-----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, EayqcBkgm+MZ6I3oApgxd2k/YFz792ESDxVbrIYM7agA9yRrgScfNAL9VmjCFRF4 1Q8yQ2O5l9J5PTQhHk2Kfg== 0000063330-00-000010.txt : 20000327 0000063330-00-000010.hdr.sgml : 20000327 ACCESSION NUMBER: 0000063330-00-000010 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000324 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: SEC FILE NUMBER: 001-06510 FILM NUMBER: 577848 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 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-6510 MAUI LAND & PINEAPPLE COMPANY, INC. (Exact name of registrant as specified in its charter) HAWAII 99-0107542 (State or other jurisdiction (IRS Employer Identification of incorporation or organization) number) 120 KANE STREET, P. O. BOX 187, KAHULUI, MAUI, HAWAII 96733-6687 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (808) 877-3351 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which Registered Common Stock, without Par Value American Stock Exchange Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value, as of February 3, 2000, of the voting stock held by nonaffiliates of the registrant: $116,932,000. Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at February 3, 2000 Common Stock, no par value 7,195,800 shares Documents incorporated by reference: Parts I, II and IV -- Portions of the 1999 Annual Report to Security Holders. Part III - Portions of Proxy Statement dated March 24, 2000. Exhibit Index--pages 17 - 20. PART I Item 1. Business (a) General Maui Land & Pineapple Company, Inc. is a Hawaii corporation, the successor to a business organized in 1909. The Company consists of a landholding and operating parent company as well as its principal wholly owned subsidiaries, Maui Pineapple Company, Ltd. and Kapalua Land Company, Ltd. The "Company," as used herein, refers to the parent and all of its subsidiaries. The Company participates in joint ventures that are accounted for by the equity method. The most significant of these ventures is Kaahumanu Center Associates, the owner and operator of a regional shopping center. The industry segments of the Company are as follows: (1) Pineapple - includes growing pineapple, canning pineapple in tinplated steel containers fabricated by the Company, production of pineapple juice and fresh cut pineapple products and marketing of canned pineapple products and fresh whole and fresh cut pineapple. (2) Resort - includes the development and sale of resort real estate, property management and the operation of recreational and retail facilities and utility companies at Kapalua, Maui. (3) Commercial & Property - includes the Company's investment in Kaahumanu Center Associates, the Napili Plaza shopping center, and non-resort real estate development, rentals and sales. It includes the Company's land entitlement and land management activities. (b) Financial Information About Industry Segments The information set forth under Note 17 to Consolidated Financial Statements on page 18 of the Maui Land & Pineapple Company, Inc. 1999 Annual Report is incorporated herein by reference. (c) Narrative Description of Business (1) Pineapple Maui Pineapple Company, Ltd. is the operating subsidiary for the Company's Pineapple segment. It owns and operates fully integrated facilities for the production of pineapple products. Pineapple is cultivated on two Company-operated plantations on Maui that provided approximately 94% of the fruit processed in 1999. The balance of fruit processed was purchased from an independent Maui grower. Two pineapple crops are normally harvested from each new planting. The first, or plant crop, is harvested approximately 18 to 23 months after planting, and the second, or ratoon crop, is harvested 12 to 14 months later. Harvested pineapple is processed at the Company's cannery in Kahului, Maui, where a full line of canned pineapple products is produced, including solid pineapple in various grades and styles, juice and juice concentrates. The cannery operates most of the year; however, over 50% of production volume takes place during June, July and August. The metal containers used in canning pineapple are produced in the Company-owned can plant on Maui. The metal is imported from manufacturers in Japan. A warehouse is maintained at the cannery site for inventory purposes. The Company sells canned pineapple products as store-brand pineapple with 100% HAWAIIAN U.S.A. stamped on the can lid. Its products are sold principally to large grocery chains, other food processors, wholesale grocers, and to organizations offering a complete buyers' brand program to affiliated chains and wholesalers serving both retail and food service outlets. A substantial volume of the Company's pineapple products is marketed through food brokers. The Company sells fresh whole pineapple to retail and wholesale grocers in Hawaii and the continental United States. Since 1996, the Company has been test marketing various fresh cut pineapple products in Hawaii and on the U.S. West Coast. In 1999, the Company introduced fresh cut pineapple wedges and chunks in plastic containers to markets in the continental U. S., and a fresh pineapple salsa product in plastic containers to the Hawaii market and to certain stores in California. In 1999, the Company was granted a U.S. patent on its fresh cut pineapple technology, which enhances the quality of the product while extending the shelf life. The extended shelf life will allow the Company to set up local warehouse programs, thereby facilitating distribution to retailers. In 1997, Royal Coast Tropical Fruit Company, Inc. (a wholly owned subsidiary of Maui Pineapple Company, Ltd.) entered into a joint venture with an Indonesian pineapple grower and canner. The joint venture, Premium Tropicals International, LLC, markets and sells Indonesian canned pineapple in the United States. Sales through this joint venture began in 1998. In 1999, Royal Coast Tropical Fruit Company, Inc. formed a 51%-owned pineapple production subsidiary in Central America. Pineapple cultivated in Central America will be sold principally as fresh whole fruit to the Company's customers in the United States and Europe. In 1999, approximately 20 domestic customers accounted for about 64% of the Company's pineapple sales. Export sales, primarily to Japan, Canada and Western Europe, amounted to approximately 3.4%, 4.6% and 4.1% of total pineapple sales in 1999, 1998 and 1997, respectively. Sales to the U.S. government amounted to approximately 9.7%, 10.2% and 12.9% of total pineapple sales in 1999, 1998 and 1997, respectively. The Company's pineapple sales office is in Concord, California. As a service to its customers, the Company maintains inventories of its products in public warehouses in the continental U.S. The balance of its products is shipped directly from Hawaii to its customers. The Company's canned pineapple products are shipped from Hawaii by ocean transportation and are then taken by truck or rail to customers or to public warehouses. Fresh whole and fresh cut pineapple is shipped by air or by ocean transportation. The Company sells its products in competition with both foreign and U.S. companies. Its principal competitors are two U.S. companies, Dole Food Company, Inc. and Del Monte Food Co., which produce substantial quantities of pineapple products, a significant portion of which is produced in Central America and Southeast Asia. Other producers of pineapple products in Thailand and Indonesia also are a major source of competition. Foreign production has the advantage of lower labor costs. The Company's principal marketing advantages are the high quality of its fresh and canned pineapple, the relative proximity to the West Coast United States fresh fruit market and being the only U.S. canner of pineapple. Other canned fruits and fruit juices also are a source of competition. Generally, the price of the Company's products is influenced by supply and demand of pineapple and other fruits and juices. The availability of water for irrigation is critical to the cultivation of pineapple. The East Maui area is commonly susceptible to drought conditions, which can adversely affect pineapple operations by resulting in poor yields (tons per acre) and lower recoveries (the amount of saleable product per ton of fruit processed). Approximately 78% of the fields in the Company's East Maui plantation (Haliimaile) are equipped with drip irrigation systems. Fields that are not drip irrigated are in areas that typically receive adequate rainfall. During periods of drought, Company-owned water sources could supply approximately 65% of the water for the Haliimaile plantation drip irrigation systems. After completion of a new water well that is currently being drilled, Company-owned water sources should be able to supply close to 100% of the water requirement for the Haliimaile plantation drip irrigation systems. For information regarding the antidumping petition and duties currently imposed on imports of canned pineapple fruit from Thailand, see Part I, Item 3. (A) of this report. For further information regarding Pineapple operations see Management's Discussion and Analysis of Financial Condition and Results of Operations. (2) Resort Kapalua Resort is a master-planned golf resort community on Maui's northwest coast. The property encompasses 1,650 acres bordering the ocean with three white sand beaches and includes two hotels, seven residential subdivisions, three championship golf courses, two ten-court tennis facilities, a 22,000 square foot shopping center and over ten restaurants. Water and waste transmission utilities are included in the Resort. Approximately 300 acres are available for further development within the Kapalua Resort. Kapalua Land Company, Ltd. is the developing and operating subsidiary of the Company's Resort segment. The Resort segment also includes the following wholly owned subsidiaries of the Company: Kapalua Water Company, Ltd. and Kapalua Waste Treatment Company, Ltd., public utilities providing water and waste transmission services for the Kapalua Resort; Kapalua Advertising Company, Ltd., an in-house advertising agency; Kapalua Investment Corp., an investment holding company; and Kapalua Realty Company, Ltd. (wholly owned by Kapalua Land Company, Ltd.), a general brokerage real estate company located within the Resort. The Company, through subsidiaries and joint ventures, developed the Kapalua Resort, which opened in 1975 with The Bay Course. At Kapalua, the Company owns three golf courses (The Bay, The Village and The Plantation Courses), one tennis facility (The Tennis Garden), a shopping center (The Kapalua Shops), the land under both hotels (The Ritz-Carlton, Kapalua and The Kapalua Bay Hotel), as well as the acreage available for development and various on-site administrative and maintenance facilities. The Company operates the golf and tennis facilities, the shopping center, ten retail shops, a vacation rental program (The Kapalua Villas), and certain services to the Resort, including shuttle, security and maintenance of common areas. The Company is the ground lessor under long-term leases for both hotels and also receives rental income from certain other properties. The Company manages The Kapalua Club, a membership program that provides certain rights and privileges within the Resort for its members. In January 2000, the Kapalua Golf Academy and the Hale Irwin- designed Village Course practice facility opened. In July of 2000, the Village Course Clubhouse is expected to be completed. The clubhouse and golf academy development will include an 18- hole putting course and two commercial retail parcels. This development provides the foundation for the central resort master plan including a Town Center, resort spa and residential development. In the fourth quarter of 1999, the Company began construction of 14 single-family lots in the remaining acreage of Plantation Estates Phase II (see Note 3 to Consolidated Financial Statements). All of the lots were sold in 1999 and 12 closed escrow in November and December of 1999. Construction is expected to be substantially complete in the first quarter of 2000 and revenue on the closed sales is being recognized on the percentage-of-completion method. In 1997, the Company and an affiliate of Lend Lease Real Estate Investment, Inc. (Lend Lease), owner of The Kapalua Bay Hotel, formed a 50/50 joint venture, Kapalua Coconut Grove LLC, to develop a 12-acre parcel adjacent to the hotel. Lend Lease purchased a one-half interest in the land from the Company prior to formation of the venture. Presales of the 36 luxury beachfront condominiums, called The Coconut Grove on Kapalua Bay, began in August of 1999. Mass grading and site work began in the fourth quarter of 1999. In December 1999, the Company received a Special Management Area permit for a proposed 31 half-acre residential custom lot subdivision on Site 19. Final subdivision approval, a zoning change and Community Plan amendment for about three acres of the 20-acre site are still needed and are expected in May 2000. Lot sales are expected to close in the third quarter of 2000 with profits being recognized using the percentage-of-completion method. The Kapalua Resort faces substantial competition from alternative visitor destinations and resort communities in Hawaii and throughout the world. Kapalua's marketing strategies target upscale visitors with an emphasis on golf. In 1999, approximately 14% of the visitors to Maui were from the Eastbound market and 86% were from the Westbound market (mostly U.S. mainland). Kapalua's primary resort competitors on Maui are Kaanapali, which is approximately five miles from Kapalua, and Wailea on Maui's south coast. Kapalua's total guestroom inventory accounts for approximately 10% of the units available in West Maui and approximately 6% of the total inventory on Maui. Nationally televised professional golf tournaments have been a major marketing tool for Kapalua. Since January 1999, Kapalua has successfully hosted the Mercedes Championships, the season opening event for the PGA TOUR. The Company has, through the non- profit organization Kapalua Maui Charities, Inc., agreements with Mercedes-Benz and the PGA TOUR to host and manage this event at Kapalua through January 2002. Advertising placements in key publications are designed to promote Kapalua through the travel trade, consumer, golf and real estate media. For further information regarding Resort operations, see Management's Discussion and Analysis of Financial Condition and Results of Operations. (3) Commercial & Property Kaahumanu Center is the largest retail and entertainment center on Maui with a gross leasable area (GLA) of approximately 573,000 square feet. Kaahumanu Center is owned by Kaahumanu Center Associates (KCA), a 50/50 partnership between the Company, as general partner, and the Employees' Retirement System of the State of Hawaii, as a limited partner. On December 31, 1999, 134 tenants occupied 98% of the available GLA. Kaahumanu Center faces substantial competition from other retail centers in Kahului and other areas of Maui. Kahului has approximately nine major shopping center destinations with a combined GLA of approximately 1.6 million square feet of retail space. Kaahumanu Center's primary competitors are the Maui Mall and the Maui Marketplace, both located within three miles of Kaahumanu Center. Napili Plaza is a 44,000 square foot retail and commercial office center located in West Maui. As of December 31, 1999, 18 tenants occupied 78% of the GLA. Napili Plaza faces competition from several retail locations in the Napili area, which have approximately 195,000 square feet of retail space. The Company's land entitlement and management activities are included in the Commercial & Property segment. Land entitlement is the process of obtaining the required county, state and federal approvals to proceed with a planned development and use of a parcel of land, and satisfying all conditions and restrictions imposed in connection with such governmental approvals. The Company actively works with regulatory agencies and legislative bodies at all levels of government to obtain necessary entitlements. For further information regarding Commercial & Property operations, see Management's Discussion and Analysis of Financial Condition and Results of Operations. (4) Employees In 1999, the Company employed approximately 2,040 employees. Pineapple operations employed approximately 520 full-time and 960 seasonal or intermittent employees. Approximately 48% of the Pineapple operations employees were covered by collective bargaining agreements. Resort operations employed approximately 450 employees, of which approximately 14% were part-time employees and approximately 30% were covered by collective bargaining agreements. The Company's Commercial & Property operations employed approximately 80 employees and approximately 30 employees were engaged in administrative activities. (5) Other Information The Company's Pineapple segment engages in continuous research to develop techniques to reduce costs through crop production and processing innovations and to develop and perfect new products. Improved production systems have resulted in increased productivity by the labor force. Research and development expenses approximated $839,000 in 1999, $815,000 in 1998 and $601,000 in 1997. The Company has reviewed its compliance with federal, state and local provisions that regulate the discharge of materials into the environment or otherwise relate to the protection of the environment. The Company does not expect any material future financial impact as a result of compliance with these laws. The Company has a commitment relating to the filtration of water wells, as described in Part I, Item 3(B) of this report. The Company's share of the cost to maintain and operate the filtration systems for the existing wells and its share of the cost of the letter of credit has been estimated, and a reserve for this liability was recorded in 1999. Such amount did not have a material effect on the Company's financial statements for the year ended December 31, 1999. The Company is unable to estimate the range of potential financial impact for the possible filtration cost for any future wells acquired or drilled by the County of Maui and, therefore has not made a provision in its financial statements for such costs. (d) Financial Information About Foreign and Domestic Operations and Export Sales Export sales only arise in the Company's Pineapple segment. Export sales of pineapple products are primarily to Japan, Western Europe and Canada. For the last three years, these sales did not exceed 10% of total consolidated revenues. Executive Officers of Registrant Below is a list of the names and ages of the Company's executive officers, indicating their position with the Company and their principal occupation during the last five years. The current terms of the executive officers expire in May of 2000 or at such time as their successors are elected. Gary L. Gifford (52) President and Chief Executive Officer since 1995; Executive Vice President/Resort 1987 to 1995. Paul J. Meyer (52) Executive Vice President/Finance since 1984. Douglas R. Schenk (47) Executive Vice President/Pineapple since 1995; Vice President/Pineapple 1993 to 1995. Donald A. Young (52) Executive Vice President/Resort since 1995; Executive Vice President/Operations of Kapalua Land Company, Ltd. 1992 to 1995. Scott A. Crockford (44) Vice President/Retail Property since 1995; General Manager of Kaahumanu Center 1989 to 1995. Warren A. Suzuki (47) Vice President/Land Management & Development since October 1995; Vice President/Construction & Planning of Kapalua Land Company, Ltd. from May 1995 to October 1995; Director of Project Coordination of Kapalua Land Company, Ltd. 1988 to May 1995. Item 2. PROPERTIES The Company owns approximately 28,600 acres of land on Maui. Approximately 30% of the acreage is used directly or indirectly in the Company's operations and the remaining land is primarily in pasture or forest reserve. This land, most of which was acquired from 1911 to 1932, is carried on the Company's balance sheet at cost. The Company believes it has clear and unencumbered marketable title to all such property, except for the following: (1) a mortgage on the fee and leasehold interest in the 36-acre Ritz-Carlton Kapalua Hotel site, which secures a loan to the ground lessee for up to $65 million; (2) a perpetual conservation easement granted to the State of Hawaii on a 13-acre parcel at Kapalua; (3) certain easements and rights-of-way that do not materially affect the Company's use of its property; (4) a mortgage on approximately 4,400 acres used in pineapple operations, which secures the Company's $15 million term loan agreement; (5) a mortgage on the three golf courses at Kapalua, which secures the Company's $15 million revolving credit and $15 million development line arrangement; (6) a permanent conservation easement granted to The Nature Conservancy of Hawaii, a non-profit corporation, covering approximately 8,600 acres of forest reserve land; (7) a $4,807,000 mortgage on the fee interest in Napili Plaza shopping center; and (8) a small percentage of the Company's land in various locations on which multiple claims exist, some of which the Company has initiated quiet title actions. Approximately 22,800 acres of the Company's land are located in West Maui, approximately 5,700 acres are located in East Maui and approximately 28 acres are located in Kahului, Maui. The 22,800 acres in West Maui comprise a largely contiguous parcel that extends from the sea to an elevation of approximately 5,700 feet and includes nine miles of ocean frontage with approximately 3,300 lineal feet along sandy beaches, as well as agricultural and grazing lands, gulches and heavily forested areas. The West Maui acreage includes the Company's Honolua pineapple plantation, which uses approximately 3,600 acres in its operations and approximately 1,650 acres designated for the Kapalua Resort. The East Maui property is situated at elevations between 1,000 and 3,000 feet above sea level on the slopes of Haleakala and approximately 3,140 acres are in pineapple operations as the Company's Haliimaile plantation. The Kahului acreage includes offices, a can manufacturing plant and a pineapple-processing cannery with interconnected warehouses at the cannery site where finished product is stored. Approximately 3,500 acres of leased land are used in the Company's pineapple operations. A major operating lease covering approximately 1,500 acres of land expired on December 31, 1999. The lease currently is being renegotiated for a minimum term of ten years. Fourteen leases expiring at various dates through 2018 cover the balance of the leased property. The aggregate land rental for all leased land was $589,000 in 1999. Item 3. LEGAL PROCEEDINGS A. Antidumping Petition In June 1994, Maui Pineapple Company, Ltd. and the International Longshore and Warehouse Union filed an antidumping petition with the U.S. International Trade Commission (ITC) and the U.S. Department of Commerce (DOC). The petition alleged that producers of canned pineapple in Thailand were violating U.S. and international trade laws by selling their products in the U.S. at less than fair value, and that such sales were causing injury to the U.S. industry producing canned pineapple. In the second quarter of 1995, the DOC and the ITC completed their investigations concluding that unfair imports of canned pineapple from Thailand were causing material injury to the domestic industry. As a result of the affirmative findings of both the DOC and the ITC, antidumping duties were imposed on all imports of canned pineapple fruit from Thailand into the United States with cash duty deposits ranging up to 51%. The Thai respondents appealed the dumping calculations of DOC to the United States Court of International Trade (USCIT). In November 1996, the USCIT remanded certain issues back to the DOC for recalculation. The Company strongly disagreed with the USCIT decision on one of the issues, which would substantially reduce the duties being imposed, and the Company and the DOC appealed the decision by the USCIT to the United States Court of Appeals for the Federal Circuit. In July 1999, the Court of Appeals reversed the decision of the USCIT, in effect affirming the existing duties on imports established by the DOC. B. Chemical Litigation In Board of Water Supply of the County of Maui v. Shell Oil Company, et al., Civil No. 96-0370 (Second Circuit Court, State of Hawaii), (the "DBCP Litigation") the County of Maui (the "County") sued several chemical manufacturers claiming that they were responsible for the presence of a nematocide commonly known as "DBCP" in certain water wells that the County maintains. One of those chemical manufacturers, Occidental Chemical Corporation (OCC), claimed that Maui Land & Pineapple Company, Inc. and Maui Pineapple Company, Ltd. (the "Company") were required to indemnify OCC against the County's claims under the terms of a March 14, 1978 Agreement for Sale of DBCP between the Company and OCC. The Company rejected the OCC tender and the indemnification and, on November 13, 1997, filed a lawsuit against OCC, Maui Land & Pineapple Company, Inc. v. Occidental Chemical Corporation, Civil No. 97-0867 (Second Circuit Court, State of Hawaii), seeking judgment declaring that the Company has no obligation to indemnify OCC against the County's claims. The Company tendered the defense and indemnification of OCC's claims to its insurers, including Hawaiian Insurance & Guaranty Company, which has been liquidated by the State of Hawaii and is now known as HUI/Unico in Liquidation, Inc. ("HUI/Unico"). HUI/Unico agreed to defend the Company against OCC's claims under a reservation of the right to contest its obligation to do so. On September 2, 1997, HUI/Unico filed a lawsuit against the Company, Reynaldo D. Graulty, Insurance Commissioner of the State of Hawaii, in his capacity as Liquidator of HUI/Unico in Liquidation, Inc. v. Maui Land & Pineapple Company, Inc., Civil No. 97-3571-09 (First Circuit Court, State of Hawaii), seeking judgment declaring that HUI/Unico had no obligation to defend and indemnify the Company against OCC's claims. On August 31, 1999, a Settlement Agreement and Release of All Claims (the "Settlement Agreement") was executed among the Defendants in the DBCP Litigation and the County. The Defendants include OCC, Dow Chemical Company (DOW), Shell Oil Company, AMVAC Chemical Corporation, American Vanguard Corporation, Brewer Environmental Industries, LLC, and as Third Party Defendants, the Company. Under the Settlement Agreement, the Defendants as a group agreed to pay $3,000,000 in cash for the installation of a charcoal filter system for one water well, the temporary installation of a charcoal filter system for two water wells, and other related costs. The Company's portion of this cash payment, as detailed in the following paragraph, is $450,000. The Defendants also agreed to pay 100% of the capital costs to install charcoal filter systems and to pay ongoing operational and maintenance costs on four other water wells specified in the Settlement Agreement in the event that water from these wells consistently contains levels of DBCP exceeding certain specified levels and the water from the wells is needed by the County. In addition, the Defendants have agreed to pay 90% of the capital costs to install charcoal filter systems and to pay ongoing operation and maintenance costs for wells that may be acquired by or that may be drilled by the County if water from these wells consistently contain levels of DBCP exceeding specified levels and the water from these wells is needed for use by the County. There are procedures in the Settlement Agreement under which the Defendants can attempt to minimize the DBCP impact on future wells by relocating the wells to areas unaffected by DBCP or by using less costly methods to remove DBCP from the water. Defendants are obligated to pay for these capital costs and operation and maintenance costs through December 1, 2039, and the obligation is limited to a maximum of 50 wells. The liability of the Defendants under the Settlement Agreement is joint and several. The Settlement Agreement requires the Defendants to post as security for their obligations a letter of credit in the amount of $20,000,000, and to maintain the letter of credit, subject to possible reductions in amount by virtue of payments, for the 40- year term of the Settlement Agreement. In the event that a claim for payment by the County is not paid on a timely basis or in the event that the letter of credit is not renewed by the Defendants on a timely basis, the County may draw against the then current letter of credit. The letter of credit is issued on behalf of Dow in accordance with the terms of a Contribution Agreement, referenced below. The County has released Defendants from all liability to the County for DBCP affecting County water wells on the island of Maui. In addition, the Company has released potential claims against the County for past transfers of land to the County for well sites and for potential rental claims for property upon which wells are situated. Board of Water Supply of the County of Maui v. Shell Oil Company, et al., Civil No. 96- 0370 was dismissed on September 28, 1999. Also on August 31, 1999, a Compromise and Settlement Agreement (the "Contribution Agreement") was executed among the Defendants in the DBCP Litigation. The Defendants agreed in the Contribution Agreement to share in various proportions the liability for the settlement of the DBCP Litigation referenced above. The Company and OCC agreed to pay in cash a total of $600,000 of the $3,000,000 cash payment and to each bear 11.25% of all future costs under the Settlement Agreement. By virtue of the Occidental Agreement (described below), the Company paid 75% of this cash cost or $450,000 of the $600,000. With respect to future costs, under the Occidental Agreement, the Company will be required to pay a total of 16.875% of the future costs under the Settlement Agreement. Under the Contribution Agreement, each of the Defendants agreed to fund its respective proportion of the obligations under the Settlement Agreement. In the event any of the Defendants fails to do so, the remaining Defendants must fund the defaulting defendant's deficiency in order to avoid a potential default under the Settlement Agreement. Also under the Contribution Agreement, Dow has agreed to obtain the $20,000,000 letter of credit required by the Settlement Agreement on behalf of all the Defendants. Each will share in its respective proportion of the cost of the letter of credit. In addition, in the event that the letter of credit is drawn upon, either in whole or in part, each Defendant is required to pay to Dow its proportionate share of the drawing. The Contribution Agreement releases all claims of the Defendants against each other for contribution with respect to claims raised in the DBCP Litigation. On August 5, 1999, the Company entered into a settlement agreement with OCC (the "Occidental Agreement") in which the Company agreed to pay to OCC $100,000 for a release of liability for past, present and future attorneys' fees and costs in the DBCP Litigation and (i) 50% of OCC's share (up to a maximum of $300,000, subject to potential increase) of the negotiated cost of remediation of one existing well and the temporary drought treatment of two wells that are the subject of the DBCP Litigation and (ii) 50% of OCC's share of future capital, operation and maintenance costs associated with the remediation of future DBCP affected wells on Maui as such costs may become due and payable to the Board of Water Supply. In addition, the Company agreed to pay 50% of OCC's share of any liability in any future action brought against it by the County or any other person alleging property damage allegedly based on contamination of one or more water wells on Maui by DBCP, whether such liability is determined by settlement or by verdict, and pay 50% of OCC's attorneys' fees and costs and expenses incurred in the defense of such action. On December 22, 1999, the Company and HUI/Unico entered into a Release and Settlement Agreement under which the Company received $600,000 from HUI/Unico in December 1999, the Company released any right that it had to make any existing or future claims against HUI/Unico's insurance policies, and HUI/Unico's declaratory judgement action against the Company was dismissed on December 29, 1999. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information set forth under the caption "Common Stock" on page 19 of the Maui Land & Pineapple Company, Inc. 1999 Annual Report is incorporated herein by reference. Item 6. SELECTED FINANCIAL DATA The information set forth under the caption "Selected Financial Data" on page 20 of the Maui Land & Pineapple Company, Inc. 1999 Annual Report is incorporated herein by reference. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 21 through 24 of the Maui Land & Pineapple Company, Inc. 1999 Annual Report is incorporated herein by reference. Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK "Market Risk" on page 24 of the Maui Land & Pineapple Company, Inc. 1999 Annual Report is incorporated herein by reference. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The "Independent Auditors' Report," "Consolidated Financial Statements" and "Notes to Consolidated Financial Statements" on pages 7 through 18 of the Maui Land & Pineapple Company, Inc. 1999 Annual Report are incorporated herein by reference. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information set forth under the captions "Section 16(a) Beneficial Ownership Reporting Compliance" and "Election of Directors" on pages 6 through 8 of the Maui Land & Pineapple Company, Inc. Proxy Statement, dated March 24, 2000, is incorporated herein by reference. Information regarding the registrant's executive officers is included in Part I, Item 1. Business. Item 11. EXECUTIVE COMPENSATION The information set forth under the caption "Executive Compensation" on pages 9 through 13 and under the subcaption "Directors' Meetings and Committees" on page 8 of the Maui Land & Pineapple Company, Inc. Proxy Statement, dated March 24, 2000, is incorporated herein by reference. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information set forth under the caption "Security Ownership of Certain Beneficial Owners and Management" on pages 4 through 6 of the Maui Land & Pineapple Company, Inc. Proxy Statement, dated March 24, 2000, is incorporated herein by reference. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information set forth under the caption "Compensation Committee Interlocks and Insider Participation" on page 13 of the Maui Land & Pineapple Company, Inc. Proxy Statement, dated March 24, 2000, is incorporated herein by reference. PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. Financial Statements The following Financial Statements and Supplementary Data of Maui Land & Pineapple Company, Inc. and subsidiaries and the Independent Auditors' Report are included in Item 8 of this report: Consolidated Balance Sheets, December 31, 1999 and 1998 Consolidated Statements of Operations and Retained Earnings for the Years Ended December 31, 1999, 1998 and 1997 Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997 Notes to Consolidated Financial Statements (a) 2. Financial Statement Schedules The following Financial Statement Schedule of Maui Land & Pineapple Company, Inc. and subsidiaries and the Independent Auditors' Report is filed herewith: II. Valuation and Qualifying Accounts for the Years Ended December 31, 1999, 1998 and 1997. (a) 3. Exhibits Exhibits are listed in the "Index to Exhibits" found on pages 17 to 20 of this Form 10-K. (b) Reports on Form 8-K There were no reports on Form 8-K filed during the last quarter of the period covered by this report. (d) The Financial Statements of Kaahumanu Center Associates for the Years Ended December 31, 1999, 1998 and 1997 are filed as exhibits. INDEPENDENT AUDITOR'S REPORT To the Stockholders and Directors of Maui Land & Pineapple Company, Inc.: We have audited the consolidated financial statements of Maui Land & Pineapple Company, Inc. and its subsidiaries as of December 31, 1999 and 1998 and for each of the three years in the period ended December 31, 1999, and have issued our report thereon, dated February 9, 2000 (February 24, 2000 as to Note 13). Such consolidated financial statements and report are included in your 1999 Annual Report and are incorporated herein by reference. Our audits also included the financial statement schedule of Maui Land & Pineapple Company, Inc. listed in Item 14(a)2. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /S/ DELOITTE & TOUCHE LLP Honolulu, Hawaii February 9, 2000 SCHEDULE II MAUI LAND & PINEAPPLE COMPANY, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 ADDITIONS ADDITIONS CHARGED BALANCE AT CHARGED TO TO OTHER BALANCE BEGINNING COSTS AND ACCOUNTS DEDUCTIONS AT END DESCRIPTION OF PERIOD EXPENSES (describe)(a) (describe)(b) OF PERIOD (Dollars in Thousands) Allowance for Doubtful Accounts 1999 $ 493 $ 292 $ 161 $(163) $ 783 1998 567 191 9 (274) 493 1997 698 47 13 (191) 567 (a) Recoveries. (b) Write off of uncollectible accounts. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MAUI LAND & PINEAPPLE COMPANY, INC. March 24, 2000 By /S/ GARY L. GIFFORD Gary L. Gifford President & Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. By /S/ RICHARD H. CAMERON Date March 24, 2000 Richard H. Cameron Chairman of the Board By /S/ PAUL J. MEYER Date March 24, 2000 Paul J. Meyer Executive Vice President/Finance (Principal Financial Officer) By /S/ TED PROCTOR Date March 24, 2000 Ted Proctor Controller & Assistant Treasurer (Principal Accounting Officer) By /S/ DANIEL H. CASE Date March 24, 2000 Daniel H. Case Director By /S/ DAVID A. HEENAN Date March 24, 2000 David A. Heenan Director By /S/ RANDOLPH G. MOORE Date March 24, 2000 Randolph G. Moore Director By /S/ CLAIRE C. SANFORD Date March 24, 2000 Claire C. Sanford Director By /S/ FRED E. TROTTER III Date March 24, 2000 Fred E. Trotter III Director INDEX TO EXHIBITS The exhibits designated by an asterisk (*) are filed herewith. The exhibits not so designated are incorporated by reference to the indicated filing. All previous exhibits were filed with the Securities and Exchange Commission in Washington D. C. under file number 0-6510. 3. Articles of Incorporation and By-laws 3(i)* Restated Articles of Association, as of February 24, 2000. 3(ii) Bylaws (Amended as of March 29, 1999). Exhibit (3ii) to Form 10-Q for the quarter ended March 31, 1999. 4. Instruments Defining the Rights of Security Holders. Instruments defining the rights of holders of long-term debt have not been filed as exhibits where the amount of debt authorized thereunder does not exceed ten percent of the total assets of the Company and its subsidiaries on a consolidated basis. The Company hereby undertakes to furnish a copy of any such instrument to the Commission upon request. 4.1(i) Amended and Second Restated Revolving Credit and Term Loan Agreement, dated as of December 4, 1998. Exhibit 4.1(i) to Form 10-K for the year ended December 31, 1998. (ii)* 1999 Loan Modification Agreement, dated as of December 30, 1999. 4.2(i) Bridge Loan Agreement between Pacific Coast Farm Credit Services, ACA and Maui Land & Pineapple Company, Inc., dated December 30, 1998. Exhibit 4.2(i) to Form 10-K for the year ended December 31, 1998. (ii) Term Loan Agreement between Pacific Coast Farm Credit Services and Maui Land & Pineapple Company, Inc., entered into as of June 1, 1999. Exhibit 4(A) to Form 10-Q for the quarter ended June 30, 1999. (iii)* Modifications to Term Loan Agreement, dated February 16, 2000. 10. Material Contracts 10.1(i) Limited Partnership Agreement of Kaahumanu Center Associates, dated June 23, 1993. Exhibit (10)A to Form 10-Q for the quarter ended June 30, 1993. (ii) Cost Overrun Guaranty Agreement, dated June 28, 1993. Exhibit (10)B of Form 10-Q for the quarter ended June 30, 1993. (iii) Environmental Indemnity Agreement, dated June 28, 1993. Exhibit (10)C to Form 10-Q for the quarter ended June 30, 1993. (iv) Indemnity Agreement, dated June 28, 1993. Exhibit (10)D to Form 10-Q for the quarter ended June 30, 1993. (v) Direct Liability Agreement, dated June 28, 1993. Exhibit (10)E to Form 10-Q for the quarter ended June 30, 1993. (vi) Amendment No. 1 to Limited Partnership Agreement of Kaahumanu Center Associates. Exhibit (10)B to Form 8-K, dated as of April 30, 1995. vii) Conversion Agreement, dated April 27, 1995. Exhibit (10)C to Form 8-K, dated as of April 30, 1995. (viii) Indemnity Agreement, dated April 27, 1995. Exhibit (10)D to Form 8-K, dated as of April 30, 1995. 10.2 Exhibits 10.2(i) to 10.2(xiv) relate to The Ritz- Carlton, Kapalua Hotel (i) Partnership Agreement; Development Agreement; Operating Agreement; Hotel Ground Lease; Supplemental Agreement; Construction Loan Agreement; Promissory Note; Real Property Mortgage; Leasehold Mortgage. Exhibit (10)A-I to Form 10-Q for the quarter ended September 30, 1990. (ii) Dissolution Agreement, dated October 31, 1995. Exhibit (10)A to Form 10-Q for the quarter ended September 30, 1995. (iii) First Mortgage, Security Agreement, Financing Statement and Assignment of Rentals covering the fee simple interest and the leasehold interest, securing a loan of $65,000,000, dated February 24, 1996. Exhibit 10.4(iii) to Form 10-K for the year ended December 31, 1995. (iv) Subordination, Nondisturbance and Attornment Agreement (Ground Lessor), dated February 24, 1996. Exhibit 10.4(iv) to Form 10-K for the year ended December 31, 1995. (v) Hotel Ground Lease by and between Maui Land & Pineapple Company, Inc. (Lessor) and NI Hawaii Resort, Inc. (Lessee), effective January 1, 1996. Exhibit 10.4(v) to Form 10-K for the year ended December 31, 1995. (vi) Amendment Relating to Off-Site Loan, dated January 9, 1996 and effective January 1, 1995. Exhibit 10.4(vi) to Form 10-K for the year ended December 31, 1995. (vii) Letter Agreement, dated January 1, 1996, Re: Nonrecourse Open Account For Off-Site Improvements. Exhibit 10.4(vii) to Form 10-K for the year ended December 31, 1995. (viii) Agreement with NI Hawaii Resort, Inc. (Ground Lease), dated January 9, 1996. Exhibit 10.4(viii) to Form 10-K for the year ended December 31, 1995. (ix) Amendment and Restatement of Tennis Operating Agreement by and between Kapalua Land Company, Ltd. (Operator) and NI Hawaii Resort, Inc. (Owner), dated January 9, 1996. Exhibit 10.4(ix) to Form 10-K for the year ended December 31, 1995. (x) Assignment Agreement (Assignment of Amended and Restated Tennis Operating Agreement), dated January 9, 1996. Exhibit 10.4(x) to Form 10-K for the year ended December 31, 1995. (xi) Golf Course Use Agreement by and between Maui Land & Pineapple Company, Inc. and NI Hawaii Resort, Inc., dated January 9, 1996. Exhibit 10.4(xi) to Form 10-K for the year ended December 31, 1995. (xii) Memorandum of Understanding between Maui Hotels, Kapalua Investment Corp. and NI Hawaii Resort, Inc., effective October 31, 1995. Exhibit 10.4(xii) to Form 10-K for the year ended December 31, 1995. (xiii) Supplemental Agreement, entered into among Maui Hotels, Kapalua Investment Corp. and NI Hawaii Resort, Inc. as of February 15, 1996. Exhibit 10.4(xiii) to Form 10-K for the year ended December 31, 1995. (xiv) Release of Real Property Mortgage, Security Agreement and Financing Statement, dated March 12, 1996. Exhibit 10.4(xiv) to Form 10-K for the year ended December 31, 1995. 10.3 Compensatory plans or arrangements (i) Executive Deferred Compensation Plan (revised as of 8/16/91). Exhibit (10)A to Form 10-Q for the quarter ended September 30, 1994. (ii) Executive Insurance Plan (Amended). Exhibit (10)A to Form 10-K for the year ended December 31, 1980. (iii) Supplemental Executive Retirement Plan (effective as of January 1, 1988). Exhibit (10)B to Form 10-K for the year ended December 31, 1988. (iv) Restated and Amended Executive Change-In-Control Severance Agreement (Gary L. Gifford, President/CEO), dated as of March 16, 1999. Exhibit 10.3 (iv) to Form 10-K for the year ended December 31, 1998. (v) Restated and Amended Executive Change-In-Control Severance Agreement (Paul J. Meyer, Executive Vice President/Finance), dated as of March 17, 1999. Exhibit 10.3 (v) to Form 10-K for the year ended December 31, 1998. (vi) Restated and Amended Executive Change-In-Control Severance Agreement (Donald A. Young, Executive Vice President/Resort), dated as of March 16, 1999. Exhibit 10.3 (vi) to Form 10-K for the year ended December 31, 1998. (vii) Restated and Amended Executive Change-In- Control Severance Agreement (Douglas R. Schenk, Executive Vice President/Pineapple), dated as of March 23, 1999. Exhibit 10.3 (vii) to Form 10-K for the year ended December 31, 1998. (viii) Restated and Amended Change-In-Control Severance Agreement (Warren A. Suzuki, Vice President/Land Management), dated as of March 16, 1999. Exhibit 10.3 (viii) to Form 10-K for the year ended December 31, 1998. (ix) Restated and Amended Change-In-Control Severance Agreement (Scott A. Crockford, Vice President/Retail Property), dated as of March 16, 1999. Exhibit 10.3 (ix) to Form 10-K for the year ended December 31, 1998. (x) Executive Severance Plan, as amended through November 6, 1998. Exhibit 10.3 (x) to Form 10-K for the year ended December 31, 1998. 10.4(i) Hotel Ground Lease between Maui Land & Pineapple Company, Inc. and The KBH Company. Exhibit (10)B to Form 10-Q for the quarter ended September 30, 1985. (ii) Third Amendment of Hotel Ground Lease, dated and effective as of September 5, 1996. Exhibit (10)A to Form 10-Q for the quarter ended September 30, 1996. 10.5(i)*Settlement Agreement and Release of All Claims (Board of Water Supply of the County of Maui vs. Shell Oil Company, et al.) 11. Statement re computation of per share earnings: Net Income (Loss) divided by weighted Average Common Shares Outstanding equals Net Income (Loss) Per Common Share. 13.* Annual Report to Security Holders: Maui Land & Pineapple Company, Inc. 1999 Annual Report. 21. Subsidiaries of registrant: All of the following were incorporated in the State of Hawaii: Maui Pineapple Company, Ltd. Kapalua Land Company, Ltd. Kapalua Investment Corp. Kapalua Water Company, Ltd. Kapalua Waste Treatment Company, Ltd. Honolua Plantation Land Company, Inc. 27.* Financial Data Schedule. As of December 31, 1999 and for the year then ended. 99. Additional Exhibits. 99.1* Financial Statements of Kaahumanu Center Associates for the years ended December 31, 1999, 1998 and 1997. EX-3 2 RESTATED ARTICLES OF ASSOCIATION OF MAUI LAND & PINEAPPLE COMPANY, INC. (As of February 24, 2000) These Restated Articles of Association correctly set forth without change the corresponding provisions of the Articles of Association as amended through the date hereof, and pursuant to section 415-64, Hawaii Revised Statutes supersede the original articles of association and all amendments thereto. W I T N E S S E T H: That said parties hereto do hereby covenant and agree, each with the others, to become associated together as a joint stock company under the laws of said Territory to obtain the rights and benefits by said laws conferred upon joint stock companies or corporations, and have made and entered into the following Articles of Association, the terms whereof it is agreed shall be equally obligatory upon the parties signing this instrument and upon all others who from time to time hereafter may become members of this corporation, and who may hold stock therein. I. The name of the corporation shall be "Maui Land & Pineapple Company, Inc." II. The place of the principal office of the corporation shall be at Kahului, Maui, Hawaii; there may be such subordinate or branch offices in such place or places within Hawaii or elsewhere as may be deemed necessary or requisite by the Board of Directors to transact the business of the corporation, such branch or subordinate offices to be in charge of such person or persons as may be appointed by the Board of Directors. III. The purposes for which said corporation is organized are: (a) To operate, conduct, engage in and carry on the business of growing and cultivating pineapples and other fruits, vegetables and all kinds of farm produce and products of the soil; to erect and to maintain canneries, bottling works, packing or preserving establishings, factories and warehouses; to manufacture containers, appliances, machines, instruments and products, and to use, sell and dispose of the same; (b) To engage in and carry on the business of cattle ranching, dairying and in pursuits producing any and all agricultural products; (c) To purchase or otherwise acquire, sell, market and generally deal in sugar, sugar cane, sugar beets, molasses, syrups, melada, pineapples, pineapple products, dairy products, ranch products and agricultural products of any kind or nature, and by-products of any of the foregoing; (d) To acquire, construct, maintain and operate pumping plants, irrigation systems, dams and works, for the development, storage, transmission and utilizing of water, for plantation or other purposes, for its own use and for use of others or for purposes of sale; (e) To generate, use, sell and supply heat, power or energy of any kind, electric or otherwise, for heating, lighting, driving or other motive power for any industry or purpose, for itself or others, for hire or otherwise, and acquire, construct, maintain and use all appropriate plants and systems and their appurtenances for the manufacture, transmission and delivery or use thereof; (f) To contract with others for the growing, production and manufacture of any agricultural or other products or commodities suitable for any of the purposes of the corporation, and to make advances to others and to take security from others in connection therewith; (g) To acquire, build, charter, lease or own ships, vessels, lighters, docks and (or) operate the same between the ports of the Hawaiian Islands and the ports of the Hawaiian Islands and other ports; (h) To own, operate and carry on a store or stores for the purchase and sale of goods, wares and merchandise and otherwise to deal in the same, and to do a general export and import, wholesale and retail merchandising business; (i) To do any of the business or exercise any of its powers either solely or on its own account or as agent, factor, broker or representative of any other person, company, association or corporation; and to carry on any of said business or exercise any of the powers aforesaid, either directly or by virtue of ownership or control of the stock or shares of any other company, corporation or enterprise to the fullest extent permitted by law; (j) To buy or otherwise acquire, own, hold, use, improve, develop, mortgage, lease or take on lease, sell, convey, and in any and every other manner deal in and with and dispose of real estate, buildings, and other improvements, hereditaments, easements and appurtenances of every kind in connection therewith, or any estate or interests therein, of any tenure or description, to the fullest extent permitted by law, and also any and all kinds of chattels, goods, wares, merchandise, and agricultural, manufacturing and mercantile products and commodities, and patents, licenses, debentures, securities, stocks, bonds, commercial paper, and other forms of assets, rights and interests and evidences of property or indebtedness, tangible or intangible; (k) To undertake and carry on any business, investment, transaction, venture or enterprise which may be lawfully undertaken or carried on by a corporation and any business whatsoever which may seem to the corporation convenient or suitable to be undertaken whereby directly or indirectly to promote any of its general purposes or interests or render more valuable or profitable any of its property, rights, interests, or enterprises; and, for any of the purposes mentioned in these Articles, to acquire by purchase, lease or otherwise, the property, rights, franchise, assets, business and goodwill of any person, firm, association, or corporation engaged in or authorized to conduct any business or undertaking which may be carried on by this corporation or possessed of any property suitable or useful for any of its own purposes, and carry on the same, and undertake all or any part of the obligations and liabilities in connection therewith, on such terms and conditions and for such consideration as may be agreed upon, and to pay for the same either all or partly in cash, stocks, bonds, debentures, or other forms of assets or securities, either of this corporation or otherwise; and to effect any such acquisition or carry on any business authorized by these Articles either by directly engaging therein, or indirectly by acquiring the shares, stocks or other securities of such other business or entity, and holding and voting the same and otherwise exercising and enjoying the rights and advantages incident thereto; And in furtherance of said purpose and without prejudice to the generality of the foregoing terms, the corporation shall also have the following powers, that is to say: 1. To have succession by its corporate name in perpetuity as hereinafter provided; to sue and be sued in any court; to make and use a common seal, and alter the same at its pleasure; to hold, purchase and convey such property as the purposes of the corporation shall require without limit as to amount, and to mortgage the same to secure any debt of the corporation; to appoint such subordinate officers and/or agents as the business of the corporation shall require, to make and adopt and from time to time amend or repeal By-Laws not inconsistent with any existing law for the management of its properties, the election and removal of its officers, the regulation of its affairs and the transfer of its stock; 2. To borrow money or otherwise incur indebtedness with or without security, which indebtedness may at any time and from time to time, without any necessity of any authorization or consent of the stockholders of the corporation or any majority thereof, exceed the amount of the corporation's capital stock, and to secure any indebtedness by deed of trust, mortgage, pledge, hypothecation or other lien upon all or any part of the real or personal property of the corporation and to execute bonds, promissory notes, bills of exchange, debentures or other obligations or evidences of indebtedness of all kinds, whether secured or unsecured; 3. To purchase on commission or otherwise, subscribe for, hold, own, sell on commission or otherwise, or otherwise acquire or dispose of and generally to deal in stocks, scrip, bonds, notes, debentures, commercial paper, obligations and securities, including so far as permitted by law, its own issued shares of capital stock or other securities, and also any other securities or evidences of indebtedness whatsoever or any interest therein, and while owner of the same to exercise all the rights, powers and privileges of ownership; 4. To draw, make, accept, endorse, assign, discount, execute and issue all such bills of exchange, bills of lading, promissory notes, dock and other warrants and other instruments to be assignable, negotiable or transferable by delivery or to order, or otherwise, as the business of the corporation shall require; 5. To lend and advance money or to give credit, with or without security, to such persons, firms or corporations and on such terms as may be thought fit; and if with security then upon mortgages, deeds of trust, pledges or other hypothecations or liens upon real, personal or mixed property, or any right or interest therein or thereto; 6. To aid in any manner any corporation of which any of the bonds or other securities or evidences of indebtedness or stock are held by this corporation, and to do any acts or things to preserve, protect, improve or enhance the value of any such bonds or other securities or evidences of indebtedness or stock, including specifically the right and power to enter into and take the management of any business enterprise of any kind or nature, and while so managing any such business, to do the acts and things incidental or necessary thereto; 7. To become a member of any general or limited partnership and to exercise all powers and privileges of a partner in any such partnership organized for or engaged in any business or carrying out any purpose which the corporation is, under these Articles of Association and the laws of Hawaii, authorized to engage in or carry out; and to join and engage in business as a member of any joint venture organized for or engaged in any business or carrying out any purpose which the corporation is, under these Articles of Association and the laws of Hawaii, authorized to engage in or carry out; 8. To enter into and perform contracts, undertakings, and obligations of every kind and character; 9. To promote, assist, subscribe or contribute to any association, organization, society, company, institution or object, charitable or otherwise, calculated to benefit the corporation or any persons in its employ or having dealings with the corporation, or deemed to be for the common or public welfare, including the erection, operation and maintenance and/or the aiding and assisting of hospitals, surgeries, clinics and laboratories; 10. To become a party to and effect a merger or consolidation with another corporation or other corporations, and to enter into agreements and relationships not in contravention of law with any persons, firms or corporations; 11. To become surety for or guarantee any dividends, bonds, stocks, contracts, debts, or other obligations or undertakings of any other person, firm or corporation, and to convey, transfer, or assign by way of pledge or mortgage all or any of the corporation's property or rights, both present and future to secure the debts or obligations, present or future, of such persons, firms or corporation and on such terms and conditions as the corporation may determine. The foregoing clauses shall be liberally construed, both as to purposes and powers. The enumeration herein of the purposes and powers of the corporation shall not be deemed to exclude by inference any purposes or powers which this corporation is empowered to exercise, whether expressly by force of the laws of Hawaii now or hereafter in effect, or impliedly by the reasonable construction of such laws. IV. (a) The amount of the authorized capital stock of the corporation is Seven Million Two Hundred Thousand (7,200,000) shares of common stock without par value; and (b) The corporation shall have power from time to time to increase and reduce its capital stock and to increase and reduce the par value of its shares of capital stock having a par value and to convert shares of its capital stock having a par value into shares without par value and to convert shares of its capital stock without par value into shares with par value, all according to law. The corporation shall have power from time to time upon compliance with applicable law to issue additional classes of capital stock, either with or without par value, with such preferences, voting powers, restrictions and qualifications thereof, and subject to such provisions for call and retirement thereof or conversion thereof into common capital stock or into other classes of capital stock, and with such other provisions as shall be fixed in the resolution authorizing the issue thereof, or as shall be determined pursuant to the authority contained in such resolution in accordance with law. (c) The holders of the capital stock of the corporation having voting rights may, by the vote of the holders of not less than two-thirds of such capital stock outstanding (or if there are two or more classes of capital stock of the corporation having voting rights outstanding, by vote of the holders of two- thirds of each class of capital stock having voting rights) at any meeting of stockholders of the corporation called for the purpose, deny, limit or restrict any right of the stockholders of the corporation which may exist by virtue of the common law or any statute or otherwise to subscribe for additional shares of capital stock of the corporation of any class, whether such additional shares have been authorized prior to or at such meeting of stockholders, but no such vote shall in any way deny, limit or restrict any rights previously granted to the holders of any class of stock of the corporation in and by the resolution creating and authorizing such class of stock. (d) If, whenever and as often as shares of capital stock of the corporation without par value shall be authorized, the Board of Directors is authorized and empowered to determine from time to time the consideration for and the terms and conditions upon which shares of capital stock of the corporation without par value may be issued and what portion of such consideration shall constitute capital and what portion thereof, if any, shall constitute paid in surplus; subject always to the applicable provisions of these Articles of Association and the provisions of law. V. (a) The officers of the corporation shall be a President, one or more Vice Presidents as may be determined in accordance with the By-Laws, a Secretary and a Treasurer. The corporation may have such additional officers as may be determined in accordance with the By-Laws from time to time. The officers shall have the powers, perform the duties, and be appointed and removable as may be determined in accordance with the By-Laws. Any person may hold two offices of the corporation if so provided by the By-Laws. (b) The Board of Directors shall consist of such number of persons, not less then two (2), as shall be determined in accordance with the By-Laws from time to time. The officers and directors of the corporation need not be stockholders of the corporation. The directors (and alternate directors and/or substitute directors, if any) shall be elected or appointed in the manner provided in the By-Laws and may be removed from office in the manner provided in the By-Laws and all vacancies in the office of director shall be filled in the manner provided for in the By-Laws. (c) All powers and authority of the corporation shall be vested in and may be exercised by the Board of Directors except as otherwise provided by law, these Articles of Association, or the By-Laws of the corporation; and in furtherance and not in limitation of said general powers, the Board of Directors shall have power: To acquire and dispose of property; to appoint a General Manager, Branch Managers and such other Managers, Officers or Agents of the corporation as in its judgment the business may require, and to confer upon and to delegate to them by power of attorney or otherwise such power and authority as it shall determine; to fix the salaries or compensation of any or all of the officers, agents and employees of the corporation, and in its discretion require security of any of them for the faithful performance of any of their duties; to declare dividends in accordance with law when it shall deem it expedient; to make rules and regulations not inconsistent with law or these Articles of Association or the By-Laws for the transaction of business; to instruct the officers or agents of the corporation with respect to, and to authorize the voting of stock of other corporations owned or held by this corporation; to incur such indebtedness as may be deemed necessary, which indebtedness may exceed the amount of the corporation's capital stock; to create such committees (including an executive committee or committees) and to designate as members of such committees such persons as it shall determine, and to confer upon such committees such powers and authorities as may by resolution be set forth for the purpose of carrying on or exercising any of the powers of the corporation; to create and set aside reserve funds for any purpose and to invest any funds of the corporation in such securities or other property as it may seem proper; to remove or suspend any officer and generally to do any and every lawful act necessary or proper to carry into effect the powers, purposes and objects of the corporation. (d) There shall be an Auditor of the corporation who shall be elected annually by the stockholders. The Auditor shall audit the books and accounts of the corporation and shall certify his findings and report thereon, in writing, to the stockholders at least annually; and shall make such other audits and reports as the Board of Directors shall determine from time to time. The Auditor may be a person, co-partnership, or, if permitted by law, a corporation. The Auditor may be removed from office either with or without cause at any time at a special meeting of the stockholders called for the purpose, and any vacancy caused by such removal may be filled for the balance of the unexpired term by the stockholders at a special meeting called for the purpose. In case of a vacancy in the office of Auditor other than by removal, the vacancy may be filled for the unexpired term by the Board of Directors or, if a special meeting shall be held during the existence of such vacancy, the vacancy may be filled at such special meeting of the stockholders. VI. (a) No director, officer, employee or agent of the corporation and no person serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise and no heir, executor or administrator of any such person shall be liable to this corporation for any loss or damage suffered by it on account of any action or omission by him as such director, officer, employee or agent if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of this corporation, unless with respect to an action or suit by or in the right of the corporation to procure a judgment in its favor such person shall have been adjudged to be liable for gross negligence or willful misconduct in the performance of his duty to this corporation. (b) (1) The corporation shall indemnify each person who after the adoption of this Article VI is made a party or is threatened to be made a party to any action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee or agent of the corporation or of any division of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of this corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not of itself create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of this corporation and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. (2) The corporation shall indemnify each person who after the adoption of this Article VI is made a party or is threatened to be made a party to any action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation or of any division of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of this corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for gross negligence or willful misconduct in the performance of his duty to this corporation unless and only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper. (3) To the extent that a director, officer, employee or agent of the corporation or of any division of the corporation, or a person serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in paragraphs (1) and (2) of this section, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. (4) Any indemnification under paragraphs (1) and (2) of this section (unless ordered by a court) shall be made by the corporation unless a determination is made that the director, officer, employee or agent has failed to meet the applicable standard of conduct set forth in paragraphs (1) and (2). Such determination may be made (i) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding; (ii) if such a quorum is not obtainable or even if obtainable a quorum of disinterested directors so directs by independent legal counsel in a written opinion to the corporation; or (iii) if a quorum of disinterested directors so directs, by a majority vote of the stockholders. (5) Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding as authorized by the Board of Directors in a particular case upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount unless it shall ultimately be determined that he is entitled to be indemnified by the corporation as authorized in this Article. (6) The indemnification provided by this Article shall not be deemed exclusive of any other rights to which those indemnified may be entitled and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. (7) The benefits and protections of paragraphs (a) and (b) of this Article shall extend to officers, directors, employees and agents of subsidiary corporations even though such service was not at the specific request of this corporation and shall be in addition to the coverage, if any, provided by such subsidiary. For purposes of this Article, subsidiary corporation shall mean any corporation in which this corporation owns more than 50% of the outstanding stock or any corporation more than 50% of whose outstanding stock is owned by a subsidiary of this corporation. For purposes of this Article, the term agent shall include those persons acting on behalf of this corporation who (i) are not otherwise covered by this Article as directors, officers or employees and (ii) have been specifically designated by the Board of Directors or management of this corporation as being entitled to indemnification hereunder. (8) The corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation or of any division of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against him and incurred by him in any such capacity or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this Article. Any such insurance may be procured from any insurance company designated by the Board of Directors, including any insurance company in which the corporation shall have any equity or other interest, through stock ownership or otherwise. (9) This Article shall be effective upon its adoption and shall apply to any person or entity covered by this Article with respect to any event or transaction occurring after adoption. (c) No contract, agreement, undertaking or other transaction between the corporation and any other corporation, partnership, joint venture or trust shall be invalidated or affected in any way by the fact that some or all of the officers and/or directors of the corporation are interested in or are officers, directors, stockholders, partners, joint venturers, trustees or beneficiaries of such other corporation, partnership, joint venture or trust; and any director of this corporation who is interested in or is an officer, director, stockholder, partner, joint venturer, trustee or beneficiary of any such other corporation, partnership, joint venture or trust may be counted in determining the existence of a quorum at any meeting of the Board of Directors of the corporation which shall authorize or approve any such contract, agreement, undertaking or other transaction, and may vote thereat to approve any such contract, agreement, undertaking or other transaction with like force and effect as if he were not interested in, or an officer, director, stockholder, partner, joint venturer, trustee or beneficiary of such other corporation, partnership, joint venture or trust. VII. The duration of the corporation shall be perpetual. VIII. Service of legal process may be made upon the corporation in the manner provided by law. IX. No stockholder shall be liable for the debts of the corporation beyond the amount which may be due and unpaid upon any share or shares of stock of the corporation owned by him. EX-4 3 1999 LOAN MODIFICATION AGREEMENT THIS AGREEMENT dated as of December 30, 1999, by and among MAUI LAND & PINEAPPLE COMPANY, INC., a Hawaii corporation (the "Borrower"), BANK OF HAWAII, a Hawaii banking corporation ("BOH"), FIRST HAWAIIAN BANK, a Hawaii banking corporation ("FHB"), CENTRAL PACIFIC BANK, a Hawaii banking corporation ("CPB") (BOH, FHB and CPB are each sometimes called a "Lender" and collectively called the "Lenders"), and BANK OF HAWAII, as Agent for the Lenders to the extent and in the manner provided in the Loan Documents described below and in the Agency Agreement described in the Loan Agreement described below (in such capacity, the "Agent"), W I T N E S S E T H: WHEREAS, the Borrower, the Lenders and Bank of America, National Trust and Savings Association ("BOA") (the Lenders and BOA are collectively called the "Original Lenders") and the Agent are parties to that certain Revolving and Term Loan Agreement, dated as of December 31, 1992, as amended by a First Loan Modification Agreement, dated as of March 1, 1993, and supplemented by letter agreements dated April 30, 1993 and June 24, 1993, and further amended by Second Loan Modification Agreement, dated September 8, 1993, by a Third Loan Modification Agreement, dated September 30, 1993, by a Fourth Loan Modification Agreement, dated March 8, 1994, by a Fifth Loan Modification Agreement, dated effective as of December 31, 1994, by a Sixth Loan Modification Agreement, dated effective as of March 31, 1995, and by a Seventh Loan Modification Agreement dated effective as of December 31, 1995, each among the Borrower, the Original Lenders and the Agent (as so amended and supplemented, the "Original Loan Agreement"); WHEREAS, the Original Loan Agreement and the other "Loan Documents" referred to therein, as respectively amended, set forth the terms and conditions upon which the Original Lenders (i) have made available to the Borrower the Revolving Loans in the original aggregate principal amount of up to $40,000,000 at any one time outstanding (subject to mandatory reduction, from time to time, of such aggregate principal amount available) and (ii) shall make available to the Borrower the Term Loans in an amount up to the aggregate principal amount of the Revolving Loans outstanding upon expiration of the Revolving Loan Period, all as more particularly described therein; WHEREAS, the parties hereto entered into that certain Amended and Restated Revolving Credit and Term Loan Agreement dated December 4, 1996, as amended by letter agreement dated February 21, 1997, by First Loan Modification Agreement dated December 31, 1997, and by Second Loan Modification Agreement dated March 17, 1998 (as so amended, the "First Restatement"); WHEREAS, the parties hereto entered into that certain Amended and Second Restated Revolving Credit and Term Loan Agreement dated as of December 4, 1998 ("Second Restatement") to, among other things, establish a development line in the aggregate principal amount of $15,000,000, being the Village Course Facility more particularly described in the Second Restatement; WHEREAS, the Lenders having purchased the interests of BOA under the Original Loan Agreement and the other Loan Documents referred to therein (the "BOA Purchase"), and BOH having purchased a portion of the interest of FHB under the Original Loan Agreement, as amended by the First Restatement and by the Second Restatement (the Original Loan Agreement as the same has been and may hereafter be amended, the "Loan Agreement"), and under the other Loan Documents referred to in the Loan Agreement, the respective "Individual Loan Commitment Percentage" of each Lender is now as follows: (1) BOH's Individual Loan Commitment Percentage is equal to 53.667% with respect to the Original Facility and 50% with respect to the Village Course Facility; (2) FHB's Individual Loan Commitment Percentage is equal to 33.333% with respect to the Original Facility and 33.333% with respect to the Village Course Facility; and (3) CPB's Individual Loan Commitment Percentage is equal to 13% with respect to the Original Facility and 16.667% with respect to the Village Course Facility; WHEREAS, the Aggregate Loan Commitment with respect to the Original Facility having been reduced to $15,000,000, the respective Individual Loan Commitments of the Lenders are as follows: (1) BOH's Individual Loan Commitment is equal to $8,050,000 with respect to the Original Loan Facility, subject to further permanent reduction from time to time in accordance with the terms of the Loan Agreement, and $7,500,000 with respect to the Village Course Facility; (2) FHB's Individual Loan Commitment is equal to $5,000,000 subject to further permanent reduction from time to time in accordance with the terms of the Loan Agreement, and $5,000,000 with respect to the Village Course Facility; and (3) CPB's Individual Loan Commitment is equal to $1,950,000, subject to further permanent reduction from time to time in accordance with the terms of the Loan Agreement, and $2,500,000 with respect to the Village Course Facility; and WHEREAS, Borrower has requested a further modification of the Loan Documents and Lenders are willing to accommodate such modification under the terms of this Agreement; NOW, THEREFORE, in consideration of the premises, the mutual covenants set forth herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Borrower, the Lenders and the Agent hereby agree as follows: 1. The Loan Documents are amended to conform to the following: (a) Expiry Date - Revolving Loans. The Expiry Date is extended from December 31, 1999, to December 31, 2001. (b) Maturity Date - Term Loans. The Maturity Date is extended from December 31, 2002, to December 31, 2004. (c) Village Course Facility Maturity Date. The Village Course Facility Maturity Date is extended from December 11, 2000, to December 11, 2001. (d) Reduction of Aggregate Loan Commitment -- Village Course Facility. (i) Effective December 11, 2000, the Aggregate Loan Commitment with respect to the Village Course Facility will be reduced to $8,000,000. (ii) On or before December 11, 2000, Borrower shall pay the amount, if any, by which the outstanding principal balance of the Village Course Facility exceeds $8,000,000. (iii) Upon such reduction of the Aggregate Loan Commitment with respect to the Village Course Facility, Bank of Hawaii's Individual Loan Commitment with respect to the Village Course Facility shall be $4,000,000, First Hawaii Bank's Individual Loan Commitment with respect to the Village Course Facility shall be $2,666,640 and Central Pacific Bank's Individual Loan Commitment with respect to the Village Course Facility shall be $1,333,360. (e) Interest Rate - Revolving Loans. Outstanding balances of principal of the Revolving Loans during the Revolving Loan Period shall bear interest at either of the following interest rate options that Borrower may select in accordance with the terms of the Loan Agreement (1) a floating rate equal to the Base Rate in effect from time to time or (2) LIBOR, plus: (i) if Borrower's Recourse Debt to Net Worth Ratio is less than or equal to 0.20, one and one-half percentage points (1.50%); (ii) if Borrower's Recourse Debt to Net Worth Ratio is greater than 0.20 but not more than 0.40, one and three-fourths percentage points (1.75%); (iii) if Borrower's Recourse Debt to Net Worth Ratio is greater than 0.40 but not more than 0.60, two percentage points (2.00%); (iv) if Borrower's Recourse Debt to Net Worth Ratio is greater than 0.60 but not more than 0.80,two and one-fourth percentage points (2.25%); and (v) if Borrower's Recourse Debt to Net Worth Ratio is greater than 0.80, two and one-half percentage points (2.50%). (f) Interest Rate - Term Loans. In the event that the Term Loans shall be made, then during the period (the "Term Loan Period") commencing on the Expiry Date, to and including the date that the Term Loans are paid in full, at the option of the Borrower initially either (i) a floating rate per annum equal to the Base Rate in effect from time to time, or (ii) LIBOR, plus: (i) if Borrower's Recourse Debt to Net Worth Ratio is less than or equal to 0.20, one and three-fourths percentage points (1.75%); (ii) if Borrower's Recourse Debt to Net Worth Ratio is greater than 0.20 but not more than 0.40, two percentage points (2.00%); (iii) if Borrower's Recourse Debt to Net Worth Ratio is greater than 0.40 but not more than 0.60, two percentage and one fourth points (2.25%); (iv) if Borrower's Recourse Debt to Net Worth Ratio is greater than 0.60 but not more than 0.80, two and one-half percentage points (2.50%); and (v) if Borrower's Recourse Debt to Net Worth Ratio is greater than 0.80, two and three-fourths percentage points (2.75%). (g) Interest Rate - Village Course Facility Advances. The Borrower agrees to pay interest on the outstanding principal balance of the Advances pursuant to the following interest rate options that the Borrower may select in accordance with the provisions of the Loan Agreement: (1) a floating rate equal to the Base Rate in effect from time to time; or (2) LIBOR plus: (i) if Borrower's Recourse Debt to Net Worth Ratio is less than or equal to 0.20, one and one-half percentage points (1.50%); (ii) if Borrower's Recourse Debt to Net Worth Ratio is greater than 0.20 but not more than 0.40, one and three-fourths percentage points (1.75%); (iii) if Borrower's Recourse Debt to Net Worth Ratio is greater than 0.40 but not more than 0.60, two percentage points (2.00%); (iv) if Borrower's Recourse Debt to Net Worth Ratio is greater than 0.60 but not more than 0.80, two and one-fourth percentage points (2.25%); and (v) if Borrower's Recourse Debt to Net Worth Ratio is greater than 0.80, two and one-half percentage points (2.50%). (h) Recourse Debt to Net Worth Ratio. "Recourse Debt to Net Worth Ratio" or "Recourse Debt/Net Worth Ratio" shall mean the quotient obtained by dividing (i) Recourse Debt by (ii) Net Worth. For the purpose of determining the interest rate applicable to the Loans, such ratio shall be based of the most recent financial reports referred to in Section 5.1(a)(1) of the Loan Agreement and any KCA debt which is nonrecourse to the Borrower shall be disregarded. (i) Commitment Fee - Village Course Facility. The Borrower shall pay to the Agent for pro rata distribution to each Lender, a commitment fee on the aver-age daily unutilized Aggregate Loan Commitment with respect to the Village Course Facility, computed at the rate of one-quarter of one percent (0.25%) per annum computed on the basis of the actual number of days elapsed over a year of 365 or 366 days (as the actual case may be) and payable quarterly in arrears commencing on March 31, 2000, and thereafter, on the last day of each March, June, September and December prior to the Maturity Date and on the Maturity Date (or such earlier date as the Aggregate Loan Commitment with respect to the Village Course Facility shall be terminated). (j) Net Worth. Section 5.1(e)(3) of the Loan Agreement is amended to read as follows: (3) A Net Worth of not less than $60,100,000.00, plus 50% of the cumulative net profits after December 31, 1998 (but not the net losses) of Borrower. (k) Capital Expenditures. Section 5.2(d) of the Loan Agreement is amended to read as follows: (d) Neither the Borrower nor any Subsidiary will make any Capital Expenditure that is not approved in writing by Lenders that causes Borrower to exceed (on an aggregated basis) the following Capital Expenditure limits: $10,800,000 for fiscal year 1998; $11,500,000 for fiscal year 1999; $14,000,000 for each of fiscal years 2000 and 2001; and $12,000,000 for each fiscal year thereafter. Capital Expenditures for work at the Village Course at Kapalua (described in Section 5.1(n)) shall not be counted towards such Capital Expenditure limits. Capital Expenditures for the Site 29 Project of up to $1,000,000 in the aggregate or that are approved in writing by Lenders shall not be counted towards such Capital Expenditure limits. 2. Upon execution of this Agreement and in consideration of these amendments: (a) Borrower shall pay to the Agent, on demand, for distribution to the Lenders according to their Individual Commitment Percentages with respect to the Original Facility the following non-refundable fee with respect to the Original Facility: $10,000. (b) Borrower shall pay to the Agent, on demand, for distribution to the Lenders according to their Individual Commitment Percentages with respect to the Village Course Facility the following non-refundable fee with respect to the Village Course Facility: $7,500. 3. Capitalized terms used, but not defined, in this Agreement, shall have the definitions stated in the Loan Agreement. 4. Borrower agrees that Borrower has no claims, defenses, or offsets against the Lenders or the Agent with respect to said credit facility or to the enforcement of the Loan Documents arising prior to the date of this Agreement, and that Borrower agrees that all such claims, defenses, and offsets are hereby released. 5. The execution of this Agreement by the Borrower constitutes the personal certification of the persons signing this Agreement on behalf of the Borrower that, to the best of their knowledge, the representations and warranties made in Article IV of the Loan Agreement are true and correct as of the date of this Agreement. 6. In all other respects, the Loan Documents, as amended, remain in full force and effect and the provisions of the Loan Documents including, without limitation, all promises, representations, warranties, covenants, and conditions, are ratified and confirmed as of the date of this Agreement by the parties hereto. 7. This Agreement is binding upon, and shall inure to the benefit of, the parties hereto and their respective successors and assigns. 8. The parties hereto agree that this instrument may be executed in counterparts, each of which shall be deemed an original, and said counterparts shall together constitute one and the same agreement, binding all of the parties hereto, notwithstanding all of the parties are not signatory to the original or the same counterparts. Duplicate unexecuted pages of the counterparts may be discarded and the remaining pages assembled as one document. To signify their agreement, the parties have executed this Agreement as of the date first written above. MAUI LAND & PINEAPPLE COMPANY, INC. BANK OF HAWAII, individually and as Agent By:/S/ PAUL J. MEYER By:/S/ JAMES C. POLK Its EXECUTIVE VICE PRESIDENT/FINANCE Its VICE PRESIDENT FIRST HAWAIIAN BANK By:/S/ TED PROCTOR Its ASSISTANT TREASURER By:/S/ LANCE A MIZUMOTO Its VICE PRESIDENT CENTRAL PACIFIC BANK By:/S/ ROBERT D MURAKAMI Its VICE PRESIDENT EX-4 4 Capital Markets Group 5560 South Broadway, Eureka, CA 95503 P. O. Box 398, Fields Landing, CA 95537 Pacific Coast Farm Credit Services, ACA February 16, 2000 Maui Land & Pineapple Company, Inc. 120 Kane Street Kahului, Hawaii 96732 Gentlemen: Reference is made to that certain Term Loan Agreement dated as of June 1, 1999 (the "Term Loan Agreement") by and among Maui Land and Pineapple Company a corporation organized and existing under the laws of the State of Hawaii ("Borrower") and Pacific Coast Farm Credit Services, ACA ("Lender"). Capitalized terms used in this letter without being defined shall have the meaning ascribed to them in the Term Loan Agreement. Borrower requested that Lender make certain modifications to the Term Loan Agreement and Lender is willing to make such modifications provided that the Borrower agree to the terms and conditions set forth herein. The modifications set forth below shall be effective when the Lender shall have received a copy of this letter signed by the Borrower in the space provided. Modifications to Term Loan Agreement 1. The following covenant shall be modified as follows: Capital Expenditures. Section 12(e) of the Term Loan Agreement shall be deleted in full and the following shall be inserted in lieu thereof: Capital Expenditures: Make Capital Expenditures, other than Capital Expenditures for or Investments in Borrower's "Kaahumanu Center Associates" Subsidiary, in excess of the following amounts: Year In Excess of 2000 $18,500,000 2001 $13,500,000 2002 $12,500,000 2003 $12,000,000 2004 and thereafter * $13,500,000 * Subject to further review prior to establishing annual allowable capital expenditures for the period 2004 through loan maturity. 2. The following covenant shall be added as Section 12(j) to Section 12 of the Term Loan Agreement. Indebtedness. Incur any Indebtedness if after such Indebtedness is incurred the aggregate amount of all such Indebtedness of the Borrower and its Subsidiaries shall exceed Sixty-two Million dollars ($62,000,000.00) Except as expressly modified hereinabove the terms and conditions of the Term Loan Agreement shall remain in full force and effect without waiver or modification. The modifications contained hereinabove and the Term Loan Agreement shall be read together as one document. Sincerely, /s/ Sean P. O'Day Regional Vice President The undersigned agrees to the modification and the terms and conditions set forth above. BORROWER: MAUI LAND & PINEAPPLE COMPANY, INC., a Hawaii Corporation Date: February 22, 2000 By: /s/ Paul J. Meyer Title: Executive Vice President/Finance Date: February 22, 2000 By: /s/ Gary L. Gifford Title: President EX-10 5 SETTLEMENT AGREEMENT AND RELEASE OF ALL CLAIMS This Settlement Agreement and Release of All Claims ("Agreement") is entered into by Plaintiff Board of Water Supply of the County of Maui ("Plaintiff"), on the one hand, and The Dow Chemical Company, Occidental Chemical Corporation, successor-in- interest to Occidental Chemical Company, Occidental Petroleum Corporation, Shell Oil Company, individually and dba Shell Chemical Company, AMVAC Chemical Corporation, American Vanguard Corporation, Brewer Environmental Industries LLC, Maui Pineapple Company, Ltd. and Maui Land and Pineapple Company, Inc. (collectively "Defendants"), on the other hand. RECITALS Case Name: 1. There is now pending in the Second Circuit Court of the State of Hawaii a civil action entitled "Board of Water Supply of the County of Maui v. Shell Oil Company, et al.," Civil Case No. 96-0370(1) (the "Action"). Intent: 2. Plaintiff and Defendants have entered into this Agreement to resolve with finality the Action, as well as all past, pending, potential, continuing and future DBCP claims between them and to avoid the expense of further litigation. 3. In consideration for this Agreement, Defendants agree to pay as tort damages $3,000,000 in settlement of the Action, consisting of the sums of $1,791,231 for the capital cost of GAC facilities for the Napili A well, $404,769 for certain past DBCP related costs, and $804,000 for the cost of the Hamakuapoko 1999 Drought Emergency GAC facility. Defendants also agree (subject to certain limitations) to pay certain sums for the installation and operation of carbon filtration systems (hereinafter "GAC") or alternative remedies to assist Plaintiff in complying with the Maximum Contaminant Level ("MCL") for DBCP on the Island of Maui until September 1, 2039 (a period of forty (40) years). DEFINITIONS 4. The following definitions apply throughout this Agreement: a. "Defendants", as the term is used throughout this Agreement, refers collectively to defendants The Dow Chemical Company, Occidental Chemical Corporation, successor- in-interest to Occidental Chemical Company, Occidental Petroleum Corporation, Shell Oil Company, individually and dba Shell Chemical Company, AMVAC Chemical Corporation, American Vanguard Corporation, and Brewer Environmental Industries, LLC, and third-party defendants Maui Land and Pineapple Company, Inc., and Maui Pineapple Company, Ltd. and each of them, and all of their predecessors and successors, their current and former parent and subsidiary companies, divisions and affiliates. b. "DBCP" refers to 1,2-dibromo-3-chloropropane, and all products containing said compound, including, without limitation, Dow "Fumazone," Occidental "BBC" and "DBCP," Nematocide Granules 50, Nematocide 12.1 EM, Nematocide 15.1 EM , Nematocide Solution 17.1 and Shell "Nemagon". c. The term "Maximum Contaminant Level" or "MCL" refers to a limit concerning the concentration of DBCP in drinking water supplies enforced by a public agency which applies to Plaintiff. At present, the MCL for DBCP enforced by the Hawaii Department of Health ("DOH") is 40 parts per trillion (ppt), or 0.04 parts per billion (ppb). The parties anticipate that during the period covered by this Agreement the name of the governmental entity enforcing the MCL, the numerical limit, and/or the terminology used to describe the limit may change. This Agreement is intended to secure compliance with whatever MCL is applicable and enforceable at the relevant time during the term of this Agreement. d. The terms "Exceeds the MCL" or "Exceeded the MCL" refer to a potential situation where either: (1) Plaintiff's well exceeds the MCL for DBCP when tested for the applicable regulatory period; (2) a regulatory authority directs Plaintiff to stop using a well or refrain from connecting a well to its water system unless Plaintiff remediates DBCP in the well; or (3) the well is tested quarterly and the total of such quarterly test results exceeds the applicable MCL when divided by four (4). e. "CPI" refers to the Consumer Price Index, all urban consumers, water and sewerage maintenance, issued by the U.S. Bureau of Labor Statistics, or its successor, as adjusted for projects in Hawaii. f. (i) "Napili A" refers to Plaintiff's well, Hawaii State No. 5838-01. (ii) "Honokahua A" refers to Plaintiff's well, State No. 5838-03. (iii) "Hamakuapoko 1" refers to Plaintiff's well, State No. 5420-02. (iv) "Hamakuapoko 2" refers to Plaintiff's well, State No. 5320-01. (v) "Haiku well" refers to Plaintiff's well, State No. 5419-01. g. "Existing Wells" refers to all wells on the Island of Maui which were drilled, owned, and/or operated by Plaintiff before the effective date of this Agreement. h. "Hamakuapoko 1999 Drought Emergency GAC" refers to the temporary installation of GAC on Hamakuapoko Wells Nos. 1 and 2 during the 1999 Upcountry Drought Emergency. i. "Future Wells" refers to drinking water wells on the Island of Maui, which are drilled and/or acquired by Plaintiff after the effective date of this Agreement. j. The term "GAC" refers to granular activated carbon facilities for removal of DBCP from water. k. The term "O&M" refers to the cost of operation and maintenance of GAC or other method used to remove DBCP from water, including, but not limited to, vessel replacement due to age and/or wear and tear. l. "Regularly Scheduled Well Test" currently means a quarterly raw water analysis conducted by or on behalf of Plaintiff, or for such other period as may be required by any state or federal law or regulator. m. The term "Regular Use" means a Plaintiff well that has a utilization rate of 10% or more, averaged over a year where water from the well is introduced into the water distribution system. n. The term "In Operation" refers to that period of time (measured in days) when GAC is installed on an active Plaintiff well and: (1) it is actually removing DBCP from the water; (2) it is not removing DBCP because the well on which it is installed is not pumping due to regular water demand fluctuations; or (3) it is undergoing ordinary maintenance or carbon change-out. o. "Defendants' Representative" refers to the law firm of Filice, Brown, Eassa & McLeod, LLP, 1999 Harrison Street, 18th Floor, Oakland, California 94612-3541, or such other successor, person or entity designated by Defendants in the future. p. "Plaintiff's Representatives" refers to the Corporation Counsel, County of Maui, 200 South High Street, Wailuku, Maui, Hawaii, and Miller, Sher & Sawyer, A Professional Corporation, 7 Park Center, Suite 1, Sacramento, California 95825, or such other successor, person or entity designated by Plaintiff in the future. q. The term "Notice to Proceed" refers to a notice from Plaintiff to a contractor to construct a GAC facility, or alternative technology facility. r. "DOH" refers to the Hawaii Department of Health or any successor entity charged by the State of Hawaii with regulating water quality. s. "Event of Default" refers to any of the following events: (i) under the terms of paragraph 46, Defendants fail to pay Capital Costs within 30 days of receiving a Notice to Proceed; (ii) under the terms of Paragraph 47, Defendants fail to make a timely payment for O&M Costs; (iii)under the terms of Paragraph 48, Defendants fail to provide a replacement Letter of Credit. GENERAL SUMMARY OF TERMS OF AGREEMENT 5. As more specifically described below, in consideration for this Agreement: Past and Present Costs 6. On or before September 1, 1999, Defendants will make a cash payment as tort damages to Plaintiff and its attorneys of record, "Miller, Sher & Sawyer, a professional corporation," in the amount of Three Million Dollars ($3,000,000), provided Plaintiff has executed this Agreement. This represents a total of $1,791,231 for the capital cost of GAC facilities for the Napili A well, $804,000 for the cost of the Hamakuapoko 1999 Drought Emergency GAC, and $404,769 for other past DBCP-related costs. 7. Third-party defendant, Maui Land and Pineapple Company hereby releases any claim for past transfers of land to Plaintiff in West Maui. Plaintiff will participate in separate negotiations with Maui Land and Pineapple Company to install, operate and maintain a 2.5 inch high density polyethylene (HDPE) pipeline, or its equivalent, and appurtenances, across Maui Land and Pineapple Company land, to connect with the nearest connection to Plaintiff's water system in the Honokahou Valley. Capital Costs of GAC Facilities For Certain Wells 8. It is anticipated that during the term of this Agreement the concentration of DBCP in the Hamakuapoko 1 and 2, Honokahua A and Haiku wells may Exceed the MCL. Defendants will reimburse Plaintiff during the term of this Agreement for 100% of the capital costs of GAC for each such Well that Exceeds the MCL. Defendants have agreed to make specified payments, as set forth in subparagraphs (i) through (iv), to defray the expense of installing GAC on these wells. i. Defendants shall pay 100% of the sum of One Million Eight Hundred Thousand Dollars ($1,800,000) for wells that can be treated with two (2) GAC vessels (that is, a well with a yield of 750 gallons per minute ("gpm") or less); ii. Defendants shall pay 100% of the sum of $2,400,000 for well(s) which can be treated with three GAC vessels (that is, well(s) with a yield of more than 750 gpm and less than 1,500 gpm); iii. Defendants shall pay 100% of the sum of $600,000 for each additional 750 gpm of yield in a well at or above 1,500 gpm, in addition to the base amount of $2.4 million; iv. Defendants' obligations to pay capital costs under this paragraph shall be reduced by $100,000 for wells with no pump or a non oil-lubed pump; v. Capital costs to be paid under this Agreement after January 1, 2000 shall be adjusted by the CPI annually, pursuant to Paragraph No. 29 (CPI Adjustment). Capital Costs of GAC Facilities For Other Wells 9. It is anticipated during the term of this Agreement that the concentration of DBCP in some other Existing and Future Wells may Exceed the MCL. Defendants will reimburse Plaintiff during the term of this Agreement for the capital costs of GAC for each other Existing and Future Well that Exceeds the MCL. Defendants have agreed to make specified payments, as set forth in subparagraphs (i) through (iv), to defray the expense of installing GAC on these wells. i. Defendants shall pay 90% of the sum of One Million Eight Hundred Thousand Dollars ($1,800,000) for wells that can be treated with two (2) GAC vessels (that is, a well with a yield of 750 gallons per minute ("gpm") or less); ii. Defendants shall pay 90% of the sum of $2,400,000 for well(s) which can be treated with three GAC vessels (that is, well(s) with a yield of more than 750 gpm and less than 1,500 gpm); iii. Defendants shall pay 90% of the sum of $600,000 for each additional 750 gpm of well capacity at or above 1,500 gpm, in addition to the base amount of $2.4 million; iv. Defendants' obligations to pay capital costs under this paragraph shall be reduced by $100,000 for all future wells and existing wells with no pump or a non oil- lubed pump; v. Capital costs to be paid under this Agreement after January 1, 2000 shall be adjusted by the CPI annually, pursuant to Paragraph No. 29 (CPI Adjustment). Reimbursement For Operations and Maintenance ("O&M") Of GAC 10. Defendants will reimburse Plaintiff during the term of this Agreement for O&M of GAC for each Plaintiff well that Exceeds the MCL as follows: Napili A, Honokahua A, Hamakuapoko 1 and 2, and the Haiku Wells shall each qualify for 100% of O&M at the annual rate of $68,500 for a two-vessel facility, $74,500 for a three-vessel facility, and an additional $6,000 for O&M for each additional vessel, adjusted by the CPI as set forth in Paragraph No. 29. Existing and Future Wells which are treated with GAC under this Agreement shall qualify for O&M at 90% of the O&M per vessel rate set forth in this paragraph, adjusted by the CPI as set forth in Paragraph No. 29. The number of vessels for which Defendants will pay will be based on well yield and will be determined pursuant to Paragraph No. 20 (for the Honokahua A, Hamakuapoko 1 and 2, and Haiku wells) or Paragraph No. 23 (for other Existing or Future Wells). i. The O&M payments specified above shall be made on or before January 10, 2000, and each successive year thereafter. The payments made shall be adjusted by the CPI annually pursuant to Paragraph No. 29. ii. Defendants' obligation to pay annual O&M under this Agreement ends on September 1, 2039. Limitation on Number of Wells 11. The number of wells for which Defendants will be obligated to pay for the capital and O&M costs for GAC is limited to fifty (50) wells. Termination Of Obligations 12. Any obligation of Defendants to make any payment under this Agreement will end on September 1, 2039, provided that all payments due as of that date have been made. TERMS OF AGREEMENT Dismissal of Actions 13. Plaintiff agrees to dismiss with prejudice Defendants and the Action in its entirety, and Plaintiff further agrees to release and waive all rights to bring any future DBCP claims, lawsuits or actions arising in whole or in part from the past, present, continuing or future presence of DBCP in Plaintiff's wells on the Island of Maui, subject to the exceptions set forth in Paragraph 42 [indemnity] and Paragraph 43 [claims related to the Islands of Molokai and/or Lanai]. Denial of Liability 14. This Agreement is not an admission of liability, nor an admission that any of the facts alleged by Plaintiff are true, nor an admission that the Action or any portion thereof asserted by Plaintiff are well-founded, and Defendants deny that they, or any of them, are liable to Plaintiff for any of the claims asserted in the Action. Joint Tortfeasor Release 15. It is understood, agreed, and intended as follows: a. The release contained in Paragraph 57 of this Agreement (the "Release") is intended to be and shall be construed as a joint tortfeasor release, and any damages otherwise recoverable by the Board against any other persons (natural, corporate, or otherwise) in connection with events and transactions which are the subject of the release shall be and hereby are reduced to the extent of (1) the consideration paid for this Release, or (2) the pro rata share that Defendants would be responsible to pay to the Board if it were determined that Defendants were jointly liable to the Board, whichever is greater. b. The Release is given and taken pursuant to the provisions of the Uniform Contribution Among Tortfeasors Act, sections 663-11 through 663-17, Hawaii Revised Statutes, as amended ("UCATA"), and shall operate to release Defendants from any and all liability to make contribution for the Covered Claims (as that term is defined in the statute) to any person found to be a joint tortfeasor with Defendants. c. The parties hereto intend that the Release and provisions of UCATA shall be applicable to all Covered Claims, whether asserted under federal statutes or under Hawaii statutes or under common law, including claims to which UCATA may not otherwise (in the absence of this Release) apply. Payment for Past and Present Costs 16. Plaintiff agrees to release Defendants from all claims for DBCP-related costs incurred to date by Plaintiff, including, but not limited to, the capital costs of GAC on the Napili A well, the costs of the 1999 Hamakuapoko Drought Emergency GAC, and certain other costs, for which Defendants agree to pay Plaintiff as tort damages the amount of Three Million Dollars ($3,000,000), payable to "Board of Water Supply of the County of Maui and its attorneys of record, Miller, Sher & Sawyer, a professional corporation," on or before September 1, 1999, if Plaintiff has executed this Agreement. Payment for O&M Costs 17. On or before January 10 of each year, Defendants will reimburse Plaintiff for O&M of GAC for the preceding year in conformity with this Agreement, if GAC was in place and In Operation during the preceding year. The first payment will be made on or before January 10, 2000, for the portion of 1999, if any, that such facilities were in operation. Defendants will reimburse Plaintiff for O&M on the Hamakuapoko 1999 Drought Emergency GAC for each month GAC was in place and in operation at least 10% of the month at a monthly rate of $5,708. Reimbursement for O&M costs will be requested and paid in accordance with the terms of paragraph 47. 18. The amounts payable for O&M for GAC will be adjusted by the CPI annually, pursuant to Paragraph No. 29. CERTAIN WELLS THAT EXCEED THE MCL 19. If the concentration of DBCP in the Honokahua A, Hamakuapoko 1, Hamakuapoko 2, and/or the Haiku wells Exceeds the MCL, then upon issuance of a Notice to Proceed for installation of GAC facilities on any such well, Defendants will pay 100% of the capital costs and O&M for GAC on those wells. Capital Costs 20. Capital costs associated with installation of GAC for the Honokahua A, Hamakuapoko 1, Hamakuapoko 2, and/or the Haiku wells are determined as follows: a. Plaintiff will determine the number of GAC vessels to be installed for a well(s) that Exceeds the MCL based on actual peak well yield capacity as follows: Up to 750 gpm (two vessel), and 751-1,500 gpm (three vessels). One additional vessel will be installed for each additional 750 gpm increment, or fractions thereof, in actual peak well capacity. Plaintiff may locate vessels on a well site, a remote site or at a centralized site at its option. b. The capital costs of which Defendants will pay 100% are as follows: two vessels -- $1, 800,000, three vessels -- $2, 400,000. Defendants will pay 100% of an additional $600,000 for each additional vessel above three. Defendants' obligations to pay capital costs under this paragraph shall be reduced by $100,000 for any of these wells with no pump or a non oil-lubed pump. The foregoing amounts are deemed to include, but are not limited to, the costs of land acquisition, design, and construction of GAC. c. Subject to Defendants' obligation to reinstall GAC on previously treated wells from which GAC has been removed, capital costs of which Defendants will pay 100% do not include the costs of GAC vessel replacement, including due to age or wear and tear. (See Paragraph No. 4 k.) Such vessel replacement costs are included in, and/or to be paid by Plaintiff out of, O&M. d. Reimbursement will be requested and paid in accordance with Paragraph No. 46. O&M Costs 21. The O&M costs on the Honokahua A, Hamakuapoko 1, Hamakuapoko 2, and/or Haiku wells are determined as follows: a. O&M costs will be based on well yield as follows: Up to 750 gpm (two vessels), $68,500/year; 751-1,500 gpm (three vessels), $74,500/year; and an additional $6,000/year for each additional 750 gpm of well yield. b. On or before January 10 of each year, for each such well, Defendants will reimburse Plaintiff for 100 percent of the O&M of GAC for the preceding year if GAC was In Operation on such well during the preceding year. c. For any such well for which GAC has been In Operation for less than one year, Defendants' obligation to reimburse Plaintiff for O&M will be limited to 100% of the monthly per vessel rate set forth in Paragraph No. 21 e. for O&M of GAC for each month GAC was In Operation. d. Defendants' obligation to pay annual O&M on any such well, as set forth above, will be conditioned on Plaintiff's Regular Use of such well. For any such well with an average annual utilization rate of less than 10%, Defendants will pay O&M of $1,000 for such well for each month GAC was In Operation if GAC was not installed and In Operation for the entire year. e. For any such well at which GAC was In Operation for less than one year, the payment will be a calculated amount for each month the GAC was In Operation for more than fifteen (15) days. The amount paid for each month under this paragraph will be calculated by dividing 12 into the annual rate for O&M payments set forth under subparagraph (a) above. f. The amounts payable for capital costs for the Honokahua A, Hamakuapoko 1, Hamakuapoko 2, and/or Haiku wells under Paragraph 20 will be adjusted by the CPI annually, pursuant to Paragraph No. 29. The amounts payable for O&M for such wells under Paragraph No. 21 will be adjusted by the CPI annually, pursuant to Paragraph No. 29. g. Reimbursement will be requested and paid in accordance with the terms of Paragraph No. 47. OTHER WELLS THAT EXCEED THE MCL IN THE FUTURE 22. Where Existing or Future Wells Exceed the MCL, Defendants will pay 90% of the capital costs and O&M for GAC on those Wells, upon Plaintiff's issuance of a Notice to Proceed for installation of GAC facilities on any Existing or Future Wells. Capital Costs 23. Capital costs associated with installation of GAC for Existing or Future Wells are determined as follows: a. Plaintiff will determine the number of GAC vessels to be installed for a well(s) that Exceeds the MCL based on actual peak well yield capacity as follows: Up to 750 gpm (two vessel), and 751-1,500 gpm (three vessels). One additional vessel will be installed for each additional 750 gpm increment, or fractions thereof, in actual peak well capacity. Plaintiff may locate vessels on a well site, a remote site or at a centralized site at its option. b. The capital costs of which Defendants will pay 90% are as follows: two vessels -- $1, 800,000, three vessels -- $2, 400,000. Defendants will pay 100% of an additional $600,000 for each additional vessel above three. Defendants' obligations to pay capital costs under this paragraph shall be reduced by ninety percent (90%) of $100,000 for all future wells and for existing wells with no pump or a non oil-lubed pump. The foregoing amounts are deemed to include, but are not limited to, the costs of land acquisition, design, and construction of GAC. c. Subject to Defendants' obligation to reinstall GAC on previously treated wells from which GAC has been removed, capital costs of which Defendants will pay 90% do not include the costs of GAC vessel replacement, including due to age or wear and tear. (See Paragraph No. 4 k.) Such vessel replacement costs are included in, and/or to be paid by Plaintiff out of, O&M. d. Reimbursement will be requested and paid in accordance with Paragraph No. 46. O&M Costs 24. The O&M costs on Existing and Future Wells are determined as follows: a. O&M costs will be based on well yield as follows: Up to 750 gpm (two vessels), $68,500/year; 751-1,500 gpm (three vessels), $74,500/year; and an additional $6,000/year for each additional 750 gpm of well yield. b. On or before January 10 of each year, for each Existing and/or Future Well, Defendants will reimburse Plaintiff for 90 percent of the O&M of GAC for the preceding calendar year, if GAC was In Operation on such Existing or Future Well for the entire year. c. For any Existing and/or Future Well for which GAC has been In Operation for less than one year, Defendants' obligation to reimburse Plaintiff for O&M will be limited to 90% of the monthly per vessel rate set forth in Paragraph No. 24 e. for O&M of GAC for each month GAC was In Operation. d. Defendants' obligation to pay annual O&M on any Existing or Future Well, as set forth above, will be conditioned on Plaintiff's Regular Use of such Well. For any Existing or Future Well with an average annual utilization rate of less than 10%, Defendants will pay O&M of $1,000 for such Well for each month GAC was in operation (if GAC was not installed and In Operation for the entire year). e. For any Existing and/or Future Well at which GAC was In Operation for less than one year, the payment will be a calculated amount for each month the GAC was In Operation for more than fifteen (15) days. The amount paid for each month under this paragraph will be calculated by dividing 12 into the annual rate for O&M payments set forth under subparagraph (a) above. f. Reimbursement will be requested and paid in accordance with the terms of Paragraph No. 47. CPI 25. The amounts payable for capital costs for wells under Paragraphs 20 and 23 will be adjusted by the CPI annually, pursuant to Paragraph No. 29. The amounts payable for O&M for wells under Paragraphs 21 and 24 will also be adjusted by the CPI annually, pursuant to Paragraph No. 29. Selection of Alternative Sites for Future Wells 26. Future Wells (other than wells under construction as of the date this Agreement is fully executed) constructed by Plaintiff or contractors retained by Plaintiff, must be in substantial compliance with the following procedures before Plaintiff may obtain reimbursement from Defendants for the cost of constructing, operating or maintaining GAC on such well. a. Plaintiff shall select a proposed well site and notify Defendants' representative thereof, and provide Defendants with available relevant information concerning the presence of DBCP in groundwater underlying the site, including historic land use information, hydrogeologic characteristics and DBCP test results (if any). b. Defendants shall have 21 days after receipt of said notice to notify Plaintiff that: (1) Defendants do not object to Plaintiff proceeding with the production well at that location, or (2) a pilot test well should be drilled and tested at that location (at defendants' sole expense), or (3) an alternative well site should be considered. c. If Defendants request a pilot test well at the proposed well site, Defendants shall have 15 days after receipt of test results from that pilot test well to notify Plaintiff that Defendants do not object to Plaintiff proceeding with the production well at that location or that an alternative well site should be considered. d. If Defendants notify Plaintiff to consider an alternative well site, Defendants' representative must meet and confer with Plaintiff's representative to select an alternative site at least one-half mile from any existing or planned Plaintiff well, and within one-half mile of the connection to Plaintiff's water system that would have been serviced by the original well site. After consideration of potential environmental issues, Plaintiff shall not unreasonably withhold consent for the selection of alternative well sites. If Plaintiff or a controlling regulatory entity determines that a proposed alternative well site is too environmentally sensitive to be used for a production well, Plaintiff shall promptly notify Defendants of that determination so that the parties may consider additional alternative well sites. Potential environmental issues may be identified through existing documents (if any) prepared pursuant to the Hawaii Environmental Policy Act, or otherwise, that assess the original well site and include the alternative well site as a project alternative. Nothing in this Agreement shall impose any additional environmental analysis obligations on Plaintiff under the Hawaii Environmental Policy Act or otherwise. e. The parties shall also meet and confer regarding the estimated cost of constructing, operating, and maintaining the well at the alternative well site. The parties intend that should the construction of a well proceed at an alternative well site, any estimated increased costs (compared to the original well site) incurred in connection with constructing, connecting, operating and maintaining a well at the alternative site shall be borne exclusively by Defendants including, but not limited to: (i) the cost of acquiring at least 20,000 square feet of land for the well site and any treatment facilities which may be required; (ii) the cost of drilling, constructing, and connecting the well to Plaintiff's distribution system, all in conformance with Plaintiff's standard specifications and construction standards; (iii) the cost of any electrical costs (see attached formula, Exhibit A) and/or pressure reducing facilities associated with the alternative site; (iv) the cost of constructing and maintaining and/or obtaining easements for any access road to the replacement well; (v) the cost of obtaining all necessary permits and authorizations, including, but not limited to, those required by the Hawaii Environmental Policy Act and the Department of Land and Natural Resources and/or successor legislation; (vi) the amount of increased allowance for change orders, based on a 10 percent allowance for such change orders; and (vii) all other reasonably anticipated costs associated with the project. In calculating any increased costs associated with the alternative well site, the parties will subtract the amount Plaintiff would have expended in constructing, connecting, operating and maintaining the well at the original well site from the costs of constructing, connecting, operating, and maintaining the well at the alternative site. f. Upon completion of the meet and confer process, Plaintiff shall serve a written notice upon Defendants with Plaintiff's itemized comparison of the reasonably anticipated cost of constructing, connecting, operating, and maintaining a well at the original and alternative well sites. If the estimated costs at the alternative site are higher than those estimated at the original well site, Plaintiff may make a demand on Defendants for those increased costs ("Increased Cost Demand"). g. Within twenty-one (21) calendar days of receipt of said itemized comparison, Defendants shall: (1) inform Plaintiff that Defendants do not object to proceeding with construction of a well at the original well site; (2) inform Plaintiff that Defendants agree to pay the Increased Cost Demand; or (3) serve a written notice of specific objections to the Increased Cost Demand together with an estimate by a qualified contractor to perform the work at the alternative well site to Plaintiff's specifications for construction of a well. h. If the parties are unable to agree on the selection and/or increased cost of the alternative well site, either party may elect to arbitrate the dispute as provided in Paragraph 54. In any such arbitration, Defendants shall bear the burden of proof. i. In the event new or materially different environmental issues associated with the selection of the alternative well site ("New Issues") are a substantial factor leading to environmental litigation by a third party, then either: (1) Defendants shall assume the cost of defense of that litigation; or (2) if Defendants do not assume the cost of defense of that litigation, Plaintiff may proceed with construction at the original well site with reimbursement by Defendants if the well exceeds the MCL as specified in this Agreement. j. If Defendants fail to serve Plaintiff with a timely objection to the Increased Cost Demand described above, Plaintiff may elect to proceed with construction at the original well site. k. If the well constructed at an alternative site fails to yield water that meets all then applicable water quality standards, Defendants shall pay the full cost of installing treatment facilities to correct any such deficiency and shall reimburse Plaintiff for the full cost of operating and maintaining any such equipment. Defendants' obligation to reimburse Plaintiff for such treatment facilities shall not apply to disinfection facilities or any treatment or other water quality technology which Plaintiff is required to install on all Plaintiff wells In Operation, other than wells treated with GAC. l. Any well constructed at an alternative site must yield at least eighty percent (80%) as much water (gallons per minute ("gpm")) as the original site selected by Plaintiff. m. If the well constructed at the alternative well site fails to operate as provided in the previous sub-paragraph, Defendants may elect to construct at their sole expense an additional well to Plaintiff's standards at another site approved by Plaintiff so that the combined flow from both wells equals or exceeds that anticipated at the original proposed site. n. If Defendants pay the Increased Cost Demand or amount determined in Arbitration under this Agreement, then: (1) any increased capital costs will be paid within 30 days of Defendants' receipt of a notice to proceed to a contractor to construct a well at the alternative well site; and (2) any increased operations and maintenance costs will be adjusted by the CPI under Paragraph No. 29 and January 10 for each preceding year the well is operation during the term of this Agreement. ADMINISTRATIVE APPEALS 27. If a regulatory authority incorrectly, mistakenly, or in excess of its authority directs Plaintiff to stop using a well or refrain from connecting a well to its water system unless Plaintiff remediates DBCP in the well, Plaintiff may, within 60 days of receipt of the directive, petition the regulatory authority for reconsideration of the directive. If Plaintiff chooses not to petition the regulatory authority for reconsideration of the directive, Plaintiff shall notify Defendants and Defendants, at their own expense, may choose to challenge the regulatory authority's decision. Plaintiff shall provide Defendants with information from its files concerning the status of the well in question. CESSATION OF O&M 28. For any Plaintiff well on which GAC or other remediation equipment to remove DBCP is installed, Defendants' obligation to pay O&M shall cease upon the occurrence of the following: a. If any Regularly Scheduled Well Test for DBCP results in a concentration below the MCL, a second confirming sample will be taken within ten (10) days. If the average of those two samples is below the applicable DBCP MCL, the well is to be tested for the time period specified by the then applicable drinking water regulation. If the average of those tests is below the applicable MCL, Plaintiff may within sixty (60) days of receipt of the laboratory result for the last sample petition DOH for a permit amendment allowing removal of GAC or other DBCP remediation equipment. If the amendment is granted, Defendants' responsibility to pay O&M on the well is terminated thirty (30) days after notification to Plaintiff by DOH of the amendment approval. If Plaintiff chooses not to petition DOH for a permit amendment, Defendants' obligation to pay O&M on the well is terminated on the thirtieth day after the events described in this paragraph. b. Within 90 days, either DOH will grant Plaintiff's petition, or Plaintiff must make a good faith effort to obtain such relief from DOH. If the petition is denied, Plaintiff shall again petition DOH in a good faith effort to persuade DOH to grant the petition. If the second petition is denied, Plaintiff shall notify Defendants and the parties shall cooperate should Defendants, at their own expense, choose to challenge the DOH decision in Plaintiff's name. Defendants' responsibility to pay O&M on the site or well in question will cease 30 days after DOH grants the petition. c. Plaintiff is entitled to leave the GAC or other DBCP remediation equipment in place and/or operate same at its own expense for at least twelve (12) months after Defendants' obligation to pay O&M on the well has ceased. d. If GAC or other DBCP remediation equipment has been removed from a well which has previously been treated and which subsequently requires treatment, the cost of such treatment will be borne by Defendants to the same extent as it was when GAC or other DBCP remediation equipment was originally installed, and will not be counted twice against the well limits set forth in Paragraph No. 30. CPI ADJUSTMENT 29. This Agreement contains provisions for: (a) Defendants' payment of specified sums for the installation of GAC, which are expressed in 1999 dollars, and O&M, which are expressed in 1999 dollars; and (b) credits and offsets to Defendants, which are expressed in 1999 dollars. All payments of capital costs and O&M made by Defendants to Plaintiff and all credits and offsets to which Defendants are entitled under this Agreement for the year beginning January 1, 2000, and each year thereafter will be adjusted according to the CPI. The CPI adjustment shall operate as follows: The payments made, and credits and offsets applied, for the year 2000 shall be adjusted to reflect inflation or deflation pursuant to the CPI, except as limited by this Paragraph, with each successive year's payments being similarly adjusted according to the prior year's inflation or deflation pursuant to the CPI. a. For the purpose of calculating inflation or deflation for capital costs, 1999 expressed dollars (as established by the June 1999 figure for the CPI) are to be used in this Agreement and are to be modified annually using the June CPI for subsequent years. b. For the purpose of calculating inflation or deflation for O & M, 1999 expressed dollars (as established by the June 1999 figure for the CPI) are to be used in this Agreement and are to be modified annually using the June CPI for subsequent years. The first CPI adjustment to O&M shall commence with the January 10, 2001 payment using the June 2000 CPI. LIMIT ON NUMBER OF WELLS FOR WHICH DEFENDANTS MAY BE RESPONSIBLE 30. The number of wells for which Defendants will be obligated to pay for the capital and O&M costs for GAC is limited to fifty (50) wells. TERMINATION OF OBLIGATIONS 31. All obligations on the part of Defendants under this Agreement, including but not limited to payments of capital costs and O&M to Plaintiff, end on September 1, 2039, provided that all payments due as of that date have been paid. RE-USE OF GAC VESSELS 32. As GAC vessels become available when they are taken out of service on wells that no longer require DBCP remediation, Defendants may choose to move those units to another well requiring DBCP remediation. If Defendants pay for the installation or reinstallation of surplus GAC vessels, Defendants will receive a credit of $95,000 per vessel (adjusted by the CPI) to be applied to Defendants' portion of the capital cost of GAC on any well covered by this Agreement. Defendants will pay for the cost of moving, installing, inspecting, repairing and refilling these units, such activities to be performed by Plaintiff to Plaintiff's standards. 33. If a GAC vessel is moved to another site, and the well on which it had previously been installed once again Exceeds the MCL, then Defendants shall pay the appropriate portion of capital costs and O&M (either 90% or 100%) required to install or reinstall and operate GAC on that well. ALTERNATIVE TECHNOLOGY AND/OR REMEDIES 34. Defendants may propose that Plaintiff utilize a less expensive wellhead treatment method approved by U.S. EPA or State of Hawaii for the remediation of DBCP. Defendants agree to pay the actual cost of designing, procuring, and installing all appropriate equipment and modifications to existing equipment, including capital and O&M costs under the conditions of this Agreement, on any well on which such equipment is installed. If any such less expensive wellhead treatment method is installed, then in lieu of O&M payments for GAC, Defendants will reimburse Plaintiff for the actual cost of O&M for the less expensive wellhead treatment method pursuant to Paragraph 47. 35. After meeting and conferring, Plaintiff's or Defendants' representatives may submit any disputed claim concerning the reliability, practicability, or efficacy, or actual cost, including capital and O&M costs, of employing any less expensive well-head treatment to binding arbitration pursuant to Paragraph 54 (Arbitration) of this Agreement. Notwithstanding any other provision of this Agreement, Plaintiff shall not be required to use any technology approved by the EPA, but disapproved by the DOH. 36. Plaintiff may elect to implement alternative remedies for DBCP. If Plaintiff elects to implement an alternative remedy, Defendants will only be obligated to pay the lesser of either: (a) 100% of the capital and O&M costs of the alternative remedy, or (b) 90% of the capital and O&M costs for the appropriately sized GAC facility, based on the capacity of the subject well(s), as appropriate. Plaintiff and Defendants shall submit any disputed claim concerning the actual cost, including capital and O&M costs, of any alternative remedy for DBCP to binding arbitration pursuant to Paragraph 54 (Arbitration) of this Agreement. 37. If EPA or DOH directs Plaintiff that modifications or additions to GAC (other than disinfection equipment) are required to continue use of GAC solely for the removal of DBCP, and Plaintiff and Defendants are unable to agree on the amount of the reasonably necessary expense of such treatment that should be borne by Defendants, Plaintiff and Defendants will submit Plaintiff's claim for the reasonably necessary expense of such treatment to binding arbitration pursuant to Paragraph 54 (Arbitration) of this Agreement. 38. The activities set forth in Paragraph Nos. 34 through 37 are subject to approval by both Plaintiff and Defendants; said approval will not be unreasonably withheld. LABORATORY ANALYSIS AND REPORTING 39. Plaintiff and Defendants each retain the right to challenge any reported laboratory test result for DBCP and may take the steps necessary, at their own cost, to verify the result, including such steps as obtaining a confirming sample for analysis or requesting that the laboratory confirm its calculations or reanalyze the initial sample. 40. Plaintiff will provide Defendants' Representative with a complete report of all DBCP test results from Plaintiff production wells every six months throughout the duration of this Agreement on the first business days of May and December of each year. The report need only contain the DBCP results for the year preceding the date of the report. 41. Defendants may, at their own expense, participate in Plaintiff's regularly scheduled sampling, take split samples, and make reasonable site inspections upon request; said requests will not be unreasonably made by Defendants. INDEMNITY 42. Plaintiff will retain its right, if any, to seek indemnity from Defendants if it is sued by a third party for personal injuries or property damage allegedly attributable to DBCP. Plaintiff certifies that it is presently unaware of any such claims. LANAI AND MOLOKAI 43. Notwithstanding any other provision of this Agreement, Plaintiff will retain its right, if any, to bring any future DBCP claims, lawsuits, or actions, including but not limited to, claims for compensatory and/or punitive damages, arising in whole or in part from the past, present, continuing, or future presence of DBCP on the Islands of Lanai and Molokai. COSTS 44. All parties will bear their own costs and attorney's fees incurred in the Action. 45. As to Plaintiff, Defendants will waive costs and attorneys' fees for all dismissed Defendants. PAYMENT OF ANY FUTURE OBLIGATIONS Capital Costs 46. In addition to the conditions that must be met under this Agreement before Defendants' obligations to pay future capital costs arise under this Agreement, Plaintiff must submit to Defendants' Representative and representatives for defendants AMVAC, Occidental, and Maui Land and Pineapple Company (the names and addresses of which will be provided and updated by Defendants' Representatives) a copy of a Notice to Proceed to a contractor to construct a GAC or alternative technology facility to treat a well that Exceeds the MCL. Within 30 days of Defendants' receipt of the Notice to Proceed, Defendants must pay Plaintiff the amount owed under the terms of this Agreement. In the event that Defendants fail to make timely payment, payment will be made under Paragraph 48 of this Agreement (Letter of Credit). Any disputed claims shall be submitted to arbitration pursuant to Paragraph 54, provided that Plaintiff shall be entitled to immediate payment pursuant to Paragraph 48, regardless of whether the claim is disputed. O&M 47. In addition to the conditions that must be met under this Agreement before Defendants' obligations to pay future O&M arise under this Agreement, Plaintiff must submit by December 1 of each year starting in 2000 a qualifying claim for O&M that provides sufficient information to evaluate whether and to what extent Plaintiff's well(s) qualify for O&M payment. This will include, but not be limited to, DBCP test results and information concerning whether the wells were In Operation and In Regular Use during the preceding twelve months. Provided Plaintiff's O&M claim is timely submitted, Defendants shall make payment in the amount claimed by the following January 10. In the event Defendants fail to make timely payment, payment will be made under Paragraph 48 of this Agreement (Letter of Credit). Any disputed claims shall be submitted to arbitration pursuant to Paragraph 54, provided that Plaintiff shall be entitled to immediate payment pursuant to Paragraph 48, regardless of whether the claim is disputed. If Plaintiff fails to submit a timely claim (i.e., by December 1), then Defendants' obligation to make a timely payment (i.e., by January 10) shall be extended one day for each day Plaintiff's claim is late. LETTER OF CREDIT 48. To secure the obligations of Defendants under this Agreement, and as a condition precedent to the obligations of Plaintiff hereunder, Defendants shall, at their sole cost and expense, furnish to Plaintiff, on or prior to October 1, 1999, and thereafter maintain during the entire term of this Agreement, continuing to a date thirty (30) days after the later of (i) September 1, 2039 or (ii) satisfaction of all Defendants' obligations to Plaintiff under this Agreement, an irrevocable standby letter of credit ("Letter of Credit") in favor of Plaintiff in form and substance reasonably satisfactory to Plaintiff, issued or confirmed by a United States banking institution having capital and surplus of not less than One Billion United States Dollars (USD 1,000,000,000) and advised by a banking institution with a banking office in Honolulu, Hawaii, a. The Letter of Credit shall have a principal amount of Twenty Million United States Dollars (USD 20,000,000), and shall provide for payment to Plaintiff under this Agreement by a draft at sight to which is attached Plaintiff's Signed Statement (as defined in the Letter of Credit). The draft at sight and the Signed Statement which shall be conclusive that there has occurred an event of default under this Agreement and any applicable cure period has lapsed. A draft at sight presented as the result of an Event of Default related to claims under either Paragraph 46 or 47 will be limited to the amount of the claim. A draft at sight presented as the result of an Event of default based on the failure of the Defendants to renew the Letter of Credit may be presented for the full amount of the Letter of Credit. b. Should any Letter of Credit furnished by Defendants hereunder expire prior to the term of this Agreement, Defendants shall automatically provide Plaintiff with a replacement, in the same tenor, no later than sixty (60) days prior to the expiration of the then-current Letter of Credit. Failure to provide a replacement for a Letter of Credit shall be an event of default under this Agreement, and shall permit Plaintiff to draw on the then-current Letter of Credit as provided above. Plaintiff's realization of the amount payable under the Letter of Credit shall not affect Plaintiff's right to elect any other remedy on default available to Plaintiff under this Agreement, or under applicable law. c. Where Plaintiff draws on a Letter of Credit because of the occurrence of an Event of Default based on the failure of the Defendants to renew the Letter of Credit, the amount drawn on the Letter of Credit shall first be applied to any then existing claims for Capital Costs and/or O&M Costs under this Agreement and thereafter the balance of the amount drawn shall be appplied as credit against future claims under the Agreement or reconveyed to the banking institution that issued the Letter of Credit upon Defendants obtaining a new Letter of Credit. d. The principal amount of the Letter of Credit may be adjusted upon agreement of all the parties at the time of any renewal or replacement of the Letter of Credit. In the absence of such agreement, the principal amount of the Letter of Credit shall remain Twenty Million United States Dollars (USD 20,000,000) so long as Defendants are required to maintain a Letter of Credit under this Paragraph 48. CREDITS 49. a. Upon Defendants' initial payment of $3,000,000 pursuant to Paragraph 16 of this Agreement, Defendants shall be entitled to a one-time credit against the amount otherwise payable for installation of permanent GAC facilities on the Hamakuapoko Well Nos. 1 or 2 of $804,000, less the amount described in Paragraph 32 (Re Use of GAC Vessels), if, at Defendants' option, the vessels are used to treat any other well. b. If any disputed claims under this Agreement are resolved in favor of Defendants, any amount determined to have been paid by Defendants in excess of the amount found to be due shall be credited to Defendants to offset future obligations under this Agreement. c. Any credit or offset to which Defendants become entitled shall be applied to reduce the next occurring obligation of Defendants related to capital cost, and Defendants shall owe no additional amounts for capital costs until all credits and offsets to which Defendants are entitled have been applied and exhausted. Except as provided in this paragraph, and notwithstanding any other provision of this Agreement, Plaintiff shall not be obligated to pay Defendants cash on any accumulated credits or offsets. Except as otherwise set forth in this paragraph, any credits remaining as of September 1, 2039, shall be extinguished. Credits remaining as of September 1, 2039 that are the result of a claim made by Plaintiff after September 1, 2038 and disputed by Defendants thereafter, where the dispute is subsequently resolved in favor of Defendants, will be reimbursed to Defendants within thirty (30) days of such resolution. 50. If Plaintiff receives a payment under this Agreement for a GAC project that is not constructed, Defendants shall receive a credit in the amount of such payment toward the capital cost of the next GAC project that would otherwise trigger a further payment by Defendants. DESIGNATED CONTACTS 51. Defendants' Representative and Plaintiff's Representatives are the parties' respective designated contacts for all reports, correspondence, and notices concerning the subject matter of this Agreement. If another representative is substituted, Defendants or Plaintiff, as appropriate, must provide written notice of same within ten (10) days. GOOD FAITH EFFORT 52. Consistent with this Agreement, the parties agree to make a good faith effort to mitigate both Defendants' obligations under this Agreement and any adverse impact on Plaintiff's water system. ARBITRATION AGREEMENT 53. In the event of any dispute between Plaintiff and Defendants arising out of or relating to this Agreement, the parties agree to try in good faith to settle the dispute by negotiation and/or mediation. 54. If the dispute cannot be resolved to the parties' mutual satisfaction through negotiation and/or mediation within thirty (30) days, Plaintiff and/or Defendants' Representative may elect to seek arbitration, and the dispute shall be resolved through binding arbitration. It is the intent of the parties that the arbitration be structured in such a way as to minimize costs and delay. The arbitration shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association (the "AAA Rules") with the following stipulations: a. The arbitration hearing shall be held before Hon. Ret. Judge Weinstein at JAMS, San Francisco, or if he is not available or declines to serve, a single arbitrator if the parties agree upon a single arbitrator. If the parties cannot agree upon a single arbitrator, then each shall select an arbitrator, and those arbitrators shall select a third arbitrator. If they are unable to agree upon a third arbitrator within fifteen (15) days, the third arbitrator shall be selected as provided in the AAA Rules. b. Unless otherwise ordered, each party's presentation at the arbitration hearing shall be limited to 14 hours, and the hearing shall be completed within ten (10) business days. c. The arbitration decision shall be rendered not later than thirty (30) days after the final day of the hearing and shall be judicially enforceable, nonappealable and binding. d. Summaries of any expert testimony, along with copies of all documents to be submitted as exhibits, shall be exchanged at least ten (10) business days before arbitration under procedures set up by the arbitrators. e. Except as otherwise specified herein, there shall be no discovery or dispositive motion practice except as may be permitted by the arbitrators, who may authorize only such discovery as is shown to be necessary to ensure a fair hearing. No discovery or motions permitted by the arbitrators shall in any way alter the time limits specified herein. f. Arbitration costs, arbitrators' fees, and attorneys' fees and costs shall be awarded to the prevailing party, if any, by the arbitrators. g. The arbitration shall occur in San Francisco, California. 55. In the event of arbitration arising out of, or related to, this Agreement, the prevailing party shall be entitled to recover its costs, expenses, and reasonable attorneys' fees, in addition to any other relief to which it may be entitled. RELEASE NOW THEREFORE, in reliance on the recitals stated above and for consideration, Plaintiff agrees as follows: 56. The foregoing recitals are true and correct and by this reference incorporated herein. 57. Subject to the provisions of this Agreement, on behalf of itself, its assigns, Board representatives, and past, present or future agents, Plaintiff hereby releases Defendants, individually and collectively, and their respective predecessors, successors, assigns, present and potential indemnitees, insurers, subsidiaries, affiliates, attorneys, and past or present employees, directors, officers, agents, shareholders, and representatives from any and all DBCP claims, demands, Action, causes of action, obligations, liens, damages, and liabilities, of any nature whatsoever, whether or not known, suspected or claimed, present or future, relating to or arising out of any act, cause, matter or thing stated, claimed, or alleged, or that could have been stated, claimed, or alleged by Plaintiff in the Action. Plaintiff understands and acknowledges that it is releasing and waiving all past, present, continuing and future claims it has or may have against Defendants for the presence of DBCP, except as specifically set forth in this Agreement. 58. Plaintiff declares and warrants that no other person or entity has had nor now has any interest in the claims, demands, Action, causes of action, obligations, liens, damages, and liabilities released in Paragraph No. 57, above; and that it has not sold, assigned, transferred, conveyed, or otherwise disposed of any DBCP claim, demand, action, cause of action, obligation, lien, damage, or liability released in Paragraph No. 57, above. 59. Plaintiff declares that, prior to the execution of this Agreement, it has apprised itself of sufficient data, either through experts or other sources of its own selection, in order that it might intelligently exercise its judgment in deciding on the contents of this Agreement and in deciding whether to execute it. Plaintiff further declares that its decision to enter into this Agreement is not predicated on or influenced by any declarations or representations of Defendants, or any of them, or by Defendants' respective predecessors, successors, assigns, subsidiaries, affiliates, insurers or attorneys or past or present employees, officers, directors, agents, shareholders, or representatives. Plaintiff declares that this Agreement is executed voluntarily and with full knowledge of its significance. 60. The parties acknowledge that they have an understanding of the facts underlying the Action and have negotiated in good faith and that this Agreement represents a good faith settlement with regard to the interests of all parties to the Agreement. 61. Plaintiff authorizes and directs its counsel to execute appropriate Requests for Dismissal, with prejudice, of the entire Action as to all Defendants, and to deliver the executed Requests for Dismissal to Defendants' Representative. All parties authorize and direct their respective counsel to execute whatever documents are necessary to implement this Agreement. 62. This Agreement shall bind the parties and each successor and assign of each party. 63. This document embodies the entire terms and conditions of the Agreement between the parties, and supersedes any prior documents signed by the parties in the course of resolving the Action. All words, phrases, sentences, and paragraphs, including the recitals hereto, are material to the execution of this Agreement. 64. This Agreement shall be governed by, and interpreted and construed in accordance with, the laws of the State of Hawaii. 65. Upon the occurrence of an uncontrollable circumstance, the party affected shall be excused from any failure or delay in performance under this Agreement. For purposes of this Agreement, an "uncontrollable circumstance" includes, but is not limited to, acts of God, fire, flood, civil unrest, earthquake, declaration of a public emergency, injunction, and labor disputes. However, the parties recognize that delays in Defendants' performance under the terms of this Agreement could uniquely subject Plaintiff to third parties' disputes. Therefore, in the event Defendants' performance of any option or obligation described in Paragraph 26 and its subparts is delayed due to force majeure circumstances, Plaintiff may proceed with the construction of wells, notwithstanding any right of Defendants to construct replacement wells and select alternative well sites. Defendants shall promptly reimburse Plaintiff for the cost of well construction incurred under these circumstances. 66. In the event any of the terms, conditions or covenants contained in this Agreement are held to be invalid, then any such invalidity shall not affect any other terms, conditions or covenants contained herein which shall remain in full force and effect. 67. Plaintiff warrants that this Agreement has been approved by Plaintiff's Board of Water Supply, and each of the signatories to this Agreement warrants that he or she is fully authorized to enter into the terms and conditions stated herein and to execute this Agreement. 68. This Agreement will be effective whether or not executed in multiple counterparts. Dated: 8/31/99 BOARD OF WATER SUPPLY OF THE COUNTY OF MAUI By /S/ ROBERT K. TAKITANI Its: CHAIRMAN Approved as to form: MILLER, SHER & SAWYER A Professional Corporation (signatures continued) Dated: Aug. 31, 1999 By: illegible DUANE C. MILLER VICTOR M. SHER Attorneys for Plaintiff, Board of Water Supply of the County of Maui Dated: September 8, 1999 THE DOW CHEMICAL COMPANY By /S/ THOMAS J. CRESSWELL Its: Thomas J. Cresswell Associate General Counsel Approved as to form: FILICE, BROWN, EASSA & MCLEOD, LLP Dated: 9/3/99 By /S/ NICHOLAS D. KAYHAN Attorneys for Defendant The Dow Chemical Company Dated: 9/21/99 OCCIDENTAL CHEMICAL COMPANY By illegible Its: Senior Vice President & General Counsel Dated: 9/16/99 OCCIDENTAL PETROLEUM CORPORATION By /S/LAWRENCE D. STECKMEST Its: Assistant General Counsel Dated: 9/21/99 OCCIDENTAL CHEMICAL CORPORATION By illegible Its: Senior Vice President & General Counsel Approved as to form: LANDELS, RIPLEY & DIAMOND, LLP (signatures continued) Dated: 9/13/99 By /S/ STEPHEN C. LEWIS STEPHEN C. LEWIS Attorneys for Defendants Occidental Chemical Company, Occidental Petroleum Corporation, and Occidental Chemical Corporation Dated: 30 Aug 1999 AMVAC CHEMICAL CORPORATION By illegible Its: Vice Chairman Date: 30 Aug 1999 AMERICAN VANGUARD CORPORATION By illegible Its: Co- Chairman Approved as to form: RUSH, MOORE, CRAVEN, SUTTON, MORRY & BEH Dated: August 30, 1999 By /S/ RICHARD C. SUTTON, JR. RICHARD C. SUTTON, JR. Attorneys for Defendant AMVAC Chemical Corp. American Vanguard Corp. Dated: Sept 1, 1999 BREWER ENVIRONMENTAL INDUSTRY, FKA BREWER CHEMICAL COMPANY By /S/ J. ALAN KUGLE Its: Sec Approved as to form: MANCINI, ROWLAND & WELCH Dated: September 1, 1999 By /S/ PAUL R. MANCINI PAUL R. MANCINI Attorneys for Defendant Brewer Environmental Industry, fka Brewer Chemical Company (signatures continued) Dated: 9/2/99 SHELL OIL COMPANY By /S/ BURT BALLANFANT Its: Senior Litigation Counsel Approved as to form: KOBAYASHI, SUGITA & GODA By____________________________ DALE W. LEE Attorneys for Defendant Shell Oil Company Dated: _____________ MAUI LAND & PINEAPPLE COMPANY AND MAUI PINEAPPLE COMPANY, LTD. By /S/ PAUL J. MEYER Its: Executive Vice President/Finance Approved as to form: TOM & PETRUS Dated:________________ By_______________________________ STEPHEN M. TEVES Attorneys for Third-Party Defendants, Maui Land & Pineapple Co. and Maui Pineapple Co., Ltd. STATE OF HAWAII) ) SS. COUNTY OF MAUI ) On this 31st day of August, 1999, before me appeared ROBERT K. TAKITANI, to me personally known, who, being by me duly sworn, did say that is the Chairperson of the BOARD OF WATER SUPPLY of the County of Maui, and that the seal affixed to the foregoing instrument is the lawful seal of the BOARD OF WATER SUPPLY, and that the said instrument was signed and sealed on behalf of the said BOARD OF WATER SUPPLY, and the said ROBERT K. TAKITANI acknowledged the said instrument to be the free act and deed of said BOARD OF WATER SUPPLY. IN WITNESS WHEREOF, I have hereunto set my hand and official seal. /S/ JERRY ANN WELLS (Signature) JERRY ANN WELLS Notary Public, State of Hawaii My commission expires: 4/19/2002. EX-13 6 MAUI LAND & PINEAPPLE COMPANY, INC ANNUAL REPORT 1999 CONTENTS Letter to Shareholders 2 Pineapple 4 Resort 5 Commercial & Property 6 Independent Auditors' Report 7 Consolidated Balance Sheets 8 Consolidated Statements of Operations and Retained Earnings 10 Consolidated Statements of Cash Flows 11 Notes to Consolidated Financial Statements 12 Common Stock 19 Selected Financial Data 20 Management's Discussion and Analysis of Financial Condition and Results of Operations 21 Officers and Directors inside back cover THE COMPANY Maui Land & Pineapple Company, Inc., a Hawaii corporation organized in 1909, is a land-holding and operating company with several wholly owned subsidiaries, including two major operating companies, Maui Pineapple Company, Ltd. and Kapalua Land Company, Ltd. The Company, as used herein, refers to the parent and its subsidiaries. The Company's principal business activities are Pineapple, Resort and Commercial & Property. The Company owns approximately 28,600 acres of land on the island of Maui, of which about 8,400 acres are used directly or indirectly in the Company's operations. The Company employed approximately 2,040 people in 1999 on a year-round or seasonal basis. Maui Pineapple Company, Ltd. is the operating subsidiary for Pineapple. Its canned pineapple, pineapple juice and fresh pineapple are found in supermarkets throughout the United States. The canned pineapple products are sold as store-brand pineapple with 100% HAWAIIAN U.S.A. imprinted on the can lid. In addition, the products are sold through institutional, industrial and export distribution channels. Kapalua Land Company, Ltd. is the development and operating subsidiary for the Kapalua Resort. The Kapalua Resort is a master-planned golf resort community on Maui's northwest coast. The property encompasses 1,650 acres bordering the ocean with three white sand beaches. Commercial & Property includes the operations of various properties, including Kaahumanu Center, the largest retail and entertainment center on Maui. It also includes the Company's land entitlement and management activities and land sales that are not part of the Kapalua Resort. On the cover: 18th green at the Plantation Course during the Mercedes Championships; Pailolo channel and the island of Molokai in the background. Quarterly reports: As part of our company-wide effort to reduce costs, we are eliminating printed quarterly reports after 1999. To request a copy of news releases or other financial reports, contact us at our corporate offices or visit our web sites. Printed in Hawaii 10-K REPORT Shareholders who wish to receive, free of charge, a copy of the Company's 10-K Report to the Securities and Exchange Commission (excluding certain exhibits) may write to: Corporate Secretary Maui Land & Pineapple Company, Inc. P. O. Box 187 Kahului, Hawaii 96733-6687 OFFICES Corporate Offices Pineapple Marketing Office Maui Land & Pineapple Company, Inc. Maui Pineapple Company, Ltd. P. O. Box 187 P. O. Box 4003 Kahului, Hawaii 96733-6687 Concord, California 94524-4003 Telephone: 808-877-3351 Telephone: 510-798-0240 Fax: 808-871-0953 Fax: 510-798-0252 www.mauiland.com Maui Pineapple Company, Ltd. P. O. Box 187 Kahului, Hawaii 96733-6687 Telephone: 808-877-3351 Fax: 808-871-0953 www.pineapplehawaii.com Kapalua Land Company, Ltd. 1000 Kapalua Drive Kapalua, Hawaii 96761-9028 Telephone: 808-669-5622 Fax: 808-669-5454 www.kapaluamaui.com Kaahumanu Center 275 Kaahumanu Avenue Kahului, Hawaii 96732-1612 Telephone: 808-877-3369 Fax: 808-877-5992 www.kaahumanu.net Transfer Agent & Registrar Independent Auditors ChaseMellon Shareholder Services, LLC Deloitte & Touche LLP P. O. Box 3315 1132 Bishop Street, Suite 1200 South Hackensack, NJ 07606-1915 Honolulu, Hawaii 96813-2870 Telephone: 800-356-2017 Telephone: 808-543-0700 www.chasemellon.com MAUI LAND & PINEAPPLE COMPANY, INC. & SUBSIDIARIES FINANCIAL HIGHLIGHTS 1999 1998 1997 (Dollars in Thousands Except Per Share Amounts) REVENUES Pineapple $ 94,535 $ 97,658 $ 90,949 Resort 47,950 41,929 40,338 Commercial & Property 4,381 4,087 5,065 Corporate 132 37 146 Total 146,998 143,711 136,498 INCOME BEFORE EXTRAORDINARY LOSS 4,670 4,340 863 NET INCOME 4,670 3,596 863 PER COMMON SHARE Income Before Extraordinary Loss .65 .60 .12 Net Income $ .65 $ .50 $ .12 AVERAGE COMMON SHARES OUTSTANDING 7,188,840 7,188,500 7,188,500 TOTAL ASSETS $ 153,387 $ 136,247 $135,507 CURRENT RATIO 1.5 2.1 2.2 LONG-TERM DEBT and CAPITAL LEASES $ 25,497 $ 23,592 $ 29,435 STOCKHOLDERS' EQUITY 66,400 62,492 58,896 STOCKHOLDERS' EQUITY PER COMMON SHARE $ 9.23 $ 8.69 $ 8.19 EMPLOYEES 2,040 2,030 2,270 TO OUR SHAREHOLDERS and EMPLOYEES: We are pleased to report that the Company made further progress in terms of financial results in 1999. Net income increased by 30% from $3,596,000 in 1998 to $4,670,000 in 1999. This represents a 7.5% return on beginning equity compared to 6.1% for 1998. While we are pleased with the improvement in net income, this level of profitability still is short of our goal for the Company of a 10% to 15% return on equity. Our focus will remain on achieving an appropriate level of profitability for the Company and on the steps necessary to achieve that goal. The 1999 net income of $4,670,000 includes a portion of the net income from the sale of twelve single-family home lots in Plantation Estates Phase II at Kapalua in the fourth quarter. Land sales and development activities contributed approximately $1.2 million to net income in 1999 compared to $2.4 million in 1998. The increase in net income in 1999 resulted from improved operating performance and higher operating profits from Pineapple and Kapalua Resort operations. The Company's Commercial & Property operation produced an operating loss of $454,000, which represented a 58% improvement over the 1998 operating loss. Cash provided by activities increased from $17.6 million in 1998 to $18.5 million in 1999. The increase in cash flow on a year- to-year basis is attributable to improved operating results and cash flow in the Pineapple and Resort divisions. As a result, the Company was able to invest over $18 million in resort amenity projects and plant and equipment while the Company's total debt, including capital leases, increased by $2.2 million from $26.3 million to $28.6 million in 1999. Interest expense declined by $1.2 million from $3 million in 1998 to $1.8 million in 1999. Approximately $500,000 of the reduction is due to interest that was capitalized in connection with construction projects, such as the Village Course Clubhouse and Kapalua Golf Academy project. Interest expense also declined because of lower interest rates on the Company's debt and lower average borrowings compared to 1998. The Company's Pineapple division reported an operating profit of $6.1 million in 1999, a $591,000 improvement over 1998. Sales volume in terms of cases sold declined, in part due to the strategic goal of reducing acreage planted in pineapple and a diversion of acreage to our fresh fruit business. Also, an increased volume of imported canned pineapple was sold in the United States in 1999 compared to 1998. The Pineapple division benefited from relatively stable prices for canned pineapple products during the year. We believe this is due, in part, to the effect of the anti-dumping duties on canned pineapple fruit from Thailand. These duties are subject to a sunset review, which is scheduled to begin in the summer of 2000. Extension of these duties will be an important factor in maintaining a stable, competitive market price for canned pineapple in the U.S. We are pleased with the progress of our fresh cut pineapple products and with the results to date from the introduction of our fresh pineapple salsa. We believe these products capitalize on consumer preferences for fresh and convenient food products. We look forward to the introduction later this year of our latest product, pineapple juice packed in plastic containers, and anticipate that it will be well received as demonstrated by consumer preference for other fruit juices packed in plastic containers. In addition, we are pleased with the progress of our Royal Coast subsidiary in positioning the Company for long-term development in Central America. The Resort division also posted improved operating results. Operating profits of $5.7 million improved by $463,000 over 1998 results. The relative health of the U.S. economy, as demonstrated by record high consumer confidence indicator levels, resulted in a higher level of westbound visitors to Maui and substantially higher hotel occupancy levels for Maui's visitor industry. Kapalua experienced significantly higher occupancies in 1999 and produced record profits from Resort operations. Revenue from the Resort division increased by 14% over 1998. An important factor in improved operating performance at Kapalua is the quality of the guest experience at the resort. The Ritz-Carlton, Kapalua Hotel, The Kapalua Bay Hotel and The Kapalua Villas as well as Kapalua's recreational facilities all received national and international awards and accolades for excellence. We believe the commitment to providing a quality guest experience results in increased value and return over the long term. The recognition provided by the Mercedes Championships golf tournament also is a positive factor in the occupancy levels and financial performance of the Resort division. A number of new Resort projects were undertaken in 1999. The $15 million Village Course Clubhouse and Kapalua Golf Academy project is expected to be completed in June of this year. This project demonstrates the Resort's commitment to remaining the number one golf resort in Hawaii. The Coconut Grove at Kapalua Bay project is the first condominium project undertaken at Kapalua since the early 1980s. The project has been well received with 28 of the 36 condominiums already sold. Building construction commenced in February of this year and delivery of the finished condominiums is expected beginning in the later part of 2000. The fourteen 2-acre lots representing the final phase of the Plantation Estates subdivision project were offered for sale in 1999. Twelve of the lots were sold in 1999 and the remaining two closed in the first quarter of this year. Also underway at Kapalua is a proposed 31-lot subdivision located on a 20-acre site adjoining the Bay Course. We expect this project will receive its final approvals and are optimistic that it will be well received when it is offered for sale in the second half of this year. The Commercial & Property division also posted improved results in 1999. The operating loss of $454,000 represents an improvement of $631,000 over the operating loss posted in 1998. Merchandise sales at Kaahumanu Center, Maui's largest shopping center, increased by 5% over 1998 levels. We believe the improved sales reflect a modest improvement in the general economy of Maui from the depressed levels experienced over the previous five years. There remains an oversupply of retail space creating highly competitive conditions. This is reflected in the level of sales at the Napili Plaza Shopping Center, which was down 5.7% in 1999 from 1998 levels. We believe the retail environment will continue to be extremely competitive for the foreseeable future. As was well covered in the local and national press, the forty- one percent interest in the Company owned by the Weinberg Foundation of Baltimore was sold to Mr. Stephen M. Case on August 31, 1999. This transaction resolved, in a positive manner, the uncertainty regarding longer-term ownership of this large block of stock. We are pleased with the credentials and the contributions of the Directors nominated by Mr. Case. We believe the economic climate in 2000 will be relatively positive for the Company's businesses. The New Economy, with its associated higher levels of productivity, low inflation, high employment and higher levels of personal wealth should provide a favorable business environment for Maui's visitor industry. The Kapalua Resort is particularly well positioned to benefit in terms of occupancy and operating revenue. We remain dedicated to achieving the Company's goals in terms of financial performance and in enhancing the long-term value of the Company's assets. In view of the 1999 profits, the Company's Board of Directors declared, at its February 2000 meeting, a cash dividend of $.125 per share. Thank you for your continued support and for your commitment to the Company's success. /S/ RICHARD H. CAMERON Richard H. Cameron Chairman /S/ GARY L. GIFFORD Gary L. Gifford President & CEO February 24, 2000 PINEAPPLE The Pineapple division reported an operating profit in 1999, before allocated interest and income taxes, of $6.1 million, $591,000 higher than 1998. This was Pineapple's fourth consecutive year of profitability and the division's best financial results since 1987. Pineapple revenue for 1999 was $94.5 million, down 3.2% from 1998. Canned pineapple provided 90% of total revenue in 1999 and overall case sales volume decreased by 8.1% compared to 1998. Case sales volume of grocery fruit, our largest category within the canned product line, declined by 11%. Institutional and government fruit also declined by 5% and 7%, respectively, from 1998 levels. Juice case volume declined by 6% overall. Grocery and government juice categories were down 6% and 35%, respectively. Concentrate volume was down 24% from 1998 levels. Part of this decrease in volume is a result of a planned reduction in the acreage being cultivated and a diversion of other acreage to our fresh fruit business. The balance of the case sales volume decline was due primarily to a substantial increase in imports of canned pineapple into the U.S. during the second half of 1999. Pricing for canned pineapple remained relatively stable throughout 1999, resulting in an increase in average prices over 1998. Low inventories of imports at the beginning of the year kept prices firm through the first half of 1999. Although the large influx of imports after May of 1999 caused prices to decline somewhat, the effect of these imports was greater on case sales volume than on pricing. Fresh fruit sales volume in 1999 was lower than 1998 by 10%. However, average pricing was slightly higher than 1998. The loss in volume is due to an increase in fresh pineapple case volume from Central American producing countries. In February 2000, the Governor of the State of Hawaii canceled plans for extension of the Kahului airport runway on Maui. The limited cargo capacity out of Kahului airport has been a continuing problem for the Company; however the new Boeing 777 aircraft, which recently made its first flight to Kahului, may alleviate some of this problem. We are reassessing our plans and strategy for our Jet Fresh fruit program in light of these developments. The pineapple crop on Maui experienced a prolonged drought in 1999. Rainfall at every key rain gauge station on both plantations was recorded at levels below the five-year historical average. This was the fifth consecutive year that dry weather conditions negatively affected the pineapple crop. Conditions in East Maui were much worse than in West Maui, in part due to East Maui water restrictions by the County of Maui. In spite of the dry weather in 1999, tonnage was slightly higher than 1998, but fruit and juice recovery was slightly lower than 1998. The higher tonnage was due primarily to heavy use of the company's irrigation systems and good agricultural practices. In 1999, the division continued to reduce its production costs by reducing planting in unreliable fields with a history of low yields. As a result, we expect tonnage to be modestly lower in the future, but we anticipate the average quality of our fruit to improve. In addition, we expect to harvest more second ratoon crops in the future. Production costs were reduced in 1999 as we continued with our project to consolidate certain operating departments. Additional cost reductions may be made in 2000 and future years. We continue to monitor canned pineapple imports into the United States. As expected, imports of canned pineapple products into the U.S. increased in 1999. Through November 1999, the year- to-date case volume of imported canned pineapple fruit, juice and concentrate increased by 44%, 11% and 34%, respectively. Imports of canned pineapple from Thailand increased the most at 153% over 1998 levels. Over the past several years, companies in the major pineapple producing areas have increased their plantings and we expect competition to continue to intensify as more of these plantings reach maturity. Accordingly, we expect the case volume of imports of canned pineapple products into the U.S. to increase in 2000. Antidumping duties were in effect on canned pineapple fruit from Thailand throughout 1999. The U.S. Department of Commerce has begun the fourth annual review of these tariffs. We anticipate the announcement of preliminary dumping margins and tariffs to be made in April 2000 with final results expected in July 2000. We do not expect any significant changes in the current duty structure as a result of the fourth annual review. A "Sunset Review" of the duties will take place beginning in summer 2000. For a continuation of existing duties, we must convince the International Trade Commission during the Sunset Review that elimination of the duties will potentially cause injury to the domestic industry. We continue to make progress in new product and business development. In 1999, we expanded our fresh cut pineapple distribution and introduced our product consisting of fresh cut wedges and chunks of pineapple in plastic containers on the mainland. We also introduced a fresh pineapple salsa product in plastic containers to the Hawaii market and to certain stores in California. Response from the retail trade for these products has been excellent. Our subsidiary, Royal Coast Tropical Fruit Company imports and sells fresh pineapple from Central America and a variety of fresh Hawaiian produce. Although 1999 sales were somewhat below expectations, we are pleased with the progress made in 1999 in positioning ourselves for long-term development and anticipate increasing our pineapple sales volume of fruit from Central America. The Pineapple division's primary focus in 2000 will be to increase its competitiveness and profitability by emphasizing product quality, achieving cost reductions in operations, maximizing yields and improving recovery. Significant capital resources will be directed toward fresh and fresh cut products where customer demand is growing. Sales and marketing objectives will be to achieve the highest return from sales of 100% HAWAIIAN U.S.A. canned pineapple and to expand sales through the Royal Coast Tropical Fruit Company label. We expect 2000 to be a challenging year as we continue to expand and improve our business. RESORT For the third consecutive, year the Resort division showed financial improvement. The 1999 profit, before allocated interest and income taxes, was $5.7 million compared with $5.2 million in 1998. The improvement in 1999 was due to record profits from resort operations, which offset a lower contribution from resort development activities. Overall, Hawaii's resort real estate market continues to strengthen, primarily from increased demand created by the strong U.S. mainland economy. Total dollar volume of real estate resales at Kapalua increased 19% in 1999 compared to 1998. This growth was achieved despite strong competing interest in our new residential product and historically low inventory of Kapalua resale listings. The total resort development profit in 1999 of $1.6 million was primarily from the development of the final 34-acre parcel in Plantation Estates II. All fourteen of the two-acre lots were sold for a total of $9.6 million. Twelve of the sales closed escrow in 1999 while the remaining sales closed in the first quarter of 2000. Construction of subdivision improvements began in the fourth quarter of 1999 and should be substantially completed in March 2000. Profits have been accounted for using the percentage- of-completion method, which will result in the remaining profit being recognized as the project is completed this year. Construction of The Coconut Grove on Kapalua Bay also began in the fourth quarter of 1999. Development of the 36 luxury beachfront condominiums is through a 50/50 partnership with Lend Lease Real Estate Investment Inc., owner of The Kapalua Bay Hotel. We presently have sold 28 of these exclusive residences for a total sales volume of $53.8 million, of which more than $47 million is under binding contract. Mass grading has been completed and building construction began in February 2000. Construction is scheduled to be completed in the first quarter of 2001. Profits will be recorded when title to the residences is delivered, which could be in late 2000 for some of the buildings. In December 1999, the Maui County Planning Commission approved our Special Management Area permit application for the proposed 31 half-acre residential custom lot subdivision on Site 19. Final subdivision approval, as well as a zoning change and Community Plan amendment for about three acres of the 20-acre site are still needed and are expected in May 2000. We have reached an agreement with the Pineapple Hill Homeowners Association for the annexation of this development with Pineapple Hill. Presales are expected to begin in the second quarter of 2000 with construction completed by year-end. Lot sales are expected to close in the third quarter with profits being accounted for using the percentage-of-completion method. In January 2000, we opened the Kapalua Golf Academy and the Hale Irwin-designed Village Course practice facility for limited use by participants in the Mercedes Championships. A month later, the facility was fully opened to the resort community and general public. The response has been extremely positive and, in conjunction with our staff of 30 PGA professionals, the Kapalua Golf Academy gives us a distinct competitive advantage. Equally important to our strategic golf positioning and future town center development is the new 27,000 square foot Village Course Clubhouse, which should be open by July 2000. The other components of the $15 million clubhouse and golf academy development include an 18-hole putting course and two commercial retail parcels. Overall, this will provide a foundation for the remaining Town Center, resort spa and residential development of our central resort master plan. As expected, Hawaii's visitor industry continued its struggle to offset a decline in eastbound visitors in 1999 due to the ongoing economic problems in Japan. This is particularly difficult for the island of Oahu and the Waikiki hotels that have relied heavily on the eastbound market. Growth from the westbound market, mostly U.S. mainland, gave the state a slight gain in total visitor counts and occupancies in 1999 with most of the gains reflected in the neighbor islands. Maui showed surprisingly strong growth in 1999 with a 6% increase over 1998 and finished with an average occupancy of over 77%, the highest of any Hawaiian island. Total resort occupancy for Kapalua was up significantly in 1999 with an increase of almost 16% compared to 1998. All three of the resort properties (The Kapalua Bay Hotel, The Ritz-Carlton, Kapalua and The Kapalua Villas) finished the year with strong occupancy gains and were equally successful in delivering high quality guest experiences. Travel & Leisure magazine ranked all three in the top 25 hotels in Hawaii for 1999 and rated The Ritz- Carlton, Kapalua as #3 in the world. The record profit from resort operations in 1999 is due mostly to the higher occupancies, increased demand for golf and increased hotel lease rents. Gross revenues from resort operations increased 13% in 1999 with all major business segments of golf, villas, retail and commercial leases showing strong revenue gains. Excluding direct revenue-related expenses, our total operating costs increased less than 7%. The marketing exposure from our inaugural Mercedes Championships contributed to the positive results for Kapalua in 1999. In January 2000, we hosted the 2000 Mercedes Championships, the first PGA TOUR event of the new millennium and saw Tiger Woods culminate an extraordinary week at Kapalua with his dramatic playoff victory over Ernie Els. ESPN television ratings on the final day were the highest ever for ESPN golf. We believe the Mercedes Championships has been a significant factor in helping to define our strategic positioning as the #1 golf resort in Hawaii and hope to continue our partnership with the tournament sponsor, Mercedes Benz, and the PGA TOUR beyond our initial four-year agreement on a long-term basis. We expect the year 2000 will present challenges to resort operations from the start-up phase of the new Village Course Clubhouse and Kapalua Golf Academy. Profits from the two new residential projects could be significant for the year 2000, but as with any development, are subject to substantial timing and other customary risks. Overall we believe the Resort division is in an excellent position for continued long-term improvement from both resort operations and development activities. COMMERCIAL & PROPERTY The Company's Commercial & Property business segment produced an operating loss, before allocation of interest and income taxes, of $454,000 in 1999 compared to an operating loss of $1.1 million in 1998. Revenue increased from $4.1 million in 1998 to $4.4 million in 1999. Improved results from Kaahumanu Center were responsible for the lower operating loss in 1999. Joint venture losses at Kaahumanu Center, a 573,000 square foot regional mall, decreased from $2,479,000 in 1998 to $1,800,000 in 1999. The Company's share of these losses, together with management fee revenues and other expenses, resulted in an operating loss of $470,000 in 1999 compared to an operating loss of $1,000,000 in 1998. Kaahumanu Center's revenues increased by 6% in 1999, reflecting improved occupancies, higher sales reported by tenants and higher recovery of expenses from tenants. Costs and expenses at Kaahumanu Center increased by 1% in 1999 as higher utility and payroll costs were partially offset by lower expense for bad debts. Occupancy at Kaahumanu Center improved with new merchants opening in 1999, including Gap Kids/Baby Gap, Pacific Sunwear, d.e.m.o., The Gift Basket, Vitamin World, Athens Restaurant and an expansion of Fun Factory. Anthurium's boutique, Twig, Native Soles, Heaven Scents and Maui Elements opened in the first phase of a plantation town themed area in the new "Plantation District" on Kaahumanu Center's second level. Moondoggy's, a 7,000 square foot restaurant, is slated to open in the second phase of the Plantation District in March 2000. Merchant sales at Kaahumanu Center increased over 5% in 1999 compared to 1998. Napili Plaza, the Company's 44,000 square foot shopping and commercial center in West Maui, showed a decrease in profits from $268,000 in 1998 to $202,000 in 1999. Merchant sales at Napili Plaza increased over the previous year in the latter part of 1999, but overall were down 5.7% in 1999 compared to 1998 primarily as a result of increased competition in the area. Operating losses in other property-related and land management activities declined from $574,000 in 1998 to $409,000 in 1999. Gains from land sales of $223,000 in 1999 were comparable to 1998. In 1999, the Company continued its efforts to obtain the Special Management Area permit and other required permits for the Kapua Village Employee Subdivision in West Maui. Delays were encountered due primarily to legal challenges filed with the courts by neighboring property owners opposing the Environmental Assessment completed for the subdivision. We anticipate that approval of the required permits will be obtained sometime in 2000. Work commenced in 1999 on the preliminary planning phase for the business-commercial development of the Country Town Business zoned parcel of land located within Haliimaile Village in Upcountry Maui, with alternative conceptual development plans reviewed and evaluated. An important consideration for the proposed development is recognition of the unique rural characteristics of the Upcountry Maui area. In addition to the Haliimaile business-commercial development, other Company-owned lands were evaluated to determine appropriate uses and potential opportunities that would achieve the highest and best uses for the Company's lands. Further progress was made by the Land Management & Development Division in 1999 toward achieving strategic goals and objectives to position the Company to more effectively and responsibly manage, plan and develop the Company's valuable land and water assets. INDEPENDENT AUDITORS' REPORT To the Stockholders and Directors of Maui Land & Pineapple Company, Inc.: We have audited the accompanying consolidated balance sheets of Maui Land & Pineapple Company, Inc. and its subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of operations and retained earnings and of cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Companies at December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999 in conformity with generally accepted accounting principles. /S/ DELOITTE & TOUCHE LLP DELOITTE & TOUCHE LLP Honolulu, Hawaii February 9, 2000 (February 24, 2000 as to Note 13) MAUI LAND & PINEAPPLE COMPANY, INC. & SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 1999 and 1998 1999 1998 (Dollars in Thousands) ASSETS CURRENT ASSETS Cash and cash equivalents $ 2,657 $ 3,447 Accounts and notes receivable, less allowance of $783 and $493 for doubtful accounts 15,098 13,005 Inventories Pineapple products 9,714 8,380 Real estate held for sale 577 1,083 Merchandise, materials and supplies 6,634 6,057 Prepaid expenses and other assets 4,779 3,659 Total Current Assets 39,459 35,631 INVESTMENTS AND OTHER ASSETS 12,952 10,695 PROPERTY Land 4,737 4,618 Land improvements 46,062 45,868 Buildings 50,317 49,708 Machinery and equipment 105,784 104,052 Construction in progress 18,058 5,721 Total Property 224,958 209,967 Less accumulated depreciation 123,982 120,046 Net Property 100,976 89,921 TOTAL $153,387 $136,247 1999 1998 (Dollars in Thousands) LIABILITIES & STOCKHOLDERS' EQUITY CURRENT LIABILITIES Notes payable and current portion of long-term debt $ 2,792 $ 2,254 Current portion of capital lease obligations 264 499 Trade accounts payable 12,492 6,613 Customers' deposits 1,264 1,304 Payroll and employee benefits 4,662 4,085 Deferred revenue 3,365 643 Other accrued liabilities 1,696 1,248 Total Current Liabilities 26,535 16,646 LONG-TERM LIABILITIES Long-term debt 25,077 22,913 Capital lease obligations 420 679 Accrued retirement benefits 23,204 22,920 Equity in losses of joint venture 8,944 7,969 Other noncurrent liabilities 2,361 2,628 Total Long-Term Liabilities 60,006 57,109 MINORITY INTEREST IN SUBSIDIARY 446 -- CONTINGENCIES AND COMMITMENTS STOCKHOLDERS' EQUITY Common stock--no par value, 7,200,000 shares authorized, 7,195,800 and 7,188,500 shares issued and outstanding at December 31, 1999 and 1998, respectively 12,455 12,318 Retained earnings 53,945 50,174 Stockholders' Equity 66,400 62,492 TOTAL $153,387 $136,247 See Notes to Consolidated Financial Statements MAUI LAND & PINEAPPLE COMPANY, INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS Years Ended December 31, 1999, 1998 and 1997 1999 1998 1997 (Dollars in Thousands Except Per Share Amounts) REVENUES Net sales $112,191 $113,391 $101,421 Operating revenue 33,982 29,123 29,058 Other income 825 1,197 6,019 Total Revenues 146,998 143,711 136,498 COSTS AND EXPENSES Cost of goods sold 74,494 76,049 72,200 Operating expenses 27,440 26,168 26,027 Shipping and marketing 18,479 16,673 18,053 General and administrative 16,408 15,094 14,600 Equity in losses of joint ventures 956 1,160 1,211 Interest 1,834 3,039 3,045 Total Costs and Expenses 139,611 138,183 135,136 INCOME BEFORE INCOME TAXES AND EXTRAORDINARY LOSS 7,387 5,528 1,362 INCOME TAX EXPENSE 2,717 1,188 499 INCOME BEFORE EXTRAORDINARY LOSS 4,670 4,340 863 EXTRAORDINARY LOSS, NET OF INCOME TAX CREDIT OF $456 -- (744) -- NET INCOME 4,670 3,596 863 RETAINED EARNINGS, BEGINNING OF YEAR 50,174 46,578 45,715 CASH DIVIDENDS 899 -- -- RETAINED EARNINGS, END OF YEAR 53,945 50,174 46,578 PER COMMON SHARE Income Before Extraordinary Loss .65 .60 .12 Extraordinary Loss, Net of Income Tax Credit -- (.10) -- Net Income .65 .50 .12 Cash Dividends $ .125 $ -- $ -- Average Common Shares Outstanding 7,188,840 7,188,500 7,188,500 See Notes to Consolidated Financial Statements. MAUI LAND & PINEAPPLE COMPANY, INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, 1999, 1998 and 1997 1999 1998 1997 (Dollars in Thousands) OPERATING ACTIVITIES Net income $ 4,670 $ 3,596 $ 863 Adjustments to reconcile net income to net cash provided by operating activities Depreciation 8,445 8,176 8,041 Undistributed equity in losses of joint ventures 1,019 1,194 1,211 Gain on property disposals (49) (627) (5,254) Deferred income taxes 552 (523) (313) (Increase) decrease in accounts receivable (1,700) (526) 1,446 (Increase) decrease in inventories (2,360) 5,193 (1,219) Increase (decrease) in trade payables 3,798 (420) (1,356) Net change in other operating assets and liabilities 4,094 1,568 34 NET CASH PROVIDED BY OPERATING ACTIVITIES 18,469 17,631 3,453 INVESTING ACTIVITIES Purchases of property (18,213) (8,230) (8,388) Proceeds from sale of property 509 634 5,882 Distributions from joint ventures -- -- 1,460 Contributions to joint ventures (575) (425) (1,030) Payments for other investments (2,735) (1,632) (1,815) NET CASH USED IN INVESTING ACTIVITIES (21,014) (9,653) (3,891) FINANCING ACTIVITIES Proceeds from long-term debt 15,632 30,647 23,891 Payments of long-term debt (13,659) (35,780) (20,991) Proceeds from short-term debt 729 -- -- Payments on capital lease obligations (494) (1,009) (1,304) Dividend paid (899) -- -- Other 446 -- -- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 1,755 (6,142) 1,596 NET INCREASE (DECREASE) IN CASH (790) 1,836 1,158 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 3,447 1,611 453 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,657 $ 3,447 $ 1,611 Supplemental Disclosures of Cash Flow Information and Non-Cash Investing and Financing Activities: 1. Cash paid during the year (in thousands): Interest (net of amount capitalized) $ 1,711 $ 4,809 $ 3,235 Income taxes 1,842 984 335 2. Amounts included in accounts payable for additions to property and other investments totaled $3,419,000, $1,144,000 and $280,000, respectively, at December 31, 1999, 1998 and 1997. 3. In December 1999, 7,300 shares of Company stock, which was held by a wholly owned subsidiary of the Company, were contributed to the Company's Employee Stock Ownership Plan (see Note 7 to Consolidated Financial Statements). 4. Capital lease obligations of $739,000 in 1997 were incurred for new equipment. 5. Effective December 31, 1997, the Company's investment in Plantation Club Associates (PCA) was liquidated and the Company assumed PCA's remaining assets totaling $1.4 million (see Note 3 to Consolidated Financial Statements). See Notes to Consolidated Financial Statements. MAUI LAND & PINEAPPLE COMPANY, INC. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATION The consolidated financial statements include the accounts of Maui Land & Pineapple Company, Inc. and subsidiaries, primarily Maui Pineapple Company, Ltd. and Kapalua Land Company, Ltd. Significant intercompany balances and transactions have been eliminated. CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash on hand, deposits in banks and commercial paper with original maturities of three months or less. INVENTORIES Inventories of tinplate, cans, ends and canned pineapple products are stated at cost, not in excess of market value, using the dollar value last-in, first-out (LIFO) method. The costs of growing pineapple are charged to production in the year incurred rather than deferred until the year of harvest. For financial reporting purposes, each year's total cost of growing and harvesting pineapple is allocated to products on the basis of their respective market values; for income tax purposes, the allocation is based upon the weight of fruit included in each product. Real estate held for sale is stated at the lower of cost or fair value less cost to sell. Merchandise, materials and supplies are stated at cost, not in excess of market value, using retail and average cost methods. INVESTMENTS AND OTHER ASSETS Cash surrender value of life insurance policies are reflected net of loans against the policies. Investments in joint ventures are generally accounted for using the equity method. PROPERTY AND DEPRECIATION Property is stated at cost. Major replacements, renewals and betterments are capitalized while maintenance and repairs that do not improve or extend the life of an asset are charged to expense as incurred. When property is retired or otherwise disposed of, the cost of the property and the related accumulated depreciation are written off and the resulting gains or losses are included in income. Depreciation is provided over estimated useful lives of the respective assets using the straight-line method. POSTRETIREMENT BENEFITS The Company's policy is to fund pension cost at a level at least equal to the minimum amount required under federal law, but not more than the maximum amount deductible for federal income tax purposes. Deferred compensation plans for certain management employees provide for specified payments after retirement. The present value of estimated payments to be made were accrued over the period of active employment. On October 1, 1998, these plans were terminated (see Note 7 to Consolidated Financial Statements). The estimated cost of providing postretirement health care and life insurance benefits is accrued over the period employees render the necessary services. REVENUE RECOGNITION Revenue from the sale of pineapple is recognized when title to the product is transferred to the customer. The timing of the transfer of title varies according to the shipping and delivery terms of the sale. Sales of real estate are recognized as revenues in the period in which sufficient cash has been received, collection of the balance is reasonably assured and risks of ownership have passed to the buyer. When the Company's remaining obligation to complete improvements is significant, the sale is recognized on the percentage-of-completion method. INTEREST CAPITALIZATION Interest costs are capitalized during the construction period of major capital projects. ADVERTISING AND RESEARCH AND DEVELOPMENT The costs of advertising and research and development activities are expensed as incurred. LEASES Leases that transfer substantially all of the benefits and risks of ownership of the property are accounted for as capital leases. Amortization of capital leases is included in depreciation expense. Other leases are accounted for as operating leases. INCOME TAXES The Company's provision for income taxes is calculated using the liability method. Deferred income taxes are provided for all temporary differences between the financial statement and tax bases of assets and liabilities using enacted tax rates. FOREIGN CURRENCY TRANSLATION The assets and liabilities of the Company's majority owned subsidiary in Central America are translated into U.S. dollars at exchange rates in effect at the balance sheet date, and revenues and expenses are translated at weighted average exchange rates in effect during the period. Translation adjustments are to be reported as other comprehensive income and accumulated in Stockholders' Equity. Transaction gains and losses that arise from exchange rate changes on transactions denominated in a currency other than the functional currency are included in income as incurred. During 1999, these foreign translation and transaction adjustments were not material. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Future actual amounts could differ from those estimates. EARNINGS PER COMMON SHARE Earnings per common share is computed using the weighted average number of shares outstanding during the period. The Company has no dilutive potential common shares outstanding. All references to shares outstanding and per share amounts for prior periods have been restated to reflect the four-for-one split of the Company's common stock that was effected on May 1, 1998. RECLASSIFICATIONS Certain amounts for prior years have been reclassified to conform to the presentation for the current year. 2. INVENTORIES Pineapple product inventories were comprised of the following components at December 31, 1999 and 1998: 1999 1998 (Dollars in Thousands) Finished Goods $ 7,399 $ 5,979 Work In Progress 839 839 Raw Materials 1,476 1,562 Total $ 9,714 $ 8,380 The replacement cost of pineapple product inventories at year-end approximated $21 million in 1999 and $19 million in 1998. In 1998, there was a partial liquidation of LIFO inventories; thus, cost of sales included prior years' inventory costs, which were lower than current costs. Had current costs been charged to cost of sales, net income for 1998 would have decreased by $1,360,000 or $.19 per share. 3. INVESTMENTS AND OTHER ASSETS Investments and Other Assets at December 31, 1999 and 1998 consisted of the following: 1999 1998 (Dollars in Thousands) Deferred Costs $ 6,657 $ 6,230 Cash Surrender Value of Life Insurance Policies (net) 633 515 Prepaid pension asset 2,774 2,247 Kapalua Coconut Grove LLC 905 496 Other 1,983 1,207 Total $12,952 $10,695 Deferred costs are primarily intangible predevelopment costs related to various projects at the Kapalua Resort, which will be allocated to future development projects. Cash surrender value of life insurance policies are stated net of policy loans totaling $597,000 at December 31, 1999 and 1998. KAPALUA COCONUT GROVE LLC Kapalua Coconut Grove LLC (KCG) is a Hawaii limited liability company whose members are the Company and an affiliate of Lend Lease Real Estate Investments, Inc. KCG was formed in June of 1997 to own, develop and sell the 12-acre parcel of property adjacent to The Kapalua Bay Hotel. Each member contributed to the venture its 50% interest in the land parcel and $1.1 million in cash. Presales of the 36 luxury residential condominiums to be constructed on the parcel began in August 1999 and mass grading and site work began in November 1999. Each member has a 50% interest in KCG and the Company has accounted for its investment in KCG by the equity method. The Company's pre-tax share of KCG's net income (loss) was $(172,000) in 1999 and $1,000 in 1998. KAAHUMANU CENTER ASSOCIATES In June 1993, Kaahumanu Center Associates (KCA) was formed to finance the expansion and renovation of and to own and operate Kaahumanu Center. KCA is a partnership between the Company as general partner and the Employees' Retirement System of the State of Hawaii (ERS) as a limited partner. The Company contributed the then existing shopping center, subject to a first mortgage, and approximately nine acres of adjacent land. ERS contributed $312,000 and made a $30.6 million loan to the partnership. The expansion and renovation were substantially complete by the end of November 1994. Effective April 30, 1995, the ERS converted its $30.6 million loan to an additional 49% ownership in KCA. Effective with conversion of the ERS loan, the Company and ERS each have a 50% interest in KCA and the Company has accounted for its investment in KCA by the equity method. The Company has a long-term agreement with KCA to manage Kaahumanu Center. The agreement provides for certain performance tests, which if not met, could result in termination of the agreement. The tests were not met in 1999, but termination of the agreement is not presently being considered. KCA does not have any employees. As manager, the Company provides all administrative and on-site personnel and incurs other costs and expenses, primarily insurance, which are reimbursable by KCA. The Company generates a portion of the electricity used by Kaahumanu Center. In 1999, 1998 and 1997, reimbursements from KCA for payroll and other costs and expenses totaled $2,417,000, $2,303,000, and $2,240,000, respectively, and the Company charged KCA $2,531,000, $2,402,000, and $2,574,000, respectively, for electricity and management fees. At December 31, 1999 and 1998, $1,154,000 and $333,000, respectively, were due to the Company from KCA for management fees, electricity and reimbursable costs. Summarized balance sheet information for KCA as of December 31, 1999 and 1998 and operating information for each of the three years ended December 31, 1999 follows: 1999 1998 (Dollars in Thousands) Current assets $ 1,188 $ 1,039 Property and equipment, net 72,277 73,861 Other assets, net 1,701 2,311 Total Assets 75,166 77,211 Current liabilities 2,969 2,200 Noncurrent liabilities 60,352 61,366 Total Liabilities 63,321 63,566 Partners' Capital $ 11,845 $13,645 1999 1998 1997 Revenues $ 14,506 $13,625 $ 13,945 Costs and Expenses 16,306 16,104 16,255 Net Loss $ 1,800 $ 2,479 $ 2,310 The Company's share of losses from KCA was $900,000, $1,240,000 and $1,155,000, respectively, for 1999, 1998 and 1997. ERS and the Company each have a 9% cumulative, non-compounded priority right to cash distributions based on their net contributions to the partnership (preferred return). For the purpose of calculating preferred returns, each partner's capital contribution had an agreed upon value of $30.9 million on May 1, 1995. The Company's preferred return is subordinate to the ERS preferred return. As of December 31, 1999, the accumulated unpaid preferred return was $11 million each for ERS and the Company. Pursuant to cash calls, the partners each contributed $830,000 to the partnership in 1997. The Company's investment in KCA is a negative $8.9 million at December 31, 1999. The negative balance is a result of (1) recording the Company's initial contribution in 1993 at net book value of the assets contributed, reduced by the related debt and (2) the Company's share of KCA's accumulated losses since 1995. PLANTATION CLUB ASSOCIATES Plantation Club Associates (PCA) was an unincorporated joint venture in which Kapalua Land Company, Ltd. (Kapalua) was the managing venturer. Profits and losses of the joint venture were allocated based on estimated distributions to the partners, which was 85% to Kapalua and 15% to the other partner. The partnership agreement required that all major decisions receive unanimous approval of the partners. In 1997, the three remaining lots in Plantation Estates Phase I were sold and the partners concluded an agreement to liquidate PCA as of December 31, 1997. After distribution of the joint venture's cash to the partners, Kapalua assumed PCA's remaining assets of $1.4 million, primarily land and planning costs for Plantation Estates Phase II. Kapalua's pre-tax share of the joint venture's net loss was $56,000 for 1997. This amount includes expenses incurred by the Company related to the investment, primarily amortization of capitalized interest cost. The Company received a cash distribution from PCA of $1,460,000 in 1997. 4. BORROWING ARRANGEMENTS During 1999, 1998 and 1997, the Company had average borrowings outstanding of $29.5 million, $33 million and $32.8 million, respectively, at average interest rates of 7.8%, 8.9% and 8.8%, respectively. Short-term bank lines of credit available to the Company at December 31, 1999 were $2 million. These lines provide for interest at the prime rate (8.5% at December 31, 1999) plus 1/4% to 1/2%. There were no borrowings under these lines at December 31, 1999, but $213,000 in letters of credit were reserved against these lines to secure the Company's deductible portion of insurance claims administered by various insurance companies. The Company has a $900,000 working capital credit facility for its Central American operations. At December 31, 1999, the Company had borrowings outstanding of $729,000 under this facility at 7.55%. Long-term debt at December 31, 1999 and 1998 consisted of the following (interest rates represent the rates at December 31): 1999 1998 (Dollars in Thousands) Term loan, 7.87% to 8.39% $ 15,000 $ -- Bridge loan, 8% -- 15,000 Revolving credit agreement, 8.5% 3,400 -- Mortgage loan, 7.25% and 8.25% 4,807 4,886 Equipment loans, 6.76% to 8.46% 3,932 5,281 Total 27,139 25,167 Less portion classified as current 2,062 2,254 Long-term debt $ 25,077 $22,913 On December 31, 1998, $20 million of 8.86% senior unsecured notes were retired with a $15 million bridge loan (7.3% at January 4, 1999) and cash generated by the Company's operations. Principal payments on the $20 million loan were due from 1999 through 2003. A prepayment penalty of $1.2 million was paid for early extinguishment of the 8.86% notes and has been accounted for as an extraordinary loss of $744,000 (net of income tax credit of $456,000). In March of 1999, the Company accepted a commitment to refinance the bridge loan and, accordingly, the $15 million bridge loan was classified as long-term debt in the December 31, 1998 balance sheet. In June of 1999, the bridge loan agreement was amended and restated in its entirety and converted to a term loan secured by certain parcels of the Company's real property on Maui. Principal payments are due from September 2004 through June 2009. Interest rates on the loan are adjustable to 2.15% to 2.55% above six-month, one-year and three-year rates made available by the Federal Farm Credit Bank. The agreement includes certain financial covenants, including the maintenance of a minimum tangible net worth and debt coverage ratio, maximum funded debt to capitalization ratio, and limits on capital expenditures, investments and the payment of dividends. The Company has a revolving credit agreement with participating banks under which it may borrow up to $15 million in revolving loans through December 31, 2001. Amounts outstanding at that date, at the Company's option, may be converted to a three-year term loan payable in six equal semi- annual installments. The agreement also includes a $15 million development line of credit facility for construction of the new Village Course Clubhouse and Kapalua Golf Academy. The development facility reduces to $8 million in December of 2000 and matures in December of 2001. Commitment fees of 1/4% are payable on the unused portions of the revolving credit line and the development facility. At the Company's option, interest on advances under both the revolving credit line and the development facility is at the prime rate or based on a LIBOR rate. The loan is collateralized by the Company's three golf courses at the Kapalua Resort. The agreement contains certain financial covenants, including the maintenance of consolidated net worth and working capital at certain levels and limits on the incurrence of other indebtedness and capital expenditures. Declaration and payment of cash dividends is restricted to 30% of prior year's net income. At December 31, 1999, the Company did not meet the minimum current ratio required by this credit facility. As of February 9, 2000, the Company obtained a waiver of the violation with regard to year-end 1999. The Company believes that the conditions that caused the violation will be different in the future. The Company's financial projections for 2000, which reflect the aforementioned differences in conditions, indicate that the Company should be in compliance with this working capital covenant throughout 2000. The mortgage loan is collateralized by the Napili Plaza shopping center and matures on December 31, 2005. Payments are based on a 25-year amortization. Effective January 1, 1999, the interest rate on the loan was amended to 7.25% until January 1, 2002. The interest rate will be adjusted to the lender's then prevailing rate of interest for such loans as of January 1, 2002 and January 1, 2005. The Company has agreements that provide for term loans that were used to purchase assets for the Company's pineapple and resort operations. The loans are at fixed interest rates and mature through June 2004. The agreements include certain financial covenants that are similar to those in the Company's revolving credit agreement. One of the agreements also requires the maintenance of a minimum tangible net worth and debt coverage ratio (as defined). Maturities of long-term debt during the next five years, from 2000 through 2004, are as follows: $2,062,000, $985,000, $1,927,000, $1,517,000, $1,341,000. 5. MINORITY INTEREST IN SUBSIDIARY In February of 1999, Royal Coast Tropical Fruit Company, Inc. (a wholly owned subsidiary of Maui Pineapple Company, Ltd.) formed a subsidiary in Central America and invested $503,000 for a 51% ownership interest in a new pineapple production company. The minority stockholders contributed $460,000. The minority stockholders' share of the 1999 operating loss was not material. 6. DEFERRED REVENUE Deferred revenue for 1999 primarily represents proceeds received on closed sales in Plantation Estates Phase II in excess of revenue recognized in 1999 on the percentage-of-completion method. Construction of the subdivision improvements for the 14 single-family lots began in the fourth quarter of 1999 and is scheduled to be substantially completed during the first quarter of 2000. In November and December of 1999, 12 of the 14 lots in Plantation Estates Phase II closed escrow. Revenue on the closed sales is being recognized as construction is completed. 7. POSTRETIREMENT BENEFITS The Company has defined benefit pension plans and defined benefit postretirement health care and life insurance plans. Changes in benefit obligations and changes in plan assets for 1999 and 1998 and the funded status of the plans and amounts recognized in the balance sheets as of December 31 were as follows: Pension Benefits Other Benefits 1999 1998 1999 1998 (Dollars in Thousands) Change in benefit obligations: Benefit obligations at beginning of year $ 35,071 $ 31,015 $ 15,379 $ 14,140 Service cost 1,443 1,240 359 411 Interest Cost 2,396 2,261 895 1,024 Actuarial (gain) loss (897) 2,228 (2,657) 481 Special termination benefits -- 314 -- 29 Benefits paid (2,150) (1,987) (713) (706) Benefit obligations at end of year 35,863 35,071 13,263 15,379 Change in plan assets: Fair value of plan assets at beginning of year 41,807 37,530 -- -- Actual return on plan assets 6,367 6,028 -- -- Employer contributions 143 236 713 706 Benefits paid (2,150) (1,987) (713) (706) Fair value of plan assets at end of year 46,167 41,807 -- -- Funded status 10,304 6,736 (13,263) (15,379) Unrecognized actuarial gain (7,548) (3,935) (5,425) (3,082) Unrecognized net transition asset (759) (1,295) -- -- Unrecognized prior service cost 185 244 (1,172) (1,324) Net Amounts recognized 2,182 1,750 (19,860) (19,785) Amounts recognized in balance sheets consist of: Prepaid benefit cost 2,774 2,247 -- -- Accrued benefit liability (592) (497) (19,860) (19,785) Net amount recognized $ 2,182 $ 1,750 $(19,860) $(19,785) Net periodic benefit costs for 1999, 1998 and 1997 included the following components: 1999 1998 1997 (Dollars in Thousands) Pension benefits: Service cost $ 1,443 $ 1,240 $ 1,030 Interest cost 2,396 2,261 2,161 Expected return on plan assets (3,638) (2,925) (2,576) Amortization of net transition asset (535) (535) (535) Amortization of prior service cost 59 61 61 Recognized net actuarial (gain) loss (14) 3 16 Special termination benefits -- 314 -- Net expense (credit) (289) 419 157 Other benefits: Service cost 359 411 325 Interest cost 895 1,024 991 Amortization of prior service cost (146) (147) (147) Recognized net actuarial gain (320) (209) (300) Special termination benefits -- 29 -- Net expense $ 788 $ 1,108 $ 869 Effective September 1, 1998, in an effort to reduce the size of its workforce, the Company offered a voluntary, enhanced early retirement program to employees in the Pineapple and Corporate divisions based on age and years of service. The projected benefit obligation for the pension plans and the net pension expense for 1998 increased by $314,000 and the accumulated postretirement benefit obligation for other benefits and the corresponding net expense for 1998 increased by $29,000 as a result of implementing this program. The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the pension plan with accumulated benefits in excess of plan assets were $1,028,000, $578,000 and $-0-, respectively, as of December 31, 1999 and $846,000, $471,000 and -0-, respectively, as of December 31, 1998. The benefit obligations for pensions and other postretirement benefits were determined using a discount rate of 7.25% and 7% as of December 31, 1999 and 1998, respectively, and compensation increases ranging up to 4.5%. The expected long- term rate of return on assets ranged up to 9% for 1999 and 8% for 1998. The accumulated postretirement benefit obligation for health care as of December 31, 1999 and 1998 was determined using a health care cost trend rate of 10% in 1995, decreasing by .5% each year from 1995 through 2004 and 5% thereafter. The effect of a 1% annual increase in these assumed cost trend rates would increase the accrued postretirement benefit obligation by approximately $1,629,000 as of December 31, 1999, and the aggregate of the service and interest cost for 1999 by approximately $178,000; a 1% annual decrease would reduce the accrued postretirement benefit obligation by approximately $1,335,000 as of December 31, 1999, and the aggregate of the service and interest cost for 1999 by approximately $142,000. The Company has an Employee Stock Ownership Plan (ESOP) for non-bargaining salaried employees and for bargaining unit clerical employees of Maui Pineapple Company, Ltd. All of the shares originally sold to the ESOP in 1979 have been allocated to participants since December of 1993. In December of 1999, 7,300 shares of the Company's common stock held by a wholly owned subsidiary were contributed to the ESOP. The Company recorded a charge to employee benefit expense of $137,000 and a corresponding credit to Common Stock. Effective December 31, 1999, the Company's Board of Directors approved a plan amendment to freeze the ESOP. Accordingly, after 1999 there will be no further contributions to the ESOP and no additional employees will become participants of the plan. On October 1, 1998, deferred compensation plans that provided for specified payments after retirement for certain management employees were terminated. At the termination date, these employees were given credit for existing years of service and future accruals were discontinued. 8. OTHER INCOME Revenues attributable to real estate sales other than inventory held for sale were $223,000, $591,000 and $5.2 million, respectively, in 1999, 1998 and 1997, and were included in Other Income. 9. LEASES LESSEE The Company has capital leases, primarily on equipment used in pineapple operations, which expire at various dates through 2002. At December 31, 1999 and 1998, property included capital leases of $900,000 and $1,699,000, respectively (accumulated depreciation of $452,000 and $684,000, respectively). Future minimum rental payments under capital leases aggregate $736,000 (including $52,000 representing interest) and are payable as follows (2000 to 2002): $300,000, $275,000, $161,000. The Company has various operating leases, primarily for land used in pineapple operations, which expire at various dates through 2012. A major operating lease covering approximately 1,500 acres used primarily for pineapple operations expired on December 31, 1999. The lease currently is being renegotiated for a minimum term of ten years. Total rental expense under operating leases was $801,000 in 1999, $746,000 in 1998, $804,000 in 1997. Future minimum rental payments under operating leases aggregate $5,592,000 and are payable during the next five years (2000 to 2004) as follows: $670,000, $591,000, $587,000, $465,000, $435,000, respectively, and $2,844,000 thereafter. LESSOR The Company leases land and land improvements, primarily to hotels at Kapalua, and buildings, primarily to retail tenants. The leases generally provide for minimum rents and, in most cases, percentage rentals based on tenant revenues. In addition, the leases generally provide for reimbursement of common area maintenance and other expenses. Total rental income under these operating leases was as follows: 1999 1998 1997 (Dollars in Thousands) Minimum rentals $ 1,744 $ 1,694 $ 1,575 Percentage rentals 2,232 1,279 1,140 Total $ 3,976 $ 2,973 $ 2,715 Property at December 31, 1999 and 1998 includes leased property of $20,473,000 and $20,184,000, respectively (accumulated depreciation of $10,623,000 and $9,961,000, respectively). Future minimum rental income aggregates $8,360,000 and is receivable during the next five years (2000 to 2004) as follows: $1,508,000, $1,244,000, $1,041,000, $879,000, $658,000, respectively, and $3,030,000 thereafter. 10. INCOME TAXES The components of the income tax provision were as follows: 1999 1998 1997 (Dollars in Thousands) Current Federal $ 1,831 $ 1,225 $ 931 State 334 30 (119) Total 2,165 1,255 812 Deferred Federal 584 (415) (433) State (32) (108) 120 Total 552 (523) (313) Total provision $ 2,717 $ 732 $ 499 Reconciliation between the total provision and the amount computed using the statutory federal rate of 34% follows: 1999 1998 1997 (Dollars in Thousands) Federal provision at statutory rate $ 2,512 $ 1,471 $ 463 Adjusted for State income taxes, net of effect on federal income taxes 200 (91) (5) Appreciated property donation -- (721) -- Other 5 73 41 Total income tax provision $ 2,717 $ 732 $ 499 Deferred tax assets and liabilities were comprised of the following types of temporary differences as of December 31, 1999 and 1998: 1999 1998 (Dollars in Thousands) Accrued retirement benefits $ 6,921 $ 7,216 Minimum tax credit carryforward 2,567 3,566 Accrued liabilities 1,120 1,279 Inventory 439 230 Allowance for doubtful accounts 216 176 Net operating loss carryforward 70 111 Total deferred tax assets 11,333 12,578 Deferred condemnation proceeds (5,864) (5,998) Property net book value (2,629) (2,968) Income from partnerships (1,840) (2,246) Pineapple marketing costs (583) (409) Other (120) (108) Total deferred tax liabilities (11,036) (11,729) Net deferred tax asset $ 297 $ 849 At December 31, 1999, the Company had federal minimum tax credit carryforwards of $2.6 million. In December of 1998, issues regarding the charitable donation of appreciated property in 1989 and 1990 were settled with the Internal Revenue Service. Deferred tax liabilities that would not reverse in the future as a result of the settlement were recognized in 1998 as a credit in the income tax provision. The Company's federal income tax returns for 1990 through 1993 are under examination by the Internal Revenue Service. The revenue agent's report on these years has not yet been issued and the Company presently cannot predict the outcome of these examinations. 11. INTEREST CAPITALIZATION Interest cost incurred in 1999, 1998 and 1997 was $2,477,000, $3,179,000 and $3,214,000, respectively, of which $643,000, $140,000 and $169,000, respectively, was capitalized. 12. ADVERTISING AND RESEARCH AND DEVELOPMENT Advertising expense totaled $1,801,000 in 1999, $1,397,000 in 1998 and $1,592,000 in 1997. Research and development expenses totaled $839,000 in 1999, $815,000 in 1998 and $601,000 in 1997. 13. SUBSEQUENT EVENT On February 24, 2000, the Company's Board of Directors declared a cash dividend of $.125 per share payable on March 31, 2000. 14. CONTINGENCIES AND COMMITMENTS The County of Maui sued several chemical manufacturers claiming that they were responsible for the presence of a nematocide commonly known as DBCP in certain water wells on Maui. The Company was a Third Party Defendant in the suit as a result of a 1978 agreement for the sale of DBCP between the Company and one of the DBCP manufacturers. In August 1999, settlement of the case was reached. The Company's portion of the cash payment in 1999 to install filtration systems in the existing contaminated wells was substantially covered by proceeds of a settlement concluded on this issue with its insurance carrier. The Company and the other defendants as a group have agreed that until December 1, 2039, they will pay for 90% of the capital cost to install filtration systems in any future wells if DBCP contamination exceeds specified levels and for the ongoing maintenance and operating cost for filtration systems on existing and future wells. The level of DBCP in the existing wells should decline over time as the wells are pumped, which may end the requirement for filtration before 2039. To secure the obligations of the defendants under the settlement agreement, the defendants are required to furnish to the County of Maui an irrevocable standby letter of credit throughout the entire term of the agreement. The Company has estimated a range of its share of the cost to operate and maintain the filtration systems for the existing wells and its share of the cost of the letter of credit, and has recorded a reserve for this liability. Such amount did not have a material effect on the Company's financial statements for the year ended December 31, 1999. There are procedures in the settlement agreement to minimize the DBCP impact on future wells by relocating the wells to areas unaffected by DBCP or by using less costly methods to remove the DBCP from the water. The Company is unable to estimate the range of potential financial impact for the possible filtration cost for any future wells acquired or drilled by the County of Maui and, therefore has not made a provision in its financial statements for such costs. There are various claims and legal actions pending against the Company. In the opinion of management, after consultation with legal counsel, the resolution of these matters will not have a material adverse effect on the Company's financial position or results of operations. The Company has guaranteed the payment of up to $10 million of the $61 million mortgage loan of Kaahumanu Center Associates. The lender will release the guaranty when Kaahumanu Center attains a defined level of net operating income. Premium Tropicals International, LLC (PTI) is a joint venture between Royal Coast Tropical Fruit Company, Inc. (a wholly owned subsidiary of Maui Pineapple Company, Ltd.) and an Indonesian pineapple grower and canner. The joint venture markets and sells Indonesian canned pineapple in the United States. The Company is a guarantor of a $3 million line of credit, which supports letters of credit to be issued on behalf of PTI for import trading purposes. At December 31, 1999, the Company had commitments under signed contracts totaling $5,029,000. 15. CONCENTRATIONS OF CREDIT RISK A substantial portion of the Company's trade receivables results from sales of pineapple products, primarily to food distribution customers in the United States. Credit is extended after evaluating creditworthiness and no collateral generally is required from customers. Notes receivable result principally from sales of real estate in Hawaii and are collateralized by the property sold. 16. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS Except as indicated below, the carrying amount is considered to be the fair value of financial instruments. The following methods and assumptions were used to estimate the fair value of certain financial instruments: Notes Receivable: The fair value of these assets was estimated based on rates currently available for similar types of transactions. Long-Term Debt: The fair value of these liabilities was estimated based on rates currently available to the Company for debt with similar terms and remaining maturities. The estimated fair values for these financial instruments at December 31, 1999 and 1998 were as follows: 1999 1998 (Dollars in Thousands) Carrying Fair Carrying Fair Amount Value Amount Value Notes Receivable $ 1,101 $ 1,101 $ 255 $ 272 Long-Term Debt 27,139 26,348 25,167 25,189 17. BUSINESS SEGMENTS The Company's reportable segments are Pineapple, Resort and Commercial & Property. Each segment is a line of business requiring different technical and marketing strategies. Pineapple includes growing pineapple, canning pineapple in tin-plated steel containers fabricated by the Company, and marketing canned and fresh pineapple products. Resort includes the development and sale of real estate, property management and the operation of recreational and retail facilities and utility companies at Kapalua on Maui. Commercial & Property covers non-resort real estate activities, including the Company's investment in Kaahumanu Center Associates, Napili Plaza shopping center and non-resort real estate development, rentals and sales. It includes the Company's land entitlement and land management activities. The accounting policies of the segments are the same as those described in Note 1, Summary of Significant Accounting Policies. Commercial 1999 Pineapple Resort & Property Other Consolidated (Dollars in Thousands) Revenues (1)(3) $94,535 $ 47,950 $ 4,381 $ 132 $ 146,998 Operating profit (loss)(2) 6,071 5,702 (454) (2,098) 9,221 Interest expense (919) (443) (133) (339) (1,834) Income (loss) before income taxes and extraordinary loss 5,152 5,259 (587) (2,437) 7,387 Depreciation 5,040 2,796 481 128 8,445 Equity in earnings (losses) of joint ventures 116 (172) (900) -- (956) Investment in joint ventures 198 905 (8,944) -- (7,841) Segment assets (4) 69,733 64,943 7,190 11,521 153,387 Expenditures for segment assets 8,030 13,750 226 795 22,801 1998 Revenues (1)(3) $97,658 $ 41,929 $ 4,087 $ 37 $ 143,711 Operating profit (loss)(2) 5,480 5,239 (1,085) (1,067) 8,567 Interest expense (1,543) (1,089) (167) (240) (3,039) Income (loss) before income taxes and extraordinary loss 3,937 4,150 (1,252) (1,307) 5,528 Depreciation 4,795 2,743 487 151 8,176 Equity in earnings (losses) of joint ventures 79 1 (1,240) -- (1,160) Investment in joint ventures 145 495 (7,969) -- (7,329) Segment assets (4) 62,384 53,323 6,780 13,760 136,247 Expenditures for segment assets 6,433 3,930 406 997 11,766 1997 Revenues (1)(3) $90,949 $ 40,338 $ 5,065 $ 146 $ 136,498 Operating profit (loss)(2) 2,079 3,772 (479) (965) 4,407 interest expense (1,479) (1,102) (164) (300) (3,045) Income (loss) before income taxes and extraordinary loss 600 2,670 (643) (1,265) 1,362 Depreciation 4,562 2,898 415 166 8,041 Equity in losses of joint ventures -- (56) (1,155) -- (1,211) Investment in joint ventures 100 112 (6,655) -- (6,443) Segment assets (4) 64,443 52,437 6,922 11,705 135,507 Expenditures for segment assets 6,485 4,153 1,002 822 12,462 (1) Amounts are principally revenues from external customers. Intersegment revenues and interest revenues were insignificant. Sales to any single customer did not exceed 10% of consolidated revenues. Revenues attributed to foreign countries were $3.1 million, $4.3 million and $3.4 million, respectively, in 1999, 1998 and 1997. Foreign sales are attributed to countries based on the location of the customer. (2) "Operating profit (loss)" is total revenues less all expenses except allocated interest expenses and income taxes. Operating profit (loss) included in "Other" is primarily unallocated corporate expenses. (3) Resort includes gains on land sales of $370,000 in 1998 and $4.2 million in 1997. Commercial & Property includes gains on land sales of $223,000 in 1999, $221,000 in 1998 and $1 million in 1997. (4) Segment assets are located in the United States, primarily Maui. Other assets are corporate and non-segment assets. COMMON STOCK A dividend of $.125 per share was paid in March of 1999. The Company did not declare any dividends in 1998. The declaration and payment of cash dividends are restricted by the terms of borrowing arrangements to 30% of prior year's net income. At February 3, 2000, there were 357 shareholders of record. On May 1, 1998, the Company effected a four-for-one split of its common stock. All references to the number of shares of common stock and per share amounts have been restated to reflect the split. Also on May 1, 1998, the Company's common stock was listed and began trading on the American Stock Exchange under the symbol "MLP." Prior to May 1, 1998, the stock was traded over the counter nationally. The following chart reflects high and low sales prices after April 1998 and high and low bid prices as supplied by the National Quotation Bureau Incorporated for periods before May 1998. The quotes from the National Quotation Bureau reflect inter-dealer prices and do not include retail markup, markdown or commission and may not necessarily represent actual transactions. First Second Third Fourth Quarter Quarter Quarter Quarter 1999 High $ 10 $ 15 7/8 $ 30 3/4 $ 21 3/4 Low 9 9 7/8 15 17 3/8 1998 High 11 1/4 21 5/8 14 7/8 10 3/8 Low 10 15/16 10 7/8 9 1/4 8 13/16 SELECTED FINANCIAL DATA 1999 1998 1997 1996 1995 (Dollars in Thousands Except Per Share Amounts) FOR THE YEAR Summary of Operations Revenues $ 146,998 $ 143,711 $ 136,498 $ 136,335 $ 125,577 Cost of goods sold 74,494 76,049 72,200 75,279 69,314 Operating expenses 27,440 26,168 26,027 24,030 24,315 Shipping and marketing 18,479 16,673 18,053 19,185 16,793 General and administrative 16,408 15,094 14,600 14,507 15,160 Equity in (earnings) losses of joint ventures 956 1,160 1,211 882 (4,001) Interest expense 1,834 3,039 3,045 3,575 7,021 Income tax expense (credit) 2,717 1,188 499 (376) (1,466) Income (loss) before extraordinary loss 4,670 4,340 863 (747) (1,559) Extraordinary loss, net of income tax credit -- (744) -- -- -- Net income (loss) 4,670 3,596 863 (747) (1,559) Per Common Share (1) Income (loss) before extraordinary loss .65 .60 .12 (.10) (.22) Extraordinary loss, net of income tax credit -- (.10) -- -- -- Net income (loss) .65 .50 .12 (.10) (.22) Other Data Cash dividends Amount 899 -- -- 90 -- Per common share (1) .125 -- -- .01 -- Depreciation $ 8,445 $ 8,176 $ 8,041 $ 8,606 $ 10,202 Return on beginning stockholders' equity 7.5% 6.1% 1.5% (1.3%) (2.6%) Percent of net income (loss) to revenues 3.2% 2.5% .6% (.5%) (1.2%) AT YEAR END Current assets less current liabilities (2) $12,924 $ 18,985 $ 20,283 $ 19,467 $ 23,428 Ratio of current assets to current liabilities (2) 1.5 2.1 2.2 2.2 2.8 Property, net of depreciation $100,976 $ 89,921 $ 88,047 $ 86,610 $ 88,557 Total assets 153,387 136,247 135,507 132,851 137,085 Long-term debt and capital leases 25,497 23,592 29,435 28,898 36,227 Stockholders' equity Amount 66,400 62,492 58,896 58,033 58,870 Per common share (1) $ 9.23 $ 8.69 $ 8.19 $ 8.07 $ 8.19 Common shares outstanding (1) 7,195,800 7,188,500 7,188,500 7,188,500 7,188,500 (1) All references to the number of shares of common stock and per share amounts have been restated to reflect the four-for-one common stock split as of May 1, 1998. (2) Current assets less current liabilities and ratio of current assets to current liabilities for 1999 decreased primarily because of increased accounts payable resulting from the high level of construction in progress at year-end. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS 1999 vs. 1998 CONSOLIDATED The Company reported consolidated net income of $4.7 million for 1999 compared to $3.6 million for 1998. Higher net income in 1999 was due to improved results from all of the Company's business segments and to lower interest expense. In addition, net income for 1998 included an extraordinary loss of $744,000 (net of taxes) for the prepayment of $20 million of debt. General and administrative expenses for 1999 were higher than 1998 by 9% or $1.3 million. Included in 1999 are $1.1 million of deferred cost write-offs for consultants who were engaged to analyze and develop potential strategic plans for the Company. These costs were charged to expense in the second quarter of 1999 because of the then pending sale (now completed) of approximately 41% of the Company's outstanding shares by certain shareholders. Other components of the increased expense in 1999 were increased accruals for bonus incentives for the Company's non-bargaining personnel and a reserve for the Company's portion of costs of filtration of certain water wells on Maui (see Note 14 to Consolidated Financial Statements). Partially offsetting these increases were lower pension expense as a result of favorable investment experiences and lower expense for postretirement health and life insurance because of lower premium cost and a reduction in the number of covered employees. Interest expense was lower in 1999 by 40% compared to 1998 as a result of lower average borrowings and interest rates, and because of a greater amount of interest capitalized in 1999. Borrowings were lower in 1999 because a large part of the 1999 capital expenditures and other cash outflows for investing activities were funded by cash flows from operating activities. The higher amount of interest capitalized was largely due to commencing construction during 1999 of the Village Course Clubhouse and Kapalua Golf Academy. PINEAPPLE Pineapple revenues decreased in 1999 by 3% or $3.1 million compared to 1998. Operating profit was $6.1 million in 1999 compared to $5.5 million in 1998. Lower revenues were due largely to a decline in case sales volume (the number of cases sold) of canned pineapple. Lower case sales volume can be attributed in part to a planned reduction in the acreage planted to eliminate planting in unreliable fields with a history of low yields. The decrease in case volume also is attributable to a substantial increase in imports of canned pineapple into the United States during the second half of 1999. The decrease in revenues caused by lower sales volume was partially offset by higher average prices. Higher average prices in 1999 were largely the result of low inventories of imports at the beginning of the year, which kept prices firm through the first half of 1999. Competitive pressure on prices increased in the second half of 1999, reflecting the large increase in imports after May. Pineapple cost of sales decreased in 1999 by 4% or $2.8 million, largely as a function of the decrease in case sales volume. Average cost of sales per case of pineapple sold was higher in 1999, primarily because in 1998 there was a partial liquidation of LIFO inventories resulting in lower costs from prior years being included in cost of sales. Cost of sales for 1998 would have been higher by $1.6 million based on current production costs for 1998. Unit production cost in 1999 and 1998 were approximately the same. Lower shipping and selling costs in 1999, as a result of the reduction in case sales volume and decreased general and administrative costs, more than offset increased marketing expenses. Over the past several years companies in Central America and Southeast Asia have increased their plantings. Therefore, competition is expected to continue to intensify as more of these plantings reach maturity. Accordingly, case volume of imports of canned pineapple products into the U.S. is expected to increase in 2000. Antidumping duties were in effect on canned pineapple fruit imported from Thailand since mid-1995 as a result of an antidumping petition in 1994 to which the Company was a party. In 1997, both the Company and the U.S. Department of Commerce (DOC) appealed a November 1996 decision by the United States Court of International Trade (USCIT) regarding the appropriate method to allocate cost to canned pineapple. The USCIT decision required the DOC to recalculate the antidumping duties using accounting methods not normally used by Thai producers. The Company and the DOC believe this method understated the magnitude of canned pineapple dumping by Thai producers. In July 1999, the United States Court of Appeals for the Federal Circuit reversed the decision of the USCIT. The amount of duties on pineapple imports from Thailand is subject to annual administrative reviews by the DOC. Either the Company or the Thai producers may request these reviews. If the cost of production changes relative to the selling price of the product in the U.S., the duties would be adjusted. Some of the Thai pineapple companies have significantly reduced their antidumping duties through the annual review process. Present antidumping duties on imports of canned pineapple fruit from Thailand range from less than 1% up to 51%. The DOC has begun its fourth annual review and preliminary margins are expected to be announced in April 2000. A "Sunset Review" of the duties is scheduled to begin in summer 2000. The Company is not currently able to estimate when results of the Sunset Review will be available. For a continuation of existing duties, the Company must convince the U.S. International Trade Commission during the Sunset Review that elimination of the duties will potentially cause injury to the domestic industry. Elimination of the import duties could have a material adverse effect on the Company. The Company manufactures all of the cans that it uses to can pineapple at its Kahului cannery with tin-coated steel imported from Japan. During the last quarter of 1999, a United States steel company and certain labor unions filed an antidumping petition with the U.S. International Trade Commission claiming that the U.S. industry is materially injured by reason of imports of tin-coated and chromium-coated steel sheet from Japan that are allegedly sold in the United States at less than fair value. The U.S. Department of Commerce is presently conducting an antidumping investigation of imports of this product from Japan and a preliminary antidumping determination is expected in April 2000. The results of this investigation could potentially increase the Company's cost of canned pineapple production. RESORT Kapalua Resort revenues (including operations and development) increased in 1999 by 14% or $6 million compared to 1998. Resort operating profit was $5.7 million in 1999 compared to $5.2 million in 1998. Approximately 30% of the revenue increase in 1999 was due to tournament operations fees received as a result of hosting the Mercedes Championships held in January of 1999. Costs and expenses to host the tournament more than offset the tournament operations fees and were charged primarily to marketing expense in 1999. In 1998, Kapalua did not host a major golf tournament; thus, the 1999 tournament expenses were the primary reason for the increase in Resort marketing expense in 1999. Revenue from the sale of real estate inventories increased by 3% in 1999 and the contribution to operating profit was $2.2 million in 1999 compared to $2.8 million in 1998. In the fourth quarter of 1999, construction and sale of fourteen single-family lots in Plantation Estates Phase II began. Construction is expected to be substantially completed in the first quarter of 2000 and, in 1999, the Company recognized profit on the percentage-of-completion method for the sales that closed prior to year-end. Sale of Resort real estate inventories in 1998 included a December 1998 sale of a 75-acre parcel in Plantation Estates Phase II. Revenues from the Resort golf operations increased by 8%, merchandise sales increased by 16%, income from The Kapalua Villas rental program increased by 20% and income from lease rents increased by 58%. A large part of the increase in lease rent income is attributable to recognizing lease rents from The Ritz Carlton, Kapalua Hotel as of January 1, 1999. The Company did not recognize revenue from that ground lease since December 31, 1995, as a result of an agreement to offset lease rents against a previous loan from the partnership that originally owned the hotel. As of January 1, 1999, the remaining loan balance was canceled. For accounting purposes, the loan was written off against the related off site improvements in 1995. In addition to these lease rents, revenue increased in 1999 because of increased hotel room occupancies throughout the Resort and at The Kapalua Villas, as well as higher room rates at The Kapalua Villas, an increase in paid rounds of golf and higher green fees and cart fees. COMMERCIAL & PROPERTY Revenue from Commercial & Property was $4.4 million in 1999 compared to $4.1 million in 1998. Gains from land sales of $223,000 in 1999 were comparable to 1998. The segment produced an operating loss of $454,000 in 1999 compared to $1.1 million in 1998. The primary reason for the lower operating loss was a reduction in the loss from Kaahumanu Center. The Company's equity in losses of Kaahumanu Center Associates was $900,000 in 1999 or $340,000 less than 1998. Improved results from Kaahumanu Center primarily reflect increased rental revenues because of an increase in the percentage of space occupied and higher sales reported by the tenants, higher recoveries of common area costs and lower expense for bad debts. 1998 vs. 1997 CONSOLIDATED The Company reported consolidated net income of $3.6 million for 1998 compared to $863,000 for 1997. The increase in net income for 1998 resulted from higher operating profits from Pineapple and Kapalua Resort operations that more than offset lower results from the Commercial & Property segment. In December of 1998, the Company retired $20 million of 8.86% senior unsecured notes. The prepayment penalty of $1.2 million was accounted for as an extraordinary loss of $744,000 (net of income tax credit of $456,000). General and administrative expenses increased by 3% in 1998 compared to 1997. The increase primarily was due to higher expense for postretirement health and life insurance benefits because of a .5% discount rate reduction as of December 31, 1997, accruals for incentive awards for the Company's non-bargaining salaried personnel and charges for an enhanced early retirement package offered to employees in the Pineapple and Corporate divisions. The increase in expense in these categories was partially offset by lower expenses in the land management area and reductions in insurance costs. Interest expense in 1998 was comparable to 1997. PINEAPPLE Pineapple revenues of $97.7 million in 1998 increased $6.8 million over 1997. This increase was due to higher case sales volume (the number of cases sold) of canned pineapple and to higher average prices. Higher prices and case sales volume was attributed to a reduction in the volume of imports of canned pineapple into the United States that began during the fourth quarter of 1998. A change in the product mix sold (fruit, juice, concentrate) and a higher volume of fresh product sales accounted for most of the remaining revenue increase. Operating profit was $5.5 million in 1998 compared to $2.1 million in 1997. Pineapple cost of sales increased as a result of higher sales volume. However, the average cost per case decreased in 1998 compared to 1997. In 1998, a partial liquidation of LIFO inventories resulted in lower costs from prior years being included in cost of sales. Cost of sales would have been higher by $1,636,000 based on current production costs for 1998. Per unit production costs were slightly lower in 1998 compared to 1997 as a result of improved recoveries (the amount of saleable product per ton of fruit processed), reduction of personnel costs through an early retirement program, job consolidations and other production efficiencies. Shipping and selling costs were higher in 1998 compared to 1997 due to higher volume of cases sold and increases in warehousing and transportation costs. RESORT Revenues from the Kapalua Resort (including operations and development) were $41.9 million in 1998 compared to $40.3 million in 1997. Resort operating profit was $5.2 million in 1998 compared to $3.8 million in 1997. Operating profit for 1998 included $3.2 million from the sale of real estate inventory and gain from land sales at the Resort. In December of 1998, a 75- acre parcel in Plantation Estates Phase II was sold, which contributed $5.3 million to revenues and $2.8 million to Resort operating profit. This large parcel, originally planned for 26 lots, was consolidated by the buyer into a single lot for family use that may be subdivided into a maximum of eight lots. In 1997, the sale of a 50% interest in a 12-acre beachfront parcel at Kapalua contributed $4.2 million to Resort revenues and operating profit. Excluding sales of real estate inventory and gains from land sales, Resort operating profit was $2 million in 1998 compared to an operating loss of $452,000 in 1997. The improved results were partially due to the re-opening of The Kapalua Bay Hotel, which was closed during part of 1997. Ground rents for the hotel were suspended until September of 1997 while restoration work took place. In 1998, revenues from commercial leases increased by 23%. Revenues from Resort golf operations increased by 6% in 1998 due to an increase in the number of paid rounds and higher average rates for green and cart fees. Gross rental income and management fees from The Kapalua Villas rental program increased by 12% in 1998 as a result of higher occupancies and higher average room rates. Kapalua Realty contributed a 62% increase in commission revenues. Merchandise sales declined in 1998 by 2% compared to 1997. Marketing expenses were lower in 1998 compared to 1997 primarily because Kapalua did not host a major golf tournament in 1998. Cost of sales was lower in 1998 as a result of the lower volume of merchandise sales. Increases in other operating and administrative expenses offset these reductions. However, overall expenses for 1998 exceeded 1997 by less than 1%. COMMERCIAL & PROPERTY Revenues from Commercial & Property were $4.1 million in 1998 compared to $5.1 million in 1997. This segment produced an operating loss of $1.1 million in 1998 compared to $479,000 in 1997. The reduction in revenue and the increase in operating loss were principally due to a decrease in land sales attributable to this segment. Land sales contributed gains of $221,000 in 1998 compared to $1 million in 1997. Costs and expenses for this segment were $5.2 million in 1998 compared to $5.5 million in 1997. Lower expense in 1998 was due primarily to lower insurance and other costs for land management. The Company's equity in losses of Kaahumanu Center Associates was $1,240,000 in 1998 compared to $1,155,000 in 1997. The increase in the loss reflects reductions in minimum rents and lower recoveries of common area costs from tenants. LIQUIDITY AND CAPITAL RESOURCES At December 31, 1999, the Company's total debt, including capital leases, was $28.6 million, an increase of $2.2 million from year-end 1998. Unused short- and long-term credit lines available to the Company at December 31, 1999 totaled $31.7 million. Due to the seasonal nature of the Company's pineapple operations, the timing of construction and sales of Resort real estate projects and the level of planned capital expenditures for 2000, the debt level is expected to increase and peak during the third quarter of 2000. The credit facilities currently available to the Company are estimated to be adequate to cover the planned capital expenditures and seasonal cash requirements. Resort capital expenditures are expected to be $9.8 million in 2000. This amount includes $6.3 million for completion of The Village Course Clubhouse and Kapalua Golf Academy and approximately $2.5 million for replacement of existing equipment and facilities. Pineapple capital expenditures are expected to be $13.4 million in 2000 of which approximately $5.2 million is for the replacement of existing equipment and facilities. Approximately $3.9 million has been allocated to secure additional land and water resources on Maui for farming and $1.5 million is budgeted to be spent in 2000 on a project to replace the information systems used by the pineapple and corporate divisions. Approximately $700,000 will be expended in 2000 to complete a new water well for the Company's Haliimaile plantation. At December 31, 1999, the Company was in violation of the minimum current ratio requirement for its $30 million revolving credit line and development facility. The lenders subsequently waived the violation with respect to year-end 1999. The Company believes that the conditions that caused the violation will be different in the future. For example, at year-end 1999 accounts payable related to capital expenditures were exceptionally high. The Company's credit facilities available at year-end 1999 were more than adequate to liquidate these current liabilities with long-term debt; however, the timing of the progress billings did not allow for payment prior to year-end. In 2000, the Company expects progress billings to be submitted on a more timely basis and to be paid with long-term debt. In addition, at year-end 1999, the Company's current liabilities included approximately $3.3 million of deferred revenue, primarily representing proceeds received on closed sales in Plantation Estates Phase II, in excess of revenue recognized in 1999 on the percentage-of- completion method. The cash proceeds from such sales, which were not immediately required to complete the improvements were used to reduce long-term debt. The deferred revenue relating to this project is expected to be realized as income in the first quarter of 2000. The Company's financial projections for 2000, which reflect the aforementioned differences in conditions, indicate that the Company should be in compliance with this working capital covenant throughout 2000. The Company, as a partner in various partnerships, may under particular circumstances be called upon to make additional capital contributions (see Note 3 to Consolidated Financial Statements). IMPACT OF INFLATION AND CHANGING PRICES The Company uses the LIFO method of accounting for its pineapple inventories. Under this method, the cost of products sold approximates current cost and during periods of rising prices the ending inventory is reflected at an amount below current cost. The replacement cost of pineapple inventory was $21 million at December 31, 1999, which was $11 million more than the amount reflected in the financial statements. Most of the land owned by the Company was acquired from 1911 to 1932 and is carried at cost. A small portion of "Real Estate Held for Sale" represents land cost. Replacements and additions to the Pineapple operations occur every year and some of the assets presently in use were placed in service in 1934. At Kapalua, some of the fixed assets were constructed and placed in service in the mid-to-late 1970s. Depreciation expense would be considerably higher if fixed assets were stated at current cost. YEAR 2000 The Company encountered no significant date-related problems when the year 2000 began. The Company anticipates that its Information Services personnel will spend approximately 5% of their time in 2000 to monitor business critical systems for any date-related problems that may occur during the year and through year-end 2000. No material future expenditures have been identified. MARKET RISK The Company's primary market risk exposure with regard to financial instruments is to changes in interest rates. The Company manages this risk by monitoring interest rates and future cash requirements and evaluating opportunities to refinance borrowings at various maturities and interest rates. At December 31, 1999, 80% of the Company's short- and long-term borrowing commitments carried interest rates that were periodically adjustable to the prime rate, a Federal Farm Credit Bank index rate or to a LIBOR rate and 20% carried interest at fixed rates. Based on debt outstanding at the end of 1999, a hypothetical 100 basis point increase in interest rates would result in a reduction to annual pretax income of approximately $120,000. A hypothetical decrease in interest rates of 100 basis points would increase the fair value of the Company's long-term debt by approximately $319,000. At December 31, 1999, the carrying value of the Company's long-term debt exceeded the fair value by approximately $792,000 as a result of a general increase in quoted interest rates. FORWARD-LOOKING STATEMENTS The Company's Annual Report to Shareholders contains forward- looking statements (within the meaning of Private Securities Litigation Reform Act of 1995) as to the future of new products and new business development, distribution of pineapple under the Royal Coast label, future cost reductions in pineapple operations, the volume of imports of canned pineapple into the United States, results of the Department of Commerce fourth annual review of antidumping duties on canned pineapple fruit, success of The Village Course Clubhouse and Kapalua Golf Academy, and development and sale of condominiums comprising The Coconut Grove on Kapalua Bay, completion of development of Plantation Estates Phase II, obtaining final subdivision approval, zoning change and Community Plan amendment for and presales of Site 19, and 2000 projections of working capital. In addition, from time to time, the Company may publish forward-looking statements as to those matters or other aspects of the Company's anticipated financial performance, business prospects, new products, marketing initiatives, or similar matters. Forward-looking statements contained in the Annual Report to Shareholders or otherwise made by the Company are subject to numerous factors (in addition to those otherwise noted in the Company's Annual Report or in its filings with the Securities and Exchange Commission) that could cause the Company's actual results and experience to differ materially from expectations expressed by the Company. Factors that might cause such differences, among others, include (1) changes in domestic, foreign or local economic conditions that affect availability or cost of funds, or the number, length of stay or expenditure levels of eastbound or westbound visitors, or agricultural production and transportation costs of the Company and its competitors, or Maui retail or real estate activity; (2) the effect of weather conditions on agricultural operations of the Company and its competitors; (3) the success of the Company in obtaining land use entitlements and timely resolution of contested case proceedings or other actions that could delay or prevent the Company's development activities or public projects that may affect its operations; (4) the possibility of an unfavorable outcome in the "Sunset Review" of antidumping duties; (5) events in the airline industry affecting passenger or freight capacity or cost; (6) possible shifts in market demand; (7) the impact of competing products, competing resort destinations, and competitors' pricing; and (8) the possibility of an unfavorable outcome in the antidumping investigation of imports of tin-coated steel from Japan. MAUI LAND & PINEAPPLE COMPANY, INC. Officers President & Chief Executive Officer Gary L. Gifford Executive Vice President/Finance Paul J. Meyer Executive Vice President/Pineapple Douglas R. Schenk Executive Vice President/Resort Donald A. Young Vice President/Retail Property Scott A. Crockford Vice President/Land Management & Development Warren A. Suzuki Treasurer Darryl Y. H. Chai Secretary Adele H. Sumida Controller & Assistant Treasurer Ted L. Proctor Directors Richard H. Cameron--Chairman Private Investor Daniel H. Case Chairman of the Board Case Bigelow & Lombardi David A. Heenan Trustee The Estate of James Campbell Randolph G. Moore Chief Executive Officer Kaneohe Ranch Claire C. Sanford Co-owner Top Dog Studio Fred E. Trotter III President F. E. Trotter, Inc. Mary C. Sanford-Director Emeritus Retired Chairman of the Board Maui Publishing Company, Ltd. Compensation Committee Fred E. Trotter III--Chairman Richard H. Cameron Daniel H. Case David A. Heenan Randolph G. Moore Claire C. Sanford Mary C. Sanford Audit Committee Randolph G. Moore-Chairman David A. Heenan Fred E. Trotter III PRINCIPAL SUBSIDIARIES MAUI PINEAPPLE COMPANY, LTD. Officers President & Chief Executive Officer Douglas R. Schenk Executive Vice President/Sales & Marketing James B. McCann Executive Vice President/Finance Paul J. Meyer Vice President/Cannery Eduardo E. Chenchin Vice President/Plantations L. Douglas MacCluer Treasurer Darryl Y. H. Chai Secretary Adele H. Sumida Controller Stacey M. Jio Assistant Treasurer Ted L. Proctor Directors Richard H. Cameron-- Chairman Daniel H. Case Gary L. Gifford David A. Heenan Paul J. Meyer Randolph G. Moore Claire C. Sanford Douglas R. Schenk Fred E. Trotter III Mary C. Sanford-Director Emeritus KAPALUA LAND COMPANY, LTD. Officers President & Chief Executive Officer Donald A. Young Executive Vice President/Finance Paul J. Meyer Vice President/Marketing Kim D. Carpenter Vice President/Administration Caroline P. Egli Vice President/Development Robert M. McNatt Vice President/Resort Operations Gary M. Planos Treasurer Darryl Y. H. Chai Secretary Adele H. Sumida Controller Russell E. Johnson Assistant Treasurer Ted L. Proctor Directors Richard H. Cameron-- Chairman Daniel H. Case Gary L. Gifford David A. Heenan Paul J. Meyer Randolph G. Moore Claire C. Sanford Fred E. Trotter III Donald A. Young Mary C. Sanford--Director Emeritus EX-27 7
5 This schedule contains summary financial information extracted from the Maui Land & Pineapple Company, Inc. Balance Sheet as of December 31, 1999 and the Statement of Operations for the year then ended, and is qualified in its entirety by reference to such financial statements. 1,000 YEAR DEC-31-1999 DEC-31-1999 2,657 0 15,881 783 16,925 39,459 224,958 123,982 153,387 26,535 25,497 0 0 12,455 53,945 153,387 112,191 146,998 74,494 101,934 0 0 1,834 7,387 2,717 4,670 0 0 0 4,670 .65 .65
EX-99 8 INDEPENDENT AUDITORS' REPORT To the Partners of Kaahumanu Center Associates: We have audited the accompanying balance sheets of Kaahumanu Center Associates (a Hawaii limited partnership) as of December 31, 1999 and 1998, and the related statements of operations, changes in partners' capital (deficit) and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of the Partnership at December 31, 1999 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999 in conformity with generally accepted accounting principles. /S/ DELOITTE & TOUCHE DELOITTE & TOUCHE LLP February 9, 2000 KAAHUMANU CENTER ASSOCIATES BALANCE SHEETS DECEMBER 31, 1999 AND 1998 ASSETS 1999 1998 Current Assets Cash $ 504,712 $ 404,688 Accounts receivable - less allowance of $107,707 and $206,402 for doubtful accounts 618,900 558,272 Prepaid expenses 64,305 76,084 Total Current Assets 1,187,917 1,039,044 Property Land and land improvements 6,054,330 6,050,064 Buildig 81,879,796 81,529,259 Furniture, fixtures and equipment 5,128,820 5,047,416 Construction in process 1,348,581 60,227 Total Property 94,411,527 92,686,966 Accumulated depreciation 22,134,416 18,826,086 Net Property 72,277,111 73,860,880 Other Assets 1,700,997 2,310,999 Total Assets $75,166,025 $77,210,923 LIABILITIES AND PARTNERS' CAPITAL Current Liabilities Current portion of long-term debt $1,018,643 $ 948,517 Accounts payable 690,470 825,831 Due to Maui Land & Pineapple Company, Inc. 1,153,658 333,290 Other current liabilities 105,764 92,312 Total Current Liabilities 2,968,535 2,199,950 Long-Term Liabilities Long-term debt 60,266,149 61,284,878 Other long-term liabilities 86,204 80,688 Total Long-Term Liabilities 60,352,353 61,365,566 Partners' Capital 11,845,137 13,645,407 Total Liabilities and Partners' Capital $75,166,025 $77,210,923 See notes to financial statements. KAAHUMANU CENTER ASSOCIATES STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 1999 1998 1997 Revenues Rental income - minimum $7,472,086 $7,235,108 $7,521,860 Rental income - percentage 1,112,419 1,029,760 874,362 Other operating income - primarily recoveries from tenants 5,921,174 5,359,743 5,548,824 Total Revenues 14,505,679 13,624,611 13,945,046 Costs and Expenses Utilities 2,668,013 2,427,054 2,689,715 Payroll and related costs 2,087,090 1,976,969 1,938,328 Depreciation and amortization 3,539,544 3,452,639 3,349,654 Interest 5,369,013 5,447,733 5,522,235 Repairs and maintenance 570,175 652,390 545,817 General excise taxes 566,518 530,313 547,949 Real property taxes 315,005 314,181 305,842 Insurance 366,253 278,605 320,284 Provision for doubtful accounts 57,349 327,914 360,788 Advertising and promotions 204,328 158,493 148,972 Management fee 268,264 258,275 262,380 Professional fees 143,646 175,971 191,915 Other expenses 150,751 103,414 71,305 Total Costs and Expenses 16,305,949 16,103,951 16,255,184 Net Loss $(1,800,270) $(2,479,340) $(2,310,138) See notes to financial statements. KAAHUMANU CENTER ASSOCIATES STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT) YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 State of Hawaii Maui Land & Employees' Pineapple Retirement Company, Inc. System TOTAL Partners' Capital (Deficit), December 31, 1996 $(7,125,504) $23,900,389 $16,774,885 Cash Calls 830,000 830,000 1,660,000 Net Loss - 1997 (1,155,069) (1,155,069) (2,310,138) Partners' Capital (Deficit), December 31, 1997 (7,450,573) 23,575,320 16,124,747 Net Loss - 1998 (1,239,670) (1,239,670) (2,479,340) Partners' Capital (Deficit), December 31, 1998 (8,690,243) 22,335,650 13,645,407 Net Loss - 1999 (900,135) (900,135) (1,800,270) Partners' Capital (Deficit), December 31, 1999 $(9,590,378) $21,435,515 $11,845,137 See notes to financial statements. KAAHUMANU CENTER ASSOCIATES STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 1999 1998 1997 Operating Activities: Net Loss $(1,800,270) $(2,479,340) $(2,310,138) Adjustments to reconcile net loss to cash provided by operating activities: Depreciation and amortization 3,539,544 3,452,639 3,349,654 Loss on property disposals 88,074 -- -- (Increase) decrease in accounts receivable (60,628) (239,868) 161,743 Increase (decrease) in accounts payable 609,583 548,765 (337,831) Increase in noncurrent accounts receivable (285,546) (192,282) (139,743) Net change in other operating assets and liabilities 30,747 77,282 (9,734) Net Cash Provided by Operating Activities 2,121,504 1,167,196 713,951 Investing Activities: Purchases of property (1,831,275) (414,746) (1,344,934) (Increase) decrease in restricted cash 758,398 (30,641) 144,669 Net Cash Used in Investing Activities (1,072,877) (445,387) (1,200,265) Financing Activities: Payments of long-term debt (948,603) (870,000) (797,799) Proceeds from cash calls -- -- 1,660,000 Net Cash Provided by (Used in) Financing Activities (948,603) (870,000) 862,201 Net Increase (Decrease) in Cash 100,024 (148,191) 375,887 Cash, Beginning of Year 404,688 552,879 176,992 Cash, End of Year $504,712 $404,688 $552,879 See notes to financial statements. KAAHUMANU CENTER ASSOCIATES NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 ORGANIZATION Kaahumanu Center Associates (the Partnership) was formed on June 23, 1993 as a limited partnership between Maui Land & Pineapple Company, Inc. (ML&P), as general partner, and the Employees' Retirement System of the State of Hawaii (ERS), as limited partner. The purpose of the partnership is to finance the expansion and renovation of and to own and operate the Kaahumanu Shopping Center (the Center). The Center is a regional shopping mall located in Kahului, Maui. Prior to the expansion, the Center consisted of approximately 315,000 square feet of gross leasable area. The expansion and renovation which was completed in November 1994, increased the Center to approximately 573,000 square feet of gross leasable area. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting - The Partnership's policy is to prepare its financial statements using the accrual basis of accounting. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting periods. Future actual amounts could differ from those estimates. Property - Property which was contributed to the partnership by ML&P is stated at ML&P's net book value at the date of contribution; subsequent additions are stated at cost. Depreciation is computed using the straight-line method. Advertising and Promotion - The cost of advertising and sales promotion activities is expensed as incurred. Income Taxes - The Partnership is not subject to federal and state income taxes. The distributive shares of income or loss and other tax attributes from the Partnership are reportable by the individual partners. PARTNERSHIP AGREEMENTS Capital Contributions - ML&P contributed the land and the shopping center improvements as they existed prior to the expansion and renovation project, subject to the existing first mortgage, together with approximately nine acres of adjacent land which became part of the expanded shopping center, for a 99% interest in the Partnership. ERS originally contributed $312,000 for a one- percent interest in the Partnership and made a loan of $30.6 million to the Partnership. Effective April 30, 1995, after completion of the expansion and renovation and the satisfaction of certain conditions, ERS converted its loan to capital for an additional 49% interest and became a 50% partner with ML&P. In 1997 the Partnership received cash of $1,660,000 from the partners pursuant to cash calls. Allocations and Distributions - Profit and loss allocations and cash distributions of the partnership are based on the ownership interests of the partners. ERS and ML&P each have a 9% cumulative, non-compounded priority right to cash distributions based on their net contributions to the partnership (preferred return). The ML&P preferred return is subordinate to the ERS preferred return. For the purpose of calculating the preferred returns, each partner's capital contribution had an agreed upon value of $30.9 million on April 30, 1995. The accumulated unpaid preferred returns at December 31, 1999 were $11 million each for ML&P and ERS. Management and Operations - The Partnership has an Operating Agreement with ML&P for the operation of the Center. The Operating Agreement has an initial term of 15 years, which commenced when ERS became a 50% partner, with options to renew for four additional 10-year periods. It provides for certain performance tests, which if not met, could result in termination of the Agreement. The tests were not met in 1999, but termination of the Agreement is not presently being considered. ML&P as managing partner, is responsible for the day-to-day management of the Partnership's business affairs. Major decisions, as defined in the partnership agreement, require the unanimous approval of the partners. SUPPLEMENTAL CASH FLOW INFORMATION 1. Purchases of property of $75,000 is included in accounts payable at December 31, 1999. 2 Interest paid during 1999, 1998 and 1997 was $5,369,000, $5,448,000 and $5,522,000, respectively. RELATED PARTY TRANSACTIONS Pursuant to the Partnership Operating Agreement, the Partnership pays to ML&P an operator's fee equal to 3% of gross revenues, as defined. In 1999, 1998 and 1997, ML&P charged the Partnership $268,000, $258,000 and $262,000, respectively, for management fees. The Partnership does not have any employees. As such, ML&P provides all on-site and administrative personnel and also incurs other costs and expenses, primarily insurance, which are reimbursable by the Partnership. In 1999, 1998, and 1997 ML&P charged the Partnership $2,417,000, $2,303,000 and $2,240,000, respectively, for payroll and other costs and expenses. ML&P generates a portion of the electricity which is used by the Center. In 1999, 1998, and 1997 ML&P charged the Partnership $2,263,000, $2,144,000 and $2,312,000, respectively, for electricity. Amounts due to ML&P for management fees, electricity and reimbursable costs were $1,154,000 and $333,000 as of December 31, 1999 and 1998, respectively. OTHER ASSETS Other Assets at December 31, 1999 and 1998 consisted of the following: 1999 1998 Deferred costs $ 719,171 $ 856,321 Restricted cash -- 758,398 Noncurrent accounts receivable 981,826 696,280 Total Other Assets $1,700,997 $2,310,999 Deferred costs are primarily leasing consultation costs and are net of amortization of $845,000 and $721,000, respectively, at December 31, 1999 and 1998. Restricted cash represents proceeds from the mortgage loan which are reserved for additional expansion costs, as well as a percentage of revenues retained for capital improvements as set forth in the Partnership Operating Agreement. The balance at December 31, 1998 was expended for property additions in 1999. The Partners agreed to waive the required reserve for the year ended December 31, 1999. Noncurrent accounts receivable represents the excess of minimum rental income recognized on a straight-line basis over amounts receivable according to the provisions of the lease, after deducting an estimated amount for amounts not recoverable. BORROWING ARRANGEMENTS The Partnership has a mortgage loan which bears interest at 8.57% and is payable in monthly installments of $526,000, including interest, through 2005 when the entire balance is payable. The loan is collateralized by the Center and is nonrecourse except for the first $10 million which is guaranteed by ML&P until the Center attains a defined level of net operating income. Scheduled principal maturities for the next five years from 2000 through 2004 are as follows: $1,019,000, $1,126,000, $1,228,000, $1,338,000 and $1,459,000. LEASES Tenant leases of the Center provide for monthly base rent plus percentage rents and reimbursement for common area maintenance and other costs. Future minimum rental income to be received under non-cancelable operating leases aggregates $50,347,000 and is receivable during the next five years (2000 through 2004) as follows: $6,532,000, $6,498,000, $6,165,000, $5,337,000, $4,597,000, respectively, and $21,218,000 thereafter. CONCENTRATION OF CREDIT RISK The Partnership extends credit to its tenants in the course of its leasing operations. The creditworthiness of existing and potential tenants is evaluated and under certain circumstances a security deposit is required. * * * * * -----END PRIVACY-ENHANCED MESSAGE-----