take no action to effect a termination of this Lease by reason thereof unless such default has continued beyond forty (40) days after Lessor shall have served a copy of such written notice upon Lessee and any Leasehold Mortgagee, it being the intent hereof and the understanding of the parties that any Leasehold Mortgagee shall be allowed up to, but not in excess of, forty-five (45) days to cure any default of Lessee in the payment of rent or in the making of any other monetary payment required under the terms of this Lease in addition to the ten (10) days granted to Lessee to make such payments. (c) In the case of any other default by Lessee, Lessor will take no action to effect a termination of this Lease by reason thereof unless Lessee or any Leasehold Mortgagee fails, within forty-five (45) days after written notice from Lessor to any Leasehold Mortgagee of Lessor's intention to terminate the Lease: (i) to commence to cure such default, if such default is susceptible of being cured by the Leasehold Mortgagee without the Leasehold Mortgagee obtaining possession of the Premises; (ii) to commence and diligently pursue efforts to obtain possession of the Premises (including possession by a receiver) and to cure such default in the case of a default which is susceptible of being cured when the Leasehold Mortgagee has obtained possession thereof; or (iii) to institute foreclosure proceedings and to complete such foreclosure proceedings or otherwise acquire Lessee's interest under this Lease, or the right of possession hereunder, with reasonable and continuous diligence in the case of a default which is not so susceptible of being cured by the Leasehold Mortgagee, provided it is the intention hereof and the understanding of the parties that any Leasehold Mortgagee shall be allowed up to, but not in excess of, forty-five (45) days in addition to the time period granted to Lessee pursuant to Section 9.1(b) to commence action under this Section 5.2(c)(i)-(iii); and provided, further, that a Leasehold Mortgagee shall not be required to continue such possession or continue such foreclosure proceedings if the default which prompted the service of such a notice has been cured. (d) The time available to a Leasehold Mortgagee to initiate foreclosure proceedings as aforesaid shall be deemed extended by the number of days of delay occasioned by judicial restriction against such initiation or occasioned by other circumstances beyond the Leasehold Mortgagee's control. (e) During the period that a Leasehold Mortgagee shall be in possession of the Premises and/or during the pendency of any foreclosure proceedings instituted by a Leasehold Mortgagee, the Leasehold Mortgagee shall pay or cause to be paid the rent specified in Article III above and all other charges of whatsoever nature payable by Lessee hereunder which have been accrued and are unpaid and which will thereafter accrue during said period. Following the acquisition of Lessee's leasehold estate by the mortgagee or a Qualified Purchaser, either as a result of foreclosure or acceptance of an assignment in lieu of foreclosure, or the right of possession hereunder, the Leasehold Mortgagee or party acquiring title to Lessee's leasehold estate shall, as promptly as possible, commence the cure of all defaults (other than money defaults, it being understood that any such money defaults would have already been cured and that thereafter all rent and other money items would be kept current) hereunder to be cured and thereafter diligently process such cure to completion, except such defaults which cannot in the exercise of reasonable diligence be cured or performed by the Leasehold Mortgagee or party acquiring title to Lessee's leasehold estate, whereupon Lessor's right to effect a termination of this Lease based upon the default in question shall be deemed waived. Any default not susceptible of being cured by the Leasehold Mortgagee or party acquiring title to Lessee's leasehold estate shall be, and shall be deemed to have been waived by Lessor upon completion of the foreclosure proceedings or acquisition of Lessee's interest in this Lease by any Qualified Purchaser (who may, but need not be, the Leasehold Mortgagee) at the foreclosure sale, or who otherwise acquires Lessee's interest from the Leasehold Mortgagee or by virtue of a Leasehold Mortgagee's exercise of its remedies. Any such purchaser, or successor of purchaser, shall be liable to perform the obligations imposed on Lessee by this Lease incurred or accruing only during such purchaser's or successor's ownership of the leasehold estate or possession of the Premises. (f) Nothing herein shall preclude Lessor from exercising any of Lessor's rights or remedies with respect to any other default by Lessee during any period of any such forbearance, subject to the rights of any Leasehold Mortgagee as herein provided. (g) All notices by Lessor to Leasehold Mortgagees shall be given by registered or certified mail, return receipt requested, addressed to the Leasehold Mortgagees at the address last specified to Lessor by the Leasehold Mortgagees, and any such notice shall be deemed to have been given and served as provided in Section 11.5. (h) If two or more Leasehold Mortgagees each exercise their rights hereunder and there is a conflict which renders it impossible to comply with all such requests, the Leasehold Mortgagee whose Leasehold Mortgage would be senior in priority if there were a foreclosure shall prevail. If any Leasehold Mortgagee pays any rental or other sums due hereunder which relate to periods other than during its actual ownership of the leasehold estate, such Leasehold Mortgagee shall be subrogated to any and all rights which may be asserted against Lessor with respect to such periods of time. 5.3 New Lease if No Bankruptcy. If this Lease is terminated or cancelled for any reason where the Leasehold Mortgagee has not been given an opportunity to cure pursuant to Section 5.2 and if Section 5.8 below is not applicable, any mortgagee shall have the right, within thirty (30) days after the receipt of notice of such termination, to demand a new Lease covering the Premises for a term to commence on the date of procurement by Lessor of possession of the Premises and to expire on the same date as this Lease would have expired if it had otherwise continued uninterrupted until its scheduled date of termination, and containing all of the same rights, terms, covenants, considerations, unexpired options, and obligations as set forth in this Lease. Such new lease shall be executed and delivered by Lessor to the Leasehold Mortgagee within thirty (30) days after receipt by Lessor of written notice from the Leasehold Mortgagee of such election and upon payment by the Leasehold Mortgagee of all sums owing by Lessee under the provisions of this Lease (less any rent and other income actually collected by Lessor in the meantime from subtenants or other occupants of the Premises) and upon performance by the Leasehold Mortgagee of all other obligations of Lessee under the provisions of this Lease with respect to which performance is then due and which are susceptible of being cured by a Leasehold Mortgagee. After such termination of this Lease and prior to the expiration of the period within which the Leasehold Mortgagee may elect to obtain such new lease from Lessor, Lessor shall refrain from terminating any existing subleases and from executing any new subleases without the prior written consent of all Leasehold Mortgagees, and Lessor shall account to the Leasehold Mortgagee for all rent collected from subtenants during such period. Any new lease granted to a Leasehold Mortgagee shall enjoy the same priority as this Lease over any mortgage or other lien created by Lessor, in its capacity as Lessor, before or after the date of such new lease. 5.4 Consent of Mortgagee. Without the prior written consent of all Leasehold Mortgagees, neither this Lease nor the leasehold estate created by this Lease shall be surrendered, cancelled, modified or amended (except with respect to termination pursuant to any eminent domain proceedings concerning the whole of the Premises, as provided in Article VII below), unless the mortgagee has had an opportunity to cure any default of Lessee pursuant to Section 5.2 and has failed to do so. No agreement purporting to surrender, cancel, terminate, modify or amend this Lease without such consent shall be valid or effective. 5.5 No Merger. No merger of Lessee's leasehold estate into Lessor's fee title shall result or be deemed to result by reason of ownership of Lessor's or Lessee's estates by the same party or by reason of any other circumstances, without the prior written consent of the Leasehold Mortgagee, unless such merger results from a default by Lessee where the Leasehold Mortgagee has been given an opportunity to cure and has failed to do so. 5.6 Financing by Lessor. Any mortgage made by Lessor (referred to herein as "Lessor Mortgage") covering its interest in the Premises shall be subject to the rights of Lessee and any Leasehold Mortgagees in the Premises, as set forth in this Lease. Lessor agrees that any such Lessor Mortgage shall include a clause stating that such Lessor Mortgage is so subject as set forth above, but any such Lessor Mortgage shall automatically be subject to this Lease regardless of whether or not any such clause is in fact included in such Lessor Mortgage. The basic substance of the foregoing provisions shall be included in the short form Lease described in Section 11.23. If any proceedings are brought for the foreclosure of, or in the event of exercise of the power of sale under, any Lessor Mortgage or if Lessor sells, conveys or otherwise transfers its interest in the Premises, Lessee hereby agrees to attorn to whatever party legally succeeds to the interest of Lessor in the Premises. 5.7 Subordination. Lessor agrees that it will, at Lessee's request, and from time to time, subordinate all of Lessor's fee estate in the Premises and all of Lessor's estate and interest in this Lease to any first Leasehold Mortgage; provided, however, that at no time shall Lessor be required to subordinate its interests in either the fee estate or in this Lease to an aggregate principal amount in excess of SIXTY-FIVE MILLION AND NO/100 DOLLARS ($65,000,000.00). Any such Leasehold Mortgage shall provide that Lessor shall have absolutely no liability or obligation for the repayment of such loan or for the performance of any obligations under any such Leasehold Mortgage and shall further provide that Lessor shall have authority to cure any default of Lessee prior to any foreclosure pursuant to provisions of Section 5.9. Any foreclosure of any such Leasehold Mortgage must be by judicial foreclosure. Lessee and its Affiliates shall not directly or indirectly be a purchaser at any foreclosure sale of any such Leasehold Mortgage. Lessor and Lessee agree that (i) if any Leasehold Mortgage to which this Lease is made subordinate under this Section 5.7 is foreclosed and the fee estate sold at foreclosure and (ii) if proceeds in excess of the total amount claimed by the Leasehold Mortgagee result from such sale and are made available by the Leasehold Mortgagee to Lessor and Lessee under the terms of the Leasehold Mortgage, then such excess proceeds shall be made available first to Lessor to the extent of the appraised fair market value of Lessor's fee estate in the Premises as of the date the Leasehold Mortgagee commenced foreclosure and the balance of such proceeds shall be made available to Lessee. The appraised fair market value of the Lessor's fee estate in the Premises shall be as determined by the court appointed appraiser pursuant to the judicial foreclosure proceedings which are required by this Section 5.7. 5.8 Option for New Lease if Bankruptcy. (a) If there is an actual or deemed rejection of the Lease (or of the new lease hereinafter described), under any provision of the Bankruptcy Code (Title 11, United States Code) or any successor law having similar effect, which results in a termination of the Lease (or such new lease), Lessor agrees that the senior leasehold mortgagee (the "Mortgagee") shall have the right, for a period of sixty (60) days subsequent to such termination, to demand from Lessor a new lease of the Premises (the "New Lease"). The New Lease shall be for a term commencing on the date the Lease was terminated and expiring on the date stated in the Lease as the fixed date for the expiration thereof. The rental and all provisions, covenants and conditions of the New Lease shall be the same as the rental, provisions, covenants and conditions of the Lease as of the date of termination thereof, except that the liability of the Mortgagee under the New Lease shall not extend beyond the period of its occupancy thereunder. As the Lessee under the New Lease, the Mortgagee (with respect to the Lessor) shall have the same right, title and interest in and to the buildings and improvements on the Premises as the Lessee had under the Lease immediately prior to its termination. (b) If the Mortgagee shall elect to demand such New Lease, the Mortgagee shall, within such period, deliver written notice to the Lessor of such election; and thereupon, within fifteen (15) days thereafter, the Lessor and the Mortgagee shall execute and deliver such New Lease upon said term, rental, provisions, covenants and conditions, and the Mortgagee shall, at the time of the execution and delivery of such New Lease, pay to the Lessor all rental, charges, and taxes, owing by the Lessee to the Lessor under the terms of the Lease immediately prior to the termination of the Lease together with reasonable attorneys' fees and expenses incurred by the Lessor in connection with the rejection and termination of the Lease and the preparation, execution and delivery of the New Lease, and all rentals, charges and taxes owing by the Mortgagee, as lessee under such New Lease. The Mortgagee shall also indemnify and hold the Lessor harmless from and against all claims, damages, losses and expenses, including reasonable attorneys' fees arising out of or in connection with the termination of the Lease and the issuance of the New Lease. The Lessor may, at its option, require the Mortgagee to obtain an appropriate order from the Bankruptcy Court. (c) The Lessor shall be under no obligation to accept rent from or otherwise agree to an attornment from any subtenants of the Premises whose rental agreements or subleases shall have terminated upon the termination of the Lease. If the Mortgagee demands such New Lease as provided herein, the New Lease will be issued by Lessor subject to (and together with a quitclaim assignment of Lessor's interests in) any and all subleases or rights or tenants in possession and the Mortgagee shall have the rights and obligations as landlord or sublessor with respect to such sublessees or tenants and the same obligations to indemnify and hold the Lessor harmless from any and all expenses connected with and Claims from such sublessee or tenants, as the Lessee had under the Lease (to the same extent and effect as if the Lease had been assigned to the Mortgagee). The Mortgagee shall be given credit for any net rents and income actually collected and accepted by the Lessor from such sublessees or tenants of the Premises. (d) Any and all mortgages, or other lien, on the Lessor's interest in the Premises, subsequent to the date of filing or recording, to the extent permitted by law, shall be subject and subordinate to this Lease. Any New Lease issued pursuant to the provisions hereof, to the extent permitted by law, shall be superior and prior to any such mortgage or other lien. 5.9 Lessor's Right to Cure Lessee's Mortgage Defaults. (a) Every mortgage of the Lessee's interests under this Lease shall provide that: (i) In case of Lessee's default under such mortgage, should the Leasehold Mortgagee determine to institute foreclosure proceedings, the Leasehold Mortgagee shall give notice of such intended foreclosure to the Lessor and Lessee, by registered mail sent to Lessor's and Lessee's last known addresses, at least sixty (60) days prior to the commencement of such foreclosure proceedings (i.e., filing of the complaint for foreclosure with a court of competent jurisdiction), and Lessor may, but shall not be obligated to, cure any such default then capable of being cured by Lessor in accordance with Section 5.9(b) below; and (ii) If Lessor commences to cure all current defaults of Lessee then curable by Lessor (including bringing all monetary defaults immediately current to date) and diligently prosecutes such cure, then Leasehold Mortgagee shall waive its right to foreclose (including any right to accelerate the note secured by the mortgage, it being understood that Lessor shall have the foregoing right to cure all monetary and other defaults before the Leasehold Mortgagee accelerates the note secured by the mortgage) and any default under the mortgage shall be deemed cured; and (iii) If Lessor cures such default and succeeds to the Lessee's right, title and interest in and to this Lease and the Hotel in accordance with Section 5.9(b) below, then the Leasehold Mortgagee shall thereafter, and without changing the terms and conditions of the mortgage, treat Lessor as the mortgagor under the mortgage and Lessor shall execute such reasonable documents that the Leasehold Mortgagee may require. (b) If the Lessor elects to cure such default, then: (i) Lessor shall notify Lessee of Lessor's intent to cure such default at least thirty (30) days prior to the commencement of such cure; (ii) If Lessee decides to contest in good faith the Leasehold Mortgagee's foreclosure proceedings, Lessee shall notify Lessor of such intent at least ten (10) days prior to the commencement of such foreclosure proceedings; and (iii) If Lessee fails to notify Lessor of Lessee's intent to contest in good faith the Leasehold Mortgagee's foreclosure proceedings in accordance with Section 5.9(b)(ii) above, Lessor may, fifteen (15) days after the filing of the complaint of foreclosure, commence to cure such default (including bringing all monetary defaults immediately current to date) and the Leasehold Mortgagee shall stipulate to a dismissal of the foreclosure proceedings (including waiving any right to accelerate the note secured by the mortgage because of such default) and any default under the mortgage shall be deemed cured; and (iv) If Lessee fails to pay or otherwise cause to be cured any final judgment filed against Lessee in a foreclosure proceeding contested in good faith by Lessee within ten (10) days after such final judgment is filed, Lessor may, fifteen (15) days after the filing of such final judgment, commence to cure such default (including bringing any monetary default immediately current to date) and in such event and notwithstanding such final judgment, the Leasehold Mortgagee shall waive any acceleration of the note secured by the mortgage arising because of the default and shall stipulate to a satisfaction of the final judgment and any default shall be deemed cured; and (v) If Lessor is entitled to cure Lessee's default pursuant to this Section 5.9(b) and does cure such default, then Lessor shall by written demand to Lessee require Lessee to pay to Lessor all sums paid by Lessor to the Leasehold Mortgagee or others to cure such default plus all costs and expenses, including reasonable attorney's fees, paid or incurred by Lessor in connection therewith, including but not limited to all costs of Lessor's defense to such foreclosure proceeding or in any such action as well as all costs for research regarding settlement or other preventive measures which Lessor may take prior to the filing of such an action, or to attempt to prevent the filing of such an action, together with interest at Lessor's Cost of Money from the date Lessor actually paid such sums; and (vi) If payment is not made by Lessee to Lessor within fourteen (14) days from the date of such written demand, then: (1) Lessee shall be deemed to have assigned to Lessor all the Lessee's right, title and interest in and to this Lease, the Hotel and the Tennis Center subject to the mortgage; and (2) In such event, Lessor shall, in the name of the Lessee (and for this purpose Lessor is hereby appointed the attorney-in-fact of the Lessee and this power of attorney shall be deemed to be a power of attorney coupled with an interest), execute such documents as may be required to assign all of the Lessee's right, title and interest in and to this Lease, the Hotel, and the Tennis Center subject to the mortgage (including all of the Hotel's and Tennis Center's furniture, furnishings, equipment and at Lessor's option, any sublease, license or contract related to the Hotel including the Hotel Operating Agreement or to the Tennis Center) to Lessor. ARTICLE VI A. Insurance of Buildings. 6.1 Fire and Hazard Insurance. In order to secure the rents due the Lessor, the Lessee shall, at its own expense, at all times during the Term keep all buildings, other improvements and fixtures, by whomsoever installed or constructed, existing on the Premises on the date of the Lease or at any time thereafter, insured against (a) the "all risks" coverage (including, if available and without exorbitant costs, earthquake, flood, boiler, machinery, and war insurance), and (b) such other hazards or risks which are covered by customary insurance by similar hotels in the area (including the Kaanapali area of Maui). All such insurance shall be in an amount equal to the full replacement cost of such buildings, improvements and fixtures without deduction for depreciation, with an "agreed amount endorsement" and with an "inflation guard" endorsement. All such insurance shall be with an insurance company or companies authorized to do business in Hawaii, naming Lessor, any mortgagee of Lessor, and any mortgagee of Lessee, as additional insureds as their interests may appear. Loss shall be adjusted with Lessee. 6.2 Payment of Insurance proceeds. Every policy of the insurance described in Section 6.1 shall be issued to cover and insure all the several interests in the buildings, improvements, fixtures and rent required to be insured in Section 6.1 of the Lease, the Lessor and any Mortgagees under any mortgage of this Lease, as their respective interests are defined in this section below, and shall be made payable in case of loss or damage to the respective parties as their interests may appear. The respective interest of the Lessor, the Lessee and any Mortgagees in any proceeds of the insurance required in Section 6.1 above payable for insured loss or damage shall be fixed and determined as of the date of such loss or damage. 6.3 Use of Insurance Proceeds. In case the buildings, improvements or fixtures required to be insured in Section 6.1 or any part thereof shall be destroyed or damaged by fire or such other casualty required to be insured against, then and as often as the same shall happen, all proceeds of such insurance shall be available for and used with all reasonable dispatch by the Lessee in rebuilding, repairing, replacing or otherwise reinstating the buildings, improvements or fixtures so destroyed or damaged in a good and substantial manner according to the plan and elevation thereof, or according to such modified plan as shall be approved under Section 4.2(a), and to pay the rent due the Lessor. If the available insurance proceeds shall be insufficient for rebuilding, repairing, replacing or otherwise reinstating such buildings, improvements or fixtures in the manner provided in this section above, then the Lessee shall provide the balance of all funds required to completely rebuild, repair, replace or otherwise reinstate such buildings, improvements or fixtures. Lessee shall undertake promptly to reinstate the building or buildings, or portions thereof, so destroyed or damaged according to the original plan and elevation thereof, or according to such modified plan as shall be approved by Lessor pursuant to Section 4.2(a). If a casualty under this Section 6.1 shall occur in the last ten (10) years of the Term of this Lease, the Lessee shall have the option of notifying the Lessor that the Lessee does not intend to rebuild the buildings, improvements, or fixtures so destroyed, but rather elects to terminate the Lease as of the date of the casualty, by giving Lessor written notice at least thirty (30) days after the date of the casualty, and then Lessee will, at its own expense, pay all real property taxes and any assessments then outstanding and shall pay over all insurance proceeds to the Lessor, except if requested by Lessor, Lessee shall use the insurance proceeds to promptly remove from the Premises, all buildings, improvements and trade fixtures, and restore the Land then remaining to good, orderly and sanitary condition and even grade, and upon so doing the Lessee shall then surrender any remaining balance of the insurance proceeds (if any), surrender this Lease and Lessee shall be relieved of further performance under this Lease. If the available insurance proceeds shall be insufficient, then Lessee shall provide the balance of all funds required to remove from the Premises, all buildings, improvements and trade fixtures, and restore the Land then remaining to good, orderly and sanitary condition and even grade. 6.4 Uninsured Casualty and Abatement of Rent. If a portion of the Hotel, as it exists from time to time, the value of which exceeds ten percent (10%) of the value of the entire Hotel, shall be rendered untenantable by casualty not required by this Lease to be insured against, Lessee shall not have any obligation to rebuild, repair or otherwise reinstate such buildings. If Lessee shall undertake to reinstate the building or buildings, or portions thereof, so destroyed or damaged according to the original plan and elevation thereof, or according to such modified plan, then such plans shall be subject to approval by the Lessor pursuant to Section 4.1(a). If the Lessee does not rebuild, repair or otherwise reinstate such buildings, Lessee will at its own expense, pay all real property taxes and any assessments then outstanding and, if requested by Lessor, promptly remove from the Premises all buildings, improvements and trade fixtures and restore the Land then remaining to good, orderly and sanitary condition and even grade, and upon so doing the Lessee shall then surrender this Lease and thereby be relieved of further performance under this Lease. B. Liability Insurance. 6.5 Lessee to Obtain Liability Insurance. The Lessee shall maintain at its own expense during the Term a policy or policies of comprehensive general liability insurance naming the Lessor (and its wholly-owned subsidiaries) and the Lessee as insureds thereunder with respect to liability for personal injury, death and property damage arising from use, management, ownership or occupation of the Premises in form and with coverage reasonably satisfactory to and reasonably approved by the Lessor (including a broad form CGL endorsement and full liquor law or dramshop liability coverage as well as business automobile liability coverage including non-owned and hired automobile liability coverages), with minimum limits of not less than TWENTY-FIVE MILLION DOLLARS ($25,000,000) for injury to more than one person in any one accident, and for property damage in any one accident, in any insurance company or companies authorized to do business in Hawaii. Lessee shall periodically, but not less frequently than annually, reevaluate the scope of the risks covered and the liability limits of such insurance and, if necessary, increase such coverage or liability limits in order to provide coverage of risks and liability limits which a prudent businessman would provide for property being put to uses similar to those of the Premises. C. General Insurance Requirements. 6.6 Policy Provisions. Each policy of comprehensive general liability or hazard insurance required in parts A and B of this Article above and in Section 4.2(d) of Article IV shall, to the extent available and customary for hotels on Maui: (a) provide that the liability of the insurer thereunder shall not be affected by, and that the insurer shall not claim, any right of setoff, counterclaim, apportionment, proration, or contribution by reason of, any other insurance obtained by or for Lessor, Lessee, or any person claiming by, through, or under any of them; (b) contain no provision relieving the insurer from liability for loss occurring while the hazard to buildings, improvements and fixtures is increased, whether or not within the knowledge or control of, or because of any breach of warranty or condition or any other act or neglect by, Lessor, Lessee, or any person claiming by, through, or under any of them; (c) provide that such policy may not be cancelled, changed or modified (except to increase coverage), whether or not requested by Lessee, except upon the insurer giving at least thirty (30) days' prior written notice thereof to Lessor, Lessee, every mortgagee of any interest in the Premises, and every other person in interest who has requested such notice of the insurer; (d) contain a waiver by the insurer of any right of subrogation to any right of Lessor or Lessee against any of them or any person claiming by, through, or under any of them; and (e) in the case of hazard insurance, contain a standard mortgagee clause which shall: (i) provide that any reference to a Mortgagee in such policy shall mean and include all holders of mortgages of any interests in the Premises, in their respective order and preference as provided in their respective mortgages; (ii) provide that such insurance as to the interest of any Mortgagee shall not be invalidated by any act or neglect of Lessor, Lessee or any person claiming by, through, or under any of them; and (iii) waive any provision invalidating such Mortgagee clause by reason of the failure of any Mortgagee or Lessor, Lessee, or any person claiming by, through, or under any of them to notify the insurer of any hazardous use or vacancy, any requirement that any Mortgagee pay any premium thereon, or any contribution clause. 6.7 Certificates of Insurance. Lessee shall deposit and maintain with Lessor current certificates of insurance issued by the insurance carriers certifying that Lessee has in effect all the insurance required in parts A and B of this Article with certificates of renewal delivered by Lessee to Lessor at least thirty (30) days prior to the expiration date of such policies. All such certificates shall specify that the Lessor (and where applicable, its wholly-owned subsidiaries) is a named insured and that the policies to which they relate cannot be cancelled or modified on less than thirty (30) days (or ten (10) days in the case of failure to pay premiums) prior written notice to Lessor. ARTICLE VII Condemnation 7.1 Total Condemnation. If at any time during the Term, all of the Premises shall be taken or condemned by any authority having the power of eminent domain, then the estate and interest of the Lessee in the Premises shall at once cease and determine. The Term of the Lease shall cease as of the day possession is taken by such authority and all rents shall be paid up to that date. 7.2 Partial Condemnation. (a) If at any time or times during the Term any part of the Premises shall be taken or condemned by any authority having the power of eminent domain, then and in every such case the estate and interest of the Lessee in any part of the Premises so taken or condemned shall at once cease and determine, and this Lease shall terminate as to the portion taken. (b) Continued Operations. If after a partial condemnation, this Lease is not terminated pursuant to Section 7.2(c), then: (i) Taking or condemnation of a part of the Premises, whether of the Land or any buildings or improvements on the Land, shall not affect the provisions for determination or payment of percentage rent set forth in this Lease. (ii) If an economically viable hotel of the same quality at the time of any condemnation can be restored, rebuilt or otherwise repaired on the remaining portion of the Premises at a cost not exceeding the condemnation award paid with respect to buildings or improvements so taken or condemned, then all such amounts shall be available for and used with all reasonable dispatch by the Lessee in rebuilding, repairing or otherwise reinstating or replacing such portion of such building or improvement taken or condemned on the balance of the Land, to the extent of such condemnation award, in a good and substantial manner according to such plan as shall be approved by the Lessor in accordance with Section 4.1(a). The provisions of this paragraph relate only to the handling of condemnation proceeds attributable to the partial taking of any building or improvements and do not in any way alter the provisions of Section 7.3(a) with respect to condemnation proceeds paid for the taking of all or any portion of the Land. (c) Termination of Lease. If only part of the Premises shall be so taken or condemned, Lessee shall have the right and option to terminate this Lease if: (i) The balance of the Premises is unsuitable for construction and operation of an economically viable hotel of the same quality as the Hotel, or (ii) a portion of the Hotel, as it exists from time to time, the value of which exceeds twenty-five percent (25%) of the value of the entire Hotel shall be taken or condemned. If Lessee elects to terminate, Lessee will notify Lessor and upon such notification Lessee's obligation to pay rent shall cease, and Lessee shall pay all real property taxes and assessments then due and, if requested by Lessor, remove all buildings and other improvements then remaining on the Premises and restore the Land then remaining to good and orderly condition and even grade, and terminate this Lease. Upon such termination the Lessee shall be relieved of all further obligations under this Lease, the Lessor shall refund to the Lessee any unearned portion of the rent paid in advance prior to the effective date of such termination and Lessee shall receive the Lessee,s interest in such condemnation compensation and damages. 7.3 Compensation and Damages. (a) Land. In every case of taking or condemnation of all or any part of the Premises, all compensation and damages payable for or on account of the taking of all or any part of the Land shall be payable to and be the sole property of the Lessor, and neither Lessee nor any mortgagee of the Lessee's interest under this Lease shall have any interest or claim to such compensation or damages or any part thereof whatsoever. (b) Improvements. Subject to this Section 7.3 all compensation and damages payable for or on account of the taking of all of any buildings and other improvements erected on the Land and any plans and other preparations therefor shall be payable to the Lessee and any mortgagee of the Lessee's interest under this Lease, in accordance with their respective interests, after deducting the Lessor's interest; provided, however, if the mortgage was approved by the Lessor and comes under Section 5.7, the Mortgagee shall be entitled to be paid the then outstanding balance of the mortgage before deducting the Lessor's interest. The Lessor's interest therein shall be a proportionate amount of such compensation and damages in the ratio which the expired portion of the Term starting with the Effective Date bears to the total Term (less the portion prior to the Effective Date). 7.4 Condemnation of Leasehold Interest. In the event at any time or times during the Term a leasehold interest in the Premises or any part of such interest shall be taken or condemned, then and in every such case, notwithstanding the foregoing provisions of this Article VII, Lessee shall have the option to terminate and/or be fully released and discharged from all further liabilities and obligations under this Lease by paying to Lessor all compensation and damages for the taking or condemnation of such leasehold interest (exclusive of all compensation and damages for any taking or condemnation of the Hotel), or, if Lessee does not elect to terminate this Lease, then such taking or condemnation shall not result in any reduction in minimum or percentage rent under this Lease, nor excuse the Lessee from the full and faithful performance of any or all of its covenants and obligations under this Lease for the payment of money, nor excuse or relieve the Lessee from the performance of its covenants and obligations under this Lease except to the extent that, and for so long as, the performance of such covenants and obligations shall be rendered impossible by reason of the loss by the Lessee of possession of such part of the Premises subject to such taking or condemnation. In every such case of taking or condemnation of all or a part of the Lessee's leasehold interest, the Lessee shall be entitled to claim and recover from the condemning authority its damages sustained by reason of such taking, and all compensation and damages payable for or on account of such taking or condemnation of any part of such leasehold interest shall be payable to and be the sole property of the Lessee unless Lessee elects to terminate this Lease as set forth above. 7.5 Loss of Business Damages. Notwithstanding the foregoing provisions of this Article VII, if and only if such claim for damages is not adverse to any interest of Lessor, the Lessee and/or the Hotel Operator shall have the right to claim and recover from the condemning authority but not from the Lessor, such compensation as may be separately awarded or recoverable by the Lessee and/or the Hotel Operator in its own right on account of any and all damage to its business by reason of any condemnation and for or on account of any cost or loss to which the Lessee and/or the Hotel Operator might be put in removing its furnishings and equipment. 7.6 Conveyance as Condemnation. The term "condemnation" as used in this Lease shall include any conveyance made under threat or imminence of condemnation by any public or private authority having the power of eminent domain. ARTICLE VIII Maintenance and Use of Premises 8.1 Taxes and Assessments. Lessee shall pay throughout the Term, beginning as of the Effective Date of this Lease, directly to the appropriate taxing or other applicable authority at least three (3) days before the same become delinquent, all real property taxes and assessments of every description attributable to the Premises or any part thereof or improvement thereon, or for which the Lessor or Lessee in respect thereof, are now or may during the term be assessed or become liable, whether assessed to or payable by Lessor or Lessee ( with the property taxes for the first and last Lease years prorated if applicable); provided, however, that with respect to any assessment made under any betterment or improvement law which may be payable in installments, Lessee shall be required to pay only such installments of principal and interest as shall become due and payable during the Term. Lessee's covenant for the payment of the taxes set forth in the preceding sentence shall include the payment of any new tax (except federal or state net income taxes) which supplements or replaces either the real property tax or increases in real property taxes and is assessed upon the Premises or any part thereof or upon the rents received under this Lease by Lessor or upon Lessor in respect of any of the preceding items. Lessee shall also pay the gross excise tax on such taxes and assessments in accordance with Section 3.6. Subject to all of the conditions set forth in this sentence, Lessee may contest in good faith at Lessee's sole expense by appropriate proceedings, as maybe allowed by law, the validity or amount of any tax or assessment required in this paragraph to be paid by the Lessee, which conditions are as follows: (a) such actions must be commenced before any such tax or assessment becomes delinquent, (b) the action commenced by the Lessee must be an action which either stays the collectibility of such tax or prevents the sale of the Premises in satisfaction of such tax or assessment or lien securing such tax or assessment, or in the alternative to the previous two types of actions, an action in which Lessee pays such tax or assessment while such action ensues, (c) Lessee complies with all requirements of such action, including but not limited to the posting of bond or payment of such tax or assessment while such action ensues, (d) Lessee gives notice to Lessor of Lessee's intention to contest such tax or assessment not less than ten (10) days before such taxes or assessments become delinquent, and (e) prior to undertaking such action, Lessee gives security, reasonably satisfactory to Lessor in both quality and quantity, to Lessor for payment of such taxes; provided, however, that notwithstanding the foregoing, Lessee shall pay all such taxes, rates, assessments or charges, together with all interest, penalties or fines accrued thereon or imposed in connection therewith, immediately upon the commencement of proceedings to foreclose any lien which attached to the Premises or any part thereof as security for such taxes, rates, assessments or charges. If the Lessee shall fail to pay any taxes or assessments as provided in this paragraph and elects not to dispute such taxes or assessments in accordance with the provisions above, then the Lessor may at any time thereafter pay the same, together with any interest, penalties, fines and costs accrued thereon or imposed in connection therewith, and Lessee shall repay to the Lessor upon demand therefor the full amount so paid by the Lessor, together with interest at Lessor's Cost of Money accruing from the date such payments were due until Lessor is reimbursed for such payments by Lessee. 8.2 Lessee to Pay All Rates and Charges. Lessee shall pay directly before such charges and rates become delinquent, all utility charges, water and sewer rates, garbage rates, Kapalua Resort Association and Kapalua Marketing Association assessments, and other charges and outgoings of every description attributable to the Premises or any part thereof or improvement thereon, or for which Lessor or Lessee in respect thereof may during the Term be assessed or become liable, whether assessed to or payable by Lessor or Lessee and whether such charges and rates are imposed by governmental authority, public or private utility together with the gross excise tax, if applicable, as required by Section 3.6. Anything in this Lease to the contrary notwithstanding, Lessee shall not be required to pay any tax or assessment in the nature of an income, state, or inheritance tax imposed because of Lessor's receipt of rental payments from Lessee or because of Lessor's ownership of the fee title to the Premises or because of Lessor's interest in the Lease or in the Premises. 8.3 Improvements Required by Law. The Lessee shall at its own expense during the whole of the Term of this Lease make, build, maintain and repair all fences, roads, curbs, sidewalks, sewers, drains, parkways and parking areas and other improvements on the Premises which may be required by law to be made, built, maintained or repaired upon or adjoining or in connection with or for the use of the Premises or any part thereof except for improvements which are to be located on property owned or leased by others. Without limiting the foregoing sentence, Lessee agrees that all such improvements shall be subject to the Lessor's right of approval as provided in Article IV above. 8.4 Repair and Maintenance. In order to preserve the high aesthetic standards in the Kapalua Resort Area, the Lessee will at its own expense keep the Premises, all landscaping, all structural and non-structural portions of all buildings and other improvements existing on the Premises at any time during the Term, in good order, condition, maintenance and repair including without limitation repainting the exterior of the Hotel as required to maintain the appearance of the Hotel and complying with the landscaping and other maintenance requirements and covenants imposed upon the Lessor as Grantor under the Preservation and Conservation Easement described in Exhibit "A" hereof. All repairs which would constitute Construction shall be subject to the Preconditions for Construction in Sections 4.2(a) and 4.2(b). Repairs which constitute Construction but which return the Premises to their original condition and aesthetic appearance as shown in plans and specifications previously approved by Lessor shall not require Lessor's prior consent but shall meet without limitation the Preconditions for Construction. Any change of color of exterior painting of the Hotel must be approved by Lessor, 8.5 Observance of Laws. The Lessee shall during the Term keep the Premises in a strictly clean and sanitary condition and observe and perform all laws, ordinances, rules and regulations whether now or hereafter made by any governmental authority for the time being applicable to the Premises or the use thereof, and except with respect to the negligence or wilful misconduct of Lessor or Lessor's agents, employees or contractors, Lessee shall indemnify the Lessor against all actions, suits, claims and damages by whomsoever brought or made by reason of the nonobservance or nonperformance of such laws, ordinances, rules and regulations or this covenant. 8.6 Inspection of Premises. The Lessee shall permit the Lessor and its agents upon reasonable advance notice and at reasonable times during the Term to enter and examine the state of repair and condition of the Premises. If any significant safety hazard defect comes to Lessor's attention, Lessor may give notice of such defect to Lessee and within sixty (60) days after such notice, Lessee shall repair and make good such defect if required by the terms of this Lease to be repaired and made good by the Lessee; provided, however, that if such repair or correction may be made within a reasonable period of time but cannot reasonably be made within sixty (60) days, then such repair or correction shall be deemed to be made if begun within the sixty (60) day period and thereafter continuously and diligently undertaken to completion by Lessee. If the Lessee shall refuse or neglect to commence and complete such repairs within the time period provided in the preceding sentence, the Lessor may make such repairs or cause the same to be made and shall not be responsible to the Lessee or any persons claiming by or through Lessee for any loss or damage that may be caused to the property or business of the Lessee or such persons claiming by or through Lessee by reason of such repairs, except for Lessor's negligence or willful misconduct and if the Lessor shall make such repairs or cause the same to be made, the Lessee shall pay forthwith on demand to the Lessor the cost of such repairs, with interest at Lessor's Cost of Money. 8.7 Waste and Unlawful Use. The Lessee will not make or suffer any strip or waste or unlawful, improper or offensive use of the Premises or any part thereof. 8.8 Use of Premises. (a) Operation of Hotel. The Lessee will use the Premises for the purposes of, and for no other purpose than, maintaining and operating the Hotel, the Tennis Center, and the rental and management of villas, condominiums and apartments, including all facilities and related commercial retail operations, operated by Lessee or Concessionaires, reasonably related to a resort hotel operation; provided, however, Lessee agrees not to engage in the business of renting villas, condominiums and apartments so long as Lessor is actually renting villas, condominiums and apartments in the Kapalua Resort Area. Lessee agrees that Lessee will maintain and operate a hotel at the Premises at quality standards generally found in those full service resort hotels in the State of Hawaii with at least a 4-Diamond rating from the American Automobile Association as of January 1, 1996. Lessee covenants that it will in good faith diligently and continuously operate the Hotel in accordance with reasonable business practices. Any commercial operations on the Premises, whether conducted by Lessee or a Concessionaire, involving any unreasonably noisy, dangerous or obnoxious activities or the leasing or rental of unreasonably noisy, dangerous or obnoxious equipment, including without limitation water ski rides or instruction and rental of "jet skis", mopeds or similar items, shall require the prior written approval of Lessor and Lessor may unreasonably withhold such approval or require the termination of any such commercial operations then in existence on the Premises. Since only a hotel operation is intended as aforesaid, the area on the Premises occupied by commercial retail operations (exclusive of the area occupied by any and all restaurants, laundries, health clubs and other similar facilities proximately related to the operation of a hotel to a standard provided in this Lease) shall not exceed the initial area (plus up to ten (10%) percent more) agreed upon in the initial construction of the Hotel. The Lessee shall use its best efforts to ensure that any concession, commercial activity, or other Hotel activity shall be in keeping with the first-class image of the Kapalua Resort Area. (b) Hotel Operating Agreement. Lessee agrees that proper management and operation of the Hotel is necessary to maximize Lessor's percentage rent. Accordingly, Lessee shall enter into a Hotel Operating Agreement for the management and operation of the Hotel by Hotel Operator with the consent of Lessor, which consent shall not be unreasonably withheld if the Hotel Operating Agreement expressly provides that the Hotel Operator has read this Lease and agrees to observe and where applicable perform the terms and conditions of this Lease in connection with the operation of the Hotel. Such agreement(s) shall be maintained for the term of the Lease, with any successor Hotel Operator being subject to Lessor's consent. Hotel Operator shall have the right to assign its rights and obligations under the Hotel Operating Agreement to The Ritz-Carlton Hotel Company L.L.C., a Delaware limited liability company, or to any assignee who (a) acquires all, or substantially all, of the assets of The Ritz-Carlton Hotel Company, L.L.C. or Hotel Operator; (b) assumes its obligations, including those pursuant to the Hotel Operating Agreement; (c) enters into an agreement with Owner that the assignee will continue to operate the Hotel as a luxury hotel as part of the Ritz-Carlton chain or to the Ritz-Carlton Standards as defined in the Hotel Operating Agreement or at quality standards generally found in those full service resort hotels in the State of Hawaii with at least a 4-Diamond rating from the American Automobile Association as of January 1, 1996; and (d) has sufficient financial capability and experience to carry out its obligations under the Hotel Operating Agreement. The following criteria shall be applied to determine the reasonableness of Lessor in consenting to any Hotel Operator selected by Lessee, or as to any Affiliate or any proposed assignee selected by Hotel Operator: (a) whether as its primary business, it owns, leases or operates any casino or gambling facility if such business, ownership, leasing or operation might reasonably impair the ability of the Lessee, the Hotel Operator or their respective Affiliates, as applicable, to obtain or retain any necessary regulatory approvals for the operation of the Hotel; (b) whether it owns or operates a distillery, winery or brewery or a distributorship of alcoholic beverages if such ownership or operation might reasonably impair the ability of the Lessee, the Hotel Operator or their respective Affiliates, as applicable, to obtain or retain liquor licenses for the Hotel; (c) whether it has sufficient financial capability and experience to carry out its obligations under the Hotel Operating Agreement; and (d) whether it has the capability to operate the Hotel to a quality standard generally found in those full service resort hotels in the State of Hawaii with at least a 4-Diamond rating from the American Automobile Association as of January 1, 1996. Hotel Operator acknowledges and agrees that any assignment, sublease, transfer, alienation or attempts thereto, whether voluntary, involuntary, or by operation of law in contravention to this Lease, are void and is a forfeiture and termination of the Hotel Operating Agreement and Owner may exercise any of the remedies reserved to it under Article 11 of the Hotel Operating Agreement. Hotel Operator may assign its rights to receive Fees or portions thereof to any person as security for indebtedness. (c) Prohibited Uses. Lessee shall not use the Premises for commercial retail operations (except as otherwise provided in this Lease), a realty sales office (except for a Kapalua Land Company realty sales office) and shops selling items bearing the Kapalua logo, which is a stylized butterfly with a pineapple in the center, unless operated or licensed by Kapalua Land Company. (d) Nuisance. At all times during the Term, but especially during Quiet Hours, Lessee covenants that it will use its best efforts to prevent the escape from the Premises of loud noises, obnoxious bright lights, odors, dust, smoke or other noxious agents which could disrupt the quiet, sleep and peaceful enjoyment of the Kapalua Resort Area of guests of other hotels or other residents of the Kapalua Resort Area. 8.9 Liens. Lessee shall keep the Premises at all times free and clear of all liens, charges and encumbrances of every nature, other than such mortgages as may be permitted under this Lease, and will indemnify and save harmless the Lessor from all loss, cost and expense, including reasonable attorneys' fees, with respect to any such liens, charges and encumbrances. 8.10 Kapalua Resort Association. Lessee shall become a member of the Kapalua Resort Association (the "KRA") in accordance with KRA's articles and bylaws. As a member of KRA, Lessee shall comply with the articles and bylaws of the KRA and pay a pro rata portion of the annual KRA budget in monthly installments as provided in the articles and bylaws of the KRA. Lessor reserves all voting rights in KRA as it pertains to the Land and Lessee shall have all voting rights in KRA as it pertains to the Hotel (excluding the Land). 8.11 Kapalua Marketing Association. The Lessee shall become a member of the Kapalua Marketing Association ("KMA") and shall pay its pro rata share up to one-half percent (0.5%) of the Gross Revenues for the applicable years as Lessee's contribution towards KMA's annual budget so long as the Kapalua Bay Hotel is a member of KMA and pays the same percentage of its gross revenues (as defined under its lease). 8.12 Visitor Statistics. For purposes of Lessor's forecasting and planning for the development of the Kapalua Resort Area, on the 30th day of each month of the Term, Lessee shall provide Lessor the following information regarding operation of the Hotel for the preceding month: (a) the number of available room days at the Hotel; (b) the number of room days occupied broken down into rented, complimentary and staff occupied categories; (c) the average occupancy rate for the hotel rooms in the Hotel; (d) the average number of guests per room at the Hotel; and (e) the percentage of the total number of the Hotel's guests who are in tour groups. Lessor shall have the right to inspect Lessee's records to verify the information set forth above, but shall not share this information with any other hotel in the Kapalua Resort Area or with any other third party without Lessee's consent (except the Hawaii Visitors Bureau, Pannell, Kerr, Forster, and similar organizations which compile visitor statistics but without identifying individual properties), which consent may be unreasonably withheld by Lessee. 8.13 Covenant to Operate Hotel. Lessee understands that Lessor's expectation of lease rent revenues, especially percentage rent, is predicated on Lessee operating a successful hotel on the Premises which maximizes long-term revenues. Accordingly, Lessee covenants and agrees that it will in good faith diligently and continuously operate (or cause to be operated) a hotel on the Premises 365 days each year in accordance with reasonable business practices and the standards of Section 8.8(a) with the goal of maximizing long-term revenues. During the time of any failure to operate continuously the Hotel, Lessor shall, in addition to any other remedies available to it under this Lease, be entitled to receive a rental which shall be no less than the average of that payable during the preceding three full Rental Years. Notwithstanding the foregoing, Lessee shall have the right from time to time to close the Hotel or parts thereof for such reasonable periods of time as may be required to make repairs, alterations, remodeling, or for any reconstruction. Lessee will use its best efforts to ensure that any such period of time will not exceed six months with the exception of any reconstruction of the Hotel as described in Sections 6.3, 6.4, and 7.2, subject to any delay caused by force majeure. 8.14 Name of Hotel. Lessee will not change the name of the Hotel without the prior written consent of Lessor, which consent shall not be unreasonably withheld. ARTICLE IX 9.1 Events and Consequences of Default. This Lease is entered into upon the express condition that if any one or more of the events of default set forth in Sections 9.1(a) through 9.1(d) shall occur, the Lessor may, subject to requirements of notice and opportunity to cure any default to be given to Mortgagees of the Lessee's interests under this Lease and any subordination rights under Section 5.1 and as provided in Section 5.3 and subject to the limited liability provided in Section 9.3, upon the occurrence of such event of default or at any time thereafter during the continuance of such default, may then or at any time thereafter bring an action for summary possession of the Premises or any part thereof as provided by law, all without prejudice to any other remedy or right of action which the Lessor may have for arrears of rent or for any preceding or other breach of contract. If this Lease is Filed or Recorded, such termination of this Lease may but need not necessarily be made effective by Filing if the Lease is Filed or Recording if the Lease is Recorded an order of a court of the State of Hawaii cancelling this Lease. The events of default are as follows: (a) Failure to Pay Rent. (i) The Lessee shall fail to make full payment of any payment of rent or any other payments required under this Lease within ten (10) days after the date such payment is due, whether such payment shall or shall not have been legally demanded, and (ii) such payment shall not have been cured in full together with the late payment due thereon under Section 3.8 and the interest thereon due under Section 11.13, within ten (10) days after written notice of such default by Lessor to Lessee; or (b) Breach of Covenant. The Lessee shall fail to observe or perform any of the covenants contained in this Lease and on the part of the Lessee to be observed and performed, and such failure shall continue for a period of thirty (30) days after written notice of such failure given by the Lessor to the Lessee without substantial action having been initiated by Lessee within such period to diligently and continuously continue to remedy such failure; or (c) Abandonment. The Lessee shall abandon the Premises; or (d) Bankruptcy, Insolvency or Taking. The making by Lessee of any general assignment for the benefit of creditors; the filing by or against Lessee of a petition to have Lessee adjudged a bankrupt or the petition for reorganization or arrangement under any law relating to bankruptcy unless, in the case of a petition filed against Lessee, the same is dismissed within ninety (90) days; the appointment of a trustee or receiver to take possession of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where possession is not restored to Lessee within ninety (90) days; or the attachment, execution or other judicial seizure of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease where such seizure is not discharged within ninety (90) days. 9.2 Acceptance of Rent Not Waiver. The acceptance of rent by the Lessor or its agent shall not be deemed to be a waiver by Lessor of any breach by the Lessee of any covenant contained in this Lease or of the right of the Lessor to terminate this Lease and reenter the Premises. The express waiver by the Lessor of any breach shall not operate to extinguish the covenant or condition the breach of which has been waived nor be deemed to be a waiver by the Lessor of its right to declare a forfeiture of this lease for any breach thereof. 9.3 Limited Liability of Lessee. Notwithstanding anything to the contrary herein, from and after the Effective Date the Lessee shall not be responsible for any liability under this Lease arising after any termination under Section 9.1 or any foreclosure sale pursuant to Section 5.1 other than to bring the rents and any other money charges current up to that date plus one year's rent (including one year's real property taxes) based on the rent paid for the immediately preceding full Rental Year; or unless from and after the Effective Date the Lessee shall give Lessor at least one year's notice of its election to terminate this Lease, in which case the Lessee shall pay the rent and other money charges due as of that termination date and have no future liability under this Lease. In either case, title to the improvements on the Premises (including the Hotel, the Tennis Center and all of the Hotel's and Tennis Center's furniture, furnishings, equipment and at Lessor's option, any sublease, license or contract related to the Hotel including the Hotel Operating Agreement or to the Tennis Center) shall automatically revert to Lessor and if requested by Lessor, the Lessee shall quitclaim any interest it has in any such improvements on the Premises to the Lessor and if Lessee shall refuse, then the Lessor is hereby appointed the attorney-in-fact of the Lessee to execute such quitclaim documents in the name of the Lessee to the Lessor, and such power of attorney shall be deemed to be a power of attorney coupled with an interest; and, if a casualty is involved, Lessee shall pay over any insurance proceeds to the Lessor. If a termination of this Lease occurs in the last twenty (20) years of the Term, Lessor shall have the option of requiring the Lessee to remove the improvements pursuant to Section 10.1. ARTICLE X Surrender 10.1 Surrender. Subject to the terms of Section 6.4 dealing with termination of the Lease in the event of an uninsured casualty, and Article VII, dealing with termination of the Lease in the event of condemnation under certain conditions, at the end of the Term or sooner termination of this Lease, the Lessee shall peaceably deliver to the Lessor possession of the Premises. Lessee shall, at its expense and within ninety (90) days after the end of said Term or other termination date, at Lessor's option, remove all buildings, improvements located on the Premises and all debris resulting from such removal and restore the Land to even grade and good and orderly condition, with the Lessee receiving any salvage value of the materials if Lessee's contractor does such removal. ARTICLE XI General Provisions 11.1 Breach. Lessee covenants and agrees that Lessee will, at its cost and expense, keep the section of the Honokahua Beach immediately fronting the Premises in a clean and orderly condition, free of litter and rubbish to the water's edge. 11.2 Assumption of Risk. The Lessee shall and does hereby assume all risk of loss or damage to furnishings, furniture, fixtures, supplies, merchandise and other property, by whomsoever owned, stored, placed or affixed in the Premises for events occurring from the date hereof, including any damage from construction, and does hereby agree that the Lessor shall not be responsible for loss or damage to any such property, and except with respect to the negligence or wilful misconduct of Lessor or Lessor's agents, employees or contractors, the Lessee hereby agrees to indemnify and save harmless the Lessor from and against any and all claims for such loss or damage. 11.3 Holding Over. If the Lessee shall, without the consent of the Lessor, remain in possession of the Premises after the expiration of the Term without executing any extension or renewal of this Lease, Lessee shall be deemed to occupy the Premises as a tenant from month-to-month subject to all of the terms and conditions of the Lease, to the extent such terms and conditions are applicable to a month-to-month tenancy except that each month's rent shall be one twelfth (1/12) of one thousand percent (1000%) of the amount of the annual percentage rent, if any, paid for the year preceding the expiration date. This section shall not apply to any reasonable extension of the Lease required by Lessor's election to require the Lessee to remove improvements pursuant to Section 10.1 or any other provision of this Lease. 11.4 Acceptance of Nearby or Adjacent Land Use. (a) Pineapple and Similar Agricultural Operations. Lessee understands and agrees that Lessor's subsidiary Maui Pineapple Company, Limited, is engaged in the operation of a pineapple plantation and similar agricultural operations within the areas adjacent to the Premises and that the operations, milling and other activities incident to a pineapple plantation or similar agricultural activities may result in the creation of nuisances during the Term and that Maui Pineapple Company, Limited holds a perpetual right and easement over and upon the Premises for nuisances of every description arising from activities incidental to the operation of a pineapple plantation or similar agricultural activities by Haul Pineapple Company, Limited, its successors and assigns. The Lessee shall not hold or attempt to hold the Lessor or Maui Pineapple Company, Limited responsible for the creation of such nuisances, arising out of or in connection with such pineapple or similar agricultural operations. Lessor will use its best efforts to inform the Lessee, at Lessee's request, of any harvesting schedule for such pineapple operations. All such pineapple operations shall be done in accordance with applicable state and federal regulations. (b) Golf Courses. Lessee understands and agrees that the Premises are adjacent to golf courses operated by Lessor or its subsidiaries; that Lessee desired and sought such location with the understanding that this location may result in nuisances or hazards to persons and property on the Premises including without limitation those caused by stray golf balls. Lessee covenants that during the Term of this Lease, Lessee agrees to such nuisances and hazards and shall assume all risks associated with such location, including but not limited to the risk of property damage or personal injury suffered by Lessee (but not by a guest) arising from stray golf balls. 11.5 Notices. Any notice or demand to be given to or served upon either the Lessor or the Lessee in connection with this Lease shall be in writing and shall be given or served for all purposes by being sent by certified mail, postage prepaid, return receipt requested, addressed to such party at its post office address specified above or at such other post office address as such party may from time to time designate in writing to the other party, or by being delivered personally to any officer of such party within the State of Hawaii, and any such notice or demand shall be deemed conclusively to have been given or served on the date indicated on the return receipt or upon the date of such personal delivery. 11.6 Article and Paragraph Headings. The article and paragraph headings in this Lease are inserted only for convenience and reference and shall in no way define, limit or describe the scope or intent of any provision of this Lease. 11.7 Assignments and Subleases. (a) Except as otherwise herein provided in Section 5.1, Lessee shall not assign, mortgage, pledge, hypothecate or encumber this Lease or the leasehold estate hereby created or any interest herein, or sublet the Premises or any portion thereof, or license the use of all or any portion of the Premises, without the prior consent of Lessor, which consent shall not be unreasonably withheld. Subject to receipt of such consent, this Lease may be assigned or transferred in whole or in part, by Lessee provided that the provisions of Section 11.7(d) have been completed and Lessor has elected not to proceed with the purchase of the Hotel and/or this Lease; provided, however, any proposed assignee, during the Term of this Lease, (i) may not as its primary business own, lease or operate any casino or gambling facility if such business, ownership, leasing or operating might reasonably impair the ability of the Lessee or the Hotel Operator, as applicable, to obtain or retain any necessary regulatory approvals for the operation of the Hotel; (ii) may not own or operate a distillery, winery or brewery or a distributorship of alcoholic beverages if such ownership or operation might reasonably impair the ability of the Lessee or the Hotel Operator, as applicable, to obtain or retain liquor licenses for the Hotel; and (iii) must have sufficient financial capability to carry out its obligations under this Lease. The consent by Lessor to one assignment, subletting, mortgage, pledge, hypothecation or encumbrance shall not be deemed to be a consent to any further assignment, subletting, mortgage, pledge, hypothecation or encumbrance. In the absence of an express agreement in writing to the contrary and executed by Lessor or except as otherwise provided herein, no assignment, mortgage, pledge, hypothecation, encumbrance, subletting or license hereof or hereunder shall act as a release of Lessee from any of the provisions, covenants and conditions of this Lease on the part of Lessee to be kept and performed, the assignor shall remain primarily liable hereunder and any amendment of this Lease subsequent thereto shall not release the assignor or sublessor from said liability. If the Lessee (or a multiple Lessee) is a corporation, a change or changes in the ownership, whether voluntary, involuntary, by operation of law, or otherwise, which aggregates fifty percent (50%) or more of the total capital stock of Lessee or fifty percent (50%) or more of the voting capital stock of Lessee, shall be deemed an assignment of this Lease. If the Lessee (or a multiple Lessee) is a partnership, then any change of control, whether voluntarily, involuntarily, by operation of law, or otherwise, including any addition or withdrawal of a general partner of the partnership or of any partnership which is a partner in the partnership (including in the case of a corporate general partner, a change of control using the test of the preceding sentence), shall be deemed an assignment of this Lease. Any Person who satisfies the requirements for assignment under Section 11.7(a) shall be considered a "Qualified Purchaser." (b) Lessee shall be entitled to assign and transfer this Lease to any corporation or entity that is an Affiliate of Lessee or (subject to obtaining consent required in connection with any change of ownership or control that constitutes an assignment pursuant to Section 11.7(a)) to the surviving corporation in the event of a consolidation or merger to which Lessee shall be a party; provided, however, that such subsidiary, affiliated firm or surviving corporation shall in writing expressly assume all of the provisions, covenants and conditions of this Lease on the part of Lessee to be kept and performed; and provided, further, that no such assignment or transfer shall act as a release of Lessee from any of the provisions, covenants and conditions of this Lease on the part of Lessee to be kept and performed. (c) Except as provided in Section 5.1 or otherwise herein, any assignment, mortgage, pledge, hypothecation, encumbrance, subletting or license of this Lease, the leasehold estate hereby created, or the Premises or any portion thereof, either voluntary or involuntary, whether by operation of law or otherwise, without the prior required written consent of Lessor, shall be null and void, and shall at the option of Lessor terminate this Lease. (d) If at any time Lessee intends to sell, assign or transfer the Hotel and/or this Lease, or any portion which is fifty percent (50%) or more thereof, Lessee shall give written notice of such intention stating Lessee's intention to sell, assign or transfer the Hotel and/or this Lease to (i) Maui Land & Pineapple Company, Inc., so long as Maui Land & Pineapple Company, Inc., is the owner of the Premises at such time written notice of such intention stating Lessee's intention to sell, assign or transfer the Hotel and/or this Lease is given and/or (ii) The Ritz-Carlton Company, L.L.C. so long as Kapalani, L.P. or The Ritz-Carlton Company, L.L.C. is the Hotel Operator at such time written notice of such intention stating Lessee's intention to sell, assign or transfer the Hotel and/or this Lease is given. Within fourteen (14) days of receipt of such written notice from Lessee stating Lessee's intention to sell, assign or transfer the Hotel and/or this Lease, Maui Land & Pineapple Company, Inc. shall provide written notice of its desire to negotiate with Lessee for the sale, assignment or transfer of the Hotel and/or this Lease to Maui Land & Pineapple Company, Inc. If no such written notice from Maui Land & Pineapple Company, Inc. stating its desire to negotiate with Lessee for the sale, assignment or transfer of the Hotel and/or this Lease is received by Lessee in such fourteen (14) day period then Lessee shall be entitled, at any time after such failure, to sell, assign or transfer the Hotel and/or this Lease to any other party. Maui Land & Pineapple Company, Inc. understands, acknowledges and agrees that notwithstanding Maui Land & Pineapple Company, Inc.'s decision to negotiate with Lessee for the sale, assignment or transfer of the Hotel and/or this Lease, The Ritz-Carlton Company, L.L.C. will have the same rights, including the same time period, to elect to negotiate (perhaps in addition to Maui Land & Pineapple Company, Inc.) with Lessee for the sale, assignment or transfer of the Hotel and/or this Lease. If Maui Land & Pineapple Company, Inc. elects to enter into negotiations with Lessee for the sale, assignment or transfer of the Hotel and/or this Lease and provides written notice to Lessee within such fourteen (14) day period, the parties shall enter into good faith negotiations for the sale, assignment or transfer of the Hotel and/or this Lease. Within thirty (30) days from the date of Maui Land & Pineapple Company, Inc.'s written notice to Lessee of its desire to negotiate with Lessee for the sale, assignment or transfer by Lessee of the Hotel and/or this Lease, Maui Land & Pineapple Company, Inc. shall submit in writing to Lessee a firm and binding offer by Maui Land & Pineapple Company, Inc. of the terms and conditions of a proposed sale, assignment or transfer of the Hotel and/or this Lease by Lessee to Maui Land & Pineapple Company, Inc. (the "Maui Land & Pineapple Company, Inc.'s Offer"). Maui Land & Pineapple Company, Inc.'s Offer shall include, at a minimum, (i) the purchase price of the proposed sale, assignment or transfer which purchase price shall be paid by cash or cash equivalent, (ii) closing date, (iii) due diligence period, (iv) any and all contingencies or conditions which must be completed by Lessee prior to the closing date or any date prior to the closing date and (v) a representation that Maui Land & Pineapple Company, Inc.'s Offer will remain firm and binding on Maui Land & Pineapple Company, Inc. for a period of thirty (30) days from the day of receipt of Maui Land & Pineapple Company, Inc.'s Offer. Maui Land & Pineapple Company, Inc. understands, acknowledges and agrees that notwithstanding Maui Land & Pineapple Company, Inc.'s Offer, The Ritz-Carlton Company, L.L.C. will have the same rights, including the same time period, to submit a firm and binding offer (the "RC's Offer"). Lessee, in its sole and absolute discretion, shall determine whether to accept Maui Land & Pineapple Company, Inc.'s Offer. Lessee shall be under no obligation to accept either Maui Land & Pineapple Company, Inc.'s Offer or RC's Offer. However, if Lessee selects either Maui Land & Pineapple Company, Inc.'s Offer or RC's Offer then the other party's offer is deemed reject by Lessee. If no written acceptance of Maui Land & Pineapple Company, Inc.'s Offer is received by Maui Land & Pineapple Company, Inc. in the thirty (30) day period following Lessee's receipt of Maui Land & Pineapple Company, Inc.'s Offer, Lessee is deemed to reject Maui Land & Pineapple Company, Inc.'s Offer. Upon the earlier of (i) such thirty (30) day period or (ii) written notice by Lessee to Maui Land & Pineapple Company, Inc. that Lessee rejects Maui Land & Pineapple Company, Inc.'s Offer (the "Lessee's Review Period"), Lessee may proceed to sell, assign or transfer the Hotel and/or this Lease to any other party. If Lessee rejects both Maui Land & Pineapple Company, Inc.'s Offer and RC's Offer, Lessee may sell, assign or transfer or agree to sell, assign or transfer to a third party provided that such third party sale is completed within fifteen (15) months following the end of the Lessee's Review Period, and provided, further, that the purchase price paid by such third party (which shall be paid in cash or cash equivalent) is no less than ninety-five percent (95%) of the highest purchase price (based on present value determination using a discount rate of ten percent (10%)) of either Maui Land & Pineapple Company, Inc.'s Offer or RC's Offer (the "Best Offer"). If the cash or cash equivalent purchase price (based on present value determination using a discount rate of ten percent (10%)) of the third party is less than ninety-five percent (95%) of the purchase price contained in the Best Offer, the entity offering the Best Offer (the "Best Offer Entity") shall have the right within thirty (30) days after receipt of written notice from Lessee to elect to purchase the Hotel and/or Lease (as the case may be) (the "Best Offer Entity Review Period") on terms identical to those set forth in the third party offer as set forth in the notice from Lessee, with no exception unless expressly agreed by Lessee in its sole and absolute discretion; provided, however, that if any of the terms and conditions of the proposed transfer are not reasonably susceptible to performance by the Best Offer Entity (for example, third party guarantees of debt, property exchanges, stock exchanges, etc.), Lessee shall, in its notice to the Best Offer Entity, propose alternative terms and conditions which are the substantial economic equivalent of such terms and conditions and which reasonably can be expected to be performed by the Best Offer Entity. If the Best Offer Entity timely elects to purchase the Hotel and/or Lease (as the case may be) within the Best Offer Entity Review Period then upon acceptance, the Best Offer Entity shall deposit, with an escrow company in the State of Hawaii mutually acceptable to the Best Offer Entity and Lessee, a sum of TEN MILLION DOLLARS ($10,000,000) which shall be nonrefundable if the transaction with the Best Offer Entity fails to close as the result of a breach by the Best Offer Entity of any term or condition of the purchase agreement (or any alternate term or condition as set forth above). In the event of such failure to close by the Best Offer Entity, rights under this Section 11.7(d) are null and void. If the Best Offer Entity fails to give written notice of the Best Offer Entity's election to purchase within the Best Offer Entity Review Period or fails to provide a deposit of TEN MILLION DOLLARS ($10,000,000) within the Best Offer Entity Review Period, Lessee shall be entitled to sell, assign or transfer the Hotel and/or this Lease to the third party to which Lessee's notice applied and upon the terms and conditions set forth in such notice within fifteen (15) months following the end of the Lessee's Review Period. Lessee may not, however, sell or agree to sell during such period to the third party on more favorable terms and conditions without offering the more favorable terms and conditions to the Best Offer Entity again under this paragraph. If the third party transaction to which Lessee's notice to the Best Offer Entity applied does not close for any reason then Lessee shall have the remainder of the fifteen (15) months from the end of Lessee's Review Period to sell, assign or transfer or agree to sell, assign or transfer to another third party provided that such third party sale is completed within fifteen (15) months following the end of Lessee's Review Period, and provided, further, that the purchase price paid by the third party (which shall be paid in cash or cash equivalent) is no less than ninety-five percent (95%) of the highest purchase price (based on present value determination using a discount rate of ten percent (10%)) of the Best Offer Entity. If no sale, assignment or transfer of the Hotel and/or this Lease is completed within fifteen (15) months following the end of Lessee's Review Period, then, subject to the above provisions, the rights of Maui Land & Pineapple Company, Inc. and The Ritz-Carlton Company, L.L.C. under this Section 11.7(d) shall commence again if any time after the end of the fifteen (15) months following the end of Lessee's Review Period, Lessee intends to sell, assign or transfer the Hotel and/or the Lease or any portion thereof. Within five (5) days of executing a letter of intent with a prospective purchaser, Lessee shall notify Maui Land & Pineapple Company, Inc. of the identity of such prospective purchaser. Maui Land & Pineapple Company, Inc. understands, acknowledges and agrees that the provisions of this Section 11.7(d) are for the benefit of only Maui Land & Pineapple Company, Inc. so long as Maui Land & Pineapple Company, Inc. is the fee simple owner of the Premises and/or The Ritz-Carlton Company, L.L.C. so long as Kapalani, L.P. or The Ritz-Carlton Company, L.L.C. is the Hotel Operator, and the provisions of this Section 11.7(d) shall not inure to the benefit of its successors or assigns unless agreed to otherwise by Lessee in its sole discretion. (e) If the Lease is assigned or transferred in whole or in part to an entity other than Lessee's Affiliate, Lessor shall not be required to subordinate its interests in either the fee estate or in this Lease pursuant to Section 5.7 if the consideration received by Lessee for such assignment or transfer is ONE HUNDRED TEN MILLION AND NO/100 DOLLARS ($110,000,000) or more. If Lessee receives consideration for any assignment or transfer of ONE HUNDRED TEN MILLION AND NO/100 DOLLARS ($110,000,000) or more, Lessee shall obtain a release, in a form mutually acceptable to Lessee and Lessor, for any existing amount to which Lessor has subordinated its fee simple interest at the time of the assignment or transfer and Section 5.7 shall be null and void for the remaining Term of the Lease. (f) Notwithstanding the foregoing, Lessee may, without the consent of Lessor, operate the Hotel as a hotel and license, sublease or enter into concession agreements for use of a portion of the Premises for commercial use normally found in hotels in accordance with this Lease but in compliance with Section 8.8(a). 11.8 Attorneys' Fees. If any action, suit or proceeding is brought by any party hereto with respect to this Lease, the prevailing party in any such action, suit or proceeding shall be entitled to recover from the other party or parties, in addition to such other relief as the court may award, all reasonable attorneys' fees and costs of suit incurred by the prevailing party in connection with such action, suit or proceeding. 11.9 Indemnity. (a) Lessee shall defend, indemnify and hold the Lessor harmless from and against any and all claims and demands for loss or damage, including claims for property damage, personal injury or wrongful death, arising out of or in connection with the use or occupancy of the Premises by the Lessee or any other person claiming by, through or under Lessee, or any accident or fire on the Premises, or any nuisance made or suffered thereon, or any failure of the Lessee to maintain the Premises in a safe condition, and the Lessee shall reimburse the Lessor for all costs and expenses, including reasonable attorneys' fees, paid or incurred by the Lessor in connection with defense of any such claims, including but not limited to all costs of Lessor's defense to any such claim or in any such action as well as all costs for research regarding settlement or other preventive measures which Lessor may take prior to the filing of such action or to attempt to prevent the filing of such an action. (b) Lessor shall defend, indemnify and hold the Lessee harmless from and against any and all claims and demands for loss or damage, including claims for property damage, personal injury or wrongful death, arising out of or in connection with the use or occupancy of the Premises by the Lessor or any other person claiming by, through or under Lessor, or any accident or fire on the Premises, or any nuisance made or suffered thereon, or any failure of the Lessor to maintain the Premises in a safe condition, and the Lessor shall reimburse the Lessee for all costs and expenses, including reasonable attorneys' fees, paid or incurred by the Lessee in connection with defense of any such claims, including but not limited to all costs of Lessee's defense to any such claim or in any such action as well as all costs for research regarding settlement or other preventive measures which Lessee may take prior to the filing of such action or to attempt to prevent the filing of such an action. 11.10 Multiple Lessees. If more than one Lessee is entering into this Lease, then all such Lessees shall be jointly and severally bound by the Lessee's covenants in this Lease and any notice given to any one such Lessee by Lessor shall be deemed to be notice upon all such Lessees. 11.11 No Increase of Lessee's Estate. Lessee hereby waives and relinquishes any and all rights given to a lessee under Chapter 516 of the Hawaii Revised Statutes (1968), as amended from time to time, or any similar law which may be enacted at any time during the Term giving Lessee the right to expand Lessee's leasehold estate under this Lease, which the Lessee would not have under the terms of this Lease in the absence of such chapter or such law, it being understood and agreed by and between Lessor and Lessee that the provisions of such chapter or such law shall not apply to this Lease. Any attempt by Lessee or any person claiming by or through Lessee to expand its estate under this Lease pursuant to such chapter or such law shall be a breach of this Lease. 11.12 Calendar Periods. Unless explicitly provided otherwise in this Lease, all references in this Lease to periods of time, including without limitation days, months, quarters, and years, shall mean calendar periods of time. 11.13 Interest on All Late Payments. All payments required to be made by Lessee to Lessor or by Lessor to Lessee under this Lease which are not paid within ten (10) days of the due date for such payments required in the Lease shall bear interest at a rate equal to Lessor's Cost of Money accruing from the due date until such overdue payments are paid in full. 11.14 Neither Lessor nor Lessee Deemed Drafter. All provisions of this Lease have been negotiated by Lessor and Lessee at "arm's length" and with full representation of their respective legal counsel and Lessor and Lessee agree that neither party shall be deemed to be the drafter of this Lease and further that in the event that this Lease is ever construed by a court of law, such court shall not construe this Lease or any provision of this Lease against either party as the drafter of the Lease. 11.15 Successors and Assigns. All the terms, covenants and conditions of this Lease shall inure to the benefit of and be binding upon the successors and permitted assigns of the Lessor and Lessee to the same extent as said terms, covenants and conditions inure to the benefit of and are binding upon the Lessor and the Lessee, respectively. 11.16 Lessor's Right to Sell Fee. Subject to the right of first refusal contained in Section 12.1, Lessee agrees that nothing in this Lease shall be construed to prevent the Lessor from selling, assigning or otherwise transferring all or any part of the Lessor's fee simple interest in the Premises subject to this Lease. In the event of Lessor's transfer of all of Lessor's fee simple interest in the Premises subject to this Lease, Lessee agrees that, so long as the assignee assumes in writing this Lease, any and all obligations of Lessor under this Lease not then accrued shall terminate upon the effective date of such sale and Lessee hereby releases Lessor from any-obligations or covenants under this Lease which have not accrued prior to such effective date. 11.17 Entire Agreement. This Lease constitutes the full and complete agreement of Lessor and Lessee and all other prior oral and written agreements shall be deemed to have merged into this Lease and have no further force or effect. This Lease may be amended only in writing, signed by both Lessor and Lessee. 11.18 Consent. Where the consent or approval of the Lessor or Lessee is required by any provision of this Lease, all such approvals or consents shall be in writing and unless expressly so provided to the contrary, such consent shall not be unreasonably withheld or delayed. 11.19 Amendment. This Lease may only be amended in writing executed by both Lessor and Lessee. 11.20 Estoppel Certificates. Within ten (10) days of written notice from Lessor or Lessee, Lessor or Lessee shall execute, acknowledge and deliver to the other a statement in writing (i) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect) and the date to which the rent and other charges are paid in advance, if any, and (ii) acknowledging that there are not, to the other's knowledge, any uncured defaults on the part of the other hereunder, or specifying such defaults if any are claimed, such statement may be conclusively relied upon by any prospective purchaser or encumbrancer of the Premises. 11.21 Time of the Essence. Time is of the essence of this Lease. 11.22 Conveyance and Hotel Room Taxes. Lessee shall be responsible for paying any conveyance tax that maybe required to be paid as a result of this Lease and any hotel room taxes (including but not limited to taxes under the Hawaii Transient Accommodations Tax Law). 11.23 Short-Form Lease. Lessor and Lessee shall execute and Record or File a short form of this Lease at the same time as this Lease is executed. ARTICLE XII Special Provisions 12.1 Lessee's Right of First Refusal. (a) Sale of Fee Simple Title and/or Lease. If at any time the Lessor shall receive an offer to purchase the fee simple title to the Premises and/or its interest in this Lease, and the Lessor intends to accept such offer, or Lessor otherwise intends to sell, assign, or transfer the fee simple title and/or its interest in the Lease (other than by way of Lessor's Mortgage, which pursuant to Section 5.6 shall be subject to the rights of Lessee under this Section 12.1), then the Lessor shall give Lessee written notice of such offer or intention stating (i) Lessor's intention to sell, assign or transfer the Premises and/or this Lease to such purchaser and (ii) all of the terms and conditions of such offer, proposal or agreement; if Lessor has a proposed written agreement or offer, Lessor shall include a copy of such agreement or offer with such notice to Lessee. If any of the terms and conditions of the proposed transfer are not reasonably susceptible to performance by Lessee (for example, third-party guarantees of debt, property exchanges, stock exchanges, etc.), Lessor shall, in its notice to Lessee, propose alternative terms and conditions which are the substantial economic equivalent of such terms and conditions and which reasonably can be expected to be performed by Lessee. Lessee shall have the right within sixty (60) days after receipt of such notice within which to elect to purchase the Premises and/or this Lease (as the case may be) on terms identical (or alternate terms and conditions as set forth above) to those set forth in the notice from Lessor; with the only exception that the consummation of Lessee's purchase from Lessor shall occur on the later of the sixtieth day following the date of Lessee's acceptance or the date set forth in Lessor's notice to Lessee. If Lessee fails to give notice to Lessee's election to purchase within sixty (60) days of receipt of Lessor's notice or elects not to so purchase, Lessor shall be entitled, at any time after such failure or election, to sell the Premises and/or this Lease (as provided in Lessor's notice to Lessee) to the purchaser with respect to whom Lessor's notice to Lessee applied and upon the terms and conditions set forth in such notice within one hundred twenty (120) days after such failure of or election by Lessee, subject to Lessee's consent as set forth above. Lessor may not, however, sell or agree to sell during that 120-day period or thereafter to a purchaser on more favorable terms and conditions without offering the more favorable terms and conditions to Lessee again under this paragraph. (b) Sale of Interests in Addition to Fee Simple Title and/or Lease. Lessor agrees that if the offer to purchase and/or intent to sell the fee simple title to the Premises and/or Lessor's interest in this Lease is part of a transaction which includes the sale, assignment, transfer or conveyance of any other interest (whether real or personal property or intangible), Lessor will offer the fee simple title to the Premises and/or Lessor's interest in this Lease to Lessee as a separate and independent transaction from any other interests which Lessor intends to sell, assign, transfer or otherwise convey; provided, however, that neither this Section 12.1(b) nor Section 12.1(a) shall apply if the fee simple title to the Premises and/or Lessor's interest in this Lease is sold, assigned, transferred or conveyed as part of a sale, assignment, transfer or conveyance of the interests of Lessor and/or its Affiliates in multiple parcels, and such transaction involves in the aggregate one-half or more of the total number of acres of real property within the Kapalua Resort Area to which Maui Land & Pineapple Company and/or its Affiliates held fee simple title as of December 31, 1995. The purchase price for the separate and independent interest in the fee simple title to the Premises and/or Lessor's interest in this Lease shall be the lesser of (i) the price allocated by the proposed transaction to the fee simple title to the Premises and/or Lessor's interest in this Lease as part of an offer involving more than the sale of such interest or (ii) the fair market value of the fee simple title to the Premises and/or Lessor's interest in this Lease as determined by appraisal. Lessee shall notify Lessor of its intent to proceed to appraisal, and Lessor and Lessee shall each, within twenty (20) days of Lessee's notification to Lessor of Lessee's intent to proceed to appraisal, appoint an Appraiser who is a Member of the Appraisers' Institute. The Appraiser appointed by Lessor shall be referred to as "Lessor's MAI" while the Appraiser appointed by Lessee shall be referred to as "Lessee's MAI." Lessor's MAI and Lessee's MAI shall then determine the fair market value of Lessor's fee estate in the Premises for the purpose set forth herein. If within fifteen (15) days following the appointment of Lessor's MAI and Lessee's MAI, Lessor's MAI and Lessee's MAI are unable to agree on the fair market value of Lessor's fee estate in the Premises, then the Lessor and Lessee shall within ten (10) days appoint a third appraiser who is a Member of the Appraisers' Institute ("Joint MAI"), and the majority of Lessor's MAI, Lessee's MAI, and Joint MAI shall determine the fair market value of Lessor's fee estate in the Premises within fifteen (15) days of the appointment of the Joint MAI. If either the Lessor or the Lessee fails or refuses to appoint their respective Appraiser within the time provided aforesaid, the other party shall appoint the two Appraisers who shall then determine the value of this Lease. If either the Lessor or the Lessee fails or refuses to appoint a Joint MAI as aforesaid, the Lessee shall apply to the Court having proper jurisdiction over this subject matter for the appointment of such Joint MAI who shall also be a Member of the Appraisers' Institute whereupon the majority of the three so appointed shall determine the fair market value of Lessor's fee estate in the Premises. The Appraisers shall reduce to writing and deliver to each party a statement of the fair market value of the Lessor's fee estate in the Premises and such value shall serve as fair market value of the Lessor's fee estate in the Premises for any excess proceeds. Lessor and Lessee shall each pay for the cost of their respective appraiser and shall each pay one-half (1/2) of the cost of the Joint MAI, if such appraiser is needed. For the purposes of this Section 12.1, any offer or sale, assignment or transfer by Lessor to any Affiliate of Lessor shall not be subject to Lessee's right of first refusal. 12.2 Noncompetition. Lessor shall not itself develop, or permit a third party to develop, another luxury oceanfront hotel within the Kapalua Resort Area within four (4) years and nine (9) months after the Effective Date, except for: (a) the Kapalua Bay Hotel site (including the existing hotel, any expansions, replacements or the like), (b) the adjacent Site 29 property; and (c) specialized housing such as for a health spa, international center not containing a luxury oceanfront hotel, and similar developments including condominium projects. 12.3 Signage. During the Term hereof, Lessor shall use its best efforts to cause KRA (or where it is in Lessor's control) to erect and maintain within the Kapalua Resort Area appropriate directional signage for the Hotel as reasonably requested by the Lessee. To the extent controllable by Lessor, such rights shall not be subject to termination by a transfer of the rights of the Lessor. Any such signage shall be in compliance with KRA regulations and any applicable government rules and regulations and shall be compatible With the signage theme in the Kapalua Resort Area. 12.4 No License of Butterfly Logo. Lessor does not grant to Lessee or the Hotel Operator any right or license, non-exclusive or otherwise, to use the butterfly logo depicted on Exhibit "C" of the Golf Course Use Agreement in connection with the operation, advertising and promotion of the Hotel or any condominium units in the Kapalua Resort Area owned or managed by the Lessee or the Hotel Operator and/or the merchandising, manufacture, promotion, sale and distribution of goods or services related thereto, at the Hotel or such condominium units, or in connection with anything else. Any such license shall be in the sole and absolute discretion of the Lessor and neither the Lessee nor the Hotel Operator shall use the butterfly logo without the prior written consent of the Lessor, which consent may be unreasonably and arbitrarily withheld. 12.5 Subdivision of Easement. As described in Exhibit "A," Lessor agrees to use its good faith best efforts to accomplish a subdivision of that certain portion of land owned by Lessor over and across which Lessee is granted a right and license for access purposes running from Easement Second as described in Exhibit "A" to Lot 2-A-i-B-2 and being depicted on the sketch attached to, and forming a part of, Exhibit "A." Upon accomplishing such subdivision, Lessor shall grant a non-exclusive easement to Lessee of such land for "access and utility purposes" (as that term is defined in Exhibit "A" hereto) on terms and conditions consistent with the terms and conditions of the "Easements" granted in Exhibit "A." IN WITNESS WHEREOF, the Lessor and Lessee have caused these presents to be executed as of the day and year first above written. MAUI LAND & PINEAPPLE COMPANY, NI HAWAII RESORT, INC., INC., a Hawaii corporation a Hawaii corporation By /S/ DON YOUNG By /S/ TORU OKUYAMA Its EXECUTIVE VICE-PRESIDENT Its By /S/ PAUL J. MEYER Its "Lessor" "Lessee" EX-10 7 AMENDMENT RELATING TO OFF-SITE LOAN THIS AMENDMENT RELATING TO OFF-SITE LOAN dated January 9, 1996, but effective as of January 1, 1995 and is made by and between MAUI LAND & PINEAPPLE COMPANY, INC., a Hawaii corporation (the "Borrower") having an office address at 120 Kane Street, Kahului, Maui 96732 and NI HAWAII RESORT, INC., a Hawaii corporation (the "Lender"), having a post office address at 745 Fort Street, 8th Floor, Honolulu, Hawaii 96813. R E C I T A L S: Borrower and KAPTEL ASSOCIATES, a Hawaii partnership ("Kaptel"), entered into that certain Loan and Security Agreement dated September 26, 1990 (the "Loan Agreement"), a UCC-1 Financing Statement, and a Letter Agreement dated September 26, 1990 relating to Nonrecourse Open Account for Off-Site Improvements (the "Letter Agreement") (the Loan Agreement, the UCC-1 Financing Statement and the Letter Agreement are collectively referred to herein as the "Loan Documents"). Borrower and Lender now desire to amend certain terms of the Loan Documents. NOW, THEREFORE, in consideration of these premises and other good and valuable consideration, the Borrower and Lender hereby agree as follows: 1. Amendment of Letter Agreement. The Letter Agreement is deleted in its entirety and replaced with the Letter Agreement that is attached hereto. 2. Conflict With Terms of Loan Documents. In the event of any conflict between the terms of the Letter Agreement, as hereby amended, and the Loan Documents, the terms of the Letter Agreement, as amended, shall control. Borrower and Lender hereby confirm that except as herein expressly amended, the terms of the Loan Documents remain in full force and effect. IN WITNESS WHEREOF, the Borrower and Lender have executed this Amendment as of the day and year first above written. MAUI LAND & PINEAPPLE COMPANY, INC. /S/ DON YOUNG By__________________________________ Name: DON YOUNG Title: EXECUTIVE VICE PRESIDENT/ RESORT /S/ PAUL J. MEYER By__________________________________ Name: PAUL J. MEYER Title: EXECUTIVE VICE PRESIDENT/ FINANCE NI HAWAII RESORT, INC. /S/ T. OKUYAMA By__________________________________ Name: T. OKUYAMA Title: VICE PRESIDENT-SECRETARY By__________________________________ Name: Title: EX-10 8 January 1, 1996 NI HAWAII RESORT, INC. c/o 745 Fort Street, 8th Floor Honolulu, Hawaii 96813 Re: Nonrecourse Open Account for Off-Site Improvements Gentlemen: The undersigned hereby promises to pay to NI HAWAII RESORT, INC., a Hawaii corporation ("NI"), at its office located at 745 Fort Street, 8th Floor, Honolulu, Hawaii 96813, or such other place as NI may from time to time designate in writing, in lawful money of the United States, the principal sum of FOUR MILLION SEVEN HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS ($4,750,000.00), or as much thereof as is advanced and outstanding hereunder, together with interest thereon at the rate of six percent (6%) per annum commencing on January 1, 1995 and continuing thereafter until the earlier to occur of: (1) January 1, 1999; or (2) termination or assignment of the Hotel Ground Lease which is described below. Interest shall be calculated, but not compounded, on the basis of a 365-day year for a 366-day year as the actual case may be and the actual number of days elapsed. Any principal, interest and other amounts which may be due and owing hereunder on the earlier to occur of: (1) termination or assignment of that certain Hotel Ground Lease effective as of January 1, 1996, as amended, covering the Ritz-Carlton, Kapalua; or (2) January 1, 1999, shall be forgiven and the undersigned shall have no further obligation with respect to such amounts. At such time and to evidence the foregoing, NI shall execute and deliver to the undersigned such documents and cancellations of documents as the undersigned may reasonably require. "Assignment" as used herein shall be as defined in item 5 of the Side Agreement by and between NI and the undersigned dated January 1, 1996. Principal and interest of this open account shall be paid by offsetting any rents payable to the undersigned, as Lessor, by NI, as Lessee, under that certain Hotel Ground Lease effective as of January 1, 1996, as amended from time to time, covering the Ritz- Carlton, Kapalua. All payments shall be applied first to the payment of interest on the then unpaid balance, with any balance used to reduce the principal. There shall be no liability by the undersigned with respect to this open account, or any payments of principal or interest thereunder, it being a condition of this open account that it is nonrecourse as to the undersigned and that NI must look solely to said rents for any payments or other liabilities hereunder. This open account may be prepaid in whole or in part without penalty. If there is any default hereunder, the undersigned further promises to pay reasonable attorneys' fees and costs incurred by NI in connection with any such default or in any action or other proceeding brought to enforce any of the provisions of this open account, subject to the above-nonrecourse provisions. Please indicate your agreement with this letter by signing in the space provided and returning an executed copy to the undersigned. MAUI LAND & PINEAPPLE COMPANY, INC. /S/ DON YOUNG By________________________________________ Name: DON YOUNG Title: EXECUTIVE VICE PRESIDENT/RESORT /S/ PAUL J. MEYER By________________________________________ Name: PAUL J. MEYER Title: EXECUTIVE VICE PRESIDENT/FINANCE AGREED and ACKNOWLEDGED this 9TH day of January, 1996. NI HAWAII RESORT, INC. /S/ T. OKUYAMA By________________________________________ Name: T. OKUYAMA Title: VICE PRESIDENT-SECRETARY By________________________________________ Name: Title: EX-10 9 AGREEMENT WITH NI HAWAII RESORT, INC. This Agreement with NI Hawaii Resort, Inc. (the "Agreement") is entered on this 9TH day of January, 1996, by and between MAUI LAND & PINEAPPLE COMPANY, INC., a Hawaii corporation, whose principal place of business is 120 Kane Street, Kahului, Maui, Hawaii and whose post office address is P.O. Box 187, Kahului, Maui, Hawaii 96732 ("Maui Land") and NI HAWAII RESORT, INC., a Hawaii corporation, whose post office address is 745 Fort Street, Honolulu, Hawaii 96813 ("NI Hawaii"). WHEREAS, Maui Land and NI Hawaii have entered into that certain Hotel Ground Lease dated 9TH day of January, 1996, but effective as of January 1, 1996 (the "Lease") except as otherwise provided in the Lease. WHEREAS, Maui Land and NI Hawaii desire to enter into an agreement to supersede and/or modify the terms and conditions of the Lease. NOW THEREFORE, it is agreed to by and between Maui Land and NI Hawaii that, so long as NI Hawaii or its Affiliate (as such term is defined in the Lease) is the Lessee under the Lease, certain terms and provisions of the Lease shall be superseded and/or modified in the following respects: 1. Section 4.2(c). Section 4.2(c) to the Lease is hereby superseded and suspended in its entirety. 2. Section 4.3(b). Section 4.3(b) to the Lease is hereby superseded and suspended in its entirety. 3. Section 5.1. Section 5.1 to the Lease is modified in its entirety as follows: Right to Mortgage. Lessee may, from time to time, with the consent of Lessor, which consent shall not be unreasonably withheld, hypothecate, mortgage, pledge or alienate Lessee's leasehold estate and rights hereunder as security for payment of any indebtedness of Lessee to any bank, insurance company or other established lending or financial institution or institutions; provided, however, NI Hawaii Resort, Inc. shall be permitted to hypothecate, mortgage, pledge or alienate NI Hawaii Resort, Inc.'s leasehold estate and rights hereunder to any Affiliate of NI Hawaii Resort, Inc. or NI Hawaii Resort, Inc.'s shareholder. The holder or holders of any such lien, as well as any lenders of loans made pursuant to Section 5.7 hereof shall be referred to herein as "Leasehold Mortgagees." A Leasehold Mortgagee or its assignees may enforce such lien and acquire title to the leasehold estate in any lawful way and, pending foreclosure of such lien, the Leasehold Mortgagee or its assigns may take possession of and operate the Premises, performing all obligations to be performed by Lessee, and upon foreclosure of such lien by power of sale or judicial foreclosure, the Leasehold Mortgagee may sell and assign the leasehold estate hereby created but any such purchaser or assignee must be a qualified assignee within the meaning of Section 11.7(a) below ("Qualified Purchaser"). Any Person acquiring such leasehold estate shall be liable to perform the obligations imposed on Lessee by this Lease only during the period such Person has ownership of said leasehold estate or possession of the Premises. 4. Section 8.8(b). Section 8.8(b) to the Lease is modified in its entirety as follows: Hotel Operating Agreement. NI Hawaii Resort, Inc. agrees that proper management and operation of the Hotel is necessary to maximize Lessor's percentage rent. Accordingly, Lessee shall enter into a Hotel Operating Agreement for the management and operation of the Hotel by Hotel Operator, which shall not require the consent or approval of Lessor if the Hotel Operating Agreement expressly provides that the Hotel Operator has read this Lease and agrees to observe and where applicable perform the terms and conditions of this Lease in connection with the operation of the Hotel; provided, however, any Hotel Operator selected by NI Hawaii Resort, Inc., during the Term of this Lease, (i) may not as its primary business, own, lease or operate any casino or gambling facility if such business, ownership, leasing or operation might reasonably impair the ability of the Lessee, the Hotel Operator or their respective Affiliates, as applicable, to obtain or retain any necessary regulatory approvals for the operation of the Hotel and (ii) may not own or operate a distillery, winery or brewery or a distributorship of alcoholic beverages if such ownership or operation might reasonably impair the ability of the Lessee, the Hotel Operator or their respective Affiliates, as applicable, to obtain or retain liquor licenses for the Hotel. 5. Section 11.7(a). Section 11.7(a) to the Lease is modified in its entirety as follows: This Lease may be assigned or transferred in whole or in part, by NI Hawaii Resort, Inc. provided that the provisions of Section 11.7(d) have been completed and Lessor has elected not to proceed with the purchase of the Hotel and/or this Lease; provided, however, any proposed assignee, during the Term of this Lease, (i) may not as its primary business, own, lease or operate any casino or gambling facility if such business, ownership, leasing or operation might reasonably impair the ability of the Lessee or the Hotel Operator, as applicable, to obtain or retain any necessary regulatory approvals for the operation of the Hotel; (ii) may not own or operate a distillery, winery or brewery or a distributorship of alcoholic beverages if such ownership or operation might reasonably impair the ability of the Lessee or the Hotel Operator, as applicable, to obtain or retain liquor licenses for the Hotel; and (iii) shall have sufficient financial capability to carry out its obligations under this Lease. In the event of NI Hawaii Resort, Inc.'s transfer of all of NI Hawaii Resort, Inc.'s leasehold interest in the Premises subject to this Lease, Lessor agrees that, so long as the assignee assumes in writing this Lease, any and all obligations of NI Hawaii Resort, Inc. under this Lease not then accrued shall terminate upon the effective date of such assignment and Lessor hereby releases NI Hawaii Resort, Inc. from any obligations or covenants under this Lease which have not accrued prior to such effective date. If Lessee is a corporation, a change or changes in the ownership, whether voluntary, involuntary, by operation of law, or otherwise, which aggregates fifty percent (50%) or more of the total capital stock of Lessee or fifty percent (50%) or more of the voting capital stock of Lessee, shall be deemed an assignment of this Lease. If Lessee is a partnership, then any change of control, whether voluntarily, involuntarily, by operation of law, or otherwise, including any addition or withdrawal of a general partner of the partnership or of any partnership which is a partner in the partnership (including in the case of a corporate general partner, a change of control using the test of the preceding sentence), shall be deemed an assignment of this Lease. 6. Section 11.7(b). Section 11.7(b) to the Lease is hereby superseded and suspended in its entirety. 7. Section 11.7(e). Section 11.7(e) to the Lease is modified in its entirety as follows: If the Lease is assigned or transferred in whole or in part to an entity other than NI Hawaii's Affiliate, the amount to which the Lessor may be required to subordinate its interests in either the fee estate or in this Lease pursuant to Section 5.7 shall be as follows: Consideration Received Aggregate Principal Amount By Lessee Subject to Subordination $120,000,000.00 or more $0.00 $110,000,000.00 to $119,999,999.99 $55,000,000.00 Less than $110,000,000.00 $65,000,000.00 If NI Hawaii or its Affiliate receives consideration for any assignment or transfer of ONE HUNDRED TEN MILLION AND NO/100 DOLLARS ($110,000,000.00) or more, NI Hawaii or its Affiliate shall obtain a release (or partial release), in a form mutually acceptable to NI Hawaii or its Affiliate and Lessor, for the amount required to be released pursuant to this Section 11.7(e) to which Lessor has subordinated its fee simple interest at the time of the assignment or transfer. 8. Section 12.1(b). Section 12.1(b) to the Lease is modified in its entirety as follows: Lessor agrees that if the offer to purchase and/or intent to sell the fee simple title to the Premises and/or Lessor's interest in this Lease is part of a transaction which includes the sale, assignment, transfer or conveyance of any other interest (whether real or personal property or intangible), Lessor will offer the fee simple title to the Premises and/or Lessor's interest in this Lease to NI Hawaii Resort, Inc. as a separate and independent transaction from any other interests which Lessor intends to sell, assign, transfer or otherwise convey. The purchase price for the separate and independent interest in the fee simple title to the Premises and/or Lessor's interest in this Lease shall be the lesser of (i) the price allocated by the proposed transaction to the fee simple title to the Premises and/or Lessor's interest in this Lease as part of an offer involving more than the sale of such interest or (ii) the fair market value of the fee simple title to the Premises and/or Lessor's interest in this Lease as determined by appraisal. NI Hawaii Resort, Inc. shall notify Lessor of its intent to proceed to appraisal, and Lessor and NI Hawaii Resort, Inc. shall each, within twenty (20) days of NI Hawaii Resort, Inc.'s notification to Lessor of NI Hawaii Resort, Inc.'s intent to proceed to appraisal, appoint an Appraiser who is a Member of the Appraiser's Institute. The Appraiser appointed by Lessor shall be referred to as "Lessor's MAI" while the Appraiser appointed by NI Hawaii Resort, Inc. shall be referred to as "NI Hawaii Resort, Inc.'s MAI." Lessor's MAI and NI Hawaii Resort, Inc.'s MAI shall then determine the fair market value of Lessor's fee estate in the Premises for the purpose set forth herein. If within fifteen (15) days following the appointment of Lessor's MAI and NI Hawaii Resort, Inc.'s MAI, Lessor's MAI and NI Hawaii, Resort, Inc.'s MAI are unable to agree on the fair market value of Lessor's fee estate in the Premises, then the Lessor and NI Hawaii Resort, Inc. shall within ten (10) days appoint a third appraiser who is a Member of the Appraisers' Institute ("Joint MAI"), and the majority of Lessor's MAI, NI Hawaii Resort, Inc.'s MAI, and Joint MAI shall determine the fair market value of Lessor's fee estate in the Premises within fifteen (15) days of the appointment of the Joint MAI. If either the Lessor or NI Hawaii Resort, Inc. fails or refuses to appoint their respective Appraiser within the time provided aforesaid, the other party shall appoint the two Appraisers who shall then determine the value of this Lease. If either the Lessor or NI Hawaii Resort, Inc. fails or refuses to appoint a Joint MAI as aforesaid, NI Hawaii Resort, Inc. shall apply to the Court having proper jurisdiction over this subject matter for the appointment of such Joint MAI who shall also be a Member of the Appraisers' Institute whereupon the majority of the three so appointed shall determine the fair market value of Lessor's fee estate in the Premises. The Appraisers shall reduce to writing and deliver to each party a statement of the fair market value of the Lessor's fee estate in the Premises and such value shall serve as fair market value of the Lessor's fee estate in the Premises for any excess proceeds. Lessor and NI Hawaii Resort, Inc. shall each pay for the cost of their respective appraiser and shall each pay one-half (1/2) of the cost of the Joint MAI, if such appraiser is needed. Lessor and NI Hawaii Resort, Inc. each acknowledge and agree that the intent of NI Hawaii Resort Inc.'s right of first refusal in this Section 12.1 is to offer the fee simple title to the Premises and/or Lessor's interest in this Lease to NI Hawaii Resort, Inc. and NI Hawaii Resort, Inc. shall not be obligated to purchase any additional interests in order to purchase Lessor's fee simple title to the Premises and/or Lessor's interest in this Lease. 9. NI Hawaii shall provide Maui Land with notice of the identity of any proposed Hotel Operator at least fourteen (14) days prior to NI Hawaii executing a Hotel Operating Agreement with the proposed Hotel Operator. NI Hawaii and Maui Land acknowledge that Ritz Carlton Hotel Company is the current Hotel Operator and no prior notice to Maui Land is required with respect to Ritz Carlton Hotel Company as the existing Hotel Operator. 10. Reference to NI Hawaii in this Agreement shall include NI Hawaii and its Affiliates (as such term is defined in the Lease). 11. As between Maui Land and its assigns and successors, and NI Hawaii, the provisions set forth in this Agreement shall control in the event of any conflict between the provisions of this Agreement and the Lease. Except as superseded and/or modified hereby, all other terms and provisions of the Lease shall continue in full force and effect. This Agreement shall immediately and automatically terminate, without need for further action, at such time as NI Hawaii or its Affiliates is no longer the Lessee under this Lease. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the day and year first above written. MAUI LAND & PINEAPPLE NI HAWAII RESORT, INC., COMPANY, INC., a Hawaii a Hawaii corporation corporation By /S/ DON YOUNG By /S/ T OKUYAMA Its EXECUTIVE VICE Its VICE PRESIDENT PRESIDENT SECRETARY EX-10 10 AMENDMENT AND RESTATEMENT OF TENNIS OPERATING AGREEMENT THIS AGREEMENT is made as of the 9th day of January, 1996, by and between NI HAWAII RESORT, INC., hereinafter "Owner", and KAPALUA LAND COMPANY, LTD., hereinafter "Operator", but which is effective as of January 1, 1996, except for Section 5.1 hereof which is effective as of January 1, 1995. WHEREAS, the Kaptel Associates and Operator entered into that certain Amendment and Restatement of Tennis Operating Agreement dated October 29, 1992 (hereinafter the "Agreement"), covering the Tennis Center at the Ritz-Carlton, Kapalua; and WHEREAS, the parties hereto wish to amend and restate said Agreement in its entirety. NOW, THEREFORE, Owner and Operator hereby covenant and agree to amend and restate said Tennis Operating Agreement as follows: ARTICLE 1 DEFINITIONS, TERMS AND REFERENCES 1.1 Definitions. In this Agreement and any exhibits, addenda or riders hereto, the following terms shall have the following meanings: Affiliate(s) shall mean a Person or Persons directly or indirectly, through one or more intermediaries, controlling, controlled by or under common control with the Person(s) in question. The term "control", as used in the immediately preceding sentence, means, with respect to a Person that is a corporation, the right to the exercise, directly or indirectly, of more than 50% of the voting rights attributable to the shares of the controlled corporation and, with respect to a Person that is not a corporation, the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of the controlled Person. Affiliated Concessionaires shall mean a Concessionaire in which any one of (i) Operator, (ii) Operator's general or limited partners, if any, (iii) Affiliates of Operator or Operator's general or limited partners, (iv) any shareholder of Operator or Operator's general or limited partners, or an Affiliate of Operator or its general or limited partners holding alone or in the aggregate more than 25% of the stock of any one such entity, (v) employees or agents of Operator, Operator's general or limited partners or Affiliate of Operator or Operator's general or limited partners, or (vi) immediate family members of officers of Operator, Operator's general or limited partners, (vii) immediate family members of shareholders owning alone or in the aggregate more than 25% of the stock of any one of Operator, Operator's general or limited partners or any Affiliate of Operator or Operator's general or limited partners or (viii) Affiliates of the persons or entities set forth in clauses (i) through (vii) above, have an ownership interest, whether equitable or otherwise, in Operator. Agreement shall mean this Amendment and Restatement of Tennis Operating Agreement, as it may be further amended or supplemented from time to time. Annual Operating Projection shall mean schedules containing the annual operating projection for the Tennis Center and certain other matters prepared and submitted by Operator to Owner pursuant to Section 4.1. Approval or Approved shall mean prior written approval. Commencement Date shall mean January 1, 1996, except with regards to Section 5.1 hereof for which the Commencement Date shall be January 1, 1995. Concessionaire shall mean a Person, including without limitation a shopkeeper, retailer, or provider of services which has entered into a sublease, concession agreement, contract, license or similar agreement with Operator for the transaction of business on or from the Premises or the operation of the Hotel. Data Addendum shall mean the Data Addendum attached hereto and by this reference made a part hereof. Development Agreement shall mean that certain Development Agreement of even date herewith between Owner and The Ritz-Carlton Hotel Company covering the development of the Hotel and the Tennis Center. Event of Default shall mean any of the events described in Article 10. Fiscal Year shall mean a fiscal year which ends on December 31. The first Fiscal Year shall be the period commencing on the Commencement Date and ending on December 31 of the year in which the Commencement Date occurs. The words "full Fiscal Year" shall mean any Fiscal Year containing not fewer than 364 days. A partial Fiscal Year after the end of the last full Fiscal Year and ending with the expiration or earlier termination of the Operating Term shall constitute a separate Fiscal Year. Furniture and Equipment shall mean all furniture, furnishings, fixtures and tennis equipment, and systems located at, or used in connection with, the Tennis Center, together with all replacements therefor and additions thereto. Gross Revenue shall mean all revenues, receipts and income of any kind derived directly or indirectly by Operator in the form of cash, property or services (i.e., barter, "contra", accounts, and such alternatives to cash payments, which together with property and services, shall be valued at their fair market value) from or in connection with the Tennis Center (including any loss of income insurance proceeds paid to Operator or Owner in the event of casualty to the Tennis Center, or as a result of the occurrence of any other event making use of all or a portion of the Tennis Center impossible or impractical, and any rentals from tenants, lessees, licensees or concessionaires but not including their gross receipts) whether on a cash basis or credit, paid or collected, determined in accordance with generally accepted accounting principles, excluding, however; (i) funds furnished by Owner, (ii) federal, state and municipal excise, sales and use taxes collected directly from patrons and guests or as part of the sales price of any foods, services or displays, or similar or equivalent taxes and paid over to federal, state or municipal governments, (iii) gratuities, and (iv) proceeds of insurance (excluding loss of income insurance proceeds which shall be included as a part of Gross Revenues) and condemnation. Gross Revenues shall be reduced for actual bad debts reasonably determined to be uncollectible by Operator, which reduction shall not include payments for any bad debt reserve or sinking fund or similar fund or reserve for bad debts. If any debts previously deducted as uncollectible shall subsequently be collected, such collected amounts shall be included in Gross Revenues in the Fiscal Year collected after deducting reasonable collection expenses actually incurred. Ground Lease shall mean that certain Hotel Ground Lease dated January 9, 1996 but effective as of January 1, 1996, between Maui Land & Pineapple Company, Inc., as Lessor, and NI Hawaii Resort, Inc., as Lessee, covering the Premises, as the same may be amended from time to time. Hotel shall mean the hotel known as The Ritz-Carlton, Kapalua as of January 1, 1996. Hotel Guests shall mean the customers, guests and invitees of the Hotel. Hotel Premises shall mean the land on which the Hotel is located. Kapalua Property Owners means owners of residential condominiums, homes, or residential lots at the Kapalua Resort. Kapalua Resort means the existing and proposed development of the Kapalua area on Maui, more particularly set forth in the Kapalua Master Plan as filed with the County of Maui Planning Department and amended from time to time. Kapalua Tennis Club Members means Kapalua Property Owners, Maui residents and non-resident "long term" visitors to Kapalua. Mortgage shall mean any mortgage or deed of trust encumbering the Tennis Center. Operator shall mean Kapalua Land Company, Ltd. Operating Term shall mean the term of this Agreement as established under Section 3.1. Owner shall mean NI Hawaii Resort, Inc., a Hawaii corporation. Owner's Fee shall mean the amount to be paid to Owner by Operator as described in Article 5. Person shall mean an individual, partnership, corporation, trust, unincorporated association, joint stock company, or other entity or association. Premises shall have the meaning ascribed to such term in the Data Addendum. Vehicle access to the Tennis Center, which is located on the Premises, shall be from Village Road, the same road which provides access to the Village Course and golf pro shop. Tennis Center shall mean the tennis court center (having approximately ten tennis courts) with clubhouse to be developed by Owner on the Premises pursuant to the Development Agreement, which shall be named "The Village Tennis Center." Tennis Club shall mean the combined operations of The Village Tennis Center ("Tennis Center" herein) and the Tennis Garden (commonly known as "The Tennis Garden"). Tennis Garden shall mean the tennis facilities commonly known as "The Tennis Garden" at Kapalua. Tennis Garden Gross Revenues means all revenues, receipts and income of any kind derived directly or indirectly by Operator in the form of cash, property or services (i.e., barter, "contra", accounts, and such alternatives to cash payments, which together with property and services, shall be valued at their fair market value) from or in connection with the Tennis Garden (including any loss of income insurance proceeds paid to Operator or Owner in the event of casualty to the Tennis Garden, or as a result of the occurrence of any other event making use of all or a portion of the Tennis Garden impossible or impractical, and any rentals from tenants, lessees, licensees or concessionaires but not including their gross receipts) whether on a cash basis or credit, paid or collected, determined in accordance with generally accepted accounting principles, excluding, however; (i) funds furnished by Owner, (ii) federal, state and municipal excise, sales and use taxes collected directly from patrons and guests or as part of the sales price of any foods, services or displays, or similar or equivalent taxes and paid over to federal, state or municipal governments, (iii) gratuities, and (iv) proceeds of insurance (excluding loss of income insurance proceeds which shall be included as a part of Tennis Garden Gross Revenues) and condemnation. Tennis Garden Gross Revenues shall be reduced for actual bad debts reasonably determined to be uncollectible by Operator, which reduction shall not include payments for any bad debt reserve or sinking fund or similar fund or reserve for bad debts. If any debts previously deducted as uncollectible shall subsequently be collected, such collected amounts shall be included in Tennis Garden Gross Revenues in the Fiscal Year collected after deducting reasonable collection expenses actually incurred. 1.2 Terminology. All personal pronouns used in this Agreement, whether used in the masculine, feminine or neuter gender, shall include all genders; the singular shall include the plural, and the plural shall include the singular. The Table of Contents, and titles of Articles, Sections, Subsections and Paragraphs in this Agreement are for convenience only and neither limit nor amplify the provisions of this Agreement, and all references in this Agreement to Articles, Sections, Subsections, paragraphs, clauses, subclauses, exhibits, addenda or riders shall refer to the corresponding Article, Section, Subsection, paragraph, clause or subclause of, or exhibit, addendum or riders attached to this Agreement, unless specific reference is made to the Articles, Sections or other subdivisions of, or exhibits, addenda or riders to, another document or instrument. 1.3 Exhibits, Addenda and Riders. All exhibits addenda and riders attached hereto are by reference made a part hereof. ARTICLE 2 ENGAGEMENT OF OPERATOR 2.1 Operation of Tennis Center. Owner hereby authorizes and engages Operator to act as the exclusive operator and manager of the Tennis Center during the Operating Term, with exclusive responsibility and complete and full control and discretion in the operation, direction, management and supervision of the Tennis Center, subject only to the limitations expressed herein, and Operator hereby accepts such engagement subject to the terms and conditions expressed in this Agreement. Such authority of Operator shall include, without limitation, the use of the Tennis Center for all customary purposes, and without limiting the generality of the foregoing, Operator is hereby authorized to: (A) Determine all terms for admittance, charges and prices for court times, retail merchandise, commercial space and other amenities and services provided at or with respect to the Tennis Center, provided, however, Hotel Guests shall be charged the Resort Guest Court Fee for court times and retail prices for retail merchandise sold in the pro shop shall be the same at the Tennis Center and The Tennis Garden; and provided further that the Resort Guest Court Fee shall be comparable to rates charged at similar first class tennis facilities in the State of Hawaii, such as the Mauna Lani Bay Hotel tennis facilities, the Racquet Club at Mauna Lani, Mauna Lani Ritz-Carlton Hotel, Wailea Tennis Center, and Mauna Kea Beach Hotel; (B) Determine all credit policies with respect to the operation of the Tennis Center, including entering into policies and agreements with credit card organizations and the Hotel; (C) Establish entertainment and amusement policies (including pricing) with respect to the Tennis Center; (D) Establish food and beverage policies (including pricing) with respect to the Tennis Center; (E) Determine all labor policies, including wages and salary rates and terms, fringe benefits, pension, retirement, bonus and employee benefit plans, collective bargaining agreements and the hiring or discharge of all employees, with respect to the Tennis Center; (F) Arrange in Operator's name for utility, telephone, extermination, detective agency protection, trash removal and other services for the operation of the Tennis Center; (G) Establish all advertising, public relations and promotional policies with respect to the Tennis Center, including the exclusive control over all paid advertising, press releases and complimentary policies; provided, however, that Operator shall provide complimentary tennis as requested for the Hotel's Executive Committee members, department heads, and for persons visiting the Hotel on a complimentary basis as part of the Hotel's marketing program. (H) Purchase on the credit of Operator all services and merchandise as are necessary for the proper operation of the Tennis Center; (I) Enter into such leases, licenses, concession agreements and other undertakings in the name of Operator as Operator shall from time to time consider appropriate for the operation of the Tennis Center, including leasing of commercial space at the Tennis Center, subject to a right of first refusal in favor of the Hotel to lease or operate any food service or entertainment facilities at the Tennis Center and subject further to the exclusive right reserved by Operator and its Affiliates to sell merchandise with the butterfly logo in the Tennis Center; (J) Hire such persons or organizations as Operator may deem necessary to provide advice with respect to Operator's performance hereunder, including attorneys, accountants and other professionals and specialists; (K) Cause all needed repairs and maintenance to be made to the Tennis Center and cause all such other things to be done in or about the Tennis Center as shall be necessary to comply with all requirements of governmental authority, boards of fire underwriters and other bodies exercising similar functions; (L) Institute and defend such proceedings at law or in equity in the name of either Operator or Owner, utilizing counsel selected by Operator, which Operator shall deem reasonably necessary or proper in connection with the routine operation of the Tennis Center, including the institution of dispossessory, eviction and trespass suits and proceedings for the collection of rents and other amounts due for services rendered, property let or merchandise sold; and (M) Manage, operate, and/or market the Tennis Center together with The Tennis Garden as a single operation to be known as "The Tennis Club." 2.2 Employees of the Tennis Center. Operator shall have the sole right to select, appoint and supervise the manager, a Director of Tennis, and such other personnel as Operator may deem necessary or desirable for the proper operation, maintenance and security of the Tennis Center. The manager, Director of Tennis, and all other personnel of the Tennis Center shall be employees of Operator and the terms of their employment and all hiring and firing thereof shall be at the sole discretion of Operator. Owner shall have no right to supervise or direct the manager, Director of Tennis, or any of such employees and covenants and agrees not to attempt to so supervise or direct. Notwithstanding the above, Operator shall submit to Owner the resumes of candidates Operator selects for Director of Tennis at the Tennis Center, and Owner shall have the right to a personal interview, prior to hiring, with any candidate for Director of Tennis. Operator will consider Owner's input and comments relating to any candidate for Director of Tennis at the Tennis Center in making a final decision as to whether or not to hire a candidate as Director of Tennis for the Tennis Center. 2.3 Limitations on Authority. Notwithstanding anything to the contrary in Section 2.1, Operator shall not, without Owner's Approval: (A) Institute or defend legal proceedings of an unusual nature or involving monetary claims in excess of $50,000.00 not covered by insurance or as to which an insurer denies coverage or "reserves rights" if Owner is a party to such proceedings; or (B) Enter into any lease, license or concession agreement for stores or tenant space at the Tennis Center unless the term is one (1) year or less; (C) Operate or enter into a lease covering food service or entertainment facilities without first granting to the Hotel an opportunity to operate any food service or entertainment facilities. 2.4 Name. During the term of this Agreement, the Tennis Center shall at all times be known and designated as "The Village Tennis Center," or by such other name as from time to time may be Approved by Owner and Operator. Operator shall make or cause to be made any fictitious name filings or disclosures required by the laws of the State with respect to the use of such name for or in connection with the Tennis Center. 2.5 Operation at Operator's Expense. In performing its duties hereunder Operator shall act solely for the account of Operator and all expenses incurred by Operator in such performance shall be borne exclusively by Operator. To the extent the funds necessary therefor are not generated by the operation of the Tennis Center, they shall be supplied by Operator. Operator shall be required to advance any of its own funds for the operation of the Tennis Center. All debts and liabilities to third persons incurred by Operator in the course of its operation and management of the Tennis Center shall be the debts and liabilities of Operator only, and Operator shall be liable for such obligations by reason of its management, supervision, direction and operation of the Tennis Center. 2.6 Standards of Operation. Operator agrees: (A) To operate the Tennis Center as a prestigious tennis facility, luxurious in image, style, and quality consistent with the image, style and quality of Kapalua and the Hotel. (B) That the primary purpose of the Tennis Center is to provide a convenient, pleasurable, and high quality experience for Hotel Guests. If Operator fails to regularly comply with the foregoing in the reasonable opinion of Owner, then Owner shall so notify Operator, and Operator shall have reasonable time, such reasonable time not to exceed sixty (60) days, to diligently proceed and to return the operation to the standard as defined above. Failing this, Owner may cancel this Agreement. (C) Notwithstanding the above, it is the intent of Owner and Operator that the tennis courts at the Tennis Center be fully utilized and that a reasonable number of court hours, which will not interfere with play by Hotel Guests, be available for play by non-Hotel Guests. Owner and Operator agree to periodically review the overall utilization of tennis courts by Hotel Guests and non- Hotel Guests and to periodically revise the reservations policies of the Tennis Center to comply with the above intent so long as such revision will not be harmful to those Hotel Guests desiring to utilize the tennis courts at the Tennis Center. Hotel Guests shall have the right to make reservations for tennis court time between 48 and 24 hours in advance of playing time and such right shall be superior to all other players. Hotel Guests also shall have the right to make reservations 24 hours in advance of playing time, which right shall be on an equal basis with other guests at the Kapalua Resort. There shall be no limit to the number of court hours that may be reserved by Hotel Guests in advance, subject to capacity of the facility and scheduled tournaments or other events at the Tennis Center as are permitted under this Agreement. Special reservation arrangements in advance of the 48-hour reservation right may be arranged for groups staying at the Hotel and which require advance booking. Notwithstanding the foregoing, Operator shall have the right to combine operations and/or marketing of the Tennis Center with The Tennis Garden (combined operation to be known as the "Tennis Club"). In the event the Tennis Center is unable to accommodate Hotel Guests, Operator shall have the right to accommodate such Hotel Guests at The Tennis Garden provided that notice is given to such Hotel Guests and they are willing to play at The Tennis Garden. (D) Operator shall have the right: (i) to schedule tournaments at the Tennis Center, provided any reduction in playing time for Hotel Guests at the Tennis Center is provided for elsewhere to Owner's reasonable satisfaction; (ii) to charge lower court time fees to Kapalua Property Owners, employees of Operator and Maui Land & Pineapple Company, Inc., residents of Maui and Kapalua Tennis Club Members; (iii) to grant special rates and privileges to members of The Kapalua Tennis Club composed of Kapalua Property Owners, Maui residents and non-resident "long term" visitors to Kapalua; and (iv) to impose reasonable rules and regulations (including dress codes and rules of conduct) on all users of the Tennis Center. 2.7 Food Services. Operator hereby agrees to grant to Owner a right of first refusal to operate any food service or entertainment facility at the Tennis Center. Such right is subject to Owner responding within thirty (30) days following receipt from Operator of written notice of its intention to include food services or entertainment facilities at the Tennis Center. ARTICLE 3 OPERATING TERM; EXTENSION; TERMINATION 3.1 Operating Term. The Operating Term shall commence on the Commencement Date and shall continue thereafter for a period of twenty-five (25) years, subject to extension as provided in Section 3.2 below or early termination as provided in Section 3.3 hereof (such term being herein referred to as the "Operating Term"). 3.2 Extension. Upon the expiration of the initial Operating Term, the Operating Term shall be extended for four (4) additional ten (10) year periods if, not more than one (1) year and not less than two hundred forty (240) days prior to the expiration of the initial Operating Term or any previously extended Operating Term, as the case may be, Operator has given written notice to Owner of Operator's election to so extend. Any such extension shall be automatically effective without any amendment hereto, but Owner and Operator shall execute and deliver any supplements to this Agreement which either shall reasonably request to evidence any such extension. 3.3 Termination. This Agreement may be terminated prior to the expiration of the then effective Operating Term upon the occurrence of one or more of the following events: (A) Upon any Event of Default, at the option of the non- defaulting party exercised by written notice to the defaulting party prior to the cure of such Event of Default. (B) Upon any transfer not permitted by the terms of Article 11, unless consented to in writing by the non-transferring party, at the option of the non-transferring party exercised by written notice to the other party given within ninety (90) days after the non-transferring party learns of such transfer. (C) Upon any damage to or destruction of all or any part of the Tennis Center or the means of vehicular access thereto by fire, casualty or other cause or condemnation or other taking of all or any part of the Tennis Center which is not required to be repaired or restored by Owner pursuant to Article 9, at the option of either Owner or Operator by written notice to the other given within sixty (60) days of the date of such damage or destruction or condemnation or other taking; provided, however, that no termination by Owner shall be effective, and if previously given, may be nullified at the election of Operator by written notice to Owner within thirty (30) days of receipt by Operator from Owner of notice to restore or repair the Tennis Center if Owner, at any time within three (3) years after such damage or destruction or condemnation or other taking, has commenced to restore or repair the Tennis Center for use as a tennis facility even if substantial changes are made to the physical structure of the Tennis Center. It is understood that the failure of Owner to repair or restore when required to do so under Article 9 may become an Event of Default, also allowing for the termination thereof. 3.4 Transition Procedures. Upon the expiration or termination of the Operating Term, for whatever reason, Owner and Operator shall do the following (and the provisions of this Section 3.4 shall survive the expiration or termination of this Agreement until they have been fully performed). 3.4.1. Licenses. Operator shall execute all documents and instruments necessary to transfer (if transferable) to Owner or its nominee all governmental permits and licenses held by Operator necessary to operate the Tennis Center. 3.4.2. Leases and Concessions. Operator shall assign to Owner or its nominee, and Owner and its nominee, if any, shall assume, all leases and concession agreements in effect with respect to the Tennis Center then in Operator's, rather than Owner's, name, except for blanket concessions affecting other concessions operated by Operator or its Affiliates which shall at the option of Owner be terminated. 3.4.3. Books and Records. All books and records for the operation of the Tennis Center kept by Operator pursuant to Section 4.3 shall be turned over to Owner so as to insure the orderly continuance of the operation of the Tennis Center, but such books and records shall thereafter be available to Operator at all reasonable times for inspection, audit, examination and transcription for a period of seven (7) years and Operator may retain any copies or computer records thereof which it desires. 3.4.4. Employees. Operator shall retain or terminate all employees. The termination cost and expense of all employees shall be borne by Operator. 3.4.5. Insurance. Operator shall transfer and assign to the benefit of Owner or its nominee any and all appropriate insurance policies relating to the Tennis Center. 3.4.6. Contracts. Operator shall assign and transfer to the extent possible and without cost to Operator, all necessary contracts, agreements and arrangements to Owner or its nominee, which include but shall not be limited to, credit card agreements, marketing or advertising agreement, association or organizational memberships, equipment, furniture and fixture leases, service, vendor and maintenance contracts. ARTICLE 4 BUDGETARY AND ACCOUNTING PROCESSES 4.1 Annual Operating Projection. Not later than sixty (60) days prior to the commencement of each Fiscal Year, Operator shall submit the Annual Operating Projection to owner. The Annual Operation Projection shall contain the following: (A) Operator's reasonable estimate of Gross Revenues (including tennis court rates and schedule of charges for services.) (B) A separate estimate of the Owner's Fees to be paid to Owner for the forthcoming Fiscal Year. (C) A narrative description of the program for advertising the Tennis Center for the forthcoming Fiscal Year. Such advertising program may include advertising in which the Tennis Center participates with one or more other tennis facilities operated by Operator. (D) A schedule of any proposed tournaments. (E) A schedule of proposed priority court time procedures. (F) A comprehensive report on proposed capital improvements for the current Fiscal Year and projections for the following three (3) Fiscal Years (the "Capital Budget") which shall include but not be limited to the following: (1) The purpose and nature for the capital repairs as set forth in Section 6.1(A) and maintenance as set forth in Section 6.1(B); (2) The estimated cost for such repair and maintenance; (3) The process under which the repair and maintenance shall be completed and the critical dates by which funds from the Owner need to be available for the respective repairs and maintenance. For purposes of the Capital Budget, the Capital Budget shall include but is not limited to, the dates under which each capital improvement project will commence, proceed and be completed. 4.2 Books and Records. Operator shall keep full and adequate books of account and other records reflecting the results of operation of the Tennis Center on an accrual basis, all in accordance with generally accepted accounting principles. The books of account and all other records relating to or reflecting the Gross Revenues from the operation of the Tennis Center shall be kept either at the Tennis Center or at Operator's offices on Maui, Hawaii, and shall be made available in the State of Hawaii to Owner and its representatives and its auditors or accountants, at all reasonable times for examination, audit, inspection.and transcription. 4.3 Accounting. Operator shall deliver to Owner within twenty (20) days after the end of each calendar month an interim accounting showing the Gross Revenues from the operation of the Tennis Center for such month, for the Fiscal Year to date and a computation of Gross Revenues. Such interim accounting and the annual accounting of Gross Revenues referred to below shall: (i) be in form Approved by Owner; (ii) be taken from the books and records maintained by Operator for the Tennis Center in the manner hereinabove specified; (iii) follow the form of generally accepted accounting principles; (iv) separately state the amount of Owner's Fees and any other amounts payable or expenses reimbursable to Owner or its Affiliates; and (v) be accompanied by a certificate of Operator's chief accounting officer certifying that such statement was prepared under such officer's direction and in such officer's opinion is true and correct. Within sixty (60) days after the end of each Fiscal Year, Operator shall deliver to Owner an annual accounting of Gross Revenues, audited and certified by a nationally recognized firm of certified public accountants having hotel accounting experience selected by Operator, showing the Gross Revenues and any other information necessary to make the computations required hereby or which may be requested by Owner, all for such Fiscal Year. If the Owner does not present objections to the certified statements within one hundred eighty (180) days following receipt by Owner, such certified statements shall be deemed correct and conclusive for all purposes. The annual accounting for any Fiscal Year shall be controlling over the interim accounting for such Fiscal Year. ARTICLE 5 OWNER'S FEE 5.1 Owner's Fee. The Owner's Fee shall be calculated on a fiscal year basis, but payable monthly by Operator to Owner, on or before the twentieth (20th) day of each calendar month for the preceding calendar month, based upon Operator's reasonable estimate of the amount due, as contained in the monthly reports to Owner. No additional amount will be paid to cover any General Excise Tax due. Any General Excise Tax is the responsibility of the Owner. The Owner's Fee will be based upon a percentage of the combined Gross Revenues and the Tennis Garden Gross Revenues as follows: Beginning January 1, 1995, the Owner's Fee shall be 1.0% of the combined Gross Revenues and Tennis Garden Gross Revenues; provided, however, if the combined Gross Revenues and Tennis Garden Gross Revenues for any twelve (12) consecutive calendar months during the Operating Term exceeds $1.5 million, the Owner's Fee shall increase to, and continue on at, an annual amount equal to one and one-half percent (1.5%) of the combined Gross Revenues and Tennis Garden Gross Revenues, effective the first month following such twelve (12) consecutive calendar months. 5.2 Annual Adjustments. At the end of each Fiscal Year following the rendition of the annual certified statement of operations, Owner and Operator shall promptly (and in all events within thirty (30) days after rendition of such statement) make such adjustments as necessary to insure that the proper amounts have been paid as Owner's Fees. ARTICLE 6 CAPITAL AND MAINTENANCE OBLIGATIONS 6.1 Owner's Obligations. Owner shall be responsible for the following: (A) All reasonable expenditures for major capital repairs, maintenance and/or replacements related to the Tennis Center, such as resurfacing of the tennis courts and major repairs to or replacement of tennis court lights, poles, and the like as agreed upon in the Capital Budget. (B) Landscaping and grounds maintenance of all areas outside of the tennis courts and pro shop in the Tennis Center as part of the landscaping and grounds maintenance program for the Hotel, including the reasonable costs of irrigation water, weeding, cleaning watering, fertilizing, trimming and pruning of all vegetation, walkways, and the like. (C) Security for the Tennis Center, including the tennis courts and pro shop, as part of the security program for the Hotel. (D) Owner shall not be responsible, either financially or otherwise, for the construction, improvement, maintenance, or repair of The Tennis Garden. Operator, as the owner of The Tennis Garden, will bear full responsibility. 6.2 Operator's Obligations. Operator shall be responsible for: (A) Normal, routine, day-to-day costs and expenses of maintaining and operating the Tennis Center, including routine maintenance and cleaning of the tennis courts, pro shop, and other facilities of the Tennis Center (excluding landscaping and grounds maintenance). (B) Replacing any worn out, obsolete, or damaged Furniture and Equipment, except computers and other similar equipment which are interfaced or integrated with the front desk of the Hotel. (C) Normal, routine, day-to-day costs and expenses of maintaining and operating the pro shop in the Tennis Center, including the costs of any merchandise purchased for retail sale. ARTICLE 7 INSURANCE 7.1 Owner's Insurance. Throughout the Operating Term, Owner shall insure the Tennis Center, each of its component parts and all Furniture and Equipment against damage from Standard All-Risk including boiler and machinery (and if available and without exorbitant cost, earthquake and flood insurance, but excluding, at Owners's discretion, damage resulting from war, nuclear energy, and wear, tear and inherent vice) in aggregate amounts which shall be not less than one hundred percent (100%) of replacement costs thereof (exclusive of foundations and footings). Owner shall carry such other or additional insurance in such amounts and against such risks as Owner shall reasonably deem necessary with respect to the buildings, facilities and contents of the Tennis Center. Operator agrees to cooperate with Owner and its insurance carriers in complying with reasonable suggestions for reducing risks and losses at the Tennis Center. 7.2 Operator's Insurance. Operator shall throughout the Operating Term provide and maintain at Operator's sole cost and expense: (A) Comprehensive general public liability insurance (including Broad Form CGL endorsement for Personal Injury, Advertising Injury, Premises Medical Payment, and Incidental Medical Malpractice Liability) covering operations of the Tennis Center in amounts satisfactory to Owner, but in any event not less than a combined single limit of not less than $5,000,000 for each occurrence, for personal injury and death, and property damage, which shall, among other risks, including coverage against liability arising out of the ownership or operation of motor vehicles (including business automobiles, covering non-owner and hired auto liability) as well as coverage in such amount against all claims brought anywhere in the world arising out of alleged (i) bodily injury, (ii) death, (iii) property damage, (iv) assault or battery, (v) false arrest, detention or imprisonment or malicious prosecution, (vi) libel, slander, defamation or violation of the right of privacy, (vii) wrongful entry or eviction, or (viii) Full Liquor Liability or dram shop liability; (B) Worker's compensation insurance or insurance required by similar employee benefit acts as well as insurance having a minimum per occurrence limit as Operator may deem advisable against all claims which may be brought for personal injury or death of Operator's employees, but in no event less than amounts prescribed by applicable law; provided, however, that Operator may be self-insured provided that Operator satisfies the requirements of the Worker's Compensation Law in effect in the State of Hawaii; and (C) Fidelity bonds, with reasonable limits and deductibles to be determined by Operator, covering Operator's employees in job classifications normally bonded in other tennis facilities it manages in the United States or otherwise required by law, and comprehensive crime insurance to the extent that Operator deems such to be necessary for the Tennis Center. Owner may require Operator to increase the limits of the above insurance coverage and may require Operator to carry other or additional insurance as may be required by prudent insurance practices. Operator may combine insurance coverages hereunder with any other insurance policies or coverages or blanket policies or coverages Operator may have with its Affiliates or with respect to other tennis and other facilities in Kapalua. 7.3 Form of Policies. All insurance required by Sections 7.1 and 7.2 shall be in such form and with any insurance companies authorized to do business in the State of Hawaii. Any insurance may be provided under blanket policies of insurance. All property damage insurance maintained by Owner pursuant to Section 7.1 shall, so long as the Tennis Center is mortgaged pursuant to a Mortgage, be subject to a standard mortgagee clause in favor of the holder of the Mortgage and shall name Operator and Lessor under the Ground Lease as an additional insured. All other insurance shall be in the name of Owner and Operator and Lessor under the Ground Lease. All policies of insurance shall provide that (i) the insurance company will have no right of subrogation against the holder the Mortgage, Owner, Operator or any of their respective Affiliates or the agents or employees thereof, and (ii) that the proceeds thereof in the event of loss or damage shall, to the extent payable to any holder of a Mortgage, be payable notwithstanding any act of negligence or breach of warranty by Owner or Operator which might otherwise result in the forfeiture or non-payment of such insurance proceeds. 7.4 Insurance Proceeds. Owner and Operator agree that, if Owner shall be required to repair or restore the Tennis Center after an insurable casualty, all proceeds of property damage insurance required to be maintained by Owner under Section 7.1 when and if collected shall be used to the extent necessary for the restoration or reconstruction of the Tennis Center and any other improvement or improvements on the Premises, together with replacing any Furniture and Equipment required in the operation of the Tennis Center, all such proceeds being pledged and dedicated by the parties for that purpose, with any excess funds to be delivered to Owner. 7.5 Certificates. Certificates of all policies shall be delivered to the party hereunder who is not required to purchase the insurance prior to the Commencement Date and thereafter certificates of renewal shall be so delivered not less than thirty (30) days prior to the expiration date of such policies. All such certificates shall specify that the policies to which they relate cannot be cancelled or modified on less than thirty (30) days' prior written notice to such other party except for non-payment of premiums which shall require ten (10) days prior written notice to such other party. ARTICLE 8 TAXES AND UTILITIES 8.1 Taxes. Owner shall pay, prior to delinquency all real estate taxes, all personal property taxes and all betterment assessments levied against the Tennis Center or any of its component parts. Operator shall promptly deliver to Owner all notices of assessments, valuations and similar documents to be filed by Operator or Owner or which are received from taxing authorities by Operator. Notwithstanding the foregoing obligations of Owner, Owner may, at its sole expense, contest the validity or the amount of any such tax or assessment, provided that such contest does not materially jeopardize Operator's rights under this Agreement. Operator agrees to cooperate with Owner and execute any documents or pleadings required for such purpose, but Owner shall reimburse Operator any such out-of-pocket costs incurred by Operator in so doing. 8.2 Utilities. Etc. Operator shall promptly pay all fuel, gas, light, power, water, sewage, garbage disposal, telephone and other utility bills currently as they are incurred in connection with the Tennis Center. ARTICLE 9 DAMAGE OR DESTRUCTION; CONDEMNATION 9.1 Damage or Destruction. If the Tennis Center or any portion thereof shall be damaged or destroyed at any time or times during the Operating Term by fire, casualty or any other cause, Owner will, subject to available insurance proceeds, at its own cost and expense and with due diligence, repair, rebuild or replace the same so that after such repairing, rebuilding, or replacing, the Tennis Center shall be substantially the same as prior to such damage or destruction. Owner shall undertake such work within ninety (90) days after the proceeds of any insurance becomes available to Owner for such repairing, rebuilding or replacing, and shall complete the same diligently; the procedures contained in the Development Agreement shall govern such work to the extent applicable. Notwithstanding the foregoing, if the Tennis Center is damaged or destroyed to such an extent that the cost of repairs or restoration as reasonably estimated by Owner exceeds one-third of the original cost of the Tennis Center, Owner shall have no obligation to repair, rebuild or replace the Tennis Center. 9.2 Condemnation. If only a part of the Tennis Center shall be taken or condemned in any eminent domain, condemnation, compulsory acquisition or like proceeding by any competent authority, and in the reasonable opinion of Owner, the Tennis Center can be altered, restored or repaired so as to make it a satisfactory architectural unit as a tennis facility of similar type and class as prior to the taking or condemnation, Owner shall so alter, restore and replace if the proceeds of such condemnation will be sufficient to pay for the costs of same, Owner and Operator agreeing to pledge so much of their awards as is necessary for such purpose. Such work shall be commenced within ninety (90) days after such proceeds become available and shall be diligently pursued to completion; the procedures contained in the Development Agreement shall govern such work to the extent applicable. Notwithstanding the foregoing, if and only if such claim for damages is not adverse to any interest of Owner or the Lessor under the Ground Lease, the Operator shall have the right to claim and recover from the condemning authority but not from the Owner or Lessor under the Ground Lease, such compensation as may be separately awarded or recoverable by the Operator in its own right on account of any and all damage to its business by reason of any condemnation and for or on account of discontinuing its operation of the Tennis Facility. ARTICLE 10 EVENTS OF DEFAULT; REMEDIES 10.1 Non-Payment. The failure of either party to pay any sum of money to the other party when due and payable, if such failure is not cured within ten (10) days after written notice specifying such failure is received by the defaulting party from the non- defaulting party. 10.2 Other Covenants. The failure of either party to perform, keep or fulfill any of the other covenants, undertakings or obligations set forth in this Agreement, if such failure is not cured within thirty (30) days after written notice specifying such failure is received by the defaulting party from the non-defaulting party; provided, however, except a failure under Section 2.6, that if such failure is incapable of cure within such period, and the defaulting party commences to cure such default during such period and thereafter prosecutes such cure to completion with all due diligence, then no Event of Default shall exist unless such failure remains uncured after one hundred twenty (120) days after receipt of such notice. 10.3 Breach of Warranty. Any warranty or representation made herein or in any document executed in connection herewith is breached in any material respect. 10.4 Bankruptcy. The filing by Owner or Operator of a voluntary petition in bankruptcy under Title 11 of the United States Code, or the issuing of an order for relief against Owner or Operator under Title 11 of the United States Code, or the filing by Owner or Operator of any petition or answer seeking or acquiescing in any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief for itself under any present or future federal, state or other law or regulation relating to bankruptcy, insolvency or other relief for debtors, or Owner's or Operator's seeking or consenting to or acquiescing in the appointment of any custodian, trustee, receiver, conservator or liquidator of Owner or of all or any substantial part of the Tennis Center or of any or all of the rents, issues, profits, revenues or royalties thereof, or the making by Owner or Operator of any general assignment for the benefit of creditors, or Owner's or Operator's failure generally to pay its debts as such debts become due, or Owner's or Operator's giving of notice to any governmental body of insolvency or pending insolvency or suspension of operations; or the entry by a court of competent jurisdiction of an order, judgment or decree approving a petition filed against Owner or Operator seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future federal, state or other law or regulation relating to bankruptcy, insolvency or other relief for debtors, which order, judgment or decree remains unvacated and unstayed for an aggregate of ninety (90) days (whether or not consecutive) from the date of entry thereof, or the appointment of any custodian, trustee, receiver, conservator or liquidator of Owner or of all or any substantial part of the Premises or of any or all of the rents, issues, profits, revenues or royalties thereof without the consent or acquiescence of Owner, which appointment shall remain unvacated and unstayed for an aggregate of ninety (90) days (whether or not consecutive). Upon the occurrence of an Event of Default (in which case the non-defaulting party may also terminate this Agreement as provided in Section 3.3) the non-defaulting party may pursue any and all remedies available to it at law or in equity. ARTICLE 11 TRANSFER RESTRICTIONS 11.1 Ownership Transfer. Owner shall not directly or indirectly sell, assign, transfer, mortgage, convey, charge or otherwise encumber (or contract to do or permit any of the foregoing, whether voluntarily or by operation of law), any or all of its rights and obligations in, to and under this Agreement without the prior written consent of Operator, which consent shall not unreasonably be withheld. Notwithstanding the foregoing, the shareholders of Owner may, without the consent of Operator, transfer their stock in Owner, in whole or in part, to Nissho Iwai Corporation, or an Affiliate thereof, provided (i) such Affiliate (or any Affiliate thereof) does not, as its primary business, own, lease or operate any casino or gambling facility and (iii) such Affiliate (or any Affiliate thereof) does not own or operate a distillery, winery, brewery or distributorship of alcoholic beverages if such ownership or operation might reasonably impair the ability of the Hotel operator (or its Affiliates) to obtain or retain liquor licenses for the Hotel. No such permitted transfer shall entitle the transferee to any benefits or rights hereunder until the transferee agrees in writing to assume and be bound by all the obligations of Owner hereunder, whether arising prior to or from and after such transfer. 11.2 Assignment by Operator. Operator shall have the right to assign its rights and obligations under this Agreement without the consent of Owner to any Affiliate. Any other assignment by Operator shall require the Approval of Owner. ARTICLE 12 MISCELLANEOUS 12.1 Further Assurances. Owner and Operator shall execute and deliver all other appropriate supplemental agreements and other instruments, and take any other action necessary to make this Agreement fully and legally effective, binding and enforceable as between them and as against third parties. 12.2 Waiver. The waiver of any of the terms and conditions of this Agreement on any occasion or occasions shall not be deemed a waiver of such terms and conditions on any future occasion. 12.3 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of Owner, its successors and permitted assigns, and shall be binding upon and inure to the benefit of Operator, its successors and permitted assigns. 12.4 Governing Law. This Agreement shall be governed by the laws of the State of Hawaii. 12.5 Compliance with Mortgage and Ground Lease; Conflict and No Merger. In carrying out their respective duties and obligations under the terms of this Agreement, Owner and Operator shall take no action that will constitute a default under the Ground Lease and any Mortgage provided Operator shall promptly be delivered copies of all Mortgages and any notices of any alleged defaults. In the event of a conflict between any of the terms and conditions of this Agreement and the terms and conditions of the Ground Lease, the terms and conditions of the Ground Lease shall govern between the conflicting terms and conditions. In the event of a termination of the Ground Lease, or a merger of the ownership interests in Owner into the Lessor under the Ground Lease, this Agreement shall remain in full force and effect and the Lessor under the Ground Lease shall become the Owner as defined herein. 12.6 Amendments. This Agreement may not be modified, amended, surrendered or changed, except by a written instrument executed by Owner and Operator. 12.7 Estoppel Certificates. Owner and Operator agree, at any time and from time to time, as requested by the other party upon not less than ten (10) days prior written notice, to execute and deliver to the other a statement certifying that this Agreement is unmodified and in full force and effect (or if there have been modifications, that this Agreement is in full force and effect as modified and stating the modifications) certifying the dates to which required payments have been paid, and stating whether or not, to the best knowledge of the signer, the other party is in default in performance of any of its obligations under this Agreement, and if so, specifying each such default of which the signer may have knowledge, it being intended that any such statement delivered pursuant hereto may be relied upon by others with whom the party requesting such certificate may be dealing. 12.8 Inspection Rights. Owner shall have the right to inspect the Tennis Center and examine the books and records of Operator pertaining to Gross Revenues at the Tennis Center at all reasonable times during the Operating Term upon reasonable notice to Operator, and Owner, the Lessor under the Ground Lease and the holder of any Mortgage shall have access to the Tennis Center and the books and records pertaining to Gross Revenues at the Tennis Center at all times during the Operating Term to the extent necessary to comply with the terms of such Mortgage and the Ground Lease, all to the extent consistent with applicable law and regulations and the rights of guests, tenants and concessionaires of the Tennis Center. 12.9 Subordination. Operator agrees that, at the request of the mortgagee under the Mortgage, this Agreement and any extension hereof shall be subordinate to such Mortgage and any other mortgage or similar security instrument hereafter affecting the Tennis Center or the Premises held by such mortgagee and all renewals, modifications, consolidations, replacements and extensions thereof. Operator agrees to enter into any written instruments to effect such subordination, or any non-disturbance agreements, reasonably requested by such mortgagee. 12.10 Indemnity By Operator. Operator agrees to indemnify, defend and hold harmless Owner, its directors, officers, shareholders, employees, and agents from any and all demands, claims, charges, actions, causes of action, suits, liabilities, judgments, damages, costs and expenses, including attorneys fees and costs, arising out of, or related to: (i) any negligence of Operator, its agents, contractors, subcontractors and/or employees; (ii) any malfeasance or misfeasance on the part of personnel hired by Operator for the operation of The Tennis Center; (iii) any willful breach of any representation or warranty of Operator herein contained; (iv) any material violation or non-compliance with any federal, state or local laws or ordinances arising out of the acts or omissions of Operator; and/or (v) the intentional and/or negligent exercise by Operator of the powers reserved to Operator in Section 2.2., including, but not limited to, any decisions, conduct, actions or inaction in connection with the selection, hiring, discharge, supervision, and/or suspension of any employee of Operator. 12.11 Indemnity By Owner. Owner agrees to indemnify, defend and hold harmless Operator, its directors, officers, shareholders, employees, and agents from any and all demands, claims, charges, actions, causes of action, suits, liabilities, judgments, damages, costs and expenses, including attorneys fees and costs arising out of, or related to: (i) any negligence of Owner, its agents, contractors, subcontractor and employees; (ii) any willful breach or any representation or warranty of Owner herein contained; and/or (iii) any material violation or non-compliance with any federal, state or local laws or ordinances arising out of the acts or omissions of Owner. 12.12 Partial Invalidity. In the event that any one or more of the phrases, sentences, clauses or paragraphs contained in this Agreement shall be declared invalid by the final and unappealable order, decree or judgment of any court, this Agreement shall be construed as if such phrases, sentences, clauses or paragraphs had not been inserted, unless such construction would substantially destroy the benefit of the bargain of this Agreement to either of the parties hereto. 12.13 No Representation. In entering into this Agreement, Operator and Owner acknowledge that neither Owner nor Operator have made any representation to the other regarding projected earnings, the possibility of future success or any other similar matter respecting the Tennis Center, and that Operator and Owner understand that no guarantee is made to the other as to any specific amount of income to be received by Operator or Owner or as to the future financial success of the Tennis Center. 12.14 Relationship. In the performance of this Agreement, Operator shall act solely as an independent contractor. Neither this Agreement nor any agreements, instruments, documents or transactions contemplated hereby shall in any respect be interpreted, deemed or construed as making Operator a partner or joint venturer with Owner or as creating any similar relationship or entity, and Owner agrees that it will not make any contrary assertion, contention, claim or counterclaim in any action, suit or other legal proceedings involving Operator and Owner. 12.15 Entire Agreement. This Agreement, together with the Development Agreement, constitutes the entire agreement between the parties relating to the subject matter hereof, superseding all prior agreements or undertakings, oral or written. 12.16 Time of the Essence; Force Majeure. Time is of the essence of this Agreement; provided, however, that time limitations set forth in this Agreement, except with respect to monetary obligations, shall be extended for the period of any delay due to causes beyond the delayed party's control or which cannot be reasonably foreseen or provided against, including, without limitation, strikes, governmental regulations or orders, or events of force majeure. 12.17 Interpretation. No provisions of this Agreement shall be construed against or interpreted to the disadvantage of any party hereto by any court or other governmental or judicial authority by reason of such party having or being deemed to have structured or dictated such provision. 12.18 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and need not be signed by more than one of the parties hereto and all of which shall constitute one and the same agreement. 12.19 Consent and Approval. Except as herein otherwise provided, whenever in this Agreement the Approval of Operator and Owner is required, such Approval shall not be unreasonably withheld or delayed. 12.20 Notices. Any notice, statement or demand required to be given under this Agreement shall be in writing and be, and at the option of the party giving notice, (i) personally delivered or (ii) transmitted by postage prepaid certified first class mail, return receipt requested, addressed, if to Owner to Suite 300, 3414 Peachtree Road, N.E., Atlanta, Georgia 30326, Attention: General Counsel, with a copy to Maui Land & Pineapple Company, Inc., Attention: Joseph Hartley, 120 Kane Street, Kahului, Maui, Hawaii 96732, and if to Operator to P.O. Box 187, Kahului, Maui, Hawaii 96732, or to such other addresses as Operator or Owner shall designate in the manner herein provided. Any such notice shall be deemed to have been given (x) the date of receipt if delivered personally or (y) the day five (5) days after it shall have been posted if transmitted by mail, but the time period for any response thereto or action in connection therewith shall not commence to run until actual receipt or rejection or inability to deliver such notice. Owner and Operator each agree that upon giving of any notice, it shall use its best efforts to advise the other by telephone that a notice has been sent hereunder. Such telephonic advice shall not, however, be a condition to the effectiveness of notice hereunder. 12.21 New Agreement. This Agreement amends and restates in its entirety that certain Tennis Operating Agreement dated September 26, 1990, by and between Kaptel Associates and Operator and which Tennis Operating Agreement was subsequently amended and restated in its entirety on or about October 29, 1992 by Kaptel Associates and Operator, which Agreement is hereby superseded in its entirety. ARTICLE 13 REPRESENTATIONS AND WARRANTIES 13.1 Representation and Warranties of Owner. In order to induce Operator to enter into this Agreement, Owner does hereby make the following representations and warranties: (A) the execution of this Agreement is permitted by the Articles of Incorporation and By-Laws of Owner (or partnership agreement or other organic instrument or document affecting Owner, if Owner is not a corporation) and this Agreement has been duly authorized, executed and delivered and constitutes the legal, valid and binding obligation of Owner enforceable in accordance with the terms hereof; (B) there is no claim, litigation, proceedings or governmental investigation pending, or as far as is known to Owner, threatened, against or relating to Owner, the properties or business of Owner or the transactions contemplated by this Agreement which does, or may reasonably be expected to, materially and adversely affect the ability of Owner to enter into this Agreement or to carry out its obligations hereunder, and there is no basis for any such claim, litigation, proceedings or governmental investigation, except as has been fully disclosed in writing to Operator; and (C) neither the consummation of the actions completed by this Agreement on the part of Owner to be performed, nor the fulfillment of the terms, conditions and provisions of this Agreement, conflicts with or will result in the breach of any of the terms, conditions or provisions of, or constitute a default under, any agreement, indenture, instrument or undertaking to which Owner is a party or by which it is bound. 13.2 Representations and Warranties of Operator. In order to induce Owner to enter into this Agreement, Operator does hereby make the following representations and warranties: (A) the execution of this Agreement is permitted by the Articles of Incorporation and By-Laws of Operator and this Agreement has been duly authorized, executed and delivered and constitutes the legal, valid and binding obligation of Operator enforceable in accordance with the terms hereof; (B) there is no claim, litigation, proceedings or governmental investigation pending, or as far as is known to Operator, threatened, against or relating to Operator, the properties or business of Operator or the transactions contemplated by this Agreement which does, or may reasonably be expected to, materially and adversely affect the ability of Operator to enter into this Agreement or to carry out its obligations hereunder, and there is no basis for any such claim, litigation, proceedings or governmental investigation, except as has been fully disclosed in writing to Owner; and (C) neither the consummation of the actions completed by this Agreement on the part of Operator to be performed, nor the fulfillment of the terms, conditions and provisions of this Agreement, conflicts with or will result in the breach of any of the terms, conditions or provisions of, or constitute a default under, any agreement, indenture, instrument or undertaking to which Operator is a party or by which it is bound. IN WITNESS WHEREOF, Operator and Owner, acting by and through their proper and duly authorized officers or representatives, have each duly executed this Agreement under seal the day and year first above written. OWNER: NI HAWAII RESORT, INC., a Hawaii corporation, By /S/ T. OKUYAMA Its VICE PRESIDENT-SECRETARY OPERATOR: KAPALUA LAND COMPANY, LTD. By /S/ DON YOUNG Its PRESIDENT EX-10 11 ASSIGNMENT AGREEMENT (Assignment of Amended and Restated Tennis Operating Agreement) This Agreement relates to the Assignment of the Amended and Restated Tennis Operating Agreement ("Agreement") is made as of this 9TH day of January, 1996, but effective January 1, 1996, by and between KAPALUA LAND COMPANY, LTD., a Hawaii corporation, ("Operator") and NI HAWAII RESORT, INC., a Hawaii corporation, ("Owner"). WHEREAS, Owner has entered into that certain Amended and Restated Tennis Operating Agreement ("Tennis Agreement") dated effective January 1, 1996, with Operator to manage and operate the Tennis Center; WHEREAS, Operator and Owner desire to enter into an agreement to supersede and/or modify the terms and conditions of the Tennis Agreement. NOW THEREFORE, it is agreed to by and between Owner and Operator that, so long as Owner or its Affiliate (as defined in the Tennis Agreement) is the Owner of the Ritz-Carlton Kapalua Hotel, certain terms and provisions of the Tennis Agreement shall be superseded and/or modified in the following respects: 1. The first sentence of Section 11.1 shall be superseded and modified as follows: "Any transfer or assignment by Owner of its rights and obligations under this Agreement shall be subject to the terms of Section 11.7 of that certain Amended and Restated Hotel Ground Lease dated effective January 1, 1996 (the "Ground Lease"), as modified by that certain Agreement with NI Hawaii Resort, Inc. dated January 9, 1996. Any such transfer or assignment shall be effected only after Owner has completed and provided Kapalua Land Company, Ltd. with rights similar to the rights of Maui Land & Pineapple Company, Inc. which are set forth in Section 11.7(d) of the Ground Lease." 2. As between Operator and its assigns and successors, and Owner, the provisions set forth in this Agreement shall control in the event of any conflict between the provisions of this Agreement and the Tennis Agreement. Except as superseded and/or modified hereby, all other terms and provisions of the Tennis Agreement shall continue in full force and effect. This Agreement shall immediately and automatically terminate, without need for further action, at such time as Owner or its Affiliates is no longer the Owner of the Ritz-Carlton Kapalua Hotel. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the day and year first above written. KAPALUA LAND COMPANY, INC., NI HAWAII RESORT, INC., a Hawaii corporation a Hawaii corporation By /S/ DON YOUNG By /S/ TORU OKUYAMA Its PRESIDENT Its EX-10 12 GOLF COURSE USE AGREEMENT This GOLF COURSE USE AGREEMENT (the "Agreement") is dated January 9, 1996, but effective as of January 1, 1996 (the "Effective Date"), by and among MAUI LAND & PINEAPPLE COMPANY, INC. ("Owner") and NI HAWAII RESORT, INC. ("NI"). W I T N E S S E T H: R E C I T A L S: 1. Owner owns the Golf Courses at Kapalua Resort Area and the fee interest in the Hotel Property. 2. Effective January 1, 1996, Kapalani, L.P., a Delaware limited partnership ("Operator") manages and operates the Hotel Property pursuant to that certain Amended and Restated Operating Agreement by and between NI and Operator dated effective as of January 1, 1996. 3. Owner and NI desire to continue to provide guests of the Hotel with the use of the Golf Courses and Resort Club and agree to amend and supersede that certain Supplemental Agreement dated September 26, 1990, by and among Owner, Kaptel Associates and The Ritz-Carlton Hotel Company with the terms set forth in this Agreement. NOW, THEREFORE, in consideration of the covenants and agreements hereinafter set forth and for their mutual benefit, Owner and NI hereby covenant and agree as follows: ARTICLE I Definitions. Terms and References 1.1 Definitions. In this Agreement and any exhibits hereto, the following terms shall have the following meanings: Affiliate(s) shall mean a Person or Persons directly or indirectly, through one or more intermediaries, controlling, controlled by or under common control with the Person(s) in question. The term "control", as used in the immediately preceding sentence, means, with respect to a Person that is a corporation, the right to the exercise, directly or indirectly, of more than 50% of the voting rights attributable to the shares of the controlled corporation and, with respect to a Person that is not a corporation, the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of the controlled Person. Approval or Approved means prior written approval. Golf Courses means the three 18-hole golf courses now located at the Kapalua Resort Area, more particularly described and depicted in Exhibits "A-1", "A-2," and "A-3" attached hereto, and known as the Bay Course, the Village Course and the Plantation Course, respectively. Hotel means the hotel known as of January 1, 1996, as The Ritz-Carlton, Kapalua. Hotel Ground Lease means that certain Hotel Ground Lease dated effective as of January 1, 1996, made by Owner, as Lessor, and NI, as Lessee, covering the Hotel Property, as the same may be amended from time to time. Hotel Guests means the customers, guests and invitees of the Hotel while they are overnight guests at the Hotel. Hotel Property means the land described on Exhibit "B" attached hereto, upon which the Hotel is located. Kapalua Club Members means individuals and their respective guests and invitees who have certain Golf Course and Tennis Facilities privileges as a benefit of their membership in the Kapalua Club. Kapalua Property Owners means owners of residential condominiums, homes, or residential lots at the Kapalua Resort Area. Kapalua Resort Area means the existing and proposed development of the Kapalua area on Maui, more particularly set forth in the Kapalua Master Plan as filed with the County of Maui Planning Department and amended from time to time. Non-Resort Players means individuals who may play golf on the Golf Courses but who are not Resort Guests or employees of Owner. Officer of Owner means the President or Executive Vice President/Resorts of Owner or an individual designated by either in writing to Operator. Owner means Maui Land & Pineapple Company, Inc., a Hawaii corporation. Operator means Kapalani, L.P., a Delaware limited partnership, or its assigns or successor. Person shall mean an individual, partnership, corporation, trust, unincorporated association, joint stock company, or other entity or association. Resort Club means the pro shops and other facilities presently made available to Resort Guests at the Golf Courses. Resort Guests means individuals who are customers, guests, or invitees of Owner or the hotel known as of January 1, 1996, as Kapalua Bay Hotel, or who are Kapalua Property Owners, Resort Club members, Hotel Guests and their respective guests and invitees. Round means the normal play of 18 holes of golf by one player on one of the Golf Courses. Tee Time means the starting time for a Round on one of the Golf Courses. Term means the term of this Agreement which shall commence as of the Effective Date herein and continue until December 31, 2094, coterminous with the term of the Hotel Ground Lease, except as otherwise provided for herein. Tournament means a golf special event whereby one or more of the Golf Courses will be closed to play except for the participants of such golf special event for at least four (4) consecutive days. 1.2 Parties. If any Golf Course or facility is managed or operated by a subsidiary or an affiliate of Owner, such as Kapalua Land Company, Ltd., Owner shall cause the subsidiary or affiliate to do whatever is required to be done by Owner under this Agreement with respect to that facility. The parties also recognize that NI shall, in its sole discretion, have the right to appoint Operator as its agent to act on behalf of NI or in conjunction with NI, and be involved on a day-to-day basis with respect to matters covered under this Agreement. Notwithstanding the above, NI owns the rights and obligations under this Agreement which may be assigned pursuant to Section 4.8 herein. 1.3 Duration. The Term of this Agreement shall commence on the Effective Date herein and continue until December 31, 2094 coterminous with the term of the Hotel Ground Lease. 1.4 Rights and Use. The parties hereto understand and agree that the Owner has entered into a similar golf use agreement with the owner of The Kapalua Bay Hotel. Owner agrees that the rights and benefits with respect to golf play on the Golf Courses as enjoyed by The Kapalua Bay Hotel or any other Kapalua Resort Area hotel, if any, shall not be more favorable to The Kapalua Bay Hotel or any other Kapalua Resort Area hotel than the rights and benefits enjoyed by the Hotel and that if such differences now or hereafter arise, Owner shall promptly advise NI of such differences and the parties shall then effect any changes to this Agreement required to provide NI with rights and benefits no less favorable than those of the Kapalua Bay Hotel or any other Kapalua Resort Area hotel. ARTICLE 2 Golf 2.1 Use of Golf Courses. Owner grants to NI, for the Term of this Agreement, the right to use and enjoy the Golf Courses and Resort Club as set forth in this Article 2. Owner and NI agree that Operator, as an agent for NI, shall have the benefit of using such rights under this Agreement. 2.2 Reservations. (a) Reservations. Except as provided in this Agreement, use of the Golf Courses shall be available to Resort Guests and Non-Resort Players as determined in Owner's discretion, which shall be reasonable, on a "first come, first serve" reservation basis. Hotel Guests shall have the right to make reservations for Tee Times at least twenty-four (24) hours in advance of Non-Resort Players; provided, however, that with respect to the Plantation Course, Hotel Guests' reservations shall be subject to the reservation and use privileges of Kapalua Club Members. (b) Group Reservations. NI shall be entitled to make reasonable Golf Group Reservations up to eighteen (18) months in advance in connection with organized special golf events and/or tournaments. Owner shall use its good faith efforts in providing such Golf Group Reservations requested by NI. Golf Group Reservations shall be made in connection with advance Hotel group reservations (minimum fifteen (15) rooms) and a reasonable deposit must be made to Owner at least six (6) months in advance. "Golf Group Reservations" shall mean reservations for at least twenty- four (24) players. 2.3 Over-Capacity. It is agreed that currently the Golf Courses have the capacity to accommodate all of the Kapalua Resort Area's present volume of golf play from the Kapalua Bay Hotel and the existing 528 condominium villas plus projected volume of play from the Hotel and some additional development. NI shall have 150 daily Rounds, which may be equally distributed among The Bay Course, The Village Course and Plantation Course. If, in the opinion of NI, it becomes difficult for Hotel Guests to regularly obtain an adequate number of Rounds, NI shall then notify the Owner of the problem. Adequate is defined as 150 Rounds per day. Owner and NI will jointly examine the situation and will make every reasonable effort to alleviate the problem to their mutual satisfaction within a period of six (6) calendar months. Failing this, NI shall notify Owner of the continuing problem, and NI may then invoke the remedy as stated below: 1. NI shall have the right for and on behalf of Hotel Guests to reserve up to 150 priority daily Rounds of golf which shall be provided in good faith at Owner's discretion with a reasonable allocation among the Golf Courses and which will provide a proportionate number of Rounds in the morning and afternoon periods as the total available Tee Times during each period. 2. If the Tee Times for said priority Rounds are not reserved by specific Hotel Guests by 6:00 p.m. on the third day before the Tee Times, they shall be cancelled, except that thirty (30) of said priority Rounds (determined at Owner's discretion) shall continue to be reserved until noon on the day before the Tee Time, at which time if such Tee Time is not reserved by specific Hotel Guests, it shall be cancelled. 2.4 Tournaments. Owner shall have the right to schedule up to three Tournaments per calendar year, reserving for itself and its attendees at such Tournaments the exclusive rights to play on two (2) of the Golf Courses (but not on all), provided that: (a) Owner must give NI six (6) months' notice of any such Tournament. (b) Hotel Guests will maintain the same advance reservation rights on the remaining Golf Course(s) not used for the Tournament. (c) No Tournament will be of a duration exceeding one (1) week or as may be extended for ties or weather delays. (d) Only one (1) Tournament may be scheduled during the months of January, February and March of each year. (e) No Tournament will be scheduled on or within two (2) days of Christmas or New Year's Day. (f) In addition to the foregoing and because Tournaments are a mutually beneficial promotion of the Kapalua Resort Area, NI and Owner agree that not less than six (6) months in advance of the Lincoln Mercury Kapalua International or a successor nationally televised tournament, the Tournament sponsor or its designee may elect to reserve up to 100 rooms (double occupancy) for up to one week (700 room nights) for the use of Tournament participants, sponsors, officials and staff, and Operator, as agent for NI, shall use its best efforts to grant such reservations. These Tournament room nights shall be provided at twenty-five percent (25%) of the Hotel's then current published rates for such rooms, and services shall be provided to the Tournament participants, officials, sponsors and staff staying at the Hotel as are customarily provided without additional charge to Hotel Guests, except that food, beverages, and the like shall be charged at prevailing rates. 2.5 Fee Structure. The fees to Hotel Guests for use of the Golf Courses shall be on the same basis and at the same rates as are regularly made available to the most favored Resort Guest of the Kapalua Resort Area, except that it is understood that Kapalua Property Owners, Kapalua Club Members and Owner's employees, and their respective guests and invitees, and residents of Maui may be charged lower fees and that Owner reserves the right to provide complimentary Rounds at its discretion and that annual or other periodic special fees may be charged to Kapalua Club Members. It is agreed that Non-Resort Players shall be charged a higher fee than Hotel Guests. At the discretion of Owner and as times are available, NI shall be entitled to four (4) complimentary Rounds of golf per day for use by VIPs, meeting planners, representatives of travel agencies, and such other individuals who may be beneficial to the promotion and marketing of the Hotel, as designated by NI. NI is hereby granted a corporate membership in the Kapalua Club at no cost or fees to NI, including no initiation fee or monthly fees or dues; provided, however, that such corporate membership shall be non-transferable and shall be valid only for such period as NI or its Affiliate retains a majority-interest in ownership of the Hotel. 2.6 Rules and Regulations. Notwithstanding anything herein, the rights of NI and Hotel Guests under this Agreement shall be subject to reasonable rules and regulations, including dress codes, rules of conduct, and operation of golf carts, imposed by Owner on all users of the Golf Courses. 2.7 Repairs. Nothing herein will prohibit Owner from temporarily closing nine (9) or more holes of the Golf Courses for maintenance or reconstruction purposes or to restore the same or to permit the grass thereon to be replenished in accordance with standard golf course management practices. 2.8 Use Only as Golf Courses. During the Term hereof, Owner agrees the Golf Courses shall be used only for the operation of three 18-hole golf courses and related facilities and improvements, and that Owner shall continuously and at all times operate and maintain such courses in a first class manner at a standard comparable to the top resort golf courses in the State of Hawaii and shall expeditiously repair any damage due to storm, flood, or other casualty, provided that nothing herein shall restrict Owner from temporarily closing any of the Golf Courses if weather or other events beyond Owner's control render them unplayable. 2.9 Charge Rights. Hotel Guests shall have the right to charge to their Hotel room account amounts for services at the Golf Courses and the Resort Club. Such charges shall be forwarded to the Hotel promptly and charges received between the first day of each month and the fifteenth day of each month shall be paid to Owner on or before the last day of such month, with charges received between the sixteenth day and the last day of each month being due and payable on or before the fifteenth day of the following month. Operator, as agent for NI, shall not deduct any service charge except that it may deduct a fee reasonably equivalent to average amount of any credit card fees actually paid by Operator. Bad debts or collection charges, if any, shall be the responsibility of Operator, as agent for NI. 2.10 Record Memorandum. A memorandum referencing certain golf provisions of this Article 2 shall be recorded in the Bureau of Conveyances of the State of Hawaii in a form reasonably satisfactory to Owner and NI. ARTICLE 3 No License of Logo 3.1 No License. Owner does not grant to NI (or Operator as NI's agent) any right or license, non-exclusive or otherwise, to use the Butterfly Logo depicted on Exhibit "C" hereto in connection with the operation, advertising and promotion of the Hotel or any condominium units in the Kapalua Resort Area owned or managed by Operator and/or the merchandising, manufacture, promotion, sale and distribution of goods or services related thereto, at the Hotel or such condominium units, or in connection with anything else. Any such license shall be in the sole and absolute discretion of Owner and neither NI (or Operator as NI's agent) shall use the Butterfly Logo without the prior written consent of Owner, which consent may be unreasonably and arbitrarily withheld. ARTICLE 4 General Provisions 4.1 Notices. All notices, demands, requests, consents, approvals or other communications required or permitted to be given hereunder or which are given with respect to this Agreement shall be in writing and shall be delivered personally or sent by registered or certified mail, return receipt requested, postage prepaid, addressed to the party to be notified at the following address, or to such other address as such party shall have specified most recent by like notice: If to Owner, then to: Maui Land & Pineapple Company, Inc. Post Office Box 187 Kahului, Maui, Hawaii 96732 With a copy to: William E. Atwater, Esq. Carlsmith Ball Wichman Case and Ichiki Pacific Tower, Suite 2200 1001 Bishop Street Honolulu, Hawaii 96813 If to NI, then to: NI Hawaii Resort, Inc. c/o 745 Fort Street, Hawaii Building 8th Floor Honolulu, Hawaii With a copy to: Alan M. Goda, Esq. Kobayashi Sugita & Goda 745 Fort Street, 8th Floor Honolulu, Hawaii 96813 Notices given as provided above shall be deemed given on delivery or upon receipt if by personal delivery or the fourth (4th) business day following the mailing thereof, as the case may be. 4.2 Counterparts, Captions, Exhibits, Etc. This Agreement may be executed in counterparts, each of which shall be deemed an original, and all of which shall constitute one and the same instrument. The captions are for convenience of reference only, and shall not affect the meaning or construction to be given any of the provisions hereof. All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, or neuter, singular or plural, as the identity of the parties may require. Any references to Exhibits attached hereto shall be incorporated herein by such reference. 4.3 Governing Law. This Agreement shall be governed by, interpreted under, and construed and enforced in accordance with the laws of the State of Hawaii applicable to agreements made and to be performed wholly within the State of Hawaii. The venue for any action with respect to this Agreement shall be the Circuit Court of the First or Second Circuit of the State of Hawaii. 4.4 Entire Agreement; Successors and Assigns; Etc. This Agreement contains the entire agreement between the parties with respect to the subject matter of this Agreement and supersedes all prior understandings, including the Supplemental Agreement dated September 26, 1990, with respect thereto. This Agreement may not be modified, changed, supplemented or terminated, nor may any obligations hereunder be waived, except by written instruments signed by the party to be charged or by its agent duly authorized in writing or as otherwise expressly permitted herein. This Agreement shall be binding upon and inure to the benefit of the successors and permitted assigns of the parties hereto. The parties do not intend to confer any benefit hereunder on any person, firm or corporation other than the parties hereto. 4.5 No Waiver. No waiver of any breach of any agreement or provision herein contained shall be deemed a waiver of any preceding or succeeding breach thereof or of any other agreement or provision herein contained. No extension of time for performance of any obligations or acts shall be deemed an extension of the time for performance of any other obligations or acts. 4.6 Attorney's Fees. If any action, suit or proceeding is brought by any party hereto with respect to this Agreement, the prevailing party in any such action, suit or proceeding shall be entitled to recover from the other party or parties, in addition to such other relief as the court may award, all reasonable attorneys' fees and costs of suit incurred by the prevailing party in connection with such action, suit or proceeding. 4.7 Interest on Late Payments. If any party hereto fails to pay amounts due to another party in accordance with this Agreement within the time period specified herein for such payment, in addition to any other rights or remedies of such other party, amounts not so paid shall bear interest at a rate equal to the lesser of: (i) two percent (2%) plus the prime interest rate for such period of time, which shall be the interest rate then charged by the largest or second largest bank (as measured by total assets) in the State of Hawaii, whichever charges the higher rate, to its most responsible commercial borrowers on 90-day unsecured notes, or (ii) the maximum per annum rate of interest permitted to be charged by then applicable law. 4.8 Assignment. NI shall transfer or assign any and all rights and obligations under this Agreement to its successors or assigns, if any, pursuant to the terms of Section 11.7 of the Hotel Ground Lease. Owner shall assign its rights and delegate its duties under this Agreement with respect to The Bay Course, The Village Course and the Plantation Course to any purchaser, assignee or transferee of any such property. 4.9 Agent. During the Term of this Agreement, NI shall have the right to appoint, without the consent of Owner, an agent or agents who shall have the rights and obligations of NI as set forth in Article 2 herein. Rights and obligations of Operator or any other agent designated by NI under this Agreement shall be limited to Article 2 herein, unless expressly agreed to by Owner and NI. NI shall provide written notice to Owner of the appointment or withdrawal of such agent. IN WITNESS WHEREOF, each party hereto has caused this Agreement to be executed on the date first above written. MAUI LAND & PINEAPPLE COMPANY, INC., a Hawaii corporation By /S/ DON YOUNG Name: DON YOUNG Title: EXECUTIVE VICE PRESIDENT "Owner" NI HAWAII RESORT, INC., a Hawaii corporation By /S/ T. OKUYAMA Name: T. OKUYAMA Title: VICE PRESIDENT-SECRETARY "NI" EX-10 13 MEMORANDUM OF UNDERSTANDING THIS MEMORANDUM OF UNDERSTANDING (the "Agreement") effective as of the 31st day of October, 1995 (the "Effective Date"), by and between MAUI HOTELS ("Ritz-Carlton"), a Georgia Limited Partnership, whose General Partner is Ritz-Carlton Hotel Company, KAPALUA INVESTMENT CORP. ("Kapalua"), a Hawaii corporation, and NI HAWAII RESORT, INC. ("NI Hawaii"), a Hawaii corporation, the foregoing constituting all the general partners of KAPTEL ASSOCIATES ("Kaptel"), a Hawaii General Partnership (for purposes of this Agreement the respective partners are collectively referred to as the "Partners"); WITNESSETH THAT: WHEREAS, Kaptel is currently in default under that certain Promissory Note in the amount of U.S.$186,250,000.00 dated September 26, 1990 (the "Loan"), by and between The Long-Term Credit Bank of Japan, Ltd. (the "Lender") and Kaptel and that Lender is in a legal position to pursue any and all remedies against Kaptel to cure said default; WHEREAS, the Partners have authorized NI Hawaii to proceed with negotiations with the Lender to purchase or discharge the Loan and based on NI Hawaii's effort to negotiate with the Lender, Ritz- Carlton and Kapalua agree to enter into a certain dissolution agreement concerning the transfer of their respective interests in Kaptel to NI Hawaii; WHEREAS, the confirmation of the transfers of the respective partnership interests in Kaptel by Ritz-Carlton and Kapalua are subject to the successful negotiations between NI Hawaii with the Lender which results in NI Hawaii's closing on the purchase or discharge of the Loan; WHEREAS, NI Hawaii agrees that in the event NI Hawaii, or its affiliate, fails to purchase or discharge the Loan, Ritz- Carlton and Kapalua shall have the right to renegotiate their respective partnership interests in Kaptel; NOW, THEREFORE, for mutual promises, obligations and good and valuable consideration, the parties intending to be legally bound, the parties hereby agree as follows: 1. Ritz-Carlton shall transfer its 25% interest in Kaptel to NI Hawaii and Kapalua shall transfer its 25% interest in Kaptel to NI Hawaii upon terms mutually agreed upon among the Partners in writing. 2. Upon the delivery by NI Hawaii to Ritz-Carlton and Kapalua of notice that it has completed the acquisition or pay off of the Loan with LTCB or successfully negotiated the acquisition or pay off of the Loan, such delivery shall constitute absolute and irrevocable confirmation by Ritz-Carlton and Kapalua that they have fully transferred their interest in Kaptel and have no further rights pursuant to paragraph 3 below. 3. In the event NI Hawaii, or its affiliate, fails to purchase or discharge the Loan and Lender does not release Kaptel of all liabilities and obligations under the Loan by March 31, 1996, Ritz-Carlton and Kapalua shall have the right to renegotiate their respective positions and interests in Kaptel. NI Hawaii agrees to enter into good-faith negotiations with Ritz-Carlton and Kapalua with respect to these matters. 4. Ritz-Carlton and Kapalua hereby waive any and all claims, if any, against NI Hawaii arising from or connected with the purchase or discharge of the Loan by NI Hawaii except for any losses, claims, expenses, damages, liabilities or obligations arising from or connected with NI Hawaii's willful misconduct in negotiating the purchase or discharge of the Loan. 5. This Agreement and the rights and obligations of the respective parties hereunder shall be governed by and interpreted and enforced in accordance with the laws of the State of Hawaii. 6. This Agreement may be executed by each of the parties hereto by facsimile with original copies to follow and upon such execution shall be effective as of the Effective Date. This Agreement may be executed in counterparts, each of which shall be deemed an original, and all of which shall constitute one and the same instrument. 7. This Agreement shall inure to the benefit of and shall be binding upon each of the parties and their respective heirs, executors, administrators, legatees, distributees, representatives, assignees and other successors. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized corporate officers or their respective General Partners, each as of the day and year first above written. KAPALUA INVESTMENT CORP. By /S/ DON YOUNG Name: DON YOUNG Office: PRESIDENT "Kapalua" MAUI HOTELS, a Georgia Limited Partnership By THE RITZ-CARLTON HOTEL COMPANY, Its General Partner By /S/ J. RICHARD STEPHENS Name: J. RICHARD STEPHENS Office: EXECUTIVE VICE PRESIDENT "Ritz-Carlton" NI HAWAII RESORT, INC. By /S/ TORU OKUYAMA Name: TORU OKUYAMA Office: VICE PRESIDENT "NI Hawaii" EX-10 14 SUPPLEMENTAL AGREEMENT THIS SUPPLEMENTAL AGREEMENT (the "Agreement") entered into as of the 15th day of February, 1996 (the "Effective Date"), by and between MAUI HOTELS ("Ritz-Carlton") a Georgia Limited Partnership, KAPALUA INVESTMENT CORP. ("Kapalua"), a Hawaii corporation, and NI HAWAII RESORT, INC. ("NI Hawaii"), a Hawaii corporation; WITNESSETH THAT: WHEREAS, that certain Amended and Restated Partnership Agreement of Kaptel Associates (the "Partnership"), a Hawaii general partnership, was entered into on September 26, 1990, with Ritz-Carlton, Kapalua and NI Hawaii as the general partners; WHEREAS, Kaptel is in default under that certain Promissory Note in the amount of U.S.$186,250,000.00 dated September 26, 1990 (the "Loan"), by and between The Long-Term Credit Bank of Japan, Ltd. (the "Lender"); WHEREAS, NI Hawaii, as newly appointed Managing Partner of the Partnership, proceeded with negotiations with the Lender to purchase or discharge the Loan for the benefit of the Partnership; NOW, THEREFORE, for mutual promises, obligations and good and valuable consideration, the parties intending to be bound, the parties hereby agree as follows: 1. In the event NI Hawaii consummates the purchase or discharge of the Loan for the benefit of the Partnership, NI Hawaii, Ritz-Carlton and Kapalua shall consent, approve, and confirm the purchase or discharge of the Loan negotiated by NI Hawaii for the benefit of the Partnership. 2. Ritz-Carlton and Kapalua confirm that they have no intention of contributing toward any portion of the purchase or discharge of the Loan. 3. On the closing date of the purchase or discharge of the Loan, Ritz-Carlton and Kapalua shall confirm the transfer of their respective interest in the Partnership to NI Hawaii and approval for NI Hawaii to liquidate and terminate the Partnership, in a form attached hereto as Exhibit "A". For purposes of this Agreement, the Closing Date shall be defined as the date upon which NI Hawaii, or its affiliate, remits sufficient funds to either purchase or discharge the Loan and the Lender releases Kaptel. 4. Maui and Kapalua hereby waive any and all claims, if any, against NI Hawaii arising from or connected with the purchase or discharge of the Loan, except for losses, claims, expenses, damages, liabilities, or obligations arising from or connected with NI Hawaii's willful misconduct in negotiating the purchase or discharge of the Loan for the benefit of the Partnership. 5. This Agreement and the rights and obligations of the respective parties hereunder shall be governed by and construed in accordance with the laws of the State of Hawaii. 6. This Agreement may be executed and deemed effective upon the execution by each of the parties hereto by facsimile with original copies to follow. This Agreement may be executed in counterparts, each of which shall be deemed an original and all which shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized corporate officers or their respective General Partners, each as of the day and year first above written. KAPALUA INVESTMENT CORP. By /S/ DON YOUNG Name: DON YOUNG Office: PRESIDENT "Kapalua" MAUI HOTELS, a Georgia Limited Partnership By THE RITZ-CARLTON HOTEL COMPANY, Its General Partner By /S/ J. RICHARD STEPHENS Name: J. RICHARD STEPHENS Office: EXECUTIVE VICE PRESIDENT "Maui" NI HAWAII RESORT, INC. By /S/ TORU OKUYAMA Name: TORU OKUYAMA Office: VICE PRESIDENT "NI Hawaii" EXHIBIT A ACKNOWLEDGMENT AND CONFIRMATION The undersigned parties acknowledge that they have received written notice from NI Hawaii Resort, Inc., or its affiliate, ("NI Hawaii") that it has closed on the purchase or the discharge of that certain loan in the amount of U.S.$186,250,000.00 dated September 26, 1990 (the "Loan"), by and between The Long-Term Credit Bank of Japan, Ltd. (the "Lender") and Kaptel Associates (the "Partnership"), a Hawaii general partnership, and that the Lender has released Kaptel of any and all liabilities and obligations under the Loan. The undersigned parties hereby confirm that they do not intend to contribute toward any portion of the purchase or discharge of the Loan and hereby confirm the respective conveyance of any and all interest they may have in the Partnership to NI Hawaii and waive any and all rights to, or claims of, any interest in the Partnership as of the date set forth below. The undersigned parties further approve NI Hawaii proceeding with winding up and liquidating the Partnership as of the date set forth below. IN WITNESS WHEREOF, the undersigned parties have executed this Acknowledgment and Confirmation as of this _______ day of March, 1996. MAUI HOTELS, a Georgia Limited Partnership By THE RITZ-CARLTON HOTEL COMPANY, Its General Partner By Name: Office: KAPALUA INVESTMENT CORP. By Name: Office: EX-10 15 LAND COURT REGULAR SYSTEM AFTER RECORDATION, RETURN BY MAIL [ ] PICK-UP [X] TMK: 4-2-004-021 (2) TMK: 4-2-004-015 & 014 (2) RELEASE OF REAL PROPERTY MORTGAGE, SECURITY AGREEMENT AND FINANCING STATEMENT KNOW ALL MEN BY THESE PRESENTS: WHEREAS, THE LONG-TERM CREDIT BANK OF JAPAN, LTD. (LOS ANGELES AGENCY), a Japan corporation, whose address is 444 South Flower Street, Suite 3700, Los Angeles, California 90071-2938 ("LTCB") is the mortgagee under the following instrument (the "Fee Mortgage"): That certain Real Property Mortgage, Security Agreement and Financing Statement, dated September 26, 1990, entered into by and among Maui Land & Pineapple Company, Inc. a Hawaii Corporation, as "Mortgagor" therein, Kaptel Associates, a Hawaii general partnership, as "Borrower" therein, and LTCB, as "Mortgagee" therein, recorded in the Bureau of Conveyances of the State of Hawaii as Document No. 90-149098; and WHEREAS, LTCB desires to release the property encumbered under the Fee Mortgage from the lien of the Fee Mortgage; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, LTCB does hereby remise, release, convey and quitclaim unto MAUI LAND & PINEAPPLE COMPANY, INC., a Hawaii corporation, whose business and post office address is 120 Kane Street, Kahului, Maui, Hawaii 96732, its successors and assigns, forever, all and singular, all of the estate, right, title, interest, claim and demand whatsoever at law or in equity which LTCB now has in the Fee Mortgage and the collateral and/or property described in and/or encumbered by the lien of the Fee Mortgage, and releases from the Fee Mortgage the collateral described therein and property encumbered thereby. IN WITNESS WHEREOF, LTCB has caused these presents to be duly executed on this 12th day of March , 1996. THE LONG-TERM CREDIT BANK OF JAPAN, LTD. (LOS ANGELES AGENCY) By:/s/ MASAHIRO YOSHIOKA Name: Masahiro Yoshioka Its: Vice President STATE OF CALIFORNIA ) ) SS. COUNTY OF LOS ANGELES ) On March 12, 1996 before me, the undersigned, Notary Public in and for said State and County, personally appeared Masahiro Yoshioka, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. /s/ RALPH A. WHITE Notary Public in and for said County and State (SEAL) RALPH A. WHITE Comm. #1018047 Notary Public - California Los Angeles County Comm. Expires Feb. 21, 1998 EX-13 16 MAUI LAND & PINEAPPLE COMPANY, INC. ANNUAL REPORT 1995 CONTENTS Letter to Shareholders 2 Pineapple 4 Resort 5 Commercial & Property 6 Independent Auditors' Report 7 Consolidated Balance Sheets 8 Consolidated Statements of Operations and Retained Earnings 10 Consolidated Statements of Cash Flows 11 Notes to Consolidated Financial Statements 12 Common Stock 19 Selected Financial Data 20 Management's Discussion and Analysis of Results of Operations and Financial Condition 21 Officers and Directors 24 THE COMPANY Maui Land & Pineapple Company, Inc., a Hawaii corporation organized in 1909, is a land-holding and operating company with several wholly-owned subsidiaries, including two major operating companies, Maui Pineapple Company, Ltd. and Kapalua Land Company, Ltd. The Company, as used herein, refers to the parent and its wholly-owned subsidiaries. The Company's principal business activities are Pineapple, Resort and Commercial & Property. The Company owns approximately 28,600 acres on the island of Maui, of which about 7,900 acres are used directly or indirectly in the Company's operations. Approximately 1,940 people were employed by the Company in 1995 on a year-round or seasonal basis. Maui Pineapple Company, Ltd. is the operating subsidiary for Pineapple. It is the sole supplier of private label, 100% Hawaiian canned pineapple products to United States supermarkets. It also sells its products to food service suppliers and food processors. Kapalua Land Company, Ltd. is the development and operating subsidiary for a destination resort community in West Maui. The Kapalua Resort is located on approximately 1,500 acres bordering the ocean, including three beaches. Commercial & Property includes Kaahumanu Center, Napili Plaza and other non-resort property rentals and sales. 10-K REPORT Shareholders who wish to receive, free of charge, a copy of the Company's 10-K Report to the U.S. Securities and Exchange Commission may write to: Corporate Secretary Maui Land & Pineapple Company, Inc. P. O. Box 187 Kahului, Hawaii 96732-0187 ANNUAL MEETING The Annual Meeting of Shareholders of the Company will be held at 9:00 a.m. on Friday, May 3, 1996, in the Corporate Office courtyard of Maui Land & Pineapple Company, Inc., 120 Kane Street, Kahului, Hawaii. OFFICES Corporate Offices Pineapple Marketing Office Maui Land & Pineapple Company, Inc. Maui Pineapple Company, Ltd. P. O. Box 187 P. O. Box 4003 Kahului, Hawaii 96732-0187 Concord, California 94524-4003 Telephone: 808-877-3351 Telephone: 510-798-0240 Fax: 808-871-0953 Fax: 510-798-0252 Maui Pineapple Company, Ltd. P. O. Box 187 Kahului, Hawaii 96732-0187 Telephone: 808-877-3351 Fax: 808-871-0953 Kapalua Land Company, Ltd. 1000 Kapalua Drive Kapalua, Hawaii 96761-9028 Telephone: 808-669-5622 Fax: 808-669-5454 Transfer Agent & Registrar Chemical Mellon Shareholder Services Shareholder Relations P. O. Box 469 Washington Bridge Station New York, New York 10033 Telephone: 800-356-2017 Independent Auditors Deloitte & Touche LLP 1132 Bishop Street, Suite 1200 Honolulu, Hawaii 96813-2870 Telephone: 808-543-0700 MAUI LAND & PINEAPPLE COMPANY, INC. & SUBSIDIARIES FINANCIAL HIGHLIGHTS
1995 1994 1993 (Dollars in Thousands Except Per Share Amounts) REVENUES Pineapple $ 81,052 $ 81,044 $ 86,033 Resort 34,330 34,109 31,455 Commercial & Property 10,123 10,617 13,635 Corporate 72 112 49 -------- -------- -------- Total 125,577 125,882 131,172 ======== ======== ======== NET LOSS (1,559) (3,909) (11,059) ======== ======== ======== NET LOSS PER COMMON SHARE $ (.87) $ (2.18) $ (6.15) ======== ======== ======== AVERAGE COMMON SHARES OUTSTANDING 1,797,125 1,797,125 1,797,125 TOTAL ASSETS $137,085 $235,411 $211,588 CURRENT RATIO 2.78 .97 2.47 LONG-TERM DEBT and CAPITAL LEASES $ 36,227 $ 99,180 $ 96,108 STOCKHOLDERS' EQUITY 58,870 60,429 64,321 STOCKHOLDERS' EQUITY PER COMMON SHARE $ 32.76 $ 33.63 $ 35.79 EMPLOYEES 1,940 2,020 2,280
TO OUR SHAREHOLDERS AND EMPLOYEES Nineteen ninety-five developed into a more difficult year for the Company than we anticipated because of the continued highly competitive market conditions for pineapple products and the relatively low level of pineapple prices which prevailed for the first ten months of the year. Also, while we experienced a modest increase in overall visitor occupancy on Maui, the uncertainty surrounding the financial condition of the two hotels at Kapalua and the continued competitive conditions in the luxury hotel room market segment combined to restrain operating results at Kapalua. Lastly, 1995 was a very difficult year for retailers throughout the U.S. and Maui was no exception. The Company's net loss of $1.6 million for the full year, however, is an improvement from the losses suffered in 1994 of $3.9 million and in 1993 of $11 million. We are convinced the fundamental improvements in operating efficiency achieved over the last two years and improved business conditions will lead to improved results in 1996. In 1995, on revenues of $126 million, the Company incurred a pre-tax loss of $3 million compared to a pre-tax loss of $6.7 million in 1994. After an income tax credit of $1.4 million, the Company's net loss was $1.6 million or $.87 per share. The operating results in 1995 from our major business segments, Pineapple, Resort and Commercial & Property, were a $3.6 million loss, a $7.3 million profit and a $3.6 million profit, respectively. This compares to operating results of a $900,000 loss, a $2.2 million loss and a $5.3 million profit, respectively, for Pineapple, Resort and Commercial & Property in 1994. It should be noted that 1995 results for the Resort division and for the Company overall include a $5 million reversal of our share of non-cash, pre-tax losses from the partnership which owned The Ritz-Carlton Kapalua Hotel attributable to prior years. Excluding the effects of accounting for this entity, Resort's operating results were a $2.3 million operating profit in 1995 compared to a $1.9 million operating profit in 1994. Progress was made in 1995 in returning our pineapple business to profitability. While we continued to experience very low price levels for our products during most of the year, effects of the antidumping verdict against Thai producers of pineapple products began to take effect late in the year. More specifically, U.S. grocery prices for pineapple in the last four weeks of the year were up approximately 11 percent for premium branded and private label products and approximately 24 percent for other imported products compared to the same period in 1994. Imports of foreign canned pineapple for the full year of 1995 showed a 15 percent reduction in volume and a 5 percent increase in average unit value compared to 1994. Imports in the month of December of 1995 showed an increase of 31 percent in average unit value over December of 1994. These volume and price developments experienced late in the year are especially encouraging. We are also encouraged by the results of our research on fresh chilled pineapple products and our marketing efforts to promote consumer awareness of our position as the only producer of a full line of 100% Hawaiian pineapple products. Unfortunately, a drought experienced on Maui for most of 1995 had a significant negative effect on production, resulting in both higher costs and lower production volume than in 1994. These extraordinarily dry conditions tend not to occur for extended periods of time. Improved growing conditions in 1996 should result in improved production volume and lower unit costs. Perhaps more importantly, the Company should benefit from higher prices for pineapple products. Improving economic conditions in the U.S. and Japan have resulted in a modest improvement for Hawaii's visitor industry. Maui destination resorts also experienced a modest increase in occupancy for the year. Visitor occupancy at Kapalua was at about the same level as 1994. This reflected, among other things, competitive factors and the uncertainty surrounding the financial conditions at The Ritz-Carlton Kapalua Hotel, which defaulted on the terms of its mortgage loan early in the year, and at the Kapalua Bay Hotel, which filed for Chapter 11 bankruptcy in December of 1995. We are pleased to report that in March of 1996, NI Hawaii Resorts, Inc., our former partner, effectively repaid the existing bank mortgage on The Ritz- Carlton Kapalua and provided it with alternative financing from related companies. The bankrupt owner of the Kapalua Bay Hotel is continuing its effort to sell that hotel. We are hopeful these efforts will result in an acquisition of the hotel by a financially strong owner which will provide new hotel management by a high quality operator. Based on the first two and a half months of 1996 and the level of advance reservations at Kapalua, we expect Maui's visitor industry and Kapalua to show improved performance and financial results in 1996. Resort development activity in 1995 continued to be depressed and activity was modest at best in the resort second home market. We anticipate a higher level of interest and activity in resort real estate over the next few years and are planning accordingly. Operating profit from the Company's Commercial & Property segment declined from $5.3 million in 1994 to $3.6 million in 1995 due primarily to losses incurred by Kaahumanu Center Associates because of increased interest and depreciation expenses. Refinancing of Kaahumanu Center was concluded in May. As a result, the Employees' Retirement System of the State of Hawaii converted its construction loan into a 50 percent ownership position in Kaahumanu Center and a new $65 million mortgage loan from a consortium of banks was funded. Nineteen ninety-five was the first full year of operation for the redeveloped Center. With a gross leasable area of 572,000 square feet, Kaahumanu Center is Maui's only regional mall and is the largest center on the island. As of year-end, the mall shops, not including Sears, Liberty House, J.C. Penney and Foodland, were 91 percent leased and other new tenants have agreed to lease an additional 4 percent of the mall space. Napili Plaza continued to show improvement in 1995 by expanding its occupancy to 80 percent of available space, thus improving its operating profit contribution from 1994. A number of new tenants have expressed interest in or are negotiating with us for space in Kaahumanu Center and Napili Plaza. We expect an improving retail environment will result in improved occupancy and operating results in 1996 for both properties, but the planned expansion of other retail facilities on Maui will keep retail business conditions competitive. At year-end 1995, the Company's consolidated debt, including capital leases, stood at $37.5 million, a $91 million reduction from year-end 1994. Of this reduction, $71.6 million is a result of the refinancing of the Center and Kaahumanu Center Associates being accounted for by the equity method and its debt no longer being reflected in the consolidated statements. While the reduction in the debt level was dramatic and was one of our primary objectives in 1995, we must accomplish further reductions before the Company reaches its targeted level of financial leverage. Resumption of dividends, a key goal for us, continues to depend on improved operating cash flow and debt coverage. Overall we are pleased with the substantial and fundamental progress made in our businesses in 1995. While it is disappointing that a number of factors combined to produce a loss for the year, we are hopeful that with improved economic conditions and our greater operating efficiency, the Company will produce improved results over the next few years. Thank you for your continued support. /S/ MARY C. SANFORD /S/ GARY L. GIFFORD MARY C. SANFORD GARY L. GIFFORD Chairman President & CEO February 2, 1996 PINEAPPLE In 1995 Maui Pineapple Company, Ltd. recorded a $3.5 million operating loss. After allocations for interest and corporate expenses, the loss totaled $6.9 million. These results are worse than our prior year results and are particularly disappointing because we anticipated improved financial performance. During the year we focused on meeting case sales volume, pricing objectives, recovery goals and on lowering the unit cost per case. We did achieve higher pricing levels than in 1994, but we were unable to meet our objectives in the other key measures of performance. The major factors affecting our profits in 1995 were the continuing competitive marketplace and the weather. The marketplace affected case sales volume and the weather affected unit costs and pack. In 1995 the Island of Maui experienced a severe drought with especially dry conditions on the Haliimaile plantation. Dry weather reduced fruit size and caused sunburned, porous fruit. This in turn lowered recovery in canned pineapple and juice products. The lower recovery resulted in fewer cases packed than originally planned, which raised per case production costs. We reduced some effects of the drought by using drip irrigation systems; however, there was not enough water to adequately irrigate the Haliimaile plantation. Assuming we have normal rainfall this year, we do not expect effects of the drought to negatively affect the 1996 crop. The Company's overall case volume of sales declined by 5% compared to 1994. In total, canned fruit sales volume was unchanged compared with 1994. The grocery and government segments showed modest gains. Institutional sales moved down sharply due to several customers who purchased large inventories of canned pineapple at the end of 1994. Total juice sales volume declined by 11%. The grocery, government and institutional juice segments declined 5%, 82% and 4% respectively. We experienced the largest decline in the government segment due to the loss of the U.S. Department of Agriculture and Department of Defense bids; they were awarded to smaller regional juice packers. Concentrate sales were down 26%, a planned volume reduction. Although sales were down slightly for the year, we did retain our customer base and were able to acquire a number of new customers late in the year. Mainland Jet Fresh and local fresh fruit sales declined in 1995. On May 30, 1995, the U.S. Department of Commerce announced results of the antidumping investigation and imposed duties of between 2% and 51% on imports by Thailand pineapple companies. These duties were much higher than those announced in the January 1995 preliminary determination. This decision affirmed our claims that Thai companies were selling canned pineapple below their cost of production. On June 30, 1995, the International Trade Commission ruled 6-0 in the Company's favor on final injury determination. All four Thai respondents have filed an appeal with the U.S. Trade Court in New York. They are challenging the Department of Commerce's methodology in calculating the duty. They make no challenge to the final determination on injury to the domestic industry. The Company also has filed an appeal with the same court which allows us to introduce new evidence to help the Department of Commerce defend its decision. We do not expect a decision on the appeal before December 1996. We believe the appeal by the Thai respondents adds a degree of uncertainty to the marketplace, which will dampen price increases until the matter is resolved. Many Thai producers shipped additional inventory into the U.S. before the final antidumping determination. This oversupply of canned pineapple continued to exert downward pressure on prices and volume during the first half of the year. By year-end the situation had improved dramatically. Drought-related crop conditions in the Far East and the favorable antidumping decision reduced U.S. imports. As a result, most pineapple producers announced moderate fruit price increases beginning in the third quarter. These increases ranged from 8.5% for nationally branded products to 20% for regionally distributed imports. These conditions allowed Maui Pineapple Company to make its first significant price increase in four years. The increase began to impact revenues in the fourth quarter. The full benefit will be felt in 1996. In 1994 we commenced a modest consumer-focused marketing effort to promote awareness of Hawaiian pineapple. During 1995 we expanded on this effort in selected geographical areas of the U.S., positioning our product as the only 100% Hawaiian U.S.A. canned pineapple. We are moving toward our diversification objectives. Soon we will begin selling Costa Rican fresh pineapple to U.S. east coast customers under the label of Royal Coast. This addition of fresh pineapple allows us to provide a line extension to our existing east coast customer base. We are continuing research and development on fresh chilled pineapple and intend to enter this rapidly expanding market in 1996. The outlook for 1996 continues to improve. We believe the effects of the antidumping decision have only begun to be felt. We hope this decision will establish a price level from which we can improve financially in 1996 and beyond. We therefore are looking forward to a year of growth and improved financial performance. RESORT Kapalua Land Company, Ltd. had a profit of $7.3 million in 1995 compared with a loss of $2.2 million in 1994 before allocated interest and corporate expenses. Most of this improvement was due to the reversal of previously allocated losses from Kaptel Associates, The Ritz-Carlton Kapalua Hotel joint venture. Development activities other than the Kaptel joint venture improved by $900,000 over the previous year while profits from ongoing Resort operations declined by $500,000. Although The Ritz-Carlton Kapalua Hotel has consistently generated a positive cash flow from operations, beginning in February 1995 Kaptel was only able to make partial payment on its debt service and defaulted on its loan. NI Hawaii Resorts, Inc. (NI), the major general partner, commenced negotiations with the lenders to acquire the loan and on October 31, 1995 the partners concluded an agreement to dissolve the partnership. As a result, we transferred our 25% ownership interest in the partnership to NI and reversed all of the previously allocated losses. This represents an increase in earnings of $5.0 million for 1995 compared to an allocated loss of $4.1 million in 1994. An amended management agreement was also negotiated with The Ritz- Carlton Hotel Company as the hotel operator and a revised ground lease was negotiated with us. We retain ownership of the land (subordinate to a $65 million first mortgage) with a reduced rent, but with important controls related to the use of this property. Additionally, $4.75 million of off-site construction loan debt is to be repaid solely from ground rent and any balance remaining on the loan at January 1, 1999 will be canceled. We will not recognize any ground rent income until 1999. We believe this restructuring and commitment from NI gives The Ritz- Carlton Kapalua Hotel the necessary financial foundation and quality management to show continued long-term improvement. The owners of the Kapalua Bay Hotel actively tried to sell the hotel since April of last year, but have been unsuccessful in their efforts. In December 1995, the owners filed bankruptcy under Chapter 11 and are presently still trying to conclude a sale. Under terms of our ground lease, we have a right of first refusal regarding any potential sale. Our primary interest is to make sure the hotel is properly positioned with strong financial ownership and experienced quality management. Other development activities at the Resort included the sale of one of the remaining five lots in Plantation Estates Phase I. As a result, Plantation Club Associates contributed $152,000 to operating profits. In 1994 the Resort's share of the loss from this joint venture was $766,000. Real estate activity within the Resort slowed during 1995, but prices remained stable. Capital expenditures for the Resort water system and sewer capacity decreased from $3.4 million in 1994 to $800,000 in 1995. Last year we completed payment on water system improvements needed to comply with the Environmental Protection Agency Safe Drinking Water Act. On December 12, 1995, the Public Utility Commission ruled favorably on our application for a rate increase for our water and waste treatment companies. This increase provides a fair return on our investment in water system infrastructure and will have a positive impact on our operating results going forward. We also continued our funding of the expansion of the Lahaina Sewage Treatment Plant and expect to make our final payment in 1996. This investment provides us with the required sewage capacity for future development. Resort on-going operations posted a profit of $2.3 million in 1995 compared with a profit of $2.8 million in 1994. Resort revenues were $34.3 million in 1995 compared to $34.1 million in 1994. Cash flow from Resort operations increased to $5.0 million from $4.4 million in 1994. Our financial performance was not helped by market conditions in the visitor industry. Preliminary figures indicate that while the total number of visitors to Hawaii increased 3% during 1995, Maui had fewer visitors. Resort occupancy at Kapalua remained the same at 56%. This was again well below the average occupancy for Maui as competition in the over-built luxury hotel market remains intense. While none of our operations exhibited strong growth during 1995, the decline in profitability was largely due to non-recurring accounting adjustments and administrative expenses coupled with a predicted decline in initiation revenues from The Kapalua Club, our Resort membership program. This program continued to make a significant financial contribution to overall profitability during its second year of operation. More importantly, with additional members and increased participation, The Kapalua Club is performing its role as a catalyst for developing a feeling of community within the Resort. In our recreation departments, the number of paid golf rounds declined by 2% from 1994 levels, but total golf and merchandise revenues were up slightly. Tennis play was comparable with prior year levels and profitability improved. Our Kapalua villa program continues to grow with a 7% increase in the number of units in the program, a 10% increase in the number of occupied rooms and a 7% improvement in profitability. The addition of a sales representative in February resulted in a noticeable impact on bookings late in the year. The 1995 edition of the Lincoln-Mercury Kapalua International Golf Tournament was the most successful ever and remains the cornerstone of our marketing efforts. While our financial progress exhibited over the previous three years stalled in 1995, the company was making major strides in non-financial areas. During the year, all company employees attended CARE training, a comprehensive guest service and company standards training program. This program reinforces our commitment to excellence, not only in our physical plant, but in the total guest experience. Last year we also established the Kapalua Nature Society, an organization that will manage our environment-related Resort programs and create an awareness of the environment, culture and history of the Kapalua area. For 1996, we expect moderate growth in the Hawaii visitor industry and the Resort real estate market. We, therefore, look for modest improvement in our financial performance and believe Kapalua remains well positioned to show stronger long-term returns. COMMERCIAL & PROPERTY The Company's Commercial & Property business segment produced a substantially lower operating profit in 1995 on about the same level of revenues as compared to 1994. Revenues were $10.1 million compared to $10.6 million in 1994. Operating profit was $3.6 million compared to $5.4 million in 1994. Land sales arising from four transactions contributed a total of $3.4 million profit and cash flow in 1995. The largest of these, the final payment from the State of Hawaii for the 50-acre parcel taken under condemnation for the King Kekaulike High School, was received in June and amounted to $1.8 million. Three other transactions involved the sale of homes on Baldwin Avenue in Makawao which generated $1.6 million in operating profit and cash flow. Kaahumanu Center's results were lower than expected due to the depressed level of retail sales on Maui caused by the relatively weak local economy. Job layoffs in the sugar industry, a low level of construction activity and continued weakness in the visitor industry all combined in 1995 to result in a poor business environment for retailers on the island. Kaahumanu Center, while it has achieved a dominant position as the largest retail center, was negatively affected throughout the year by the weak economy. While Kaahumanu Center's main market has been and will continue to be island residents, the Center has improved its attractions for Maui's visitors. JTB, Japan's largest tour company, has signed a lease and started construction of its "Oli Oli Station," a briefing and processing facility for JTB's group tour business. Approximately 50,000 visitors are expected to use this facility in its first year of operation. Kaahumanu Center is also the terminus for the West Maui, South Maui and Airporter bus systems, effectively Maui's only mass transportation system. With an improving visitor market and an improving local economy, Kaahumanu Center is in a position to show improved results in 1996. Napili Plaza, the Company's 44,000 square foot neighborhood shopping center located in west Maui, should benefit even more directly from improving resort occupancy and visitor traffic due to its location. Nineteen ninety-six will likely not produce the same levels of profits and cash flow from land sales. However, the Company's commercial properties should, for the reasons mentioned, show better financial results. INDEPENDENT AUDITORS' REPORT To the Stockholders and Directors of Maui Land & Pineapple Company, Inc.: We have audited the accompanying consolidated balance sheets of Maui Land & Pineapple Company, Inc. and its subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of operations and retained earnings and of cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of Kaptel Associates, the Company's investment in which was previously accounted for by the equity method. The Company's share of losses in excess of its investment in Kaptel Associates of $4,990,000 as of December 31, 1994, and its share of losses from Kaptel Associates of $4,119,000 and $871,000 for the years ended December 31, 1994 and 1993, respectively, are included in the accompanying financial statements. The financial statements of Kaptel Associates were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Kaptel Associates, is based solely on the report of such other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of the other auditors for 1994 and 1993, such consolidated financial statements present fairly, in all material respects, the financial position of the Companies as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. /S/ DELOITTE & TOUCHE LLP DELOITTE & TOUCHE LLP Honolulu, Hawaii February 2, 1996 MAUI LAND & PINEAPPLE COMPANY, INC. & SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 1995 and 1994
1995 1994 (Dollars in Thousands) ASSETS CURRENT ASSETS Cash $ 166 $ 2,269 Accounts and notes receivable 13,142 13,507 Refundable income taxes 518 1,910 Inventories Pineapple products 13,920 15,261 Real estate held for sale 340 336 Merchandise, materials and supplies 5,415 4,940 Prepaid expenses and other assets 3,053 2,737 -------- -------- Total Current Assets 36,554 40,960 -------- -------- NOTES RECEIVABLE--REAL ESTATE SALES 541 541 -------- -------- INVESTMENTS AND OTHER ASSETS 11,433 13,716 -------- -------- PROPERTY Land 4,469 6,936 Land improvements 41,671 50,386 Buildings 47,625 124,046 Machinery and equipment 90,240 92,442 Construction in progress 1,170 680 -------- -------- Total property 185,175 274,490 Less accumulated depreciation 96,618 94,296 -------- -------- Net Property 88,557 180,194 -------- -------- TOTAL $137,085 $235,411 ======== ======== 1995 1994 (Dollars in Thousands) LIABILITIES & STOCKHOLDERS' EQUITY CURRENT LIABILITIES Notes payable $ -- $ 27,951 Capital lease obligations 1,263 1,439 Trade accounts payable 5,761 5,596 Payroll and employee benefits 3,658 3,178 Accrued interest 1,030 2,379 Other accrued liabilities 1,414 1,514 -------- -------- Total Current Liabilities 13,126 42,057 -------- -------- LONG-TERM LIABILITIES Long-term debt 34,500 96,138 Capital lease obligations 1,727 3,042 Deferred income taxes 504 1,847 Accrued retirement benefits 22,594 22,077 Other noncurrent liabilities 5,764 9,821 -------- -------- Total Long-Term Liabilities 65,089 132,925 -------- -------- COMMITMENTS AND CONTINGENT LIABILITIES STOCKHOLDERS' EQUITY Common stock--no par value, 1,800,000 shares authorized, 1,797,125 shares issued and outstanding 12,318 12,318 Retained earnings 46,552 48,111 -------- -------- Stockholders' Equity 58,870 60,429 -------- -------- TOTAL $137,085 $235,411 ======== ======== See Notes to Consolidated Financial Statements
MAUI LAND & PINEAPPLE COMPANY, INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS Years Ended December 31, 1995, 1994 and 1993
1995 1994 1993 (Dollars in Thousands Except Per Share Amounts) REVENUES Net sales $ 92,758 $ 91,158 $ 96,208 Operating revenue 28,573 30,760 27,330 Other income 4,246 3,964 7,634 -------- -------- -------- Total Revenues 125,577 125,882 131,172 -------- -------- -------- COST AND EXPENSES Cost of goods sold 70,935 67,623 84,932 Operating expenses 22,694 23,551 22,577 Shipping and marketing 16,793 16,568 17,673 General and administrative 15,160 14,352 18,657 Equity in (earnings) losses of joint ventures (4,001) 4,844 1,018 Interest 7,021 5,682 4,797 -------- -------- -------- Total Costs and Expenses 128,602 132,620 149,654 -------- -------- -------- LOSS BEFORE INCOME TAX CREDIT (3,025) (6,738) (18,482) INCOME TAX CREDIT (1,466) (2,829) (7,423) -------- -------- -------- NET LOSS (1,559) (3,909) (11,059) -------- -------- -------- RETAINED EARNINGS, BEGINNING OF YEAR 48,111 52,020 64,427 CASH DIVIDENDS DECLARED -- -- 1,348 -------- -------- -------- RETAINED EARNINGS, END OF YEAR 46,552 48,111 52,020 ======== ======== ======== PER COMMON SHARE Net Loss (.87) (2.18) (6.15) ======== ======== ======== Cash Dividends $ -- $ -- $ .75 ======== ======== ======== See Notes to Consolidated Financial Statements.
MAUI LAND & PINEAPPLE COMPANY, INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, 1995, 1994 and 1993
1995 1994 1993 (Dollars in Thousands) OPERATING ACTIVITIES Net Loss $ (1,559) $ (3,909) $(11,059) Adjustments to reconcile net loss to cash provided by operating activities Depreciation 10,202 10,851 10,315 Deferred income taxes (1,471) (851) 1,066 Gain on property disposals (3,408) (2,966) (6,517) Equity in (earnings) losses of joint ventures (3,850) 4,844 1,018 Increase in accounts and notes receivable (723) (469) (2,179) Decrease (increase) in refundable income taxes 1,392 6,054 (7,064) Decrease in inventories 862 575 5,113 Increase (decrease) in trade payables 573 (4,207) 2,821 Net change in other operating assets and liabilities 124 1,614 4,126 -------- -------- -------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 2,142 11,536 (2,360) -------- -------- -------- INVESTING ACTIVITIES Purchases of property (5,679) (43,488) (30,211) Proceeds from sale of property 3,469 3,062 6,866 Reimbursement from Kaahumanu Center Associates 11,843 -- -- Payments for other investments (3,260) (137) (1,288) -------- -------- -------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 6,373 (40,563) (24,633) -------- -------- -------- FINANCING ACTIVITIES Payments of long-term debt (25,515) (24,632) (16,490) Proceeds from long-term borrowings 16,388 56,558 50,474 Payments of short-term borrowings -- -- (3,750) Dividends paid -- -- (1,797) Payments on capital lease obligations (1,491) (1,853) (1,526) Contribution by joint venture partner -- -- 312 -------- -------- -------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (10,618) 30,073 27,223 -------- -------- -------- NET INCREASE (DECREASE) IN CASH (2,103) 1,046 230 CASH AT BEGINNING OF YEAR 2,269 1,223 993 -------- -------- -------- CASH AT END OF YEAR $ 166 $ 2,269 $ 1,223 ======== ======== ======== Supplemental Disclosures of Cash Flow Information and Non-Cash Investing and Financing Activities: 1. Cash paid (received) during the year (in thousands): Interest (net of amount capitalized) $ 7,339 $ 5,753 $ 3,265 Income tax refunds $(1,205) $ (7,967) $ (851) 2. The $4.7 million loan from Kaptel Associates to the Company has been offset against the cost of the related off-site improvements (see Note 3 to Consolidated Financial Statements). 3. Effective April 30, 1995, the Employees' Retirement System of the State of Hawaii converted its $30.6 million loan to an additional 49% ownership in Kaahumanu Center Associates (see Note 3 to Consolidated Financial Statements). 4. Capital lease obligations of $1,343,000 in 1994 and $3,533,000 in 1993 were incurred for new equipment. See Notes to Consolidated Financial Statements.
MAUI LAND & PINEAPPLE COMPANY, INC. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATION The consolidated financial statements include the accounts of Maui Land & Pineapple Company, Inc. and its wholly-owned subsidiaries, primarily Maui Pineapple Company, Ltd. and Kapalua Land Company, Ltd. Significant intercompany balances and transactions have been eliminated. INVENTORIES Inventories of tinplate, cans, ends and canned pineapple products are stated at cost, not in excess of market value, using the dollar value last-in, first-out (LIFO) method. The costs of growing pineapple are charged to production in the year incurred rather than deferred until the year of harvest. For financial reporting purposes, each year's total cost of growing and harvesting pineapple is allocated to products on the basis of their respective market values; for income tax purposes, the allocation is based upon the weight of fruit included in each product. Real estate held for sale is stated at the lower of cost or fair value less cost to sell. Merchandise, materials and supplies are stated at cost, not in excess of market value, using retail and average cost methods. INVESTMENTS AND OTHER ASSETS Cash surrender value of life insurance policies are reflected net of loans against these policies. Investments in joint ventures are accounted for using the equity method. PROPERTY AND DEPRECIATION Property is stated at cost. Major replacements, renewals and betterments are capitalized while maintenance and repairs that do not improve or extend the life of an asset are charged to expense as incurred. When property is retired or otherwise disposed of, the cost of the property and the related accumulated depreciation are written off and the resulting gains or losses are included in income. Depreciation is provided over estimated useful lives of the respective assets using the straight-line method. POSTRETIREMENT BENEFITS The Company's policy is to fund pension cost at a level at least equal to the minimum amount required under federal law, but not more than the maximum amount deductible for federal income tax purposes. Deferred compensation plans for certain management employees provide for specified payments after retirement. The present value of estimated payments to be made are accrued over the period of active employment. The estimated cost of providing postretirement health care and life insurance benefits is accrued over the period employees render the necessary services. REVENUE RECOGNITION Sales of real estate are recognized as revenues in the period in which sufficient cash has been received, collection of the balance is reasonably assured and risks of ownership have passed to the buyer. INTEREST CAPITALIZATION Interest costs are capitalized during the construction period of major capital projects. LEASES Leases that transfer substantially all of the benefits and risks of the ownership of the property are accounted for as capital leases. Amortization of capital leases is included in depreciation expense. Other leases are accounted for as operating leases. INCOME TAXES The Company's provision for income taxes is calculated using the liability method. Deferred income taxes are provided for all temporary differences between the financial statement and tax bases of assets and liabilities using enacted tax rates. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Future actual amounts could differ from those estimates. NET LOSS PER COMMON SHARE Net loss per common share is computed using weighted average number of shares outstanding during the period. 2. INVENTORIES The replacement cost of pineapple product inventories at year-end approximated $26 million in 1995 and 1994. In 1995 and 1993 there were partial liquidations of LIFO inventories; thus, cost of sales included prior years' inventory costs which were lower than current costs. Had current costs been charged to cost of sales, the net loss for 1995 and 1993 would have increased by $54,000 or $.03 per share and $515,000 or $.29 per share, respectively. 3. INVESTMENTS AND OTHER ASSETS Investments and Other Assets at December 31, 1995 and 1994 consisted of the following: 1995 1994 (Dollars in Thousands) Plantation Club Associates $ 3,683 $ 3,996 Cash Surrender Value of Life Insurance Policies (net of loans totalling $3,088,000) 1,172 761 Deferred Costs 4,617 7,344 Other 1,961 1,615 ------- ------- Total $11,433 $13,716 ======= ======= Deferred costs are primarily off-site construction costs incurred for the Kapalua Resort, which will be allocated to future development projects. At December 31, 1994, deferred costs also included tenant improvement allowances for the Kaahumanu Center, which were being amortized over the life of the related leases. PLANTATION CLUB ASSOCIATES Plantation Club Associates (PCA) is an unincorporated joint venture between Kapalua Land Company, Ltd. (Kapalua) and Rolfing Partners (Rolfing). It was formed in 1988 to finance and develop a third 18-hole golf course and two residential development projects at the Kapalua Resort. Kapalua and Rolfing each contributed $9.3 million in cash to the joint venture. Kapalua also contributed the fee interest in approximately 230 acres of land to be used for the residential projects. Kapalua's basis in the land was nominal and PCA did not assign any cost to the land contributed. Profits and losses of the joint venture are allocated based on the estimated distributions to the partners, which are 85% to Kapalua and 15% to Rolfing. The partnership agreement requires that all major decisions receive unanimous approval of the partners. Summarized balance sheet information for PCA as of December 31, 1995 and 1994 and operating information for the three years ended December 31, 1995 follows: 1995 1994 (Dollars in Thousands) Real estate inventories $2,874 $3,207 Other assets 1,925 2,185 ------ ------ Total Assets 4,799 5,392 Less: Total Liabilities 551 519 ------ ------ Partners' Capital $4,248 $4,873 ====== ====== 1995 1994 1993 Revenues $ 672 $5,155 $ 1 Costs and expenses 481 5,965 174 ------ ------ ----- Net Income (Loss) $ 191 $ (810) $(173) ====== ====== ===== PCA's real estate inventories as of December 31, 1995 consist of four residential lots in Plantation Estates Phase I and allocated planning and off- site costs related to Plantation Estates Phase II. Kapalua's pre-tax share of the joint venture's net income (loss) was $152,000, $(766,000) and $(147,000) for 1995, 1994 and 1993, respectively. These amounts include expenses incurred by the Company related to the investment (primarily amortization of capitalized interest cost). KAPTEL ASSOCIATES Kapalua Investment Corp. (KIC), a wholly-owned subsidiary of Maui Land & Pineapple Company, Inc. was a 25% general partner in Kaptel Associates, the partnership that owned The Ritz-Carlton Kapalua Hotel. In February of 1995, Kaptel defaulted on its $186 million non-recourse financing arrangement. NI Hawaii Resorts, Inc. (NI), the major general partner, commenced negotiations with the lenders to acquire the indebtedness and on October 31, 1995, the partners of Kaptel concluded an agreement to dissolve the partnership. KIC transferred its interest in the partnership to NI. Because of the dissolution agreement, the Company's equity in the losses of Kaptel Associates recorded through June 30, 1995 were reversed in the third quarter of 1995. The net reversal of these losses in 1995 of $4,990,000 was recorded as a credit to equity in (earnings) losses of joint ventures. The Company's share of the partnership's losses for 1994 and 1993 was $4,119,000 and $871,000, respectively. Summarized balance sheet information for Kaptel Associates as of December 31, 1994 and operating information for the years ended December 31, 1994 and 1993 follows: 1994 (Dollars in Thousands) Current assets $ 3,507 Property and equipment, net 155,985 Other assets, net 14,681 -------- Total Assets 174,173 ======== Current liabilities 8,355 Financing 185,786 -------- Total Liabilities 194,141 ======== Partners' Deficit $(19,968) ======== 1994 1993 Revenues $ 39,750 $ 33,434 Costs and expenses 56,226 51,435 -------- -------- Net Loss $ 16,476 $ 18,001 ======== ======== The Company was leasing the 36-acre hotel site to Kaptel under a long- term lease. In 1990, the Company borrowed $4,750,000 from Kaptel for construction of certain off-site improvements related to the hotel property. Principal and interest payments on the loan were payable solely from rental income receivable by the Company under the hotel ground lease. The lease has been renegotiated with the hotel owner, effective January 1, 1996. The Company's fee interest is subordinate to a $65 million first mortgage. Ground rents will be applied against the off-site loan and any balance remaining on the loan at January 1, 1999 will be canceled. For accounting purposes, modification of the lease arrangement has resulted in the off-site loan being offset against the cost of the off-site improvements. KAAHUMANU CENTER ASSOCIATES In June 1993 Kaahumanu Center Associates (KCA) was formed to finance the expansion and renovation of and to own and operate Kaahumanu Center. KCA is a partnership between the Company, as general partner, and the Employees' Retirement System of the State of Hawaii (ERS), as a limited partner. The Company contributed the existing shopping center, subject to the existing first mortgage, and approximately nine acres of adjacent land. ERS contributed $312,000 and made a $30.6 million loan to the partnership. The remainder of the construction cost was funded principally by bank loans. The expansion and renovation was substantially complete by the end of November of 1994. Effective April 30, 1995, the ERS converted its $30.6 million loan to an additional 49% ownership in KCA. Effective with the conversion of the ERS loan, the Company and ERS each have a 50% interest in KCA. The Company no longer consolidates KCA and is accounting for its investment in KCA by the equity method. The Company has a long-term agreement with KCA to manage the Kaahumanu Center. The Company generates the electricity which is used by the Kaahumanu Center. For the eight months ended December 31, 1995, the Company charged KCA $1,695,000 for management fees and electricity. At December 31, 1995, $843,000 was due to the Company from KCA for management fees, electricity and reimbursable costs. Summarized balance sheet information for KCA as of December 31, 1995 and operating information for the eight months ended December 31, 1995 follows: Dollars in Thousands ---------- Current assets $ 2,658 Property and equipment, net 77,793 Other assets, net 4,472 -------- Total Assets 84,923 ======== Current liabilities 1,576 Noncurrent liabilities 64,019 -------- Total Liabilities 65,595 ======== Partners' Capital 19,328 ======== Revenues 8,991 Costs and expenses 11,272 -------- Net Loss $ 2,281 ======== The Company's share of the losses from KCA for the eight months ended December 31, 1995 was $1,141,000. ERS and the Company each have a 9% cumulative, non-compounded priority right to cash distributions based on their contributions to the partnership (preferred return). For the purpose of calculating the preferred returns, each partner's capital contribution had an agreed upon value of $30.9 million on May 1, 1995. The Company's preferred return is subordinate to the ERS preferred return. As of December 31, 1995, the accumulated unpaid preferred returns were $1.6 million each for ERS and the Company. The Company's investment in KCA is a negative $4.6 million and is included in other noncurrent liabilities. The negative balance is a result of recording the Company's initial contribution at net book value of the assets contributed, reduced by the related debt. 4. BORROWING ARRANGEMENTS Short-term bank lines of credit available to the Company at December 31, 1995 were $1.7 million. These lines provide for interest at the prime rate (8.5% at December 31, 1995) plus 3/4% to 1%. There were no borrowings under these lines at December 31, 1995. During 1995, 1994 and 1993, the Company had average borrowings outstanding of $67.6 million, $114.2 million and $80 million, respectively, at average interest rates of 9.7%, 8.5% and 7.1%, respectively. Long-term debt at December 31, 1995 and 1994 consisted of the following (interest rates represent the rates at December 31): 1995 1994 (Dollars in Thousands) Revolving credit agreement, 8.75% and 9% $14,500 $27,750 Mortgage loan, 10% (see below) -- 13,890 Kaptel Associates, 7.7% (see Note 3) -- 4,750 Employees' Retirement System of the State of Hawaii, 9% (see below) -- 30,588 Senior unsecured notes, 8.86% 20,000 20,000 Construction Loan, 8.75% (see below) -- 27,111 ------- ------- Total 34,500 124,089 Less portion classified as current -- 27,951 ------- ------- Long-term debt $34,500 $96,138 ======== ======= The Company has a revolving credit agreement with participating banks under which it may borrow up to $22 million in revolving loans through December 31, 1996. The commitment reduces to $19 million as of December 31, 1996 and terminates on June 30, 1997. In addition, the available commitment is also reduced by 75% of the after-tax net proceeds from the sale of real estate and by the addition of any permanent mortgage financing proceeds. Commitment fees of 1/2% are payable on the unused portions of this credit line. At December 31, 1995, the interest rate on this loan was prime plus 1/4%. The agreement provides for an interest rate reduction to the prime rate if the available commitment is reduced to $15 million. The agreement contains certain financial covenants, including the maintenance of consolidated net worth and working capital at certain levels and limits on the incurrence of other indebtedness and capital expenditures. The loan is collateralized by the Company's three golf courses at the Kapalua Resort. The agreement currently prohibits the Company from declaring any dividends. The loan from Kaptel Associates was for the construction of certain off- site improvements related to The Ritz-Carlton Kapalua Hotel (see Note 3). The loan from the Employees' Retirement System of the State of Hawaii (ERS) and the construction loan relate to the expansion and renovation of Kaahumanu Center (see Note 3). After conversion of the ERS loan to equity in KCA, the 10% mortgage loan and 8.75% construction loan were reflected on KCA's separate financial statements. In September 1993 the Company concluded a private placement of $20 million in ten-year, 8.86% senior unsecured notes. Mandatory annual principal payments of 20% of the original principal amount will begin in 1999. The agreement includes certain financial covenants which are similar to the Company's revolving credit agreement. Maturities of long-term debt during the next five years, from 1996 through 2000, are as follows: $14,500,000 in 1997, $4,000,000 in 1999 and $4,000,000 in 2000. 5. POSTRETIREMENT BENEFITS In 1979 the Company sold 205,533 shares of common stock to the Employee Stock Ownership Trust (ESOT) for clerical personnel and regular non-bargaining unit employees. Contributions to the ESOT were charged to expense as the unallocated shares held by the ESOT were allocated to the participants' accounts. As of December 31, 1993, there were no unallocated shares. Contributions to the ESOT were based on the debt service requirements of the ESOT acquisition loan. Contributions paid in 1994 and 1993 were $574,000 and $571,000, respectively. The final employee benefit expense of $520,000 was recorded in 1993. The Company has defined benefit pension plans covering substantially all regular employees. Pension benefits are based primarily on years of service and compensation levels. The projected benefit obligations were determined using discount rates of 7% and 8% as of December 31, 1995 and 1994, respectively, and compensation increases ranging up to 4.5%. The expected long-term rate of return on assets was 8% for 1995 and 1994. The assets of the plans consist primarily of stocks, bonds, real estate and short-term investments. Net pension cost for 1995, 1994 and 1993 included the following components: 1995 1994 1993 (Dollars in Thousands) Service cost--benefits earned during the year $ 882 $1,078 $ 972 Interest cost on projected benefit obligation 2,076 1,963 1,955 Actual return on plan assets (5,294) 490 (2,403) Net amortization and deferral 2,863 (3,070) (140) ------ ------ ------- Net pension expense $ 527 $ 461 $ 384 ====== ====== ======= The following table sets forth the funded status of the pension plans and the amounts recognized in the balance sheets at December 31:
1995 1994 Assets Accumulated Assets Accumulated Exceed Benefits Exceed Benefits Accumulated Exceed Accumulated Exceed Benefits Assets Benefits Assets (Dollars in Thousands) Actuarial present value of benefit obligations Vested benefits $26,543 $ 1,215 $22,882 $ 1,038 Nonvested benefits 302 90 298 60 ------- ------- ------- ------- Accumulated benefit obligation 26,845 1,305 23,180 1,098 Effect of assumed increase in compensation levels 3,825 284 2,577 255 ------- ------- ------- ------- Projected benefit obligation for services rendered to date 30,670 1,589 25,757 1,353 Assets of plans at fair value 29,996 663 26,374 533 ------- ------- ------- ------- Assets over (under) projected benefit obligation (674) (926) 617 (820) Unrecognized net loss 4,290 176 3,836 20 Unrecognized net transition (asset) obligation (3,350) 448 (3,913) 451 Unrecognized prior service cost 351 75 404 83 Adjustment required to recognize minimum liability -- (415) -- (299) ------- ------- ------- ------- Pension asset (liability) recognized in balance sheets $ 617 $ (642) $ 944 $ (565) ======= ======= ======= =======
In addition to providing pension benefits, the Company provides certain health care and life insurance benefits to substantially all retirees. The net periodic cost of these benefits for 1995, 1994 and 1993 consists of the following components:
1995 1994 1993 (Dollars in Thousands) Service cost $ 337 $ 433 $ 694 Interest cost 985 1,056 1,318 Actual return on plan assets -- 59 (36) Net amortization and deferral (374) (219) 19 ------ ------ ------ Net expense $ 948 $1,329 $1,995 ====== ====== ====== The funded status of these plans as of December 31, 1995 and 1994 was as follows: 1995 1994 (Dollars in Thousands) Accumulated postretirement benefit obligation: Retirees $ 6,970 $ 6,940 Fully eligible active plan participants 3,159 3,027 Other active plan participants 4,897 4,335 ------- ------- Total 15,026 14,302 Plan assets at fair value -- 63 ------- ------- Accumulated postretirement benefit obligation in excess of plan assets 15,026 14,239 Unrecognized prior service cost 1,766 1,913 Unrecognized net gain 2,272 2,559 ------- ------- Accrued postretirement benefit obligation recognized in balance sheets $19,064 $18,711 ======= =======
Plan assets at December 31, 1994 were related to life insurance plans for retirees. The assumed rate of return on the plan assets was 8%. Measurements of the accumulated postretirement benefit obligation as of December 31, 1995 and 1994 were determined using discount rates of 7% and 8%, respectively, and compensation increases ranging up to 4.5%. The accumulated postretirement benefit obligation as of December 31, 1995 was determined using a health care cost trend rate of 10% in 1995, decreasing by .5% each year from 1995 through 2004 and 5% thereafter. The accumulated postretirement benefit obligation as of December 31, 1994 was determined using a health care cost trend rate of 10% from 1994 through 2003 and 5% thereafter. The effect of a 1% annual increase in these assumed cost trend rates would increase the accumulated postretirement benefit obligation by approximately $2,571,000 as of December 31, 1995 and the aggregate of the service and interest cost for 1995 by approximately $259,000. As of December 1, 1994, certain reductions to the postretirement health care benefit for the Company's prospective pineapple bargaining unit retirees became effective. These benefit reductions resulted in a $1 million reduction of the accumulated benefit obligation, which is being amortized over 14 years beginning in 1994. 6. REAL ESTATE SALES Other income for 1995, 1994 and 1993 includes $3.4 million, $3 million and $6.8 million, respectively, attributable to real estate sales. 7. LEASES LESSEE Property at December 31, 1995 and 1994 includes capital leases of $10,452,000 and $14,452,000, respectively (accumulated depreciation of $5,840,000 and $6,886,000, respectively). Total rental expense under operating leases was $818,000 in 1995, $837,000 in 1994 and $1,109,000 in 1993. A major operating lease covers approximately 1,500 acres used primarily for Pineapple operations. Future minimum rental payments under operating leases aggregate $2,636,000 and are payable during the next five years (1996 to 2000) as follows: $625,000, $586,000, $482,000, $376,000, $57,000, respectively, and $510,000 thereafter. Future minimum rental payments under capital leases aggregate $3,301,000 (includes $311,000 representing interest) and are payable from 1996 to 1999 as follows: $1,452,000, $1,102,000, $653,000 and $94,000, respectively. LESSOR The Company leases land, buildings and land improvements. Total rental income under these operating leases were as follows: 1995 1994 1993 (Dollars in Thousands) Minimum rentals $4,569 $5,323 $5,004 Contingent rentals (based on sales volume) 1,235 2,048 1,590 ------ ------ ------ Total $5,804 $7,371 $6,594 ====== ====== ====== Property at December 31, 1995 and 1994 includes leased property of $18,617,000 and $95,295,000, respectively (accumulated depreciation of $7,402,000 and $12,193,000, respectively). Future minimum rental income aggregates $61,672,000 and is receivable during the next five years (1996 to 2000) as follows: $2,620,000, $2,524,000, $2,296,000, $1,872,000, $1,504,000, respectively, and $50,856,000 thereafter. 8. INCOME TAXES The components of the income tax provision (credit) were as follows: 1995 1994 1993 (Dollars in Thousands) Current $ 5 $(1,978) $(8,489) Deferred (1,471) (851) 1,066 ------- ------- ------- Total $(1,466) $(2,829) $(7,423) ======= ======= ======= A reconciliation between the total provision (credit) and the amount computed using the statutory federal rate of 34% follows: 1995 1994 1993 (Dollars in Thousands) Federal provision (credit) at statutory rate $(1,028) $(2,291) $(6,284) Adjusted for State income taxes (credits)-- net of effect on federal income taxes (192) (350) (980) Appreciated property donation (228) -- -- Other (18) (188) (159) ------- ------- ------- Total provision (credit) for income taxes $(1,466) $(2,829) $(7,423) ======= ======= ======= Deferred tax assets and liabilities were comprised of the following types of temporary differences as of December 31, 1995 and 1994: 1995 1994 (Dollars in Thousands) Accrued retirement benefits $ 7,671 $ 7,967 Net operating loss carryforward 4,237 6,691 Minimum tax credit carryforward 2,552 2,515 Accrued liabilities 1,232 958 Allowance for bad debts 219 152 ------- ------- Total deferred tax assets 15,911 18,283 ------- ------- Inventory (461) (1,016) Charitable contributions (1,311) (1,174) Income from partnerships (2,095) (5,869) Pineapple marketing costs (815) (755) Deferred condemnation proceeds (6,580) (5,990) Property net book value (4,983) (5,288) Other (42) (38) ------- ------- Total deferred tax liabilities (16,287) (20,130) ------- ------- Net deferred tax liabilities $ (376) $(1,847) ======= ======= At December 31, 1995 the Company had federal income tax net operating loss carryforwards of approximately $10 million, which expire in 2009. The Company also had federal minimum tax credit carryforwards of $2.6 million. The Company's federal income tax returns for 1989 through 1994 are under examination by the Internal Revenue Service. The revenue agent's report on these years has not yet been issued and the Company cannot predict the outcome of these examinations. 9. RESEARCH AND DEVELOPMENT Research and development expenses totaled $410,000 in 1995, $375,000 in 1994 and $416,000 in 1993. 10. CONTINGENCIES & COMMITMENTS There are various claims and legal actions pending against the Company. In the opinion of management, after consultation with legal counsel, the resolution of these matters will not have a material adverse effect on the Company's financial position or results of operations. The Company has guaranteed the payment of up to $10 million of debt service for Kaahumanu Center Associates. The guaranty will be released by the lender when Kaahumanu Center attains a defined level of net operating income. At December 31, 1995, the Company had commitments under signed contracts of $3.2 million. 11. CONCENTRATIONS OF CREDIT RISK A substantial portion of the Company's trade receivables results from sales of pineapple products, primarily to food distribution customers in the United States. Credit is extended after evaluating creditworthiness and no collateral is generally required from customers. Notes receivable result principally from sales of real estate in Hawaii and are collateralized by the property sold. 12. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments: Notes and Interest Receivable: The fair value of these assets was estimated based on rates currently available for similar types of transactions. Notes Payable, Long-Term Debt and Accrued Interest: The fair value of these liabilities was estimated based on rates currently available to the Company for debt with similar terms and remaining maturities. The estimated fair values of the Company's financial instruments at December 31, 1995 and 1994 were as follows: 1995 1994 (Dollars in Thousands) Carrying Fair Carrying Fair Amount Value Amount Value Notes and Interest Receivable $ 891 $ 830 $ 731 $ 606 Notes Payable, Long-Term Debt and Accrued Interest $38,618 $36,935 $129,909 $122,918 13. BUSINESS SEGMENTS The Company's principal activities are Pineapple, Resort and Commercial & Property. Inter-segment sales were insignificant. Pineapple includes growing pineapple, canning pineapple in tin-plated steel containers fabricated by the Company, and marketing canned pineapple products and fresh pineapple. Resort includes the development and sale of real estate, property management and the operation of recreational and retail facilities and utility companies at Kapalua on the Island of Maui. It also includes the Company's investments in Plantation Club Associates and Kaptel Associates. Commercial & Property includes Kaahumanu Center (investment in Kaahumanu Center Associates, effective May 1, 1995), Napili Plaza shopping center and other land development, property rentals and sales. "Operating Profit (Loss)" is total revenues less all expenses except corporate expenses, interest expense and income taxes. Assets identifiable by activity are those assets that are used in the operations of each activity. Neither total export sales nor sales to any single customer exceeded 10% of consolidated revenues. NOTES TO FINANCIAL STATEMENTS 1995 1994 1993 (Dollars in Thousands) Revenues Pineapple $ 81,052 $ 81,044 $ 86,033 Resort 34,330 34,109 31,455 Commercial & Property 10,123 10,617 13,635 Corporate 72 112 49 -------- -------- -------- Total Revenues 125,577 125,882 131,172 ======== ======== ======== Operating Profit (Loss) Pineapple (3,548) (867) (16,223) Resort (1) 7,338 (2,203) (1,614) Commercial & Property (2) 3,603 5,357 9,085 -------- -------- -------- Total Operating Profit (Loss) 7,393 2,287 (8,752) -------- -------- -------- Corporate Expenses--Net (3,397) (3,343) (4,933) Interest Expense (7,021) (5,682) (4,797) -------- -------- -------- Loss Before Income Tax Credit (3,025) (6,738) (18,482) ======== ======== ======== Depreciation Pineapple 5,112 5,561 4,957 Resort 3,492 3,689 3,839 Commercial & Property 1,355 1,309 1,111 Corporate 243 292 408 -------- -------- -------- Total Depreciation 10,202 10,851 10,315 ======== ======== ======== Capital Expenditures Pineapple 1,442 1,148 8,173 Resort 975 1,851 2,091 Commercial & Property 634 40,427 28,057 Corporate 243 75 507 -------- -------- -------- Total Capital Expenditures 3,294 43,501 38,828 ======== ======== ======== Identifiable Assets Pineapple 66,877 71,343 78,634 Resort 57,462 64,415 66,829 Commercial & Property 8,405 94,475 54,638 Corporate 4,341 5,178 11,487 -------- -------- -------- Total Assets $137,085 $235,411 $211,588 ======== ======== ======== (1) Resort operating profit (loss) includes the Company's equity in the earnings (loss) of Plantation Club Associates of $152,000 for 1995, $(766,000) for 1994 and $(147,000) for 1993. Resort operating profit (loss) also includes the Company's equity in the loss of Kaptel Associates of $4,119,000 for 1994 and $871,000 for 1993 and the reversal of previous equity in losses of $4,990,000 in 1995. (2) Commercial & Property includes the Company's equity in the loss of Kaahumanu Center Associates of $1,141,000 for the eight months ended December 31, 1995. COMMON STOCK In compliance with the terms of a loan agreement the Company may not declare any dividends in 1996. At February 1, 1996, there were 411 shareholders of record. Stock is traded over the counter nationally. The range of common stock bid prices which follow were supplied by the National Quotation Bureau Incorporated and do not include retail markup, markdown or commission: First Second Third Fourth Quarter Quarter Quarter Quarter 1995 High 52 52 51 52 Low 40 38 39 30 1994 High 105 90 71 70 Low 90 65 63 40 SELECTED FINANCIAL DATA
1995 1994 1993 1992 1991 (Dollars in Thousands Except Per Share Amounts) FOR THE YEAR Summary of Operations Revenues $125,577 $125,882 $131,172 $147,049 $132,560 Cost of goods sold 70,935 67,623 84,932 81,147 82,001 Operating expenses 22,694 23,551 22,577 20,762 19,149 Shipping and marketing 16,793 16,568 17,673 15,917 14,907 General and administrative 15,160 14,352 18,657 16,578 14,314 Equity in (earnings) losses of joint ventures (4,001) 4,844 1,018 11 (7,805) Interest expense 7,021 5,682 4,797 4,031 4,253 Income Taxes (Credit) (1,466) (2,829) (7,423) 2,183 1,922 Income (loss) before cumulative effect of accounting changes (1,559) (3,909) (11,059) 6,420 3,819 Cumulative effect of accounting changes -- -- -- (7,673) -- Net Income (Loss) (1,559) (3,909) (11,059) (1,253) 3,819 Per Common Share Income (loss) before cumulative effect of accounting changes (.87) (2.18) (6.15) 3.57 2.13 Cumulative effect of accounting changes -- -- -- (4.27) -- Net Income (Loss) (.87) (2.18) (6.15) (.70) 2.13 Pro Forma Amounts Assuming Inventory Accounting Principle was Applied Retroactively Net Income (Loss) -- -- -- (2,138) 4,088 Net Income (Loss) Per Common Share -- -- -- (1.19) 2.28 Other Data Cash dividends Amount -- -- 1,348 1,797 1,797 Per common share -- -- .75 1.00 1.00 Depreciation $ 10,202 $ 10,851 $ 10,315 $ 9,774 $ 9,215 Return on beginning stockholders' equity (2.6%) (6.1%) (14.5%) (1.6%) 5.0% Percent of net income (loss) to revenues (1.2%) (3.1%) (8.4%) (0.9%) 2.9% AT YEAR END Current assets less current liabilities (1) $ 23,428 $ (1,097) $ 29,398 $ 26,233 $ 20,158 Ratio of current assets to current liabilities (1) 2.78 .97 2.47 2.33 2.28 Property, net of depreciation (2) $ 88,557 $180,194 $148,774 $121,045 $117,077 Total assets (2) 137,085 235,411 211,588 177,544 162,434 Long-term debt and capital leases (3) 36,227 99,180 96,108 60,569 57,971 Stockholders' equity Amount 58,870 60,429 64,321 76,187 78,729 Per common share $ 32.76 $ 33.63 $ 35.79 $ 42.40 $ 43.81 Common shares outstanding 1,797,125 1,797,125 1,797,125 1,797,125 1,797,125
(1) At December 31, 1994, current liabilities exceeded current assets because borrowings totaling $27.8 million on a revolving credit commitment were classified as current. The commitment has since been amended and borrowings under this line were classified as noncurrent at December 31, 1995 (see Note 4) (2) Property, net of depreciation, and Total assets decreased in 1995 primarily because, as of April 30, 1995, the Company no longer consolidates Kaahumanu Center Associates (see Note 3). (3) Long-term debt decreased in 1995 primarily because the debt related to the renovation and expansion of Kaahumanu Center is reflected on the separate financial statements of Kaahumanu Center Associates as of April 30, 1995 (see Note 3). MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS 1995 vs. 1994 CONSOLIDATED The Company reported a consolidated net loss of $1.6 million for 1995. For 1994 the Company incurred a consolidated net loss of $3.9 million. The primary reason for the reduced loss in 1995 was the reversal of the Company's previous equity in losses of Kaptel Associates. In October 1995, the Company transferred its interest in Kaptel to the major general partner and reversed losses recorded through June 30, 1995 into income in the third quarter of 1995 (see Note 3 to Consolidated Financial Statements). Income from the reversal of these losses was partially offset by higher operating losses from the Company's Pineapple operations and lower operating profits from ongoing Resort operations and the Commercial & Property segment. General and administrative expenses increased by approximately 5.6%, largely due to higher bad debt and workers compensation expenses. These increases were partially offset by lower expenses for postretirement medical costs, primarily as a result of changes in medical inflation assumptions. Interest expense increased by 24% in 1995 compared to 1994. The increase was primarily the result of a high debt level for the first four months of 1995 arising from the Kaahumanu Center expansion project (see Note 3 to Consolidated Financial Statements) and higher average interest rates. PINEAPPLE Revenues from Pineapple operations were about the same in 1995 as in 1994. Higher average prices in 1995 were partially offset by lower case volume of sales. The operating loss from Pineapple operations increased from $867,000 to $3.5 million. The higher operating loss in 1995 resulted from higher production costs which increased cost of sales and from increased general and administrative costs. Shipping and selling expense for 1995 was about the same as in 1994 as lower sales volume was offset by an increase in ocean freight rates. Higher production costs in 1995 were largely due to hot, dry weather conditions which resulted in smaller than normal, porous fruit. This lower quality fruit reduced pineapple yields and recoveries, which in turn increased per unit production costs. In 1995, there was a partial liquidation of LIFO inventories, which resulted in lower costs from prior years being included in cost of sales. Cost of sales for 1995 would have been higher by $104,000 based on current production costs. RESORT Revenues from the Kapalua Resort were $34.3 million in 1995 compared to $34.1 million in 1994. The segment contributed an operating profit of $7.3 million in 1995 compared to an operating loss of $2.2 million in 1994. Operating profit for 1995 includes $5 million representing the reversal of the Company's equity in prior year losses of Kaptel Associates. The operating loss for 1994 included $4.1 million of losses from Kaptel Associates. Plantation Club Associates contributed $152,000 to operating profits for 1995 while for 1994 the Resort's share of the loss was $766,000. Resort occupancies were about the same in 1995 compared to 1994. Merchandise sales were lower by 2%. Revenues from the Resort membership program decreased by 34% and real estate sales commissions declined by 45%. These declines were offset by increased revenues from golf operations and The Kapalua Villas. Paid rounds of golf decreased by 2%, but overall revenues from golf operations increased because of higher average rates. The number of occupied rooms at The Kapalua Villas increased by 10% and revenues increased by 12%. In total, Resort recreation and retail operations contributed lower operating profits in 1995. Higher expenses related to commercial leases and increased general and administrative expenses further reduced 1995 operating profits. COMMERCIAL & PROPERTY Revenues of $10.1 million in 1995 from Commercial & Property was lower by $.5 million compared to 1994. Operating profits for 1995 decreased by $1.8 million, from $5.4 million in 1994 to $3.6 million for 1995. Lower revenues in 1995 were primarily the result of exclusion of Kaahumanu Center Associates (KCA) from the Company's consolidated financial statements since May 1995. Increased revenues from land sales in 1995 partially offset the decrease attributable to KCA. As of April 30, 1995, the Employees Retirement System of the State of Hawaii converted its $30.6 million loan to KCA to an additional 49% equity interest in the partnership. Accordingly, as of April 30, 1995, the Company no longer consolidated KCA and, instead, accounted for the investment by the equity method. Lower operating profits in 1995 resulted from the Company's equity in the losses of KCA for the last eight months of 1995. These losses are largely attributable to higher interest and depreciation expenses related to the expansion and renovation of Kaahumanu Center. 1994 vs. 1993 CONSOLIDATED The Company reported a consolidated net loss for the year 1994 of $3.9 million. This compares to a consolidated net loss of $11 million for 1993. The principal reason for the improved results was a decrease in the loss from the Pineapple operations. These improved results more than offset increased losses from joint venture investments at the Kapalua Resort and a lower amount of income from land sales. Other income for 1994 includes $3 million from the sale of land; other income for 1993 included $6.8 million attributable to land sales. General and administrative expenses decreased in 1994 by 23% as compared to the year 1993. Company-wide cost reduction efforts were principally responsible for this improvement. A large part of the decrease was attributable to lower personnel costs, including a decrease in postretirement medical benefits, a restructuring of the medical plans for current employees and a decrease in the number of personnel through early retirements and job consolidations. Also, there was no employee benefit expense associated with the Company's ESOP in 1994 because all stock had been allocated to participants' accounts as of December 31, 1993. Interest expense increased in 1994 by 18% because of higher average rates and higher borrowings. Borrowings and the amount of interest capitalized increased in 1994 because of the expansion and renovation of Kaahumanu Center. Construction at the Center was substantially completed by the end of November 1994. PINEAPPLE Revenue from Pineapple operations decreased by 6% in 1994 and the operating loss from Pineapple operations decreased from $16.2 million in 1993 to $867,000 in 1994. The improved results were principally due to cost reductions. Revenues decreased due to lower case volume of sales and to slightly lower sales prices. Revenues from the fresh fruit operations increased in 1994 compared to 1993 due to higher sales volumes. The number of cases packed in 1994 increased by approximately 2%, but the per unit production cost decreased substantially. The cost reduction was accomplished by job consolidations, reduced overtime, layoffs and other measures to cut costs and to increase efficiency. In 1993 there was a partial liquidation of LIFO inventories which resulted in lower costs from prior years being included in cost of sales. Cost of sales for 1993 would have been higher by $858,000 based on 1993 production costs. Shipping and selling costs, which includes freight, brokerage and warehousing costs, decreased by 17% due largely to lower case volume of sales. Also, inventory levels at the end of 1992 were higher than normal which resulted in higher warehousing and other holding costs in 1993. RESORT Revenues from the Kapalua Resort increased by 8%, from $31.5 million in 1993 to $34.1 million in 1994. The operating loss attributable to the Resort increased from $1.6 million in 1993 to $2.2 million in 1994. The increased loss was largely due to the Company's share of losses from joint ventures which are accounted for on the equity method (see Note 3 to Consolidated Financial Statements). Excluding these losses, Resort operations produced operating profits in 1994 compared to operating losses for 1993. Resort occupancies increased in 1994 as compared to 1993. The Kapalua Villas contributed a 17% increase in revenues. Paid rounds of golf decreased by approximately 3%, but revenues from the golf operations increased by 2% due to higher average rates. Revenues attributable to merchandise sales increased by 2%. In 1994 a new Resort membership program was initiated which also contributed to the increase in revenues. The improved results for the Resort's on-going operations were also attributable to reductions in operating costs and improved retail margins. COMMERCIAL & PROPERTY Revenues from Commercial & Property decreased from $13.6 million in 1993 to $10.6 million for 1994 and operating profits decreased by $3.7 million from $9.1 million to $5.4 million. The decreases were largely due to lower revenues from land sales and condemnation proceeds which were included in 1993. Decreased revenues from land sales and condemnations were partially offset by higher revenues from Kaahumanu Center and Napili Plaza. Increased revenues from Kaahumanu Center had a more pronounced effect in the third and fourth quarters of 1994 compared to 1993 as the renovation work neared completion and the space occupied by tenants increased. Revenues from Napili Plaza also increased due to higher occupancies of leasable area. LIQUIDITY, CAPITAL RESOURCES AND OTHER At December 31, 1995, the Company's total debt, including capital leases, was $37.5 million compared to $128.6 million at the end of 1994. The decrease was primarily the result of Kaahumanu Center Associates (KCA) being accounted for by the equity method and not being included in the Company's consolidated financial statements at December 31, 1995 and the receipt of reimbursements from KCA for construction costs. The removal of the Kaptel Associates loan from the Company's balance sheet and positive cash flows from operating activities also contributed to reducing the Company's debt. In March 1996 the Company's $22 million revolving credit agreement was extended to June 30, 1997. The commitment reduces to $19 million on December 31, 1996. In addition, the available commitment is also reduced by 75% of the after-tax net proceeds from the sale of real estate and by the addition of any permanent mortgage financing proceeds. In 1996 capital expenditures are expected to be approximately $7 million. These expenditures are for new equipment and replacements considered essential to the Company's current operations. In addition to these capital expenditures the Company expects to contribute approximately $1.2 million to the County of Maui for its share of increased capacity in the West Maui sewer system. This expenditure represents the balance of the $4.3 million total contribution to this project. In June 1995 a final ruling by the International Trade Commission (ITC) allowed import duties averaging 24.6% to be imposed on Thai pineapple producers. The ruling was the result of an anti-dumping petition filed by Maui Pineapple Company, Ltd. and the International Longshoremen's and Warehousemen's Union in 1994 which alleged that Thailand's canned pineapple producers were breaking United States and international trade laws by selling in the U.S. below their production costs. Moderate price increases have occurred in the marketplace since the ITC decision was announced. In September 1995 Thai pineapple producers filed appeals with the U.S. Court of International Trade. The Company does not expect any ruling on the appeal until December 1996. The Company as a partner in various partnerships may, under certain circumstances, be called upon to make additional capital contributions (see Note 3 to Consolidated Financial Statements). IMPACT OF INFLATION AND CHANGING PRICES The Company uses the LIFO method of accounting for its pineapple inventories. Under this method the cost of products sold approximates current cost and during periods of rising prices the ending inventory balance is below current cost. The replacement cost of pineapple inventory was $26 million at December 31, 1995. Most of the land owned by the Company was acquired from 1911 to 1932 and is carried at cost. A small portion of "Real Estate Held for Sale" represents land cost. Replacements and additions to the Pineapple operations occur every year and some of the assets presently in use were placed in service in 1934. At Kapalua some of the fixed assets were constructed and placed in service in the mid-to-late 1970s. Depreciation expense would be considerably higher if fixed assets were stated at current cost. MAUI LAND & PINEAPPLE COMPANY, INC. Officers President & Chief Executive Officer Gary L. Gifford Executive Vice President/Finance & Treasurer Paul J. Meyer Executive Vice President/Pineapple Douglas R. Schenk Executive Vice President/Resort Donald A. Young Vice President/Retail Property Scott A. Crockford Vice President/Human Resources Julie L. Salady Vice President/Land Management Warren A. Suzuki Secretary Adele H. Sumida Controller & Assistant Treasurer Ted L. Proctor Directors Mary C. Sanford--Chairman Chairman of the Board Maui Publishing Company, Ltd. Richard H. Cameron--Vice Chairman Publisher Maui Publishing Company, Ltd. Peter D. Baldwin President Baldwin Pacific Corporation Joseph W. Hartley, Jr. Retired President & CEO Maui Land & Pineapple Company, Inc. Randolph G. Moore Chief Executive Officer Kaneohe Ranch Fred E. Trotter III President F. E. Trotter, Inc. Mrs. J. Walter Cameron--Director Emeritus Director Maui Publishing Company, Ltd. Andrew T. F. Ing--Director Emeritus Chairman of the Board Denis Wong and Associates Audit and Compensation Committees Peter D. Baldwin Richard H. Cameron Joseph W. Hartley, Jr. Andrew T. F. Ing Randolph G. Moore--Chairman, Audit Mary C. Sanford Fred E. Trotter III--Chairman, Compensation PRINCIPAL SUBSIDIARIES MAUI PINEAPPLE COMPANY, LTD. Officers President & Chief Executive Officer Douglas R. Schenk Executive Vice President/Sales & Marketing James B. McCann Executive Vice President/Finance & Treasurer Paul J. Meyer Vice President/Cannery Eduardo E. Chenchin Vice President/Plantations L. Douglas MacCluer Secretary Adele H. Sumida Controller Stacey M. Jio Assistant Treasurer Ted L. Proctor Directors Mary C. Sanford--Chairman Richard H. Cameron--Vice Chairman Peter D. Baldwin Douglas B. Cameron Gary L. Gifford Joseph W. Hartley, Jr. Andrew T. F. Ing Paul J. Meyer Randolph G. Moore Claire C. Sanford Douglas R. Schenk Douglas R. Sodetani Fred E. Trotter III Mrs. J. Walter Cameron--Director Emeritus KAPALUA LAND COMPANY, LTD. Officers President & Chief Executive Officer Donald A. Young Executive Vice President/Finance & Treasurer Paul J. Meyer Vice President/Administration & Support Operations Robert P. Derks Vice President/Development Robert M. McNatt Vice President/Resort Operations Gary M. Planos Vice President/Marketing & Real Estate Margaret A. Santos Secretary Adele H. Sumida Controller Russell E. Johnson Assistant Treasurer Ted L. Proctor Directors Mary C. Sanford--Chairman Richard H. Cameron--Vice Chairman Peter D. Baldwin Gary L. Gifford Joseph W. Hartley, Jr. Andrew T. F. Ing Paul J. Meyer Randolph G. Moore Jared B. H. Sanford Douglas R. Sodetani Fred E. Trotter III Donald A. Young Mrs. J. Walter Cameron--Director Emeritus EX-27 17
5 This schedule contains summary financial information extracted from the Maui Land & Pineapple Company, Inc. Balance Sheet as of December 31, 1995 and the Statement of Operations for the year then ended, and is qualified in its entirety by reference to such financial statements. 1,000 YEAR DEC-31-1995 DEC-31-1995 166 0 13,142 0 19,675 36,554 185,175 96,618 137,085 13,126 36,227 0 0 12,318 0 137,085 92,758 125,577 70,935 93,629 0 0 7,021 (3,025) (1,466) (1,559) 0 0 0 (1,559) (.87) (.87)
EX-99 18 INDEPENDENT AUDITORS' REPORT To the Partners of Kaahumanu Center Associates: We have audited the accompanying balance sheets of Kaahumanu Center Associates (a Hawaii limited partnership) as of December 31, 1995 and 1994, and the related statements of operations, changes in partners' capital (deficit) and cash flows for the years ended December 31, 1995 and 1994 and the period from June 23, 1993 (date of formation) through December 31, 1993. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of the partnership at December 31, 1995 and 1994, and the results of its operations and its cash flows for the years ended December 31, 1995 and 1994 and the period from June 23, 1993 through December 31, 1993 in conformity with generally accepted accounting principles. /S/ DELOITTE & TOUCHE LLP DELOITTE & TOUCHE LLP Honolulu, Hawaii February 2, 1996 KAAHUMANU CENTER ASSOCIATES Balance Sheets December 31, 1995 and 1994
ASSETS 1995 1994 Current Assets Cash $ 502,635 $ 1,814,186 Accounts receivable - less allowance of $101,356 and $29,697 for doubtful accounts 816,645 1,313,880 Prepaid expenses 82,520 68,325 ----------- ----------- Total Current Assets 1,401,800 3,196,391 ----------- ----------- Property Land and land improvements 5,787,383 5,687,452 Building 76,874,388 76,702,588 Furniture, fixtures and equipment 4,174,014 3,928,277 Construction in process 10,292 -- ----------- ----------- Total Property 86,846,077 86,318,317 Accumulated depreciation 9,052,587 6,231,408 ----------- ----------- Net Property 77,793,490 80,086,909 ----------- ----------- Other Assets 5,976,139 2,608,015 ----------- ----------- Total Assets $85,171,429 $85,891,315 =========== =========== LIABILITIES & PARTNERS' CAPITAL (DEFICIT) Current Liabilities Current portion of long-term debt $ 661,888 $ 201,055 Accounts payable 277,145 92,761 Due to ML&P 842,934 1,743,802 Accrued interest -- 1,031,982 Other current liabilities 50,223 40,178 ----------- ----------- Total Current Liabilities 1,832,190 3,109,778 ----------- ----------- Long-Term Liabilities Long-term debt 63,955,794 71,387,575 Due to ML&P -- 11,850,635 Construction and retainage payable -- 3,342,897 Rental deposits 55,026 34,134 ----------- ----------- Total Long-Term Liabilities 64,010,820 86,615,241 ----------- ----------- Partners' Capital (Deficit) 19,328,419 (3,833,704) ----------- ----------- Total Liabilities & Partners' Capital (Deficit) $85,171,429 $85,891,315 =========== =========== See notes to financial statements.
KAAHUMANU CENTER ASSOCIATES STATEMENTS OF OPERATIONS Years Ended December 31, 1995 and 1994 and Period from June 23, 1993 (Date of Formation) through December 31, 1993
1995 1994 1993 Revenue Rental income - minimum $ 6,571,728 $2,805,574 $1,165,496 Rental income - percentage 819,960 877,437 490,723 Other operating income - primarily recoveries from tenants 4,825,309 2,675,300 1,127,845 ----------- ---------- ---------- Total Revenue 12,216,997 6,358,311 2,784,064 ----------- ---------- ---------- Expenses Utilities 2,540,736 1,345,027 542,864 Payroll and related costs 1,816,498 984,068 397,657 Depreciation and amortization 3,354,646 956,872 362,812 Interest 6,113,766 743,742 550,627 Repairs and maintenance 558,101 314,201 76,727 General excise taxes 470,808 251,388 108,600 Real property taxes 255,206 133,360 64,161 Insurance 263,168 91,315 38,073 Provision for doubtful accounts 184,940 43,944 25,618 Advertising and promotions 172,894 39,995 22,552 Management fee 163,633 -- -- Professional fees 159,528 32,443 15,941 Other expenses 69,402 43,021 61,798 ----------- ---------- ---------- Total Expenses 16,123,326 4,979,376 2,267,430 ----------- ---------- ---------- Net Income (Loss) $(3,906,329) $1,378,935 $ 516,634 =========== ========== ========== See notes to financial statements.
KAAHUMANU CENTER ASSOCIATES Statements of Changes in Partners' Capital (Deficit) Years Ended December 31, 1995 and 1994 and Period from June 23, 1993 (Date of Formation) through December 31, 1993
State of Hawaii Maui Land & Employees' Pineapple Retirement Company, Inc. System TOTAL Capital Contributions: Property and other assets $ 10,788,190 $ -- $ 10,788,190 Cash -- 312,121 312,121 Assumption of loan (14,142,584) -- (14,142,584) Cash Distribution (2,687,000) -- (2,687,000) Net Income - 1993 511,468 5,166 516,634 ------------ ----------- ------------ Partners' Capital (Deficit), December 31, 1993 (5,529,926) 317,287 (5,212,639) Net Income - 1994 1,365,146 13,789 1,378,935 ------------ ----------- ------------ Partners' Capital (Deficit), December 31, 1994 $ (4,164,780) $ 331,076 $ (3,833,704) Capital Contributions: Conversion of loan -- 30,587,879 30,587,879 Conversion of payable balance 1,332,060 -- 1,332,060 Cash Distribution -- (4,851,487) (4,851,487) Net Loss - 1995 (2,749,360) (1,156,969) (3,906,329) ------------ ----------- ------------ Partners' Capital (Deficit), December 31, 1995 $ (5,582,080) $24,910,499 $ 19,328,419 ============ =========== ============ See notes to financial statements.
KAAHUMANU CENTER ASSOCIATES Statements of Cash Flows Years Ended December 31, 1995 and 1994 and Period from June 23, 1993 (Date of Formation) through December 31, 1993
1995 1994 1993 Operating Activities: Net Income (Loss) $(3,906,329) $ 1,378,935 $ 516,634 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 3,354,646 956,873 362,812 Increase (decrease) in accounts receivable 225,457 (948,086) (365,794) Increase in accounts payable 606,996 1,433,272 403,291 Net change in other operating assets and liabilities (529,363) 107,454 45,660 ----------- ------------ ------------ Net Cash Flow Provided by (Used in) Operating Activities (248,593) 2,928,448 962,603 ----------- ------------ ------------ Investment Activities: Purchases of property (4,356,375) (41,768,581) (25,780,691) Payments for deferred costs (2,124,624) (1,449,395) -- Increase in restricted cash (1,503,926) -- -- ----------- ------------ ------------ Net Cash Used in Investment Activities (7,984,925) (43,217,976) (25,780,691) ----------- ------------ ------------ Financing Activities: Proceeds from long-term debt 69,188,291 38,549,619 19,149,068 Payments of long-term debt (45,571,361) (181,998) (70,643) Increase (decrease) in amount due to ML&P (11,843,476) 2,940,635 8,910,000 Cash distribution (4,851,487) -- (2,687,000) Capital contribution -- -- 312,121 ----------- ------------ ------------ Net Cash Provided by Financing Activities 6,921,967 41,308,256 25,613,546 ----------- ------------ ------------ Net Increase in Cash (1,311,551) 1,018,728 795,458 Cash, Beginning of Period 1,814,186 795,458 -- ----------- ------------ ------------ Cash, End of Period $ 502,635 $ 1,814,186 $ 795,458 =========== ============ ============ See notes to financial statements.
KAAHUMANU CENTER ASSOCIATES Notes to Financial Statements Years Ended December 31, 1995 and 1994 and Period from June 23, 1993 (Date of Formation) through December 31, 1993 ORGANIZATION Kaahumanu Center Associates (the Partnership) was formed on June 23, 1993 as a limited partnership between Maui Land & Pineapple Company, Inc. (ML&P), as general partner, and the Employees' Retirement System of the State of Hawaii (ERS), as limited partner. The purpose of the partnership is to finance the expansion and renovation of and to own and operate the Kaahumanu Shopping Center (the Center). The Center is a regional shopping mall located in Kahului, Maui. Prior to the expansion, the Center consisted of approximately 315,000 square feet of gross leasable area. The expansion and renovation which was completed in November 1994, increased the Center to approximately 566,000 square feet of gross leasable area. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting - The Partnership's policy is to prepare its financial statements using the accrual basis of accounting. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Future actual amounts could differ from those estimates. Property - Property which was contributed to the partnership by ML&P is stated at ML&P's net book value at the date of contribution; subsequent additions are stated at cost. Depreciation is computed using the straight-line method. Noncurrent Accounts Receivable - The excess of minimum rental income recognized on a straight-line basis over amounts receivable according to provisions of the lease are classified as noncurrent accounts receivable. Deferred Costs - Amounts expended by the Partnership for construction of tenant improvements are classified as deferred costs and are amortized over the terms of the respective leases. Construction and Retainages Payable - Amounts due for construction and retainages payable were classified as noncurrent in 1994 because such amounts were to be financed with proceeds from long- term debt. Income Taxes - The Partnership is not subject to federal and state income taxes. The distributive shares of income or loss and other tax attributes from the Partnership are reportable by the individual partners. PARTNERSHIP AGREEMENT Capital Contributions - ML&P contributed the land and the shopping center improvements as they existed prior to the expansion and renovation project, subject to the existing first mortgage, together with approximately nine acres of adjacent land which became part of the expanded shopping center for a 99% interest in the Partnership. In addition, on April 30, 1995, ML&P contributed $1.3 million by conversion to capital of an amount owing to it. ERS originally contributed $312,000 for a one percent interest in the Partnership and made a loan of $30.6 million to the Partnership. Effective April 30, 1995, after completion of the expansion and renovation and the satisfaction of certain conditions, ERS converted its loan to capital for an additional 49% interest and became a 50% partner with ML&P. Allocations and Distributions - Profit and loss allocations and cash distributions of the partnership are based on the ownership interests of the partners. ERS and ML&P each have a 9% cumulative, non-compounded priority right to cash distributions based on their contributions to the partnership (preferred return). The ML&P preferred return is subordinate to the ERS preferred return. For the purpose of calculating the preferred returns, each partner's capital contribution had an agreed upon value of $30.9 million on April 30, 1995. The accumulated unpaid preferred returns at December 31, 1995 were $1,579,000 for both ERS and ML&P. Management and Operations - ML&P as managing partner, is responsible for the day-to-day management of the Partnership's business affairs. Major decisions, as defined in the partnership agreement, require the unanimous approval of the partners. STATEMENTS OF CASH FLOWS Supplemental Disclosure of Cash Flow Information and Non-Cash Investing and Financing Activities: 1. Interest (net of amounts capitalized) paid during 1995, 1994, and the period ended December 31, 1993 was $6,671,000, $655,000 and $430,000, respectively. 2. Effective April 30, 1995, the Employees' Retirement System of the State of Hawaii converted its $30.6 million loan to an additional 49% ownership in Kaahumanu Center Associates. At the same time, ML&P contributed $1.3 million by conversion to capital of an amount owing to it. 3. Property and other assets with a net book value of $10.8 million, subject to a loan of $14.1 million, were contributed to the Partnership on July 1, 1993 by Maui Land & Pineapple Company, Inc. CAPITALIZED INTEREST The Partnership incurred interest of $6,114,000 for 1995, $5,178,000 for 1994 and $1,327,000 for 1993, of which $4,434,000 and $777,000, was capitalized, respectively, for 1994 and 1993. RELATED PARTY TRANSACTIONS The Partnership entered into an agreement with ML&P for the operation of the Center. The operating agreement has an initial term of 15 years, which commenced when ERS became a 50% partner, with options to renew for four additional 10-year periods. Pursuant to the agreement, the Partnership pays to ML&P an operator's fee equal to 3% of gross revenues, as defined. In 1995, ML&P charged the Partnership $164,000 for management fees. Current amounts due to ML&P of $843,000 and $1,744,000 as of December 31, 1995 and 1994, respectively, relate to operating costs paid on behalf of the Center. Noncurrent amounts due to ML&P of $11.9 million as of December 31, 1994 represented construction- related costs funded for the Partnership by ML&P. The Partnership does not have any employees. As such, all onsite and administrative personnel are provided by ML&P. In 1995, 1994 and 1993, ML&P charged the Partnership $1,816,000, $984,000 and $398,000, respectively, for payroll and labor-related costs. ML&P generates the electricity which is used by the Center. ML&P also incurs other costs and expenses, primarily insurance and real property taxes, which are reimbursable by the Partnership. In 1995, 1994 and 1993 ML&P charged the Partnership $2,759,000, $1,531,000 and $572,000, respectively, for electricity and other costs and expenses. OTHER ASSETS Other Assets at December 31, 1995 and 1994 consisted of the following: 1995 1994 Deferred costs $4,200,435 $2,608,015 Restricted cash 1,503,926 -- Noncurrent accounts receivable 271,778 -- ---------- ---------- Total Other Assets $5,976,139 $2,608,015 ========== ========== Deferred costs are net of amortization of $669,605 and $169,276 at December 31, 1995 and 1994, respectively. Restricted cash represents proceeds from the mortgage loan which are reserved for additional expansion costs (see BORROWING ARRANGEMENTS). Noncurrent accounts receivable represent the excess of minimum rental income recognized on a straight-line basis over amounts receivable according to provisions of the lease. BORROWING ARRANGEMENTS
Long-term debt at December 31, 1995 and 1994 consisted of the following: 1995 1994 Mortgage loan, 8.57%, due through 2005 $64,617,682 $ -- Mortgage loan, 10% (see below) -- 13,889,943 Employees' Retirement System of the State of Hawaii, 9% (see below) -- 30,587,879 Construction Loan, 8.75% (see below) -- 27,110,808 ----------- ----------- Total 64,617,682 71,588,630 Less portion classified as current 661,888 201,055 ----------- ----------- Long-term debt $63,955,794 $71,387,575 =========== ===========
As of April 30, 1995, the loan from ERS was contributed to the Partnership in exchange for an additional 49% ownership interest in the Partnership. In May of 1995 the Partnership refinanced the 10% mortgage loan and the 8.75% construction loan with a $65 million ten-year term loan bearing interest at 8.57%. This financing arrangement, which is collateralized by the Center, is nonrecourse except for the first $10 million which is guaranteed by ML&P until the Center attains a defined level of net operating income. Based on rates currently available to the Partnership for debt with a similar term, the fair value of this liability is estimated to be $71.1 million at December 31, 1995. Scheduled principal maturities for the next five years from 1996 through 2000 are as follows: $662,000, $792,000, $863,000, $942,000 and $1,011,000. LEASES Tenant leases of the Center provide for monthly base rent plus percentage rents and reimbursement for common area maintenance and other costs. Future minimum rental income to be received under non-cancelable operating leases of the Center aggregates $66,818,000 and is receivable during the next five years (1996 to 2000) as follows: $6,616,000, $6,266,000, $6,113,000, $5,989,000, $5,840,000, respectively, and $35,994,000 thereafter. CONCENTRATION OF CREDIT RISK The Partnership extends credit to its tenants in the course of its leasing operations. The credit worthiness of existing and potential tenants are evaluated and under certain circumstances a security deposit is required. FAIR VALUE OF FINANCIAL INSTRUMENTS Except for the mortgage loan (see BORROWING ARRANGEMENTS), the Partnership believes the fair value of financial instruments approximates carrying amounts. -----END PRIVACY-ENHANCED MESSAGE-----