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TABLE OF CONTENTS
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended December 31, 2010 |
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OR |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from to |
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Commission file number 1-6510
MAUI LAND & PINEAPPLE COMPANY, INC.
(Exact name of registrant as specified in its charter)
| HAWAII (State or other jurisdiction of incorporation or organization) |
99-0107542 (IRS Employer Identification number) |
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870 HALIIMAILE ROAD, MAKAWAO, MAUI, HAWAII (Address of principal executive offices) |
96768-9768 (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 | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No ý
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ý
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 ý No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
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. ý
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer o | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company ý |
Indicate by check mark whether the registrant is a shell Company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý
The aggregate market value of the registrant's common stock held by non-affiliates of the registrant on June 30, 2010, the last business day of the registrant's most recently completed second fiscal quarter, computed by reference to the last sale price of the registrant's common stock as reported by the New York Stock Exchange on such date, was approximately $17,125,000. This computation assumes that all directors, executive officers and persons known to the Company to be the beneficial owners of more than ten percent of the Company's common stock are affiliates. Such assumption should not be deemed conclusive for any other purpose.
At March 1, 2011, the number of shares outstanding of the registrant's common stock was 18,785,265.
Documents incorporated by reference:
Portions of the registrant's definitive proxy statement for its annual meeting of stockholders to be held on or about May 5, 2011, to be filed with the Securities and Exchange Commission, or the SEC, within 120 days after the close of its fiscal year ended December 31, 2010, are incorporated by reference into Part III of this Form 10-K. Only those portions of the proxy statement that are specifically incorporated by reference herein shall constitute a part of this annual report.
FORWARD-LOOKING STATEMENTS AND RISKS
This report and other reports filed by Maui Land & Pineapple Company, Inc. with the Securities and Exchange Commission contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These forward-looking statements are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. Such statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These statements can be identified by the fact that: (i) they do not relate strictly to historical or current facts; and (ii) they contain words such as "may," "will," "project," "might," "expect," "believe," "anticipate," "intend," "could," "would," "estimate," "continue," or "pursue," or the negative or other variations thereof or comparable terminology. Actual results could differ materially from those projected in forward-looking statements as a result of the following factors, among others:
Such risks and uncertainties also include those risks and uncertainties discussed under the headings "Business," "Risk Factors," and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this annual report, as well as other factors described from time to time in our other reports filed with the SEC. Because the factors referred to above could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by us or on our behalf, you should not place undue reliance on any forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and except as required by law or the rules of the New York Stock Exchange, we undertake no obligation to publicly revise our forward-looking statements to reflect events or circumstances that arise after the date of this annual report or the date of the documents incorporated by reference into this annual report, which may include forward-looking statements. You should read this annual report, including the documents that we reference herein and the exhibits we have attached herewith, with the understanding that we cannot guarantee future results, levels of activity, performance or achievements.
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Overview
Maui Land & Pineapple Company, Inc. is a Hawaii corporation, the successor to a business organized in 1909. Depending upon the context, the terms the "Company," "we," "our," and "us," refer to either Maui Land & Pineapple Company, Inc. alone, or to Maui Land & Pineapple Company, Inc. and its subsidiaries collectively. The Company consists of a landholding and operating parent company and its principal subsidiary, Kapalua Land Company, Ltd. and certain other subsidiaries of the Company.
Our current business model is focused on developing and managing our real estate assets and our two operating segments are as follows:
For additional financial information about these segments, see Segment Information, Note 15 to our consolidated financial statements.
Fiscal Year 2010 Business Developments
In 2010, we reported net income of $24.8 million and had negative cash flows from operations of $9.4 million. A significant portion of management's efforts in 2010 were directed at increasing liquidity, resolving issues related to our prior operations and refocusing the Company's continuing operations.
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The following is a summary of other material business developments in 2010. For more discussion about business developments in 2010, see Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," in this annual report.
Management Changes. In February, our Board of Directors appointed Ryan L. Churchill to serve as our President and Chief Operating Officer. In April, Tim T. Esaki was appointed as Chief Financial Officer following the resignation of John P. Durkin.
Annual Meeting. At our Annual Meeting in May, our shareholders voted to reduce the size of and to declassify our Board of Directors. Stephen M. Case, Warren H. Haruki, David A. Heenan, Kent T. Lucien, Duncan MacNaughton, Arthur C. Tokin and Fred E. Trotter III were elected to our board for a one-year term. The shareholders also voted to authorize an additional 20,000,000 shares of our common stock.
Rights Offering. In July, we completed a rights offering whereby we issued rights to purchase our common stock to our existing shareholders. As a result of the rights offering, we issued 10,389,610 shares of common stock and received $40 million in gross subscription proceeds. We used $35.2 million of the subscription proceeds to repay and redeem all of the outstanding $40 million in principal of our senior secured convertible notes, due July 13, 2013.
Plantation Golf Course. In August, our obligation to complete the irrigation system on the Plantation Golf Course (PGC) was substantially complete and in 2010 we recognized $26.7 million of the deferred gain from the March 2009 sale of this asset.
Kapalua Bay Golf Course. In September, we sold the Kapalua Bay Golf Course (Bay Course) and adjacent maintenance facility for $24.1 million in cash. In connection with this transaction we repaid $20 million on our secured revolving line of credit with Wells Fargo, National Association.
Credit Agreements. In December, we entered into two agreements which extended the maturity dates and modified certain terms of our existing credit facilities with our principal lenders, Wells Fargo Bank, National Association and American AgCredit, FLCA. Pursuant to the amended agreements, the maturity date of our lines of credit was extended to May 1, 2012, the interest rates were reduced and the financial covenants were modified. On February 23, 2011, the maturity date under our credit agreements was further extended to May 1, 2013.
Settlement and Curtailment Gains. In 2010, we terminated our postretirement health and life insurance plans and recognized settlement and curtailment gains of $16.6 million.
Golf Operations. In January 2011, under the provisions of the U.S. Department of Labor Worker Adjustment and Retraining Notification Act (WARN), we notified each of our employees that on April 1, 2011, Troon Golf of Scottsdale, Arizona will assume the management of the two Kapalua golf courses we currently lease and that we anticipate that, as of March 31, 2011, we will terminate the employment of a number of our employees as a result of transferring management of the golf courses to Troon Golf.
Description of Business
Community Development
The Community Development segment is responsible for all of our real estate entitlement, development, construction, sales and leasing activities. Our development projects are focused primarily on the luxury real estate market in and surrounding the Kapalua Resort and affordable and moderately priced residential and mixed use projects in West Maui and Upcountry Maui. This segment also includes the operations of Kapalua Realty Company, a general brokerage real estate company located within the Kapalua Resort; and our water and sewage transmission operations (regulated by the Hawaii
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Public Utilities Commission) that service the Kapalua Resort and parts of West Maui. Revenues from our Community Development segment for the year ended December 31, 2010 were $17.9 million, or approximately 43% of consolidated revenues.
Our property on West Maui includes approximately 21,300 acres, most of which remain as conservation or open space. We currently have approximately 7,000 acres that are not in the current development plans or held for sale, and are not used in our other operations or planned or used in conservation. These properties will be evaluated in the future to determine the appropriate use or disposition of the acreage.
We are the lessor of certain commercial and residential properties primarily at the Kapalua Resort. Beginning in late December 2009 and January 2010, we entered into license and lease arrangements for the use of certain of our buildings, facilities, land and trade names with entities that have purchased portions of our former agriculture operations, and have assumed the management of our Kapalua Adventures, and The Kapalua Villas operations.
Appropriate entitlements must be obtained for land that is intended for development. Securing proper land entitlement is a process that requires obtaining county, state and federal approvals, which can take many years to complete and entails a variety of risks. The entitlement process requires that we satisfy all conditions and restrictions imposed in connection with such governmental approvals, including, among other things, construction of infrastructure improvements, payment of impact fees (for things such as parks and traffic mitigation), restrictions on permitted uses of the land, and provision of affordable housing. We actively work with the community, regulatory agencies, and legislative bodies at all levels of government in an effort to obtain necessary entitlements consistent with the needs of the community.
We have approximately 1,500 acres of land in Maui that are in various stages of the land entitlement process. The breakdown of these acres is as follows:
Location
|
Number of Acres |
Zoned for Planned Use |
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|---|---|---|---|---|---|
Kapalua Resort |
900 | Yes | |||
Other West Maui |
300 | No | |||
Upcountry |
300 | No | |||
We are engaged in planning, permitting and entitlement activities for our development projects, and we intend to proceed with construction and sales of the following projects, among others, when internal and external factors permit:
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The price and market for luxury real estate in Maui has been highly cyclical based upon interest rates, the general real estate markets in the mainland United States (specifically the West Coast), the popularity of Hawaii as a vacation destination, the general condition of the economy in the United States and Asia, and the relationship of the dollar to foreign currencies. The Community Development segment faces substantial competition from other land developers on the island of Maui as well as in other parts of Hawaii and the mainland United States.
Resort
Kapalua Land Company, Ltd. is the operating subsidiary that includes our Resort segment, which operates the Kapalua Resort, a master-planned resort community on Maui's northwest coast. Revenues from our Resort segment for the year ended December 31, 2010 were $23.9 million, or approximately 57% of our consolidated revenues.
Presently, the Kapalua Resort includes 1,650 acres bordering the ocean with: three white sand beaches, two championship golf courses (The Kapalua Bay Golf Course and The Plantation Golf Course); the Kapalua Spa, which opened in July 2009; The Ritz-Carlton, Kapalua hotel; the Ritz-Carlton Residences and Club, Kapalua Bay; eight residential neighborhoods, a ten-court tennis facility, the first phase of commercial space in the central area of the resort, several restaurants, and over 700 single-family residential lots, condominiums and homes. The Kapalua Resort includes a trail system that runs along the ocean, through the mountains and winds through the resort. We currently operate the Kapalua Resort's golf courses, the Kapalua Golf Academy, spa, tennis facility and retail shops. We also manage The Kapalua Club, a membership program that provides certain benefits and privileges within the Kapalua Resort for its members.
In March 2009, we concluded the sale of the PGC for $50 million. Concurrent with the closing of the sale, we entered into an agreement to lease back the PGC for an initial period of two years for an annual net rental payment of $4 million (Note 9 to consolidated financial statements). In September 2010, we sold the Bay Course and adjacent maintenance facility for $24.1 million and entered into a leaseback agreement that terminates concurrently with the PGC leaseback. Effective April 1, 2011, the owner of the golf courses has engaged a third party, Troon Golf, to manage the PGC, the Bay Course and the Kapalua Golf Academy.
Prior to mid-December 2009, we were the operator of a vacation rental program (The Kapalua Villas), and provided certain services to the Resort. We had approximately 200 units in our Kapalua Villas short-term rental program. Our operations also included the Kapalua Adventures, which was comprised of zip-lines stretching over scenic ravines in the West Maui Mountains, a ropes challenge course, a climbing wall and other adventures, and a café and retail area.
In December 2009, we entered into agreements for third parties to operate and manage The Kapalua Villas and the Kapalua Adventures. The café and retail portion of Kapalua Adventures was closed in December 2009. Also in December 2009, the association for the overall maintenance of the Kapalua Resort entered into agreements with other operators to provide security and shuttle services to the resort. We continue to provide the landscaping services for the resort.
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Competition
The Kapalua Resort faces substantial competition from alternative visitor destinations and resort communities in Hawaii and throughout the world. The Kapalua Resort's primary resort competitors in Maui are located in Kaanapali, which is approximately five miles from Kapalua, and in Wailea on Maui's south coast.
Agriculture—Discontinued Operations
Maui Pineapple Company, Ltd. (MPC) was the operating subsidiary for our Agriculture segment. Our business was focused on growing, harvesting, packing and marketing fresh premium pineapple. We sold our fresh Maui Gold® pineapple directly to wholesalers and grocery stores in Hawaii and through a consignment arrangement with Calavo Growers, Inc. to customers in the continental United States and Canada. We also sold our Maui Gold® pineapple as gift packs on our website and through certain retail outlets in Hawaii. A portion of our business included processing (canning) pineapple; however, we ceased substantially all canning and processing of solid-pack product in June 2007.
In November 2009, our Board of Directors approved the immediate cessation of pineapple planting and the closure of all agriculture operations by December 31, 2009 and we have accounted for the Agriculture segment as discontinued operations in this annual report on Form 10-K.
On December 31, 2009, we entered into agreements with Haliimaile Pineapple Company, Limited (HPC), a closely held corporation, under which HPC began to grow and market Maui Gold® as of January 1, 2010.
Employees
As of December 31, 2010, we employed approximately 200 people of which 90% were full-time employees. In January 2011, pursuant to WARN, we notified each of our employees that we anticipate that, as of March 31, 2011, we will terminate the employment of a number of our employees as a result of transferring management of the golf course to Troon Golf.
Research and Development
Our Agriculture segment, which was discontinued in 2009, had engaged in continuous research to develop techniques to reduce costs through crop production and processing innovations and to develop and perfect new products. Research and development expenses approximated $473,000 in 2009. We did not incur any research and development expenses in 2010.
We have reviewed our compliance with federal, state and local provisions that regulate the discharge of materials into the environment or are otherwise related to the protection of the environment. We do not expect any material future financial impact as a result of compliance with these laws.
Pursuant to a settlement agreement with the County of Maui in 1999, we have a commitment until December 1, 2039 to share with several chemical manufacturers in the capital costs to install filtration systems in any future water wells if the presence of a nematocide, commonly known as DBCP, exceeds specified levels, and for the ongoing maintenance and operating costs for filtrations systems on existing and future wells. We are not presently aware of any plans by the County of Maui to install other filtration systems or to drill any water wells in areas affected by agricultural chemicals. For additional information, see Note 16 to consolidated financial statements.
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Available Information
Our Internet address is www.mauiland.com. Information about the Company is also available on www.kapalua.com. Reference in this annual report to our website address does not constitute incorporation by reference of the information contained on the websites. We make available free of charge on or through our website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and other reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission, or SEC. We also make available through our website all filings of our executive officers and directors on Forms 3, 4 and 5 pursuant to Section 16 of the Exchange Act. These filings are also available on the SEC's website at www.sec.gov.
Executive Officers of the Company
The Company's executive officers as of March 2011 are listed below. The current term for the executive officers expires in at our next annual meeting of shareholders, expected to be held on or about May 5, 2011, or at such time as their successors are elected.
| Warren H. Haruki (58) | Mr. Haruki has been Interim Chief Executive Officer of the Company since May 2009 and Executive Chairman of our Board since January 2009. He has been a director on our Board since 2006. Mr. Haruki has served as President and Chief Executive Officer of Grove Farm Company, Inc., a land development company located on Kauai, Hawaii since February 2005. He was President of GTE Hawaiian Tel and Verizon Hawaii, communications providers, from 1991 to 2003; and a Trustee of Parker Ranch Foundation Trust from 2004 through 2010. Mr. Haruki is on the Board of Hawaiian Telcom, a communications provider, and on the Boards of the privately held companies, First Hawaiian Bank, Pacific Guardian Life Insurance Company, and Hawaii Planing Mill, Ltd. | |
Ryan L. Churchill (39) |
Mr. Churchill has served as President and Chief Operating Officer of the Company since February 2010 and as Senior Vice President/Corporate Development of the Company since March 2007. He served as Vice President/Community Development from November 2005 to March 2007. Mr. Churchill was Vice President/Planning of Kapalua Land Company, Ltd., the operating subsidiary responsible for the Company's Community Development and Resort segments, from June 2004 to November 2005, and Development Manager from October 2000 to June 2004. Mr. Churchill is on the Board of the privately held company Hawaii BioEnergy LLC and on the Board of various non-profit organizations. |
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Tim T. Esaki (48) |
Mr. Esaki has served as Chief Financial Officer of the Company since May 2010. Mr. Esaki served as the Deputy Director of the Department of Public Works for the County of Hawaii from 2009 to April 2010. From 2003 to 2009, he was Senior Vice President of Finance and Accounting for 1250 Oceanside Partners, the developer and operator of a 1,500-acre, master-planned, residential golf and country club community in Kona, Hawaii. |
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The following is a summary of certain risks we face in our business. They are not the only risks we face. Additional risks that we do not yet know of or that we currently believe are immaterial may also impair our business operations. If any of the events or circumstances described in the following risks actually occurs, our business, financial condition or results of operations could suffer, and the trading price of our common stock could decline. In assessing these risks, investors should also refer to the other information contained or incorporated by reference in our other filings with the Securities and Exchange Commission.
Unstable macroeconomic market conditions could continue to materially and adversely affect our operating results.
Our operations and performance depend significantly on worldwide economic conditions. Uncertainty about current global economic conditions poses a risk as consumers, tourists and real estate investors postpone or reduce spending in response to tighter credit, higher energy costs, negative financial news and/or declines in income or asset values, which could have a material negative effect on the demand for our products and services. Other factors that could influence demand include increases in fuel and other energy costs, conditions in the residential real estate and mortgage markets, interest rates, labor costs, access to credit, consumer confidence, and other macroeconomic factors affecting consumer spending behavior. These and other economic factors could have a material adverse effect on demand for our products and services and on our financial condition and operating results.
In addition, although recent improvements have been noted, if the current equity and credit markets further deteriorate, or do not improve, it may make any necessary debt or equity financing more difficult, more costly, and more dilutive. A return to the recent economic recession, or increase in our expenses could require additional financing on less than attractive rates or on terms that are excessively dilutive to existing stockholders. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance and stock price.
Real estate investments are subject to numerous risks and we are negatively impacted by the downturn in the real estate market beginning in late 2007.
We are subject to the risks that generally relate to investments in real property because we develop and sell real property, primarily for residential use. Also, we have a 51% ownership interest in Bay Holdings, the owner and developer of the Residences at Kapalua Bay, a luxury community. The market for real estate on Maui tends to be highly cyclical and is typically affected by changes in local, national and worldwide conditions, especially economic conditions, which are beyond our control, including the following:
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Changes in any of the foregoing could have a material adverse effect on our business by causing a more significant general decline in the number of residential or luxury real estate sales and/or prices of the units available for sale, which, in turn, could adversely affect our revenues and profitability. During low periods of demand, real estate product may remain in inventory for much longer than expected or be sold at lower than expected returns, or even at a loss, which could impair our liquidity and ability to proceed with additional land development projects and negatively affect our operating results. Due to uncertainty as to when the real estate markets will rebound and our cash flow constraints, in 2008, we delayed construction of new development projects, and in 2009 we wrote-off project costs that we did not believe could be realized. This resulted in a pre-tax charge of $14.2 million in 2009. We also wrote down $3.1 million in 2010 due to impairment of real estate. Sustained adverse changes to our development plans could result in additional impairment charges or write-offs of deferred development costs, which could continue to have a material adverse impact on our financial condition and results of operations. In addition, in the current economic environment, equity real estate investments may be difficult to sell quickly and we may not be able to adjust our portfolio of properties quickly in response to economic or other conditions.
Because we are located in Hawaii and therefore apart from the mainland United States, we are more sensitive to certain economic factors, such as increased fuel and travel costs, which may adversely impact and materially affect our business, financial condition and results of operations.
Our Community Development and Resort segments are dependent on attracting visitors to the Kapalua Resort, to Maui, and to the State of Hawaii as a whole. Economic factors that affect the number of visitors, their length of stay or expenditure levels will affect our financial performance. Factors such as worldwide economic recession, substantial increases in the cost of energy, including fuel costs, and events in the airline industry that reduce passenger capacity or increase traveling costs could reduce the number of visitors to the Kapalua Resort and negatively affect a potential buyer's demand for our ongoing and future property developments, each of which could have a material adverse impact on our business, financial condition and results of operations. If the cost of energy, including fuel costs significantly increase, it is likely that our business, financial condition and results of operations will be adversely impacted. In addition, the threat, or perceived threat, of heightened terrorist activity in the United States or other geopolitical events, or the spread of contagious diseases could negatively affect a potential visitor's choice of vacation destination or second home location and as a result, have a material adverse impact on our business, financial condition and results of operations.
We are involved in joint ventures and are subject to risks associated with joint venture relationships.
We are involved in partnerships, joint ventures and other joint business relationships, and may initiate future joint venture projects. We currently have, among others, a 51% interest in Bay Holdings, the joint venture that constructed the Residences at Kapalua Bay, and a 16% interest in the joint venture that owns and operates the Ritz-Carlton, Kapalua hotel.
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A joint venture involves certain risks such as:
In connection with our joint venture projects, we may be asked to guarantee the joint venture's obligations, or to indemnify third parties in connection with a joint venture's contractual arrangements. If we were to become obligated under such arrangement or become subject to the risks associated with joint venture relationships, our business, financial condition and results of operations may be adversely affected.
If we are unable to complete land development projects within forecasted time and budget expectations, if at all, our financial results may be negatively affected.
We intend to develop resort and other properties as suitable opportunities arise, taking into consideration the general economic climate. New project developments have a number of risks, including risks associated with:
If any development project is not completed on time or within budget, this could have a material adverse effect on our financial results.
If we are unable to obtain required land use entitlements at reasonable costs, or at all, our operating results would be adversely affected.
Our financial results are highly dependent on our Community Development segment. The financial performance of our Community Development segment is closely related to our success in obtaining land use entitlements for proposed development projects. Obtaining all of the necessary entitlements to develop a parcel of land is often difficult, costly and may take several years, or more, to complete. In some situations, we may be unable to obtain the necessary entitlements to proceed with a real estate development or may be required to alter our plans for the development. Delays or failures to obtain these entitlements may have a material adverse effect on our financial results.
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If we are unable to successfully compete with other developers of luxury real estate in Maui, our financial results could be materially adversely affected.
Our real estate product faces significant competition from other luxury resort real estate properties on Maui, and from other luxury resort residential property in Hawaii and the mainland United States. In many cases, our competitors are larger than us and have greater access to capital. If we are unable to compete with these larger competitors, our financial results could be materially adversely affected.
We have entered into limited guarantees under which we may be required to guarantee completion of the Residences at Kapalua Bay project or certain limited recourse obligations of Bay Holdings.
Bay Holdings, in which we own a 51% ownership interest, constructed a new project consisting of residential development on land that it owns at the site of the former Kapalua Bay Hotel, and a spa on an adjacent parcel of land that is owned by us and leased to Bay Holdings. In connection with the construction loan agreement, we and other members of Bay Holdings, entered into a completion guaranty and a recourse guaranty. Under the completion guaranty, members of Bay Holdings agreed to guarantee substantial completion of the project. Under the recourse guaranty, members of Bay Holdings agreed to reimburse the lenders for losses incurred due to specified actions of Bay Holdings, including, without limitation, fraud or intentional misrepresentation, gross negligence, physical waste of project assets, and breach of certain environmental provisions of the construction loan agreement. Our guarantees do not include payment in full of the loan. If Bay Holdings fails to complete the project or takes any of the specified actions that result in expenses to the lender and which are covered by the guarantees that we entered into, we could incur unanticipated expenses that could have a material adverse effect on our results of operations and financial condition. Construction of the project was completed by the end of 2009, but the completion guaranty will remain in place until all construction contracts have been fully settled and paid. As of December 31, 2010, we have recorded an estimated liability under the completion and recourse guarantees of $4.1 million, and we and the other members of Bay Holdings are working with the lenders to restructure the terms of the loan agreement to extend the maturity date and to provide available funding for continued operations.
We may be subject to certain environmental regulations under which we may have additional liability and experience additional costs for land development.
Various federal, state, and local environmental laws, ordinances and regulations regulate our properties and could make us liable for the costs of removing or cleaning up hazardous or toxic substances on, under, or in property we currently own or operate or that we previously owned or operated. These laws could impose liability without regard to whether we knew of, or were responsible for, the presence of hazardous or toxic substances. The presence of hazardous or toxic substances, or the failure to properly clean up such substances when present, could jeopardize our ability to develop, use, sell or rent the real property or to borrow using the real property as collateral. If we arrange for the disposal or treatment of hazardous or toxic wastes, we could be liable for the costs of removing or cleaning up wastes at the disposal or treatment facility, even if we never owned or operated that facility. Certain laws, ordinances and regulations, particularly those governing the management or preservation of wetlands, coastal zones and threatened or endangered species, could limit our ability to develop, use, sell or rent our real property.
Changes in weather conditions or natural disasters could adversely impact and materially affect our business, financial condition and results of operations.
Natural disasters could damage our resort and real estate holdings, resulting in substantial repair or replacement costs to the extent not covered by insurance, a reduction in property values, or a loss of revenue, each of which could have a material adverse impact on our business, financial condition and results of operations. Our competitors may be affected differently by such changes in weather conditions or natural disasters depending on the location of their assets or operations.
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If we are unable to find a title sponsor for the Ladies Professional Golf Association (LPGA) golf tournament that we are contractually obligated to sponsor, we may have to bear the full cost of producing the tournament.
We have an agreement with the LPGA to sponsor an annual 72-hole stroke play golf tournament for five years beginning in October 2008. We were unable to find a title sponsor for the first LPGA Classic held in October 2008 and we absorbed the net cost of sponsoring the tournament of approximately $3.4 million. In June 2009, we announced that due to the lack of a title sponsor, we were unable to hold the event scheduled for October 2009, which resulted in a dispute with the LPGA. As required by our agreement with the LPGA, the dispute will be resolved by mediation and, if necessary, by binding arbitration. By agreement between the parties, mediation is suspended through December 2011 as we continue to work with the LPGA to seek a title sponsor for this event or a suitable resolution. The cost of such a tournament including the production and the purse is significant and if we must bear the full cost of producing the tournament, or if we need to pay significant damages, our results of operations could be negatively affected.
Unauthorized use of our trademarks could negatively impact our businesses
We have several trademarks that we have registered in the United States and in several foreign countries. To the extent that our exclusive use of these trademarks are challenged we intend to vigorously defend our rights. If we are not successful in defending our rights, our businesses could be adversely impacted.
Risks Related to Indebtedness and Liquidity
We have incurred a significant amount of indebtedness and are subject to certain covenants under those agreements. Failure to satisfy covenants under these agreements could accelerate our obligations under such credit agreements, which could adversely affect our operations and financial results and impact our ability to satisfy our obligations and ability to continue as a going concern.
We had approximately $45.4 million of indebtedness as of December 31, 2010, including capital leases, consisting of a secured revolving line of credit with Wells Fargo Bank, National Association for up to $25 million, of which we had $4.8 million in availability as of December 31, 2010 and a secured term loan with American AgCredit, FLCA for $25 million.
Our indebtedness could have the effect of, among other things, increasing our exposure to general adverse economic and industry conditions, limiting our flexibility in planning for, or reacting to, changes in our business and industry, and limiting our ability to borrow additional funds.
The line of credit and term loan were recently amended to extend the maturity date of such obligations to May 1, 2013, among other things. In connection with such amendments, we granted a security interest in additional real estate assets to the lenders. As a result, substantially all of our real estate assets are encumbered, which limits our ability to borrow additional funds.
Each of the line of credit and the term loan contain financial and other covenants that we must satisfy. Our ability to continue to borrow under these agreements and to fund our cash requirements depends upon our ability to comply with those covenants. If we fail to satisfy any of our covenants, each lender may elect to accelerate our payment obligations under such lender's credit agreement.
Our cash outlook for the next twelve months and our ability to continue to meet our financial covenants and to continue as a going concern is highly dependent on raising sufficient capital and selling real estate assets in a difficult market.
We had negative cash flows from operations of $9.4 million in 2010. At December 31, 2010, we had borrowings outstanding, including capital leases, of $45.4 million. Our cash outlook for the next twelve months and our ability to continue to meet our financial covenants is highly dependent on selling certain real estate assets in a difficult market. If we are unable to meet our financial covenants
11
resulting in our borrowings becoming immediately due, we would not have sufficient liquidity to repay such outstanding borrowings. In addition, we are subject to several commitments and contingencies that could negatively impact our future cash flows, including commitments related to our investment in Bay Holdings, our ongoing dispute with the LPGA, a U.S. Equal Employment Opportunity Commission (EEOC) matter related to our discontinued agricultural operations, and funding requirements related to our defined benefit pension plans. In response to these circumstances, we are undertaking several financial and strategic initiatives to reduce cash commitments, to generate cash flow from a variety of sources and to further reduce our debt, by selling several real estate assets and through cost reduction efforts. However, there can be no assurance that we will be able to comply with our loan covenants, reduce costs, or sell real estate assets at acceptable prices, or at all, each of which raises substantial doubt about our ability to continue as a going concern.
In connection with the sale of any real property, our credit agreements require us to pay a portion of the proceeds received from any such sale to our lenders as mandatory principal payments. The amount of proceeds paid to our lenders will reduce net proceeds from any such sale and negatively impact our cash flow.
Our stock price has been subject to significant volatility.
In 2010, the daily closing price per share of our common stock has ranged from a high of $7.65 per share to a low of $2.35 per share. From January 1, 2011 through March 1, 2011 the daily closing price per share of our common stock has ranged from a high of $7.40 to a low of $4.52. Our stock price has been, and may continue to be, subject to significant volatility. Among others, including the risks and uncertainties discussed in this annual report, the following factors, some of which are out of our control, may cause the market price of our common stock to continue to be volatile:
Fluctuations in the price of our common stock may be exacerbated by economic and other conditions in Maui in particular, or conditions in the financial markets generally.
Trading in our stock over the last twelve months has been limited, so investors may not be able to sell as much stock as they want at prevailing prices.
The average daily trading volume in our common stock for the year ended December 31, 2010 was approximately 31,792 shares. If limited trading in our stock continues, it may be difficult for investors to sell their shares in the public market at any given time at prevailing prices. Moreover, the market price for shares of our common stock may be made more volatile because of the relatively low volume of trading in our common stock. When trading volume is low, significant price movement can be caused by the trading in a relatively small number of shares. Volatility in our common stock could cause stockholders to incur substantial losses.
We do not anticipate declaring any cash dividends on our common stock.
We have not declared or paid regular cash dividends on our common stock and do not plan to pay any cash dividends in the near future. Our current policy is to retain all funds and any earnings for use in the operation and expansion of our business. The payment of cash dividends by us is restricted by certain of our credit facilities, which contains restrictions prohibiting us from paying any cash dividends without the lender's prior approval. If we do not pay dividends, our stock may be less valuable to you because a return on your investment will only occur if our stock price appreciates.
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If we do not meet the continued listing requirements of the New York Stock Exchange (NYSE), our common stock may be delisted.
Our common stock is currently listed on the NYSE. On January 11, 2010 we received notification from the NYSE that we were no longer in compliance with the NYSE's continued listing standards because our average market capitalization was less than $50 million over a 30 trading-day period and our most recently reported shareholders' equity was less than $50 million.
Under applicable NYSE procedures, we had 45 days from receipt of the notification to submit a plan to the NYSE to demonstrate our ability to achieve compliance with the continued listing standards within 18 months. We submitted such a plan to the NYSE on February 22, 2010 and the NYSE subsequently accepted our plan.
As a result of the issuance of 10,389,610 additional shares of common stock in August 2010 pursuant to a rights offering, our average market capitalization has exceeded $50 million for the last two calendar quarters and continues to be above $50 million as of March 1, 2011. After the filing of this annual report on Form 10-K, we will be eligible to apply to the NYSE for a return to a compliant status with the continued listing standards.
In the future, if we are not able to meet the continued listing requirements of the NYSE, the NYSE may take action to delist our common stock. In such event, if we are unable to regain compliance with the NYSE's continued listing standards within the required time frames, our common stock would be delisted, which would violate the provisions of our primary credit agreements. In addition, delisting could negatively impact us by, among other things, reducing the liquidity and market price of our common stock, reducing the number of investors willing to hold or acquire our common stock, decreasing the amount of news and analyst coverage for us, and limiting our ability to issue additional securities or obtain additional financing in the future, and might negatively impact our reputation and, as a consequence, our business.
Item 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
We own approximately 23,400 acres of land on Maui. Approximately 4,600 acres are used directly or indirectly in our operations; approximately 11,800 acres are in conservation and the remainder (approximately 7,000 acres) is not currently being used. This land, most of which was acquired from 1911 to 1932, is carried on our consolidated balance sheet at cost. We believe we have clear and unencumbered marketable title to all such property, except for the following:
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A summary of the current use of our land holdings as of December 31, 2010 follows:
| |
Acres | |||
|---|---|---|---|---|
Conservation |
11,800 | |||
Agriculture zoned (not used) |
7,000 | |||
Operations |
3,000 | |||
Planned development |
1,500 | |||
Inventory or Held for sale |
100 | |||
|
23,400 | |||
Approximately 21,300 acres of our land are located in West Maui, approximately 2,100 acres are located in Upcountry Maui and approximately 20 acres are located in Kahului, Maui.
The 21,300 acres in West Maui comprise a largely contiguous parcel that extends from the sea to an elevation of approximately 5,700 feet and includes 10.6 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 approximately 1,800 acres designated for the Kapalua Resort.
The Upcountry Maui property is situated at elevations between 1,000 and 3,000 feet above sea level on the slopes of Haleakala, a volcanic-formed mountain on the island that rises above 10,000 feet in elevation. Approximately 1,700 acres are leased to third parties for agriculture operations.
The Kahului acreage includes portions of our former pineapple cannery site. This acreage is currently held for sale.
We believe our facilities are suitable and adequate for our business and have sufficient capacity for the purposes for which they are currently being used or intended to be used.
On September 1, 2009, M. Yamamura and Sons, Inc. (Yamamura) filed a lawsuit against us and our wholly owned subsidiary, MPC, which was filed as M. Yamamura & Sons, Inc. vs. Maui Land & Pineapple Company, Inc. (MLP) and Maui Pineapple Company, Ltd. The lawsuit was filed in the Circuit Court of the Second Circuit, State of Hawaii pursuant to Civil No. 09-1-0655(1). In December 2010, we entered into a settlement agreement with Yamamura that required a $1.3 million cash payment, the remittance of the proceeds from the sale of an Upcountry land parcel included in real estate inventory, and a note of $700,000 payable in monthly installments through December 2011. On December 20, 2010, a stipulation for dismissal with prejudice was filed dismissing all claims in this lawsuit.
We are a party to various claims, complaints and other legal actions that have arisen in the normal course of business from time to time. We believe the outcome of these pending legal proceedings, in the aggregate, is not likely to have a material adverse effect on our operations, financial position or cash flows.
Item 4. (REMOVED AND RESERVED)
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Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is traded on the NYSE under the symbol "MLP." We did not declare any dividends in 2010 and 2009. Our ability to declare dividends is restricted by the terms of our credit agreements. We do not intend to pay any cash dividends on our common stock in the foreseeable future. As of March 1, 2011, there were 344 shareholders of record of our common stock.
The following chart reflects high and low sales prices during each of the quarters in 2010 and 2009:
| |
|
First Quarter |
Second Quarter |
Third Quarter |
Fourth Quarter |
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
High | $ | 8.20 | $ | 6.23 | $ | 4.82 | $ | 5.08 | ||||||
|
Low | 2.05 | 3.41 | 3.28 | 3.70 | ||||||||||
2009 |
High | $ | 13.67 | $ | 10.24 | $ | 7.89 | $ | 6.90 | ||||||
|
Low | 5.18 | 5.53 | 5.76 | 5.36 | ||||||||||
We did not repurchase any shares of common stock during the fiscal year ended December 31, 2010.
Securities Authorized For Issuance Under Equity Compensation Plans
The information regarding securities authorized for issuance under our equity compensation plans is set forth in Item 12 of this annual report on Form 10-K and is incorporated herein by reference.
Item 6. SELECTED FINANCIAL DATA
Because we qualify as a smaller reporting company, as defined in Item 10(f)(1) of Regulation S-K, we are not required to provide the information required by this Item.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the forward-looking statements disclaimer set forth at the beginning of this annual report, the risk factors set forth in Item 1A. of this annual report, and our consolidated financial statements and the notes to those statements set forth in Item 8 of this annual report.
Overview of the Company
We operate as a landholding and operating parent company with our principal subsidiary, Kapalua Land Company, Ltd. Our reportable segments are Community Development and Resort. Our Agriculture segment was discontinued, and was reported as discontinued operations for the year ended December 31, 2009.
Community Development
The Community Development segment includes our real estate entitlement, development, construction, sales and leasing activities. This segment also includes the operations of Kapalua Realty Company, a general brokerage real estate company, and water and sewage transmission operations, regulated by the Hawaii Public Utilities Commission, and our investment in Bay Holdings (Note 4 to consolidated financial statements). We are engaged in planning, permitting and entitlement activities for
15
our development projects, and we intend to proceed with construction and sales of projects when internal and external factors permit.
Resort
The Resort segment includes our ongoing operations at the Kapalua Resort. These operations currently include two championship golf courses, a tennis facility, and several retail outlets. Prior to mid-December 2009, the Resort operations also included a vacation rental program (The Kapalua Villas), and the Kapalua Adventures, which is comprised of zip-lines stretching over scenic ravines in the West Maui Mountains, a high ropes challenge course, a climbing wall and other activities. In December 2009, we entered into agreements to transfer the operations of The Kapalua Villas and the Kapalua Adventures to third parties. In March 2009, we sold the PGC for $50 million and entered into an agreement to lease back the golf course for a two year period. In September 2010, we sold the Bay Course and the adjacent maintenance facility for $21.4 million and entered into a leaseback of the golf course with a term that ends concurrently with the PGC leaseback on March 31, 2011. The owner of the two golf courses has engaged a third party golf course operator, Troon Golf, to manage the two Kapalua golf courses, effective April 1, 2011.
Agriculture—Discontinued Operations
On November 2, 2009, our Board of Directors approved the cessation of our pineapple agriculture operations by December 31, 2009. The Agriculture segment primarily included growing, packing, and marketing of fresh pineapple. Our pineapple was sold under the brand names Maui Gold® and Hawaiian Gold™. We also grew and marketed fresh organic pineapple. In December 2009, we entered into license agreements with an unrelated, closely held company that began to grow and market Maui Gold® pineapple as of January 1, 2010.
Current Developments
Fiscal Year 2010 Business Developments
In 2010, we reported net income of $24.8 million and had negative cash flows from operations of $9.4 million. A significant portion of management's efforts in 2010 were directed at increasing liquidity, resolving issues related to our prior operations and refocusing the Company's continuing operations.
The following is a summary of other material business developments in 2010. For more discussion about business developments in 2010, see Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," in this annual report.
Management Changes. In February, our Board of Directors appointed Ryan L. Churchill to serve as our President and Chief Operating Officer. In April, Tim T. Esaki was appointed as Chief Financial Officer following the resignation of John P. Durkin.
Annual Meeting. At our Annual Meeting in May, our shareholders voted to reduce the size of and to declassify our Board of Directors. Stephen M. Case, Warren H. Haruki, David A. Heenan, Kent T. Lucien, Duncan MacNaughton, Arthur C. Tokin and Fred E. Trotter III were elected to our board for a one-year term. The shareholders also voted to authorize an additional 20,000,000 shares of our common stock.
Rights Offering. In July, we completed a rights offering whereby we issued rights to purchase our common stock to our existing shareholders. As a result of the rights offering, we issued 10,389,610 shares of common stock and received $40 million in gross subscription proceeds. We used $35.2 million of the subscription proceeds to repay and redeem all of the outstanding $40 million in principal of our senior secured convertible notes, due July 13, 2013.
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Plantation Golf Course. In August, our obligation to complete the irrigation system on the PGC was substantially complete and in 2010 we recognized $26.7 million of the deferred gain from the March 2009 sale of this asset.
Kapalua Bay Golf Course. In September, we sold the Bay Course and adjacent maintenance facility for $24.1 million in cash. In connection with this transaction we repaid $20 million on our secured revolving line of credit with Wells Fargo, National Association.
Credit Agreements. In December, we entered into two agreements which extended the maturity dates and modified certain terms of our existing credit facilities with our principal lenders, Wells Fargo Bank, National Association and American AgCredit, FLCA. Pursuant to the amended agreements, the maturity date of our lines of credit was extended to May 1, 2012, the interest rates were reduced and the financial covenants were modified. On February 23, 2011, the maturity date under our credit agreements was further extended to May 1, 2013.
Settlement and Curtailment Gains. In 2010, we terminated our postretirement health and life insurance plans and recognized settlement and curtailment gains of $16.6 million.
Golf Operations. In January 2011, under the provisions of the WARN, we notified each of our employees that on April 1, 2011, Troon Golf will assume the management of the two Kapalua golf courses we currently lease and that we anticipate that, as of March 31, 2011, we will terminate the employment of a number of our employees as a result of transferring management of the golf courses to Troon Golf.
RESULTS OF OPERATIONS
Comparison of Years Ended December 31, 2010 and 2009
CONSOLIDATED
| |
Year Ended December 31, | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| |
2010 | 2009 | change | |||||||
| |
(in millions, except share amounts) |
|||||||||
Consolidated Revenues |
$ | 42.0 | $ | 50.4 | $ | (8.4 | ) | |||
Income (Loss) From Continuing Operations |
$ | 12.7 | $ | (88.4 | ) | $ | 101.1 | |||
Income (Loss) From Discontinued Operations |
$ | 12.1 | $ | (34.9 | ) | $ | 47.0 | |||
Net Income (Loss) |
$ | 24.8 | $ | (123.3 | ) | $ | 148.1 | |||
Net Income (Loss) Per Common Share |
$ | 1.99 | $ | (15.33 | ) | $ | 17.32 | |||
We reported net income of $24.8 million or $1.99 per share for 2010 compared to a net loss of $123.3 million or $15.33 per share for 2009. Net income for 2010 includes settlement and curtailment gains totaling $16.6 million from the termination of our postretirement health and life benefits, of which $14.9 million was included in discontinued operations because they related to retirees from our former agriculture operations. At the end of 2009, we ceased all of our Agriculture segment operations and we are reporting that segment as discontinued operations. Net income for 2010 also includes a $26.7 million recognized gain from the March 2009 sale of the PGC. Losses from our equity investment in Bay Holdings of $47.2 million in 2009, impairment charges related to obsolete development plans, employee severance charges incurred as we downsized our operations, and operating losses from our Resort operations caused by low visitor counts, were largely responsible for the losses in 2009. Consolidated revenues were $42.0 million and $50.4 million in 2010 and 2009, respectively. Most of the decrease in revenues in 2010 was due to the absence of revenues from The Kapalua Villas and the Kapalua Adventures as these operations were leased to third parties in December 2009.
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General and Administrative
In 2010, general and administrative expenses decreased by 56% to $7.8 million compared to $17.2 million for 2009. General and administrative salaries, wages, and stock compensation were lower in 2010 compared to 2009 by $2.1 million due to a reduction in size of our workforce by approximately 44 employees in 2010 and by approximately 560 employees in 2009. In March 2009, approximately 100 positions were eliminated in the Resort and Community Development segments and in corporate services in an effort to reduce costs; most of the other 2009 headcount reductions took place in December with the cessation of our Agriculture segment operations, and transfer of The Kapalua Villas, Kapalua Adventures, and Kapalua Resort security and shuttle operations to third party operators. In addition, a 10% wage reduction was implemented in March 2009 that affected nearly all employees. Employee severance expense decreased by $1.5 million in 2010 due primarily to fewer terminations.
Pension and other postretirement expense decreased by $4.3 million in 2010 due to the termination of our postretirement health and life insurance benefits for all retirees. These actions resulted in settlement and curtailment gains totaling $16.6 million in 2010 of which $14.9 million was credited to discontinued operations. In addition, our non-bargaining pension plan was frozen as of January 1, 2010, so there was no service cost accrued for this plan in 2010.
General and administrative expenses are incurred at the corporate level and at the operating segment level. All general and administrative expenses incurred at the corporate level are allocated to the operating segments. Such allocations are consistent with our management's evaluation of services provided to the operating segments.
Interest Expense
Interest expense was $9,406,000 for 2010 compared to $10,452,000 for 2009. The reduction in interest expense was primarily due to lower average interest rates and lower average borrowings in 2010, and the extinguishment of our $40 million convertible notes in August 2010 (Note 6 to consolidated financial statements). Our average interest rate on borrowings was 5.7% for 2010 compared to 6.0% for 2009 and average borrowings were approximately $28 million less in 2010 compared to 2009.
COMMUNITY DEVELOPMENT
| |
Year Ended December 31, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| |
2010 | 2009 | change | ||||||||
| |
(in millions) |
||||||||||
Revenues |
$ | 17.9 | $ | 19.9 | $ | (2.0 | ) | ||||
% of consolidated revenues |
43 | % | 39 | % | |||||||
Operating Profit (Loss) |
$ |
1.7 |
$ |
(62.6 |
) |
$ |
64.3 |
||||
The Community Development segment reported an operating profit of $1.7 million for 2010 compared to an operating loss of $62.6 million for 2009. Revenues from this operating segment were $17.9 million for 2010 compared to $19.9 million for 2009. The operating loss from this segment in 2009 largely reflects losses from our investment in Bay Holdings. Also in 2009 we recorded a charge of $14.2 million for the write off of development plans and other project costs that were abandoned or were not otherwise expected to be recoverable because of the delay of the start of construction of new development projects caused by, among other things, the recent economic recession, uncertainty in the credit markets, high unemployment rates, reduced demand for investment real estate, and low consumer confidence.
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In September 2009, Bay Holdings recorded a $208.8 million charge representing an impairment of the value of the Residences at Kapalua Bay project. We recorded losses from this joint venture of $47.2 million in 2009 and stopped recording our share of Bay Holdings' losses after our investment balance and other amounts advanced to Bay Holdings were reduced to zero, and the estimated remaining obligations to the joint venture were accrued. In June 2009, construction of the Residences at Kapalua Bay project was substantially completed and through the end of 2010, the sale of 24 (out of 84 total) whole-ownership units and 154 fractional (out of 744 total) units had closed escrow (Note 4 to consolidated financial statements).
Real Estate Sales
In 2010, three real estate inventory sales resulted in revenues of $7.9 million and pre-tax income of $5.8 million. Real estate inventory sales in 2009 produced revenues of $12.0 million and pre-tax income of $6.8 million. The 2009 real estate sales included the sale of the last lot in Honolua Ridge Phase II and two other land sale transactions. Our Honolua Ridge Phase II subdivision consisted of 25 agricultural-zoned lots, which began selling in August 2005.
Real estate development and sales are cyclical and depend on a number of factors (see the risk factor entitled "Real estate investments are subject to numerous risks and we are negatively impacted by the downturn in the real estate market beginning in late 2007" under Risk Factors in Item 1A above). Results for one period are therefore not necessarily indicative of future performance trends in this segment.
RESORT
| |
Year Ended December 31, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| |
2010 | 2009 | change | ||||||||
| |
(in millions) |
||||||||||
Revenues |
$ | 23.9 | $ | 29.8 | $ | (5.9 | ) | ||||
% of consolidated revenues |
57 | % | 59 | % | |||||||
Operating Profit (Loss) |
$ |
15.6 |
$ |
(16.1 |
) |
$ |
31.7 |
||||
The Resort segment reported an operating profit of $15.6 million for 2010 compared to an operating loss of $16.1 million for 2009. Resort segment revenues were $23.9 million for 2010 compared to $29.8 million for 2009. The decrease in Resort segment revenues for 2010 primarily reflect the absence of revenues from The Kapalua Villas and Kapalua Adventures in 2010 as these operations were leased to third party operators in December 2009. We are now receiving lease and license income related to these operations that is reflected in the Community Development segment results. Partially offsetting the decrease in Resort operations revenues from The Kapalua Villas and Kapalua Adventures was an increase in revenues from the Kapalua Spa that began operating in July 2009.
Operating profit for 2010 includes a $26.7 million gain from the March 2009 sale of the PGC (Note 9 to consolidated financial statements). The improved results in 2010 also reflect better results from our golf and spa operations and general cost reductions throughout the Resort segment operations. The results reported by our operating segments include allocations of corporate and administrative overhead charges. Visitor counts to Maui in 2010 increased over 2009, which also contributed to the improved results.
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Golf and Retail
Revenues from golf operations increased by 6% in 2010 compared to 2009 primarily due to higher average green and cart fees. Paid rounds of golf decreased by approximately 6% in 2010 compared to 2009. Resort retail sales for 2010 were approximately 11% lower than sales for 2009, primarily reflecting the reduced spending by guests and a reduction in retail and food and beverage space with the closure of the Kapalua Adventures retail and café in December 2009 and the closure of our tennis retail area in November 2009. Effective April 1, 2011, we will no longer be the lessee and operator of the two Kapalua golf courses. In 2010, these operations produced revenues of approximately $10.7 million and a pre-tax loss of approximately $0.4 million.
AGRICULTURE—DISCONTINUED OPERATIONS
| |
Year Ended December 31, | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| |
2010 | 2009 | change | |||||||
| |
(in millions) |
|||||||||
Income (Loss) From Discontinued Operations Before Income Taxes |
$ | 12.1 | $ | (34.9 | ) | $ | 47.0 | |||
On November 2, 2009, our Board of Directors authorized the cessation of all pineapple operations by December 31, 2009. Our Agriculture segment operating results and the loss on sale of the assets are reported as discontinued operations. Income from discontinued operations for 2010 includes $14.9 million of settlement and curtailment gains from the termination of our postretirement health and life insurance plans. The loss from discontinued operations for 2009 includes net charges of $22.8 million related to the sale or other disposition of the Agriculture segment assets, employee severance and cancellation of contracts.
LIQUIDITY AND CAPITAL RESOURCES
Current Debt Position
At December 31, 2010, our total debt, including capital leases, was $45.4 million, which represents a decrease of $51.3 million from December 31, 2009. The decrease in outstanding debt was primarily due to the repayment of $60 million of outstanding debt as a result of (i) the completion of our $40 million rights offering in July 2010 (Note 6 to consolidated financial statements), and (ii) the sale of the Bay Course and maintenance facility in September 2010 for $24.1 million in cash (Note 9 to consolidated financial statements).
In connection with the completion of our rights offering, our convertible notes with face value of $40 million and book value of $36.3 million were repaid at 88% of their face value, or $35.2 million in August 2010. In consideration of the release of the Bay Course from the collateral of our $50 million revolving line of credit, we repaid $20 million of outstanding borrowings under that line and the availability under the line was commensurately reduced.
At December 31, 2010, we had approximately $4.8 million available under our revolving line of credit and $2.1 million in cash and cash equivalents.
Revolving Line of Credit with Wells Fargo Bank, National Association (Wells Fargo)
We are parties to an Amended and Restated Credit Agreement with Wells Fargo (as amended and modified from time to time, the "Line of Credit"), which initially provided a $50 million revolving line of credit.
On September 30, 2010, in connection with our sale of the Bay Course and the concurrent repayment of $20 million of borrowings under the Line of Credit, we entered into a First Modification
20
Agreement with Wells Fargo, which reduced our availability under the Line of Credit to $30 million and released the Bay Course from the collateral securing the Line of Credit.
On December 22, 2010, we entered into a Second Modification Agreement and Waiver with Wells Fargo, which further amended the Line of Credit by: (i) extending the maturity date from March 1, 2011 to May 1, 2012, (ii) reducing the amount available under the $30 million commitment to $25.0 million in revolving loans and $1.1 million in letters of credit, (iii) reducing the interest rate from LIBOR plus 4.25% to LIBOR plus 3.80% and eliminating the 5.50% interest rate floor, and (iv) amending the financial covenants by reducing the minimum liquidity requirement from $8 million to $4 million, and reducing the maximum amount of total liabilities that may be owed by us from $240 million to $175 million.
On February 23, 2011, we entered into a Third Modification Agreement with Wells Fargo, which further amended the Line of Credit by: (i) extending the maturity date from May 1, 2012 to May 1, 2013, (ii) providing us with the option to further extend the maturity date to May 1, 2014, subject to the satisfactory achievement of certain pre-defined conditions, and (iii) increasing the revolving credit commitment from $30 million to $34.5 million and availability under the loan facility from $25 million to $34.5 million.
As of December 31, 2010, we had irrevocable letters of credit totaling $1.1 million that were secured by the Line of Credit, $20.2 million of borrowings outstanding and $4.8 million available for borrowing under the Line of Credit. As of February 23, 2011, following execution of the Third Modification Agreement, we had $14.3 million available for borrowing under the Line of Credit.
Term Loan with American AgCredit, FLCA (American AgCredit)
In September 2005, we entered into a Revolving Line of Credit Agreement with American AgCredit pursuant to which we were initially provided with a $25 million revolving line of credit. The Revolving Line of Credit was amended on several occasions thereafter. On December 22, 2010, we entered into a Loan Agreement (the "Loan Agreement") with American AgCredit that effectively amended and restated the Revolving Line of Credit Agreement, as amended. The Loan Agreement amended the terms of the Revolving Line of Credit Agreement by: (i) extending the maturity date from March 1, 2011 to May 1, 2012, (ii) changing the facility from a revolving line of credit to a term loan, (iii) eliminating the 5.50% interest rate floor and specifying an interest rate based on the greater of 1.00% or the 30-day LIBOR rate, plus an applicable spread of 4.25% (subject to reduction based on the principal balance of the loan), and (iv) amending the financial covenants by reducing the minimum liquidity requirement from $8 million to $4 million and reducing the maximum amount of total liabilities that may be owed by us from $240 million to $175 million.
Upon entry into the Third Modification Agreement with Wells Fargo (discussed above), the maturity date of the Loan Agreement was automatically extended from May 1, 2012 to May 1, 2013.
Repurchase of Senior Secured Convertible Notes
In July 2008, we entered into a securities purchase agreement with certain institutional accredited investors and issued an aggregate of $40 million in principal amount of the convertible notes. The convertible notes accrued interest at a rate of 5.875% per annum payable quarterly in cash in arrears. The convertible notes were convertible, at any time following their issuance, into shares of our common stock at an initial conversion price of $33.50 per share.
Following the completion of our rights offering in July 2010, we repurchased the full $40 million of the convertible notes for 88% of their face value, or $35.2 million in the aggregate, plus a lock-up fee of 2% of face value, or $800,000 in the aggregate.
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Amended Construction Loan Agreement with Lehman Brothers Holdings Inc.
Bay Holdings has a construction loan agreement with Lehman and other lenders under which $275.9 million was outstanding at December 31, 2010. The loan is collateralized by the Residences of Kapalua Bay project assets including the land that underlies the project, which is owned by Bay Holdings. We and the other members of Bay Holdings have guaranteed to the lenders completion of the project and recourse with regard to certain acts, but have not guaranteed payment of the loan. Bay Holdings is currently in negotiations with the lenders to restructure the terms of the loan agreement to extend the maturity date and to provide available funding for continued operations.
Operating Cash Flows
Net cash used in operating activities for 2010 and 2009 was $9.4 million and $15.9 million, respectively. The decrease in net cash used in operating activities is primarily due to staff reductions and other cost-cutting measures implemented in 2009 and 2010.
Interest paid in 2010 and 2009 was $6.9 million and $8.3 million, respectively. Tax refunds received in 2010 and 2009 were $5.9 million and $5.2 million, respectively.
Investing and Financing Cash Flows
Cash provided by investing and financing activities in 2010 included the following significant transactions:
Cash used in investing and financing activities in 2010 included the following significant transactions:
Cash provided by investing and financing activities in 2009 included the following significant transactions:
Cash used in investing and financing activities in 2009 included the following significant transactions:
22
Future Cash Inflows and Outflows
Our plans for 2011 include the possible sale of certain operating and non-operating real estate assets that could result in net cash proceeds which would be partially used to repay outstanding indebtedness and for general working capital. There can be no assurance that we will be able to sell any of our real estate assets on acceptable terms, if at all.
Our cash outlook for the next twelve months and our ability to continue to meet our financial covenants is highly dependent on selling certain real estate assets in a difficult market. If we are unable to meet our financial covenants resulting in the borrowings becoming immediately due, we would not have sufficient liquidity to repay such outstanding borrowings. In addition, we are subject to several commitments and contingencies that could negatively impact our future cash flows, including commitments related to our investment in Bay Holdings to purchase the spa, beach club improvements and the sundry store (the "Amenities"), an ongoing dispute with the LPGA, an EEOC matter related to our discontinued agricultural operations, and funding requirements related to our defined benefit pension plans. These matters are further described in Note 16 to the consolidated financial statements. The aforementioned circumstances raise substantial doubt about our ability to continue as a going concern. There can be no assurance that we will be able to successfully achieve the initiatives discussed below in order to continue as a going concern.
In response to these circumstances, we continue to undertake several financial and strategic initiatives to reduce cash commitments, to generate cash flow from a variety of sources and to further reduce our debt, including the sale of several real estate assets and cost reduction efforts. As part of the restructured credit agreement with Wells Fargo, we are allowed to use proceeds from the sale of certain properties to settle obligations related to our prior operations, instead of reducing borrowings under the line of credit as was previously required in the credit agreement. We are currently in discussions with the other members of Bay Holdings and the lenders to negotiate the terms of the purchase and sale agreement including the purchase and payment terms, and are discussing whether we will even be required to purchase the Amenities.
Net cash outflows in 2010 attributable to our golf operations were approximately $1.7 million including $4 million annual lease rent for the PGC. This cash outflow will cease effective April 1, 2011.
Contributions to our defined benefit pension plans are expected to be approximately $2.2 million in 2011.
In 2011, capital expenditures are expected to be incurred only as critically necessary.
CRITICAL ACCOUNTING POLICIES
Our accounting policies are described in Summary of Significant Accounting Policies, Note 1 to our consolidated financial statements (included in Item 8 of this annual report). The preparation of financial statements in conformity with generally accepted accounting principles requires the use of accounting estimates. Some of these estimates and assumptions involve a high level of subjectivity and judgment and therefore the impact of a change in these estimates and assumptions could materially affect the amounts reported in our financial statements. The accounting policies and estimates that we have identified as critical to the consolidated financial statements are as follows:
23
real estate inventories (whole and fractional condominium units) held for sale. The impairment loss reflects higher estimated default rates on actual whole and fractional unit closings than was previously anticipated, and also reflects a change in forecasted sales revenue on the unsold whole and fractional units that substantially reduced the expected margins on the unsold units. In determining the fair value of this investment and assessing whether any identified impairment was other-than-temporary, significant estimates and considerable judgment were involved. These estimates and judgments were based, in part, on our current and future evaluation of economic conditions in general, as well as Bay Holdings' current and future plans. These impairment calculations contain additional uncertainties because they also require management to make assumptions and apply judgments to, among others, estimates of future cash flows, probabilities related to various cash flow scenarios, and appropriate discount rates. The impairment losses recorded by Bay Holdings required Bay Holdings' management to estimate total sales revenues that will be received by the project, as well as estimating the number of buyers of units from which nonrefundable deposits have been received that will not close on the purchase of their units.
24
As of December 31, 2010, the fair value of the assets of our defined benefit plans totaled approximately $41.3 million, compared with $38.6 million as of December 31, 2009. The recorded net pension liability was approximately $22.1 million as of December 31, 2010, compared to a net pension liability of $21.4 million as of December 31, 2009. The post retirement life and health insurance plans were terminated in 2010 and the net recorded liability for such benefits was zero at December 31, 2010 and $6.6 million at December 31, 2009.
IMPACT OF INFLATION AND CHANGING PRICES
Most of the land owned by us was acquired from 1911 to 1932 and is carried at cost. A small portion of "Real Estate Inventories" represents land cost. 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.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Because we qualify as a smaller reporting company, as defined in Item 10(f)(1) of Regulation S-K, we are not required to provide the information required by this Item.
25
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Stockholders of
Maui Land & Pineapple Company, Inc.
Kahului, Hawaii
We have audited the accompanying consolidated balance sheets of Maui Land & Pineapple Company, Inc. and subsidiaries (the "Company") as of December 31, 2010 and 2009, and the related consolidated statements of operations and comprehensive income (loss) stockholders' equity (deficiency), and of cash flows for the years then ended. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 Maui Land & Pineapple Company, Inc. and subsidiaries as of December 31, 2010 and 2009, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company's recurring negative cash flows from operations and deficiency in stockholders' equity raise substantial doubt about the Company's ability to continue as a going concern. Management's plans with regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ DELOITTE & TOUCHE LLP
Honolulu,
Hawaii
March 14, 2011
26
MAUI LAND & PINEAPPLE COMPANY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
| |
Years Ended December 31, |
|||||||
|---|---|---|---|---|---|---|---|---|
| |
2010 | 2009 | ||||||
| |
(in thousands except share amounts) |
|||||||
OPERATING REVENUES |
||||||||
Real estate sales |
$ | 7,850 | $ | 11,979 | ||||
Retail sales |
9,165 | 10,000 | ||||||
Lease income |
4,979 | 2,366 | ||||||
Resort services |
14,487 | 20,680 | ||||||
Utility revenues and other |
5,473 | 5,329 | ||||||
Total Operating Revenues |
41,954 | 50,354 | ||||||
OPERATING COSTS AND EXPENSES |
||||||||
Real estate |
1,480 | 4,919 | ||||||
Retail |
7,619 | 8,408 | ||||||
Leasing |
3,228 | 1,835 | ||||||
Resort services |
13,874 | 21,275 | ||||||
Utility operations and other |
3,520 | 5,420 | ||||||
Selling and marketing |
3,274 | 3,835 | ||||||
General and administrative |
7,820 | 17,945 | ||||||
Depreciation |
6,675 | 7,245 | ||||||
Impairment—long-lived assets |
2,547 | 14,286 | ||||||
(Gain) loss on asset sales |
(29,855 | ) | 1,053 | |||||
Total Operating Costs and Expenses |
20,182 | 86,221 | ||||||
Operating Income (Loss) |
21,772 | (35,867 | ) | |||||
Equity in losses of affiliates (Note 4) |
— | (47,187 | ) | |||||
Interest expense |
(9,406 | ) | (10,452 | ) | ||||
Interest income |
44 | 492 | ||||||
Income (Loss) from Continuing Operations Before Income Taxes |
12,410 | (93,014 | ) | |||||
Income Tax Benefit |
(251 | ) | (4,583 | ) | ||||
Income (Loss) from Continuing Operations |
12,661 | (88,431 | ) | |||||
Income (Loss) from Discontinued Operations (Note 8) net of income taxes of $0 and $46 |
12,091 | (34,850 | ) | |||||
NET INCOME (LOSS) |
24,752 | (123,281 | ) | |||||
Pension Benefit Adjustment net of income taxes of $0 |
(12,220 | ) | 13,350 | |||||
COMPREHENSIVE INCOME (LOSS) |
$ | 12,532 | $ | (109,931 | ) | |||
EARNINGS (LOSS) PER COMMON SHARE—BASIC AND DILUTED |
||||||||
Continuing Operations |
$ | 1.02 | $ | (11.00 | ) | |||
Discontinued Operations |
0.97 | (4.33 | ) | |||||
Net Income (Loss) |
$ | 1.99 | $ | (15.33 | ) | |||
See Notes to Consolidated Financial Statements
27
MAUI LAND & PINEAPPLE COMPANY, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| |
December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| |
2010 | 2009 | |||||||
| |
(in thousands) |
||||||||
ASSETS |
|||||||||
CURRENT ASSETS |
|||||||||
Cash and cash equivalents |
$ | 2,095 | $ | 1,881 | |||||
Accounts receivable, less allowance of $460 and $452 for doubtful accounts |
1,803 | 3,684 | |||||||
Refundable income taxes |
47 | 4,331 | |||||||
Inventories |
|||||||||
Real estate |
— | 1,721 | |||||||
Merchandise |
1,617 | 1,666 | |||||||
Prepaid expenses and other assets |
2,006 | 377 | |||||||
Assets held for sale (Note 2) |
10,851 | 15,227 | |||||||
Total Current Assets |
18,419 | 28,887 | |||||||
PROPERTY |
|||||||||
Land |
7,533 | 8,608 | |||||||
Land improvements |
38,647 | 56,899 | |||||||
Buildings |
40,683 | 52,092 | |||||||
Machinery and equipment |
21,072 | 23,208 | |||||||
Construction in progress |
2,593 | 4,096 | |||||||
Total Property |
110,528 | 144,903 | |||||||
Less accumulated depreciation |
49,103 | 60,189 | |||||||
Net Property |
61,425 | 84,714 | |||||||
OTHER ASSETS |
10,561 | 14,447 | |||||||
TOTAL |
$ | 90,405 | $ | 128,048 | |||||
LIABILITIES & STOCKHOLDERS' EQUITY |
|||||||||
CURRENT LIABILITIES |
|||||||||
Current portion of capital lease obligations |
$ | 157 | $ | 1,817 | |||||
Trade accounts payable |
4,877 | 6,581 | |||||||
Payroll and employee benefits |
2,587 | 4,947 | |||||||
Income taxes payable |
4,016 | 2,626 | |||||||
Deferred revenues (Note 9) |
24,098 | 4,267 | |||||||
Contract termination accruals |
4,894 | 3,300 | |||||||
Other accrued liabilities |
3,514 | 4,505 | |||||||
Total Current Liabilities |
44,143 | 28,043 | |||||||
LONG-TERM LIABILITIES |
|||||||||
Long-term debt |
45,200 | 94,224 | |||||||
Capital lease obligations |
17 | 600 | |||||||
Accrued retirement benefits |
22,549 | 28,076 | |||||||
Plantation Golf Course (PGC) deferred credit (Note 9) |
— | 46,338 | |||||||
Other noncurrent liabilities |
2,741 | 7,708 | |||||||
Total Long-Term Liabilities |
70,507 | 176,946 | |||||||
COMMITMENTS AND CONTINGENCIES (Note 16) |
|||||||||
STOCKHOLDERS' EQUITY (DEFICIENCY) |
|||||||||
Common stock—no par value, 43,000,000 and 23,000,000 shares authorized; 18,516,115 and 8,087,334 shares issued and outstanding |
75,461 | 35,437 | |||||||
Additional paid in capital |
9,159 | 9,019 | |||||||
Accumulated deficit |
(91,971 | ) | (116,723 | ) | |||||
Accumulated other comprehensive loss |
(16,894 | ) | (4,674 | ) | |||||
Stockholders' Deficiency |
(24,245 | ) | (76,941 | ) | |||||
TOTAL |
$ | 90,405 | $ | 128,048 | |||||
See Notes to Consolidated Financial Statements
28
MAUI LAND & PINEAPPLE COMPANY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
For the Two Years
Ended December 31, 2010
(in thousands)
| |
Common Stock | |
|
Accumulated Other Comprehensive Income (Loss) |
|
||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
Additional Paid in Capital |
Retained Earnings |
|
||||||||||||||||
| |
Shares | Amount | Total | ||||||||||||||||
Balance, December 31, 2008 |
8,021 | $ | 34,791 | $ | 8,363 | $ | 6,558 | $ | (18,024 | ) | $ | 31,688 | |||||||
Pension benefits adjustment (Note 11) |
13,350 | 13,350 | |||||||||||||||||
Stock compensation expense |
1,496 | 1,496 | |||||||||||||||||
Vested restricted stock issued |
85 | 840 | (840 | ) | — | ||||||||||||||
Shares cancelled to pay tax liability |
(19 | ) | (194 | ) | (194 | ) | |||||||||||||
Net loss |
(123,281 | ) | (123,281 | ) | |||||||||||||||
Balance, December 31, 2009 |
8,087 | 35,437 | 9,019 | (116,723 | ) | (4,674 | ) | (76,941 | ) | ||||||||||
Issuance of stock, net of costs (Note 6) |
10,390 |
39,559 |
39,559 |
||||||||||||||||
Pension benefits adjustment (Note 11) |
(12,220 | ) | (12,220 | ) | |||||||||||||||
Stock compensation expense |
735 | 735 | |||||||||||||||||
Vested restricted stock issued |
74 | 595 | (595 | ) | — | ||||||||||||||
Shares cancelled to pay tax liability |
(35 | ) | (130 | ) | (130 | ) | |||||||||||||
Net income |
24,752 | 24,752 | |||||||||||||||||
Balance, December 31, 2010 |
18,516 | $ | 75,461 | $ | 9,159 | $ | (91,971 | ) | $ | (16,894 | ) | $ | (24,245 | ) | |||||
See Notes to Consolidated Financial Statements
29
MAUI LAND & PINEAPPLE COMPANY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| |
Years Ended December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| |
2010 | 2009 | |||||||
| |
(in thousands) |
||||||||
OPERATING ACTIVITIES |
|||||||||
Net Income (Loss) |
$ | 24,752 | $ | (123,281 | ) | ||||
Adjustments to reconcile net income (loss) to net cash used in operating activities |
|||||||||
Depreciation and amortization |
8,487 | 25,026 | |||||||
Share based compensation |
735 | 1,497 | |||||||
Equity in losses of affiliates |
— | 47,187 | |||||||
(Gain) loss on property disposals |
(30,146 | ) | 3,048 | ||||||
Change in derivative liabilities and accretion of interest |
1,466 | (114 | ) | ||||||
Change in retirement liabilities |
(17,747 | ) | (2,372 | ) | |||||
Impairment charges |
4,615 | 17,941 | |||||||
Changes in operating assets and liabilities: |
|||||||||
Accounts receivable |
1,895 | 2,059 | |||||||
Inventories |
1,770 | 6,350 | |||||||
Trade accounts payable |
(1,448 | ) | (1,724 | ) | |||||
Income taxes payable |
5,674 | 1,465 | |||||||
Other operating assets and liabilities |
(9,442 | ) | 7,047 | ||||||
NET CASH USED IN OPERATING ACTIVITIES |
(9,389 | ) | (15,871 | ) | |||||
INVESTING ACTIVITIES |
|||||||||
Purchases of property |
(4,276 | ) | (1,201 | ) | |||||
Proceeds from disposals of property |
7,550 | 3,397 | |||||||
Proceeds from (payments for) other assets |
(1,115 | ) | 1,551 | ||||||
NET CASH PROVIDED BY INVESTING ACTIVITIES |
2,159 | 3,747 | |||||||
FINANCING ACTIVITIES |
|||||||||
Proceeds from long-term debt |
19,200 | 22,200 | |||||||
Payments of long-term debt |
(70,214 | ) | (65,100 | ) | |||||
Payments on capital lease obligations |
(1,954 | ) | (1,166 | ) | |||||
Issuance of common stock (Note 6) |
40,000 | — | |||||||
Net proceeds from golf course sales (Note 9) |
22,828 | 48,076 | |||||||
Reduction of PGC deferred credit |
(1,405 | ) | (1,326 | ) | |||||
Debt and common stock issuance cost and other |
(1,011 | ) | (2,347 | ) | |||||
NET CASH PROVIDED BY FINANCING ACTIVITIES |
7,444 | 337 | |||||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
214 | (11,787 | ) | ||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR |
1,881 | 13,668 | |||||||
CASH AND CASH EQUIVALENTS AT END OF YEAR |
$ | 2,095 | $ | 1,881 | |||||
Cash paid (received) during the year: |
|||||||||
Interest (net of amounts capitalized) |
$ | 6,918 | $ | 8,336 | |||||
Income taxes |
$ | (5,925 | ) | $ | (5,156 | ) | |||
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:
See Notes to Consolidated Financial Statements
30
MAUI LAND & PINEAPPLE COMPANY, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of Maui Land & Pineapple Company, Inc. and its subsidiaries, primarily Maui Pineapple Company, Ltd. and Kapalua Land Company, Ltd. (collectively, the "Company"). The Company's principal operations include the ongoing operations at the Kapalua Resort and real estate activities. Significant intercompany balances and transactions have been eliminated. The production and sale of pineapple products was terminated at December 31, 2009 and is reported as discontinued operations (see Note 8).
LIQUIDITY
The Company reported net income of $24.8 million for the year ended December 31, 2010. Included in net income for 2010 were two significant non-cash items; (1) the $16.6 million in settlement and curtailment gains from the termination of postretirement health and life insurance benefits, and (2) the $27.6 million gain from the 2009 sale of the Plantation Golf Course (PGC). The Company reported negative cash flows from operations of $9.4 million for the year ended December 31, 2010, which included $5.9 million of income tax refunds received. The Company had an excess of current liabilities over current assets of $25.7 million and a stockholders' deficiency of $24.2 million at December 31, 2010. The excess of current liabilities over current assets is primarily due to deferred revenues related to the sale of the PGC and the Kapalua Bay Golf Course (Bay Course) that are expected to be recognized in income in 2011.
The Company has two primary credit facilities that have financial covenants requiring among other things, a minimum of $4 million in liquidity, a maximum of $175 million in liabilities, and a limitation on new indebtedness. Failure to satisfy the minimum liquidity covenants or to otherwise default under one credit agreement could result in a default under both credit agreements resulting in all outstanding borrowings becoming immediately due and payable. The Company has pledged a significant portion of its real estate holdings as security for borrowings under these credit facilities.
The Company's cash outlook for the next twelve months and its ability to continue to meet its financial covenants is highly dependent on selling certain real estate assets in a difficult market. If the Company is unable to meet its financial covenants resulting in the borrowings becoming immediately due, the Company would not have sufficient liquidity to repay such outstanding borrowings. In addition, the Company is subject to several commitments and contingencies that could negatively impact its future cash flows, including commitments of up to $35 million related to its investment in Kapalua Bay Holdings, LLC (Bay Holdings) to purchase the spa, beach club improvements and the sundry store (the "Amenities"), its ongoing dispute with the Ladies Professional Golf Association (LPGA), a U.S. Equal Employment Opportunity Commission (EEOC) matter related to the Company's discontinued agricultural operations, and funding requirements related to the Company's defined benefit pension plans. These matters are further described in Note 16.
The aforementioned circumstances raise substantial doubt about the Company's ability to continue as a going concern. There can be no assurance that the Company will be able to successfully achieve its initiatives discussed below in order to continue as a going concern. The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern and do not include any adjustments that might result should the Company be unable to continue as a going concern.
31
In response to these circumstances, the Company continues to undertake several financial and strategic initiatives to reduce cash commitments, to generate cash flow from a variety of sources and to further reduce its debt, including the sale of several real estate assets and cost reduction efforts. In July 2010, the Company concluded a rights offering that generated $40 million in cash, of which $35.2 million was used to pay off the entire $40 million in principal amount of the Company's outstanding senior secured convertible notes. In September 2010, the Company sold the Bay Course for $24.1 million in cash and $20 million was applied to reduce the outstanding debt. In addition to the sale of the Bay Course mentioned above, the Company sold five other properties in 2010 that generated cash proceeds of $7.9 million. In December 2010, the Company restructured its debt with Wells Fargo Bank, National Association (Wells Fargo) and American AgCredit, FLCA (American AgCredit) which resulted in reducing the interest rates on the credit facilities and extending the maturities from March 2011 to May 2012. On February 23, 2011, the maturities of both credit facilities were extended to May 2013 (Note 5). As part of the restructured credit agreement with Wells Fargo, the Company is allowed to use proceeds from the sale of certain properties to settle obligations related to the Company's prior operations, instead of reducing borrowings under the line of credit as was previously required in the credit agreement. The Company is currently in discussions with the other members of Bay Holdings and the lenders to negotiate the terms of the purchase and sale agreement including the purchase and payment terms, and are discussing whether the Company will even be required to purchase the Amenities.
COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) includes all changes in stockholders' equity (deficiency), except those resulting from capital stock transactions. Comprehensive income (loss) includes the pension benefit adjustment (see Note 11).
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, deposits in banks and commercial paper with maturities of three months or less at the time of purchase.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Receivables are recorded net of an allowance for doubtful accounts. The Company estimates future write-offs based on delinquencies, credit ratings, aging trends, and historical experience. The Company believes the allowance for doubtful accounts is adequate to cover anticipated losses; however, significant deterioration in any of the aforementioned factors or in general economic conditions could change these expectations, and accordingly, the Company's financial condition and/or its future operating results could be materially impacted. Credit is extended after evaluating creditworthiness and no collateral is generally required from customers, except for notes receivable taken on real estate sales.
INVENTORIES
Real estate inventories are stated at the lower of cost or fair value less cost to sell. Real estate inventories include properties developed specifically for sale as well as undeveloped land parcels that the Company has determined will not be developed or used in operations. Merchandise is retail inventories held for sale at the Kapalua Resort and are stated at cost, not in excess of fair value, using an average cost method.
32
ASSETS HELD FOR SALE
Assets are reported as held for sale when they are being actively marketed and available for immediate sale in their present condition, the sale is probable and the transfer of the asset is expected to qualify for recognition as a completed sale within one year. Assets held for sale are stated at the lower of net book value or estimated fair value less cost to sell. In 2010, impairment charges of $2.1 million were recorded for one of the properties in assets held for sale.
INVESTMENT IN AFFILIATES
Investments in affiliates, partnerships, and limited liability companies, over which the Company exercises significant influence, but not control, are accounted for using the equity method.
Investments in unconsolidated affiliates are reviewed for impairment whenever there is evidence of a loss in value below the carrying amount. An investment is written down to fair value if the impairment is considered to be other-than-temporary. In evaluating the fair value of an investment, the Company reviews the discounted projected cash flows associated with the investment and other relevant information. In evaluating whether an impairment is other-than-temporary, the Company considers all available information, including the length of time and extent of the impairment, the financial condition and near-term prospects of the affiliate, the Company's ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery in fair value, and projected industry and economic trends, among others. In 2009, the Company evaluated its investment in Bay Holdings for impairment. As a result of this process, the Company recorded other-than-temporary impairment losses of $21.3 million in 2009 (Note 4). In determining the fair value of an investment and assessing whether any identified impairment is other-than-temporary, significant estimates and considerable judgments are involved.
OTHER ASSETS
Deferred costs are primarily real estate development costs related to various projects at the Kapalua Resort that will be allocated to future development projects. Deferred costs are written off if management decides that it is no longer probable that the Company will proceed with the related development project.
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 the estimated useful lives of the respective assets using the straight-line method generally over three to 25 years. Depreciation expense was $6,675,000 for 2010 and $23,494,000 for 2009.
LONG-LIVED ASSETS
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When such events or changes occur, an estimate of the future cash flows expected to result from the use of the assets and their eventual disposition is made. If the sum of such expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss is recognized in an amount by which the assets' net book values exceed their fair value. The Company has evaluated certain long-lived assets for impairment and impairment charges of $14.2 million were recorded for deferred development costs in 2009 and $1.0 million for land assets held in 2010. These asset
33
impairment loss analyses require management to make assumptions and apply considerable judgments regarding, among others, estimates of the timing and amount of future cash flows, expected useful lives of the assets, uncertainty about future events, including changes in economic conditions, changes in operating performance, changes in the use of the assets, and ongoing cost of maintenance and improvements of the assets, and thus, the accounting estimates may change from period to period. If management uses different assumptions or if different conditions occur in future periods, the Company's financial condition or its future operating results could be materially impacted.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company accounts for all derivative financial instruments, such as interest rate swap agreements and the derivative liability related to its convertible debt, by recognizing the derivative on the balance sheet at fair value, regardless of the purpose or intent of holding them. Changes in the fair value are recognized in interest expense. The Company's interest rate swap agreements expired in January 2010 and the convertible debt was fully repaid in August 2010 (Note 5).
EMPLOYEE BENEFIT PLANS
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.
The over-funded or under-funded status of the Company's defined benefit postretirement plans are recorded as an asset or liability in its balance sheet and changes in the funded status of the plans are recorded in the year in which the changes occur, though comprehensive income. The pension asset or liability is the difference between the plan assets at fair value and the projected benefit obligation as of year end.
Deferred compensation plans for certain management employees provide for specified payments after retirement. The present value of estimated payments to be made is accrued over the period of active employment. In 1998, future benefits under these plans were terminated (see Note 11).
The estimated cost of providing postretirement health care and life insurance benefits was accrued over the period the Company's employees rendered the necessary services. In 2010, the Company terminated its postretirement health care and life insurance benefits.
REVENUE RECOGNITION
Real estate revenues are recognized from the sale of real estate inventories 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.
Lease revenues are recognized on a straight-line basis over the terms of the leases. Also included in lease income are certain percentage rents determined in accordance with the terms of the leases. Lease income arising from tenant rents that are contingent upon the sales of the tenant exceeding a defined threshold are recognized only after the contingency has been resolved (e.g., sales thresholds have been achieved).
Retail revenues include the sales of retail merchandise at the Kapalua Resort. In 2010, resort service revenues primarily include income from the golf course operations, spa operations and Kapalua Club membership dues. In 2009, resort service revenues also included income from The Kapalua Villas rental program and the Kapalua Adventures. Revenues from these activities are recognized when delivery has occurred or services have been rendered, the sales price is fixed or determinable, and collectibility is reasonably assured.
34
OPERATING COSTS AND EXPENSES
Operating costs and expenses for retail include product cost, cost of transportation to the retail outlets, cost of embroidering the Kapalua trademark and logo onto the merchandise, and the costs of warehousing and buying.
Operating costs and expenses for real estate, retail, leasing, resort services, selling and marketing, and general and administrative are exclusive of depreciation, which is shown on a separate line in the consolidated statements of operations.
INTEREST CAPITALIZATION
Interest costs are capitalized during the construction period of major capital projects. Interest costs incurred in 2010 and 2009 were $9,496,000 and $10,470,000, respectively, of which $90,000 and $18,000, respectively, were capitalized.
ADVERTISING
The costs of advertising activities are expensed as incurred. Advertising costs are included in selling and marketing costs in the consolidated statements of operations. Advertising expenses totaled $651,000 in 2010 and $1,443,000 in 2009.
LEASES
Leases that transfer substantially all of the benefits and risks of ownership of the property are accounted for as capital leases. Amortization of property under capital leases is included in depreciation expense. Other leases are accounted for as operating leases. Rentals under operating leases are recognized on a straight-line basis over the life of the lease.
INCOME TAXES
The Company accounts for uncertain tax positions in accordance with the provisions of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 740 (formerly FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes). This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return (see Note 13).
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 income tax bases of assets and liabilities using tax rates enacted by law or regulation. A valuation allowance is established for deferred income tax assets if management believes that it is more likely than not that some portion or all of the asset will not be realized through future taxable income.
SHARE-BASED COMPENSATION PLANS
The Company accounts for share-based compensation, including grants of employee stock options, as compensation expense over the service period (generally the vesting period) in the consolidated financial statements based on their fair values. The impact of forfeitures that may occur prior to vesting is estimated and considered in the amount recognized.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
35
liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Future actual amounts could differ from these estimates.
RISKS AND UNCERTAINTIES
Factors that could adversely impact the Company's future operations or financial results include, but are not limited to the following: continued unfavorable economic conditions in Hawaii and the mainland United States that result in a further decline in the market demand for the Company's products and services; numerous risks related to the Company's investments in real property which could be impacted by unfavorable economic conditions, interest rates, and availability of financing; untimely completion of land development projects within forecasted time and budget expectations; inability to obtain land use entitlements at a reasonable cost; unfavorable legislative decisions by the County of Maui; the cyclical market demand for luxury real estate on Maui; increased competition from other luxury real estate developers on Maui; the Company's limited guarantees to complete development of the Residences at Kapalua Bay project; failure of joint venture partners to perform; environmental regulations; adverse weather conditions and natural disasters; inability to find a title sponsor for the Company's LPGA or other events; availability of reliable and low-cost transportation to serve customers; being located apart from the United States mainland makes the Company more sensitive to economic factors; failure to comply with restrictive financial covenants in the Company's credit arrangements; an inability to achieve the Company's short and long-term goals and cash flow requirements; future impairment charges of long-lived assets or investments; and inadequate internal controls.
ENVIRONMENTAL REMEDIATION COSTS
The Company accrues for environmental remediation costs when such losses are probable and reasonably estimable. Such accruals are adjusted as further information develops or circumstances change. When the remediation cost is expected to be incurred within a relatively short period of time, the obligations are not discounted to their present value.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2009, the FASB issued guidance to revise the approach to determine when a variable interest entity (VIE) should be consolidated. The new consolidation model for VIEs considers whether the Company has the power to direct the activities that most significantly impact the VIE's economic performance and shares in the significant risks and rewards of the entity. The guidance requires companies to continually reassess VIEs to determine if consolidation is appropriate and provide additional disclosures. The guidance was effective for the Company beginning January 1, 2010. The adoption of this standard did not have a material effect on the Company's consolidated financial statements as the Company does not currently have any variable interest in VIEs.
In January 2010, the FASB issued guidance to improve disclosures about fair value measurements. The Company must provide additional disclosures regarding transfers in and out of levels 1 and 2, and activity in level 3 fair value measurements. The guidance also provides clarification regarding levels of disaggregation and disclosures about inputs and valuation techniques for both recurring and nonrecurring fair value measurements that fall in either level 2 or level 3. The additional disclosure requirements were effective for the Company beginning January 1, 2010, except for the additional disclosures regarding the roll forward of activity in level 3 fair value measurements, which will be effective January 1, 2011.
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INCOME (LOSS) PER COMMON SHARE
Basic income (loss) per share is computed by dividing net income or loss by the weighted-average number of common shares outstanding. Diluted income (loss) per share is computed similar to basic income (loss) per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares from share-based compensation arrangements had been issued.
Potentially dilutive shares arise from non-qualified stock options to purchase common stock, non-vested restricted stock and common stock issuable upon assumed conversion of convertible debt (fully repaid in August 2010). The treasury stock method is applied to determine the number of potentially dilutive shares for nonvested restricted stock and stock options assuming that the shares of nonvested restricted stock are issued for an amount based on the grant date market price of the shares and that the outstanding stock options are exercised. Convertible debt is assumed to be converted by applying the if-converted method. These amounts were excluded because the effect would be anti-dilutive.
| |
Year Ended December 31, | ||||||
|---|---|---|---|---|---|---|---|
| |
2010 | 2009 | |||||
Basic |
12,425,509 | 8,041,403 | |||||
Diluted |
12,425,509 | 8,041,403 | |||||
Potentially Dilutive |
379,550 | 1,333,674 | |||||
RECLASSIFICATIONS
Revenues, costs and expenses in the accompanying 2009 statement of operations have been reclassified to conform to the 2010 presentation. The 2010 presentation reflects changes in the Company's business and sources of revenues due to the cessation of all pineapple operations and the increased emphasis on leasing activities in 2010. The change in presentation did not have an effect on net loss.
2. ASSETS HELD FOR SALE
At December 31, 2010 and 2009, assets held for sale included the Company's property in Kahului, Maui. At December 31, 2010, these assets include portions of the former agriculture facilities and totaled approximately 20 acres. In 2010 and 2009, these parcels were written down to their estimated fair value less cost to sell, resulting in impairment charges of $2.1 million and $3.7 million, respectively, that were recorded in discontinued operations. At December 31, 2009, assets held for sale also included equipment formerly used in the Company's agriculture operations that met the criteria of held for sale.
3. OTHER ASSETS
Other Assets at December 31, 2010 and 2009 consisted of the following:
| |
2010 | 2009 | |||||
|---|---|---|---|---|---|---|---|
| |
(in thousands) |
||||||
Deferred costs |
$ | 8,737 | $ | 9,445 | |||
Notes receivable from real estate and other sales |
561 | 1,886 | |||||
Other |
1,263 | 3,116 | |||||
Total |
$ | 10,561 | $ | 14,447 | |||
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In 2009, deferred development costs totaling $14.2 million were written off as changing market conditions resulted in several development plans being considered by management as unfeasible as designed.
4. INVESTMENT IN AFFILIATES
The Company has a 51% ownership interest in Bay Holdings, which is the sole member of Kapalua Bay LLC, (Kapalua Bay). The other members of Bay Holdings through their wholly owned affiliates are Marriott International Inc. (Marriott), 34%, and Exclusive Resorts LLC (ER), 15%. A 63% shareholder and director (as of December 31, 2010) of the Company, through related companies is the majority owner of ER. Bay Holdings is not a variable interest entity, as defined in GAAP. The Company accounts for its investment in Bay Holdings using the equity method of accounting because, although it has the ability to exercise significant influence over operating and financial policies, it does not control Bay Holdings through a majority voting interest or other means. Under the LLC agreement, major decisions require the approval of either 75% or 100% of the membership interests. The Company has been designated as the managing member of Bay Holdings and as such manages the day-to-day affairs of the entity. Profits and losses of Bay Holdings were allocated in proportion to the members' ownership interests, which approximated the estimated cash distributions to the members.
Upon formation of Kapalua Bay in 2004, the Company's non-monetary contributions to Bay Holdings, including a 21-acre land parcel, were valued at $25 million by the members through arms-length negotiations. The land contribution was recorded by the Company in its investment in Bay Holdings at historical cost, which was nominal because it was acquired in the early 1900s, and Bay Holdings recorded the contribution at its fair value of $25 million. The Company recorded its non-monetary capital contributions to Bay Holdings at the carrying values (carryover historical cost basis) of the assets contributed because the contributions were not the culmination of an earnings process. Through December 31, 2009, the Company made cash contributions to Bay Holdings of $53.2 million and an unsecured loan of $3.6 million, which incurred interest at 16%. These amounts are not expected to be recovered and have been written off.
Bay Holdings constructed a residential development on land that it owns at the site of the former Kapalua Bay Hotel, and a spa on an adjacent parcel of land that is owned by the Company and leased to Bay Holdings. The Kapalua Bay Hotel closed in April 2006 to prepare for the commencement of sales and marketing efforts for the whole and fractional condominium units that comprise the Residences at Kapalua Bay project. In 2007, Bay Holdings began to recognize profit from binding sales contracts on the whole and fractional ownership condominiums on the percentage-of-completion method and in June 2009, the six residential buildings comprised of 146 residences were substantially completed. Through December 31, 2010, the sale of 24 (84 total) whole-ownership units and 154 (744 total) fractional units have closed escrow.
Bay Holdings has a construction loan agreement with Lehman Brothers Holdings Inc. (Lehman) and other lenders under which $275.9 million was outstanding at December 31, 2010. The loan is collateralized by the project assets including the land which is owned by Bay Holdings that underlies the project. The Company and the other members of Bay Holdings have guaranteed to the lenders completion of the project and recourse with regard to certain acts, but have not guaranteed payment of the loan. The Company has no other funding commitments to Bay Holdings and as of December 31, 2010, the Company had recorded total estimated liability under the completion and recourse guaranties of $4.1 million. Bay Holdings is currently in negotiations with the lenders to restructure the terms of the loan agreement to extend the maturity and to provide available funding for continued operations.
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In September 2009, Bay Holdings recorded an impairment loss totaling $208.8 million to reflect an impairment of the carrying value of its real estate inventories (whole and fractional condominium units) held for sale. The impairment loss reflected higher default rates on actual whole and fractional unit closings than was anticipated once construction was completed in June 2009, and also reflected a change in forecasted sales revenue on the unsold whole and fractional units that substantially reduced expected margins for those remaining units. The Company's equity in the losses of Bay Holdings for 2009 was $47.2 million (including an impairment charge of $21.3 million recorded by the Company in June 2009). The equity in the losses of Bay Holdings recorded by the Company in 2009 was limited to the remaining investment carrying value on the Company's consolidated balance sheet including its unsecured loan to Bay Holdings of $3.6 million and the Company's estimated share of its completion and recourse guarantees which resulted in the Company recording a liability for its potential estimated liability. The construction work was complete by year-end 2009, however, the completion guaranty will remain in place until the cost for all construction work has been settled and paid.
Summarized balance sheet and operating information for Bay Holdings as of December 31, 2010 and 2009 and for the years then ended are as follows:
| |
2010 | 2009 | |||||
|---|---|---|---|---|---|---|---|
| |
(in thousands) |
||||||
Restricted cash |
$ | 1,074 | $ | 18,487 | |||
Real estate inventories |
225,506 | 226,152 | |||||
Other assets, net |
22,603 | 38,469 | |||||
Total Assets |
$ | 249,183 | $ | 283,108 | |||
Construction loan payable and other member loans |
$ | 338,561 | $ | 332,482 | |||
Other liabilities |
14,968 | 20,253 | |||||
Total Liabilities |
$ | 353,529 | $ | 352,735 | |||
Members' Deficiency |
$ | (104,346 | ) | $ | (69,627 | ) | |
| |
2010 | 2009 | |||||
|---|---|---|---|---|---|---|---|
| |
(in thousands) |
||||||
Revenues |
$ | 9,054 | $ | (49,075 | ) | ||
Costs and Expenses |
44,023 | 207,118 | |||||
Net Loss |
$ | (34,969 | ) | $ | (256,193 | ) | |
Bay Holdings significantly increased the allowance for default reserves in 2009, which more than offset revenues, resulting in negative revenues in 2009. Costs and expenses include an impairment charge of $208.8 million for the year ended December 31, 2009.
5. FINANCING ARRANGEMENTS
During 2010 and 2009, the Company had average borrowings outstanding of $75.4 million and $99.6 million, respectively, at average interest rates of 5.7% and 6.0%, respectively. At December 31, 2010, the Company had unused long-term credit lines of $4.8 million.
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Long-term debt at December 31, 2010 and 2009 consisted of the following (interest rates represent the rates at December 31):
| |
2010 | 2009 | |||||
|---|---|---|---|---|---|---|---|
| |
(in thousands) |
||||||
Wells Fargo revolving loans, 4.12% and 5.5% |
$ | 20,200 | $ | 34,900 | |||
American AgCredit, 5.25% and 5.5% |
25,000 | 25,000 | |||||
Senior Secured Convertible Notes 5.875% |
— | 34,324 | |||||
Total |
45,200 | 94,224 | |||||
Less current portion |
— | — | |||||
Long-term debt |
$ | 45,200 | $ | 94,224 | |||
WELLS FARGO
In November 2007, the Company entered into a $90 million revolving line of credit agreement with Wells Fargo. In March 2009, the Company sold the PGC, which was included in the collateral securing the line of credit agreement, for $50 million (see Note 8). In consideration for the release of the PGC from the collateral, $45 million of the sales proceeds were applied to partially repay outstanding borrowings and the credit limit under this facility was reduced to $45 million.
In October 2009, the line of credit agreement was amended and restated. The agreement principally increased the secured revolving line of credit from $45 million to $50 million, and extended the maturity date of the credit agreement from March 2010 to March 2011. As amended, the agreement provided that interest on loan draws accrued interest based on the LIBOR market index or applicable LIBOR rate, plus 4.25%, subject to a minimum interest rate of 5.50%. The financial covenants included a minimum liquidity (as defined in the agreement) of $8 million and maximum total liabilities of $240 million. There were no commitment fees on the unused portion of the revolving facility and interest was due monthly. The line of credit agreement contained various representations, warranties, affirmative, negative and financial covenants and events of default customary for financings of this type. In September 2010, in conjunction with the sale of the Bay Course, the Company applied $20 million of the sales proceeds toward reduction of the $50 million revolving line of credit facility. In December 2010, the Company entered into an agreement with Wells Fargo to amend the terms of the $30 million revolving line of credit facility as follows:
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At December 31, 2010, the Company had irrevocable letters of credit totaling $1.0 million that were secured by this loan facility and the loan facility was collateralized by approximately 900 acres of the Company's properties in West Maui.
In February 2011, the Company entered into an agreement with Wells Fargo to further amend the terms of the credit facility as follows:
AMERICAN AGCREDIT
In September 2005, the Company entered into a revolving line of credit agreement with American AgCredit. The credit facility is secured by approximately 3,100 acres of the Company's real property on Maui. At December 31, 2009, the terms of the agreement, as amended, included a commitment amount of $25 million, interest on loan draws based on the LIBOR market index or applicable LIBOR rate plus 4.25%, subject to a minimum interest rate of 5.50%, a minimum liquidity covenant of $8 million and a maximum total liabilities threshold of $240 million. The line of credit agreement contained various representations, warranties, affirmative, negative and financial covenants and events of default customary of financings of this type. In December 2010, the Company entered into an agreement with American AgCredit to amend the terms of the credit facility as follows:
SENIOR SECURED CONVERTIBLE NOTES
In July 2008, the Company entered into a securities purchase agreement with certain institutional accredited investors and issued an aggregate of $40 million in principal amount of senior secured convertible notes, bearing 5.875% interest per annum.
The notes were convertible, at any time following their issuance, into shares of common stock of the Company at an initial conversion price of $33.50 per share, subject to conversion features, adjustments, and restrictions as stipulated in the convertible notes agreement. The notes had a maturity date of July 15, 2013, with earlier redemption rights by the Company and note holders based on performance, change of control, events of default, and other circumstances as described in the
41
convertible notes agreement. The notes were secured by certain parcels of the Company's real property on Maui.
The conversion features of the convertible notes including the make-whole premium (the "conversion features") gave rise to an embedded derivative instrument that was required to be accounted for separately. Accordingly, the Company bifurcated the fair value of the conversion features of the convertible notes which was determined to be $10.1 million on July 28, 2008, and was recorded as a derivative liability carried at fair value, with changes in fair value being recorded in earnings. As a result of the bifurcation, the carrying value of the convertible notes at inception was $29.9 million which was being accreted to interest expense using the effective interest method to the stated value of the convertible notes of $40 million over the three-year term of the notes (see Note 7).
In July 2010, the Company concluded a rights offering and received gross subscription proceeds of $40 million. In August 2010, the Company repurchased all $40 million of its outstanding convertible notes for $35.2 million which resulted in a net loss of $617,000 that is included in general and administrative expenses.
OTHER
The Company believes that it is currently in compliance with the covenants of the Wells Fargo and American AgCredit credit facilities.
Loan fees of approximately $615,000 have been capitalized as of December 31, 2010 in connection with the Wells Fargo and American AgCredit credit facilities.
As described above, the maturity dates for the Wells Fargo and American AgCredit credit facilities were extended to May 2013 in February 2011.
6. RIGHTS OFFERING
In June 2010, the Company initiated a shareholder rights offering for up to $40 million of its common stock with the intent to utilize the proceeds from the offering to repurchase up to all of its $40 million of outstanding convertible notes. In accordance with the terms of the offering, each shareholder received one non-transferable subscription right for each share of common stock owned as of the close of business on July 7, 2010, the record date for the rights offering. Each subscription right entitled the shareholder to purchase approximately 1.23 shares of common stock at a subscription price of $3.85 per share. Shareholders who fully exercised all of their initial subscription rights were entitled to purchase any unsubscribed shares at the same subscription price per share, on a pro rata basis, subject to the terms of the rights offering.
In conjunction with the rights offering, the Company entered into agreements with holders of all of the convertible notes to repurchase their notes at 88% of face value. The Company paid to these note holders a lock-up fee of 2% of face value in exchange for their agreement not to transfer their notes for a 47-day period.
The rights offering concluded on July 29, 2010 and the Company received gross proceeds of $40 million and issued 10,389,610 shares of common stock. On August 3, 2010, the Company completed the repurchase of all $40 million of its outstanding senior secured convertible notes for $35.2 million.
7. FAIR VALUE MEASUREMENTS
GAAP establishes a framework for measuring fair value, and requires certain disclosures about fair value measurements to enable the reader of the financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the
42
information used to determine fair values. GAAP requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:
| Level 1: | Quoted market prices in active markets for identical assets or liabilities. | |
Level 2: |
Observable market based inputs or unobservable inputs that are corroborated by market data. |
|
Level 3: |
Unobservable inputs that are not corroborated by market data. |
In July 2008, the Company issued $40 million in senior secured notes that were convertible into the Company's common stock (see Note 5). The conversion features related to the notes that gave rise to a derivative liability carried at fair value, with changes in fair value recognized currently in interest expense. In August 2010, the convertible notes were fully repaid (see Note 6).
In January 2008, the Company entered into interest rate swap agreements to reduce future cash flow variability for approximately two years on $55 million of variable rate debt. The effect of the agreements was to convert variable-rate interest to fixed-rate interest of approximately 4.4% based on a 2-year fixed LIBOR rate. The transactions were not designated as hedges, and accordingly, the gains and losses resulting from the change in fair value from these interest rate swaps are recognized currently in interest expense. The interest rate swap agreements expired in January 2010.
Information regarding assets and liabilities measured at fair value on a recurring basis is as follows:
| |
|
Fair Value(1) of Liability Derivatives as of |
|||||||
|---|---|---|---|---|---|---|---|---|---|
Derivatives not designated as hedges:
|
Balance Sheet Location | 12/31/10 | 12/31/09 | ||||||
| |
|
(in thousands) |
|||||||
Interest rate swap agreements |
Other current liabilities | — | $ | 63 | |||||
Derivative liability related to convertible debt |
Other current liabilities | — | 489 | ||||||
| |
|
Amount of gain or (loss) recognized on derivative |
|||||||
|---|---|---|---|---|---|---|---|---|---|
| |
|
Year Ended | |||||||
| |
Location of gain or (loss) recognized in statement of operations |
||||||||
Derivatives not designated as hedges:
|
12/31/10 | 12/31/09 | |||||||
| |
|
(in thousands) |
|||||||
Interest rate swap agreements |
Interest expense | $ | 63 | $ | 1,097 | ||||
Derivative liability related to convertible debt |
Interest expense | 489 | 2,200 | ||||||
In 2010 and 2009, assets held for sale with carrying value of $11.1 million and $14.8 million, respectively, were written down to the lower of net book value or estimated fair value less costs to sell (based on Level 3 inputs), resulting in losses of $2.1 million and $3.7 million, respectively, which were recorded as impairment losses in discontinued operations. Also in 2010, land with a carrying value of $4.4 million was written down to the lower of net book value or estimated fair value less costs to sell (based on Level 3 inputs), resulting in a $1.0 million impairment charge. In 2009, Agriculture segment fixed assets with a net book value of approximately $10.9 million were depreciated down to estimated fair value of $1.5 million through accelerated depreciation charges after the decision by the Board of Directors to cease all Agriculture operations by year-end, resulting in a loss of $9.4 million. The fair values were estimated based on the fair values of similar assets and other market information on used equipment and vehicles (Level 3 inputs).
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Except as indicated below, the carrying amount of the Company's financial instruments approximates fair value.
Long-Term Debt:
The fair value of long-term debt was estimated based on rates currently available to the Company for debt with similar terms and remaining maturities. The carrying amount of long-term debt at December 31, 2010 was $45,200,000, which approximated fair value. The carrying amount of long-term debt at December 31, 2009 was $94,223,000 and the estimated fair value was $94,312,000.
8. DISCONTINUED OPERATIONS
In November 2009, the Board of Directors of the Company approved the cessation of all pineapple agriculture operations by December 31, 2009. On December 31, 2009, the Company entered into agreements with Haliimaile Pineapple Company, Limited (HPC), a closely held corporation. The significant terms of these agreements include:
The Company's Agriculture segment operating results and the loss on sale of the assets are reported as discontinued operations. Income from discontinued operations in 2010 includes $14.9 million of settlement and curtailment gains from the termination of the Company's postretirement health and life insurance plans. The loss from discontinued operations for 2009 includes charges of $22.8 million related to the sale or other disposition of the Agriculture segment assets, employee severance and the cancellation of contracts. In 2009, Company recorded an accrual for the severance liability in the amount of $2.5 million which will be paid out through 2011. The revenues and income (loss) before income tax benefit for the discontinued operations were as follows:
| |
2010 | 2009 | |||||
|---|---|---|---|---|---|---|---|
| |
(in thousands) |
||||||
Revenues |
$ | — | $ | 18,643 | |||
Income (Loss) from Discontinued Operations |
$ | 12,091 | $ | (34,896 | ) | ||
44
9. REAL ESTATE SALES
On September 30, 2010, the Company sold the land, improvements, structures and fixtures comprising the Bay Course and the adjacent maintenance facility for a total of $24.1 million in cash. Concurrently with the sale, the Company entered into an agreement to leaseback the assets through March 31, 2011. Due to certain construction work required by the leaseback arrangement and other continuing involvement, the sale has been accounted for as a financing transaction. Accordingly, the net proceeds received have been reflected as deferred revenues (included in current liabilities) and no gain will be recognized until expiration of the lease in March 2011. Concurrent with the Bay Course sale transaction, the Company entered into an agreement to lease to the buyer the property known as the Kapalua Golf Academy. Under terms of the golf academy lease the buyer will lease the Kapalua Golf Academy training facility for an initial term of 10 years and be granted an easement for the approximately 25 acres adjacent to the training facility.
In March 2009, the Company sold the land, improvements, structures and fixtures comprising the PGC for $50 million in cash. Concurrent with the closing of the sale, the Company entered into an agreement to leaseback the PGC for an initial period of two years for an annual net rental payment of $4 million, payable monthly in advance. The lease required the Company to replace the irrigation system at the PGC at its own cost and expense, subject to a cap of $5 million. Because of the Company's continuing involvement associated with the obligation to replace the irrigation system, the sale and leaseback of the PGC was accounted for as a financing transaction and, accordingly, the net proceeds received were recorded as a non-current liability in the consolidated balance sheets. In August 2010, the irrigation system was substantially complete and in 2010, the Company recognized $26.7 million of the deferred gain resulting from the PGC sale. The remaining $1.0 million deferred gain (included in current liabilities—deferred revenues) will be recognized ratably through the expiration of the lease in March 2011.
As of March 31, 2011, the leaseback of the Bay Course and the PGC will expire and management of the two Kapalua golf courses will be assumed by a third party. For the year ended December 31, 2010, revenues and loss before income taxes from the Company's golf operations were approximately $10.7 million and $0.4 million, respectively.
In 2010, the Company recognized revenues of $7.9 million and pre-tax profit of $5.8 million from the sale of real estate inventories. Also in 2010, the Company sold three non-inventory real properties and recognized gains of $3.6 million, of which $350,000 is included in discontinued operations for the Agriculture segment.
In 2009, the Company sold real estate inventory which was comprised of three properties including the last lot in Honolua Ridge Phase II, and recognized revenues of $12.0 million and pre-tax profit of $6.8 million. The Company sold two other non-inventory real properties in 2009 and recognized a loss of $784,000 which was included in general and administrative expense and a gain of $399,000 which was included in discontinued operations for the Agriculture segment.
10. LEASING ARRANGEMENTS
LESSEE
The Company has capital leases on equipment which expire at various dates through 2012. At December 31, 2010 and 2009, property included capital leases of $436,000 and $1,469,000 (before accumulated amortization of $201,000 and $829,000, respectively). Future minimum rental payments under capital leases aggregate $181,000 (including $8,000 representing interest) and are payable for the next two years (2011 to 2012) as follows: $164,000 and $17,000.
The Company has various operating leases which expire at various dates through 2014. Total rental expense under operating leases was $1,716,000 in 2010 and $1,277,000 in 2009. Future minimum rental
45
payments under operating leases aggregate to $1,549,000 and are payable in the next four years (2011 to 2014) as follows: $1,152,000, $272,000, $114,000, and $11,000.
LESSOR
The Company leases land primarily to agriculture operators and space in buildings, primarily to retail tenants. These operating 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:
| |
2010 | 2009 | |||||
|---|---|---|---|---|---|---|---|
| |
(in thousands) |
||||||
Minimum rentals |
$ | 2,209 | $ | 975 | |||
Percentage rentals |
1,635 | 767 | |||||
Other (primarily common area recoveries) |
1,135 | 623 | |||||
|
$ | 4,979 | $ | 2,365 | |||
Property at December 31, 2010 and 2009 includes leased property of $28,456,000 and $17,231,000, respectively (before accumulated depreciation of $10,023,000 and $5,630,000, respectively).
Future minimum rental income aggregates $15,021,000 and is receivable during the next five years (2011 to 2015) as follows: $1,799,000, $1,494,000, $1,382,000, $1,373,000 and $1,039,000, respectively, and $7,934,000 thereafter.
In December 2009, the Company concluded agreements for third parties to operate and manage The Kapalua Villas and the Kapalua Adventures operations, and the café and retail portion of the Kapalua Adventures was closed. The lease and license agreements for The Kapalua Villas and the Kapalua Adventures are for ten years and five years, respectively, and both provide for minimum rents and fees based on volume. In December 2009, Company also concluded lease agreements with HPC (Note 8).
11. EMPLOYEE BENEFIT PLANS
The Company had defined benefit pension plans covering substantially all full-time, part-time and intermittent employees. Effective as of January 1, 2010, the defined benefit pension plan covering non-bargaining salaried employees was frozen, and effective January 1, 2011, pension benefits for non-bargaining hourly employees were also frozen and no further pension benefits will accrue to the affected employees. Effective October 31, 2008, the pension plan covering the Company's non-bargaining salaried employees was amended such that employees hired after that date were not eligible to participate in the plan. Pension benefits were based primarily on years of service and compensation levels. The Company had defined benefit postretirement health and life insurance plans that covered primarily non-bargaining salaried employees and certain bargaining unit employees. Postretirement health and life insurance benefits were principally based on the employee's job classification at the time of retirement and on years of service. In 2010, the Company's postretirement health and life insurance plans were terminated.
The measurement date for the Company's benefit plan disclosures is December 31st of each year. The changes in benefit obligations and plan assets for 2010 and 2009, and the funded status of the
46
plans, and assumptions used to determine benefit information at December 31, 2010 and 2009 were as follows:
| |
Pension Benefits | Other Benefits | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
2010 | 2009 | 2010 | 2009 | ||||||||||
| |
(in thousands) |
|||||||||||||
Change in benefit obligations: |
||||||||||||||
Benefit obligations at beginning of year |
$ | 60,015 | $ | 59,737 | $ | 6,608 | $ | 12,636 | ||||||
Service cost |
121 | 1,177 | 33 | 206 | ||||||||||
Interest cost |
3,511 | 3,509 | 130 | 725 | ||||||||||
Actuarial (gain) loss |
4,505 | (328 | ) | — | (4,567 | ) | ||||||||
Special termination benefits |
— | 316 | — | — | ||||||||||
Curtailments |
— | (606 | ) | (576 | ) | (1,583 | ) | |||||||
Benefits paid |
(4,846 | ) | (3,790 | ) | (194 | ) | (809 | ) | ||||||
Change in plan provision |
— | — | (995 | ) | — | |||||||||
Settlement |
— | — | (5,006 | ) | — | |||||||||
Benefit obligations at end of year |
63,306 | 60,015 | — | 6,608 | ||||||||||
Change in plan assets: |
||||||||||||||
Fair value of plan assets at beginning of year |
38,628 | 31,723 | — | — | ||||||||||
Actual return on plan assets |
5,199 | 8,696 | — | — | ||||||||||
Employer contributions |
2,274 | 1,999 | 194 | 809 | ||||||||||
Benefits paid |
(4,846 | ) | (3,790 | ) | (194 | ) | (809 | ) | ||||||
Fair value of plan assets at end of year |
41,255 | 38,628 | — | — | ||||||||||
Funded status |
$ | (22,051 | ) | $ | (21,387 | ) | $ | — | $ | (6,608 | ) | |||
Accumulated Benefit Obligations |
$ | 63,306 | $ | 60,015 | ||||||||||
Weighted average assumption used to determine benefit obligations at December 31: |
||||||||||||||
Discount rate |
5.25% - 5.47 | % | 6.00 | % | — | 6.00 | % | |||||||
Expected long-term return on plan assets |
7.50 | % | 8.00 | % | — | — | ||||||||
Rate of compensation increase |
n/a | 3.00 | % | — | 3.00 | % | ||||||||
Curtailments and settlements in 2010 were due to the termination of all postretirement health and life insurance plans. Curtailments in 2009 were due to the termination of approximately 60% of the active employees covered by the benefit plans. Special termination benefits and curtailments in 2009 primarily related to the termination of Agriculture segment employees in connection with the Company's exit from pineapple operations.
The amounts recognized on the Company's consolidated balance sheets as of December 31, 2010 and 2009 were as follows:
| |
Pension Benefits | Other Benefits | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
2010 | 2009 | 2010 | 2009 | |||||||||
| |
(in thousands) |
||||||||||||
Current Liability |
$ | 301 | $ | 301 | $ | — | $ | 589 | |||||
Noncurrent Liability |
21,750 | 21,086 | — | 6,020 | |||||||||
Net amounts recognized |
$ | 22,051 | $ | 21,387 | $ | — | $ | 6,609 | |||||
47
Amounts recognized in accumulated other comprehensive loss (before income tax effect of $0) at December 31, 2010 and 2009 are as follows:
| |
Pension Benefits | Other Benefits | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
2010 | 2009 | 2010 | 2009 | |||||||||
| |
(in thousands) |
||||||||||||
Net loss (gain) |
$ | 16,875 | $ | 15,542 | $ | — | $ | (10,907 | ) | ||||
Prior service cost |
8 | 15 | — | — | |||||||||
Net initial obligation |
11 | 24 | — | — | |||||||||
Net amounts recognized |
$ | 16,894 | $ | 15,581 | $ | — | $ | (10,907 | ) | ||||
Amounts in accumulated other comprehensive loss at December 31, 2010 that are expected to be recognized as components of net periodic benefit cost in 2011 are as follows:
| |
Pension Benefits |
|||
|---|---|---|---|---|
| |
(in thousands) |
|||
Net loss |
$ | 764 | ||
Net transition obligation |
5 | |||
Prior service cost |
2 | |||
|
$ | 771 | ||
Components of net periodic benefit cost and other amounts recognized in other comprehensive loss were as follows:
| |
Pension Benefits | Other Benefits | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
2010 | 2009 | 2010 | 2009 | |||||||||||
| |
(in thousands) |
||||||||||||||
Pension and other benefits: |
|||||||||||||||
Service cost |
$ | 121 | $ | 1,177 | $ | 33 | $ | 206 | |||||||
Interest cost |
3,511 | 3,509 | 130 | 725 | |||||||||||
Expected return on plan assets |
(2,809 | ) | (2,470 | ) | — | — | |||||||||
Recognized net actuarial (gain) loss |
782 | 1,746 | (848 | ) | (538 | ) | |||||||||
Amortization of obligation |
7 | 17 | — | — | |||||||||||
Amortization of prior service cost |
4 | 46 | (79 | ) | 1 | ||||||||||
Special termination benefits |
— | 316 | — | — | |||||||||||
Recognition of (gain) loss due to curtailment |
9 | 221 | (576 | ) | (1,452 | ) | |||||||||
Recognition of gain due to settlement |
— | — | (15,981 | ) | — | ||||||||||
Net expense |
$ | 1,625 | $ | 4,562 | $ | (17,321 | ) | $ | (1,058 | ) | |||||
Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive (Income) Loss: |
|||||||||||||||
Net (gain) loss |
$ | 2,115 | $ | (7,235 | ) | $ | — | $ | (4,699 | ) | |||||
Recognized gain (loss) |
(782 | ) | (1,746 | ) | 10,906 | 538 | |||||||||
Prior service cost |
— | — | (995 | ) | — | ||||||||||
Recognized prior service cost |
(7 | ) | (161 | ) | 995 | — | |||||||||
Recognized net initial obligation |
(12 | ) | (47 | ) | — | — | |||||||||
Total recognized in other |
|||||||||||||||
comprehensive (income) loss |
$ | 1,314 | $ | (9,189 | ) | $ | 10,906 | $ | (4,161 | ) | |||||
48
| |
2010 | 2009 | ||||||
|---|---|---|---|---|---|---|---|---|
Weighted average assumptions used to determine net periodic benefit cost: |
||||||||
Pension benefits: |
||||||||
Discount rate |
6.00 | % | 6.25 | % | ||||
Expected long-term return on plan assets |
7.5 | % | 8.0 | % | ||||
Rate of compensation increase |
3 | % | 3 | % | ||||
Other benefits: |
||||||||
Discount rate |
6.00 | % | 6.25 | % | ||||
Rate of compensation increase |
n/a | 3 | % | |||||
The expected long-term rate of return on plan assets was based on historical total returns of broad equity and bond indices for ten to fifteen year periods, weighted against the Company's targeted pension asset allocation ranges. These rates were also compared to historical rates of return on hypothetical blended funds with 60% equity securities and 40% bond securities.
The fair values of the Company's pension plan assets at December 31, 2010, by asset category, were as follows:
| |
Fair Value Measurements (in thousands) | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| |
Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Total | |||||||
Pooled equity funds |
$ | 16,104 | $ | — | $ | 16,104 | ||||
Common stock |
12,759 | — | 12,759 | |||||||
U.S. government securities |
3,846 | 2,149 | 5,995 | |||||||
Pooled fixed income funds |
4,075 | — | 4,075 | |||||||
Cash management funds |
1,961 | — | 1,961 | |||||||
Other investments |
154 | 207 | 361 | |||||||
|
$ | 38,899 | $ | 2,356 | $ | 41,255 | ||||
Pooled equity and fixed income funds, common stock, and cash management funds: Pooled equity and fixed income funds, domestic and international common stocks, and cash management funds are valued by obtaining quoted prices on recognized and highly liquid exchanges.
U.S. government securities: U.S. government treasury and agency securities are valued based upon the closing price reported in the active market in which the security is traded. U.S. government agency and corporate asset-backed securities may utilize models, such as a matrix pricing model, that incorporates other observable inputs such as cash flow, security structure, or market information, when broker/dealer quotes are not available.
A pension committee consisting of certain senior management employees administers the Company's defined benefit pension plans. The pension plan assets are allocated among approved asset types based on asset allocation guidelines and investment and risk-management guidelines set by the pension committee, and subject to liquidity requirements of the plans. The pension committee has set the following asset mix guidelines: equity securities 40% to 80%; debt securities 20% to 60%; international securities 0% to 10%; and cash or equivalents 0% to 10%.
49
The Company expects to contribute $2.2 million to its defined benefit pension plans in 2011. Estimated future benefit payments, which include expected future service, are as follows (in thousands):
| |
Pension Benefits |
|||
|---|---|---|---|---|
2011 |
$ | 3,918 | ||
2012 |
3,947 | |||
2013 |
4,037 | |||
2014 |
4,080 | |||
2015 |
4,149 | |||
2016 - 2020 |
21,998 | |||
In September 2010, the Company was advised by the Pension Benefits Guaranty Corporation (PBGC) that the cessation of its pineapple operations and the corresponding reduction in the active participant count for its Pension Plan for Bargaining Unit and Hourly Employees (the "Plan") has triggered the requirement that the Company provide security to the PBGC of approximately $5.2 million to support unfunded liabilities of the Plan or to make contributions to the Plan in excess of the minimum required amounts. Management is currently working with the PBGC to reach an agreement as to the amount of contributions that will be made or the form and amount of collateral that will be provided.
The Company has investment and savings plans that allow eligible employees on a voluntary basis to make pre-tax contributions of their cash compensation. Substantially all employees are eligible to participate in one or more plans. No Company contributions were made to these plans in 2010 or 2009.
On October 1, 1998, deferred compensation plans that provided for specified payments after retirement for certain management employees were amended to eliminate future benefits. At the termination date, these employees were given credit for existing years of service and the future vesting of additional benefits was discontinued. The present value of the benefits to be paid is being accrued over the period of active employment. As of December 31, 2010 and 2009, deferred compensation plan liabilities totaled $867,000 and $1,039,000, respectively.
12. SHARE-BASED COMPENSATION
The Company accounts for share-based compensation arrangements, including grants of employee stock options, as compensation expense over the service period (generally the vesting period) in the consolidated financial statements based on their fair values. The impact of forfeitures that may occur prior to vesting is also estimated and considered in the amount recognized. Excess tax benefits are reported as a financing cash inflow rather than as a reduction of taxes paid.
The total compensation expense recognized for share-based compensation was $735,000 and $1,497,000 for 2010 and 2009, respectively. There was no tax benefit or expense related thereto. Subsequent to issuance of the consolidated financial statements for 2009, management determined that the $539,000 previously disclosed as the total tax benefit related to share-based compensation for 2009 was incorrect. Accordingly, the total tax benefit has been restated to $-0- for 2009. This had no impact on previously reported tax benefit or expense or net loss. Recognized share-based compensation was reduced for estimated forfeitures prior to vesting based primarily on historical annual forfeiture rates of approximately 4.0% and 4.3%, for 2010 and 2009, respectively. Estimated forfeitures will be reassessed in subsequent periods and may change based on new facts and circumstances.
Stock Options
In May 2006, the Company's shareholders approved the 2006 Equity and Incentive Award Plan (the "2006 Plan") and an increase in the number of shares of common stock authorized under the
50
Articles of Association by 1,000,000 shares, all of which have been reserved for issuance under the 2006 Plan. The 2006 Plan provides that the administrator can grant stock options and other equity instruments. The terms of certain grant types follow general guidelines, but the term and conditions of each award can vary at the discretion of the administrator. With respect to awards granted to non-employee directors, the administrator of the 2006 Plan is the Board of Directors. The Compensation Committee of the Board is the administrator of the 2006 Plan for all other persons, unless the Board assumes authority for administration.
A summary of stock option award activity as of and for the year ended December 31, 2010 is presented below:
| |
Shares | Weighted Average Exercise Price |
Weighted Average Grant-Date Fair Value |
Weighted Average Remaining Contractual Term (years) |
Aggregate Intrinsic Value $(000)(1) |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Outstanding at December 31, 2009 |
266,500 | $ | 29.20 | |||||||||||||
Granted |
— | $ | — | $ | — | |||||||||||
Exercised |
— | $ | — | $ | — | |||||||||||
Forfeited or Cancelled |
(122,500 | ) | $ | 28.98 | $ | 10.58 | ||||||||||
Outstanding at December 31, 2010 |
144,000 | $ | 27.95 | $ | 10.67 | 4.9 | $ | — | ||||||||
Exercisable at December 31, 2010 |
106,500 | $ | 31.81 | $ | 11.88 | 4.2 | $ | — | ||||||||
Expected to Vest at December 31, 2010(2) |
27,071 | $ | 16.99 | $ | 7.25 | 7.1 | $ | — | ||||||||
Additional stock option information for the years ended December 31, 2010 and 2009 follows:
| |
2010 | 2009 | |||||
|---|---|---|---|---|---|---|---|
Weighted Average Grant-Date Fair Value For Options Granted During the Period |
— | $ | 3.11 | ||||
Intrinsic Value of Options Exercised $(000) |
— | — | |||||
Cash Received From Option Exercises $(000) |
— | — | |||||
Tax Benefit From Option Exercises $(000) |
— | — | |||||
Fair Value of Shares Vested During the Period $(000) |
$ | 358 | 1,343 | ||||
For the year ended December 31, 2009, the fair value of the Company's share-based awards to employees was estimated using the Black-Scholes option pricing model and the following weighted average assumptions (there we no stock option awards granted in 2010):
| |
2009 | |||
|---|---|---|---|---|
Expected Life of Options in Years |
6.5 | |||
Expected Volatility |
46.1 | % | ||
Risk-free interest rate |
2.4 | % | ||
Expected dividend yield |
— | |||
51
historical exercise data to provide a reasonable basis upon which to estimate expected terms due to the limited period that it has been issuing stock options.
The Company recognizes share-based compensation for the number of awards that are ultimately expected to vest. Estimated forfeitures are reassessed in subsequent periods and may change based on new facts and circumstances.
As of December 31, 2010, there was $191,000 of total unrecognized compensation for awards granted under the stock options plans that is expected to be recognized over a weighted average period of 0.8 years.
Restricted Stock
In 2010, 3,000 shares of restricted stock that vest as service requirements were met were granted to certain directors; and 47,972 shares (net of shares withheld for payment of income taxes) of restricted stock vested as directors' and management service requirements were met. In 2009, 444,250 shares of restricted stock that vest as service requirements are met were granted to certain directors and management; and 15,000 shares of restricted stock that will vest as performance measures are met were granted to one management employee. In 2009, 38,305 shares (net of shares withheld for payment of income taxes) of restricted stock vested as directors' and management service requirements were met; and 19,785 shares (net of shares withheld for payment of income taxes) of previously granted restricted stock vested in connection with the termination of the Company's former President and Chief Executive Officer in May 2009. All restricted shares granted in 2010 and 2009 were granted under the 2006 Plan. The weighted average grant-date fair value of restricted stock granted during 2010 and 2009 was $4.98 and $7.17 per share, respectively.
A summary of the activity for nonvested restricted stock awards as of and for the year ended December 31, 2010 is presented below:
| |
Shares | Weighted Average Grant-Date Fair Value |
|||||
|---|---|---|---|---|---|---|---|
Nonvested balance at December 31, 2009 |
448,301 | $ | 8.25 | ||||
Granted |
3,000 | $ | 4.98 | ||||
Vested |
(47,972 | ) | $ | 8.36 | |||
Forfeited or Cancelled |
(167,779 | ) | $ | 7.47 | |||
Nonvested balance at December 31, 2010 |
235,550 | $ | 10.34 | ||||
13. RELATED PARTY TRANSACTIONS
The Company has a 51% ownership interest in Bay Holdings, the owner and developer of The Residences at Kapalua Bay. The other members of Bay Holdings, through wholly owned affiliates, are Marriott, which owns a 34% interest in Bay Holdings, and ER which owns the remaining 15% interest in Bay Holdings. Stephen M. Case, a director and largest shareholder of the Company, is the Chairman, Chief Executive Officer, and indirect beneficial owner of Revolution LLC, which is the
52
indirect majority owner of ER, and thus Mr. Case may be deemed to have a beneficial interest in Bay Holdings.
14. INCOME TAXES
GAAP prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. In 2009, the Company recorded $939,000 of interest expense for unrecognized tax benefits and additional interest was not recorded in 2010 because it was estimated that no additional interest would be incurred as a result of net operating losses that could be carried back from 2008 and 2009. As of December 31, 2010, total accrued interest and penalties were $2,045,000.
The Company recognizes interest accrued related to unrecognized tax benefits as interest expense and penalties in general & administrative expense in its statement of operations, and such amounts are included in income taxes payable on the Company's consolidated balance sheet. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
| |
2010 | 2009 | |||||
|---|---|---|---|---|---|---|---|
| |
(in thousands) |
||||||
Balance at beginning of year |
$ | 899 | $ | 945 | |||
Additions based on tax positions related to the current year |
— | 20 | |||||
Additions for tax positions of prior years |
53 | — | |||||
Expiration of statutes of limitation |
— | (66 | ) | ||||
Balance at end of year |
$ | 952 | $ | 899 | |||
At December 31, 2010 there were no unrecognized tax benefits for which the liability for such taxes were recognized as deferred tax liabilities because such unrecognized revenue items have reversed by year-end 2010. At December 31, 2010 and 2009, there were $558,000 and $505,000 of unrecognized tax benefits that, if recognized, would affect the effective tax rate.
The components of the income tax (benefit) expense for 2010 and 2009 were as follows:
| |
2010 | 2009 | ||||||
|---|---|---|---|---|---|---|---|---|
| |
(in thousands) |
|||||||
Current |
||||||||
Federal |
$ | (283 | ) | $ | (4,362 | ) | ||
State |
32 | (221 | ) | |||||
Total |
(251 | ) | (4,583 | ) | ||||
Income tax benefit—continuing operations |
$ | (251 | ) | $ | (4,583 | ) | ||
The Worker, Homeownership, and Business Assistance Act of 2009 was enacted on November 6, 2009, and one of its provisions increased the net operating carryback period for large businesses from two years to five years. The amendment was effective for net operating losses arising in taxable years ending after December 31, 2007. The tax effect of the amendment was that the Company was eligible to carryback more of its 2008 tax net operating loss, and in 2010 the Company received $4.4 million of refunds for which a current tax benefit was recorded by the Company in 2009.
53
Reconciliations between the total income tax expense (benefit) and the amount computed using the statutory federal rate of 35% was as follows:
| |
2010 | 2009 | ||||||
|---|---|---|---|---|---|---|---|---|
| |
(in thousands) |
|||||||
Federal income tax expense (benefit) at statutory rate |
$ | 4,344 | $ | (32,555 | ) | |||
Adjusted for State income taxes, net of effect on federal |
||||||||
income taxes |
33 | 2,373 | ||||||
Valuation allowance |
(4,417 | ) | 25,543 | |||||
Provision for uncertain tax positions |
53 | — | ||||||
Permanent differences and other |
(264 | ) | 56 | |||||
Income tax benefit—continuing operations |
$ | (251 | ) | $ | (4,583 | ) | ||
Deferred tax assets (liabilities) were comprised of the following temporary differences as of December 31, 2010 and 2009:
| |
2010 | 2009 | |||||
|---|---|---|---|---|---|---|---|
| |
(in thousands) |
||||||
Joint ventures and other investments |
$ | 12,839 | $ | 19,797 | |||
Net operating loss and tax credit carryforwards |
28,479 | 23,438 | |||||
PGC deferred credit |
2,035 | 13,413 | |||||
Accrued retirement benefits |
7,962 | 11,245 | |||||
Property net book value |
11,083 | — | |||||
Stock compensation |
3,302 | 3,272 | |||||
Tax deferred land sales |
— | 1,312 | |||||
Other |
— | 998 | |||||
Accrued liabilities |
1,114 | 757 | |||||
Deferred revenue |
761 | 505 | |||||
Inventory |
229 | 234 | |||||
Allowance for doubtful accounts |
180 | 179 | |||||
Total deferred tax assets |
67,984 | 75,150 | |||||
Valuation allowance |
(65,241 | ) | (71,181 | ) | |||
Deferred condemnation proceeds |
(2,562 | ) | (2,562 | ) | |||
Other |
(141 | ) | — | ||||
Property net book value |
— | (1,407 | ) | ||||
Tax deferred land sales |
(40 | ) | — | ||||
Total deferred tax liabilities |
(2,743 | ) | (3,969 | ) | |||
Net deferred tax assets (liabilities) |
$ | — | $ | — | |||
Valuation allowances have been established to reduce future tax benefits expected to be realized. The Company had $51.0 million in federal net operating loss carryforwards at December 31, 2010, that expire in 2028 through 2030. Net operating loss and tax credit carryforwards for state income tax purposes that expire in 2011 through 2030 totaled $89.6 million and $3.6 million, respectively, at December 31, 2010. The Company's federal income tax returns for 2005 through 2008 are currently under examination and the Internal Revenue Service has proposed approximately $14.3 million of additional taxable income. The Company disagrees with approximately $13.9 million of the proposed adjustments and intends to continue to defend its positions.
54
15. SEGMENT INFORMATION
The Company's reportable operating segments are Resort and Community Development based on how the Company's chief operating decision maker makes decisions about allocating resources and assessing performance. Each segment is a line of business requiring different technical and marketing strategies. In December 2009, all agriculture operations were ceased and the Company's Agriculture segment is reported as discontinued operations (see Note 7).
Resort includes the ongoing operations at the Kapalua Resort on Maui. These operations include two championship golf courses, a tennis facility, a vacation rental program, several retail outlets, resort activities department and a spa beginning in mid-2009. Operations of the vacation rental program and the resort activities were transferred to third parties in December 2009 and the Company began to receive rental and license income that is reported in the Community Development segment.
Community Development includes the Company's real estate entitlement, development, construction, sales and leasing activities. This segment also includes the operations of Kapalua Realty Company, a general brokerage real estate company located within Kapalua Resort, Kapalua Water Company and Kapalua Waste Treatment Company, the Company's water and sewage transmission operations, regulated by the Hawaii Public Utilities Commission.
The accounting policies of the segments are the same as those described in Summary of Significant Accounting Policies, Note 1.
55
The financial information for each of the Company's reportable segments for 2010 and 2009 follows:
| |
Resort | Community Development |
Other(6) | Consolidated | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
|||||||||||||
Operating revenues(1) |
$ | 23,936 | $ | 17,901 | $ | 117 | $ | 41,954 | |||||
Operating profit(2) |
15,617 |
1,703 |
4,452 |
$ |
21,772 |
||||||||
Interest expense |
(9,406 | ) | |||||||||||
Interest income |
44 | ||||||||||||
Income from continuing operations before income taxes |
$ | 12,410 | |||||||||||
Depreciation and amortization |
2,853 | 2,779 | 2,855 | 8,487 | |||||||||
Capital expenditures(3) |
— | 3,635 | 33 | 3,668 | |||||||||
Assets relating to continuing operations(4) |
20,254 |
45,701 |
12,179 |
78,134 |
|||||||||
Other assets(5) |
12,271 | ||||||||||||
|
$ | 90,405 | |||||||||||
2009 |
|||||||||||||
Operating revenues(1) |
$ | 29,793 | $ | 19,865 | $ | 696 | $ | 50,354 | |||||
Operating loss(2) |
(16,104 |
) |
(62,608 |
) |
(4,342 |
) |
$ |
(83,054 |
) |
||||
Interest expense |
(10,452 | ) | |||||||||||
Interest income |
492 | ||||||||||||
Loss from continuing operations before income tax benefit |
$ | (93,014 | ) | ||||||||||
Depreciation and amortization |
4,227 | 2,050 | 2,581 | 8,858 | |||||||||
Equity in income of affiliates |
(47,187 | ) | (47,187 | ) | |||||||||
Capital expenditures(3) |
1,099 | 1,226 | — | 2,325 | |||||||||
Assets relating to continuing operations(4) |
46,132 |
44,089 |
21,403 |
111,624 |
|||||||||
Other assets(5) |
16,424 | ||||||||||||
|
$ | 128,048 | |||||||||||
56
16. COMMITMENTS AND CONTINGENCIES
LPGA
The Company had a contractual obligation to the LPGA to sponsor an annual golf tournament for five years beginning in October 2008. The cost of such a tournament, including the production and the purse is significant and the Company was seeking a title sponsor to defray part of the cost. In June 2009, the Company announced that due to a lack of a title sponsor, it would be unable to hold the 2009 LPGA event that was scheduled for October. This resulted in a dispute with the LPGA, which can be resolved by mediation and if necessary by binding arbitration. By agreement between the parties, mediation has been suspended through December 2011. The Company paid the LPGA $700,000 in 2010 and $700,000 in February 2011. If the parties are able to structure a future event, 50% of the $1.4 million paid will be applied by the LPGA to sponsorship of the event. The Company is not able to estimate the losses that may be incurred if the Company is not able to further perform under the agreement and, accordingly, no additional provision for losses relating to this dispute has been recorded in the consolidated financial statements.
Discontinued Operations
The Company is involved in a legal dispute with the EEOC concerning former Thai workers in the Company's discontinued agriculture operations working pursuant to a labor contact agreement with Global Horizons, Inc. The Company is presently unable to reasonably estimate the amount of probable liability, if any, related to this matter and, accordingly, has made no provision in the accompanying consolidated financial statements.
Pursuant to a 1999 settlement agreement with the County of Maui, the Company and several chemical manufacturers have agreed that until December 1, 2039, they will pay for 90% of the capital cost to install filtration systems in any future water wells if the presence of a nematocide commonly known as DBCP exceeds specified levels, and for the ongoing maintenance and operating cost for filtration systems on existing and future wells. The Company estimated its share of the cost to operate and maintain the filtration systems for the existing wells, and its share of the cost of a letter of credit used to secure its obligations, and recorded a liability of $250,000 in 1999. The Company recognized an additional liability and expense of $262,000 since 1999; and paid $370,000 for its share of the cost of the letter of credit securing its obligation and the capital costs to install a filtration system for an existing well. The Company is presently not aware of any plans by the County of Maui to install other filtration systems or to drill any water wells in areas affected by agricultural chemicals. Accordingly, a reserve for costs relating to any future wells has not been recorded because the Company is not able to reasonably estimate the amount of liability, if any.
Investments in Affiliates
Pursuant to a previous agreement, the Company was committed to purchase from Bay Holdings the Amenities upon their completion in 2009 at the actual construction cost of approximately $35 million. The Company is currently in discussions with the other members of Bay Holdings and the lenders to negotiate the terms of the purchase and sale agreement including the purchase and payment terms, and are discussing whether the Company will even be required to purchase the Amenities.
Pursuant to loan agreements related to certain equity investments, the Company and the other members of the respective joint ventures have guaranteed to lenders each investors pro rata share of costs and losses that may be incurred by the lender as a result of the occurrence of specified triggering events. These guarantees do not include full payment of the loans. At December 31, 2010, the Company has recognized the estimated fair value of its obligations under these agreements (see Note 4).
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The Company, as an investor in various affiliates (partnerships, limited liability companies), may, under specific circumstances, be called upon to make additional capital contributions.
Other
In February 2010, the Company received notification from the Internal Revenue Service proposing changes to the Company's employment tax withholdings. The Company currently does not expect the ultimate resolution of the matter to be material and has recorded an immaterial amount as the low end of the range of its potential exposure.
In addition to the matters noted above, there are various other claims and legal actions pending against the Company. In the opinion of management, after consultation with legal counsel, the resolution of these other matters is not expected to have a material adverse effect on the Company's financial position or results of operations.
58
MAUI LAND & PINEAPPLE COMPANY, INC.
AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
DESCRIPTION
|
BALANCE AT BEGINNING OF PERIOD |
ADDITIONS (DEDUCTIONS) TO COSTS AND EXPENSES |
ADDITIONS (DEDUCTIONS) TO OTHER ACCOUNTS |
DEDUCTIONS | BALANCE AT END OF PERIOD |
||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
(in thousands) |
||||||||||||||||
Allowance for Doubtful Accounts |
|||||||||||||||||
2010 |
$ | 452 | $ | 388 | $ | 52 | $ | (432) | (a) | $ | 460 | ||||||
2009 |
$ | 658 | $ | (72 | ) | $ | 46 | $ | (180) | (a) | $ | 452 | |||||
Reserve for Environmental Liability |
|||||||||||||||||
2010 |
$ | 1,049 | $ | (415 | ) | $ | 644 | $ | (91) | (b) | $ | 1,187 | |||||
2009 |
$ | 1,176 | $ | 3 | $ | — | $ | (130) | (b) | $ | 1,049 | ||||||
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Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Item 9A. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2010. We maintain disclosure controls and procedures that are designed to provide a reasonable assurance level that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of December 31, 2010, our principal executive officer and principal financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management has the responsibility for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act, as a process designed by, or under the supervision of, the Company's principal executive and principal financial officer and effected by our board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Our internal controls over financial reporting includes those policies and procedures that:
Because of its inherent limitations, internal control over financial reporting only provides reasonable assurance with respect to financial statement presentation and preparation. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2010. In making this assessment, Management used the criteria set forth by the
60
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework. Based on its assessments, Management believes that, as of December 31, 2010, the Company's internal control over financial reporting is effective at a reasonable assurance level.
CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
There have been no changes in the Company's internal controls over financial reporting (as such term is defined in Rules 13a-15(f) under the Exchange Act) during the fiscal fourth quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal controls over financial reporting.
None.
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information set forth under "—Section 16(a) Beneficial Ownership Reporting Compliance" and "Election of Directors" in the Maui Land & Pineapple Company, Inc. Proxy Statement, to be filed no later than 120 days after the close of our fiscal year ended December 31, 2010, is incorporated herein by reference. Certain information concerning our executive officers is contained in Item 1 of this annual report.
Code of Ethics
Our Board of Directors approved the Amended and Restated Code of Ethics in March 2008 that covers the Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer and all other employees of the Company. The Amended Code of Ethics is posted on our website at http://mauiland.com/investor.shtml. We will disclose any amendment to, or waiver from, any provision of the Amended and Restated Code of Ethics by posting such information on our website.
Item 11. EXECUTIVE COMPENSATION
The information set forth under "Executive Compensation," and "—Director Compensation" in the Maui Land & Pineapple Company, Inc. Proxy Statement, to be filed no later than 120 days after the close of our fiscal year ended December 31, 2010, is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information set forth under "Security Ownership of Certain Beneficial Owners" in the Maui Land & Pineapple Company, Inc. Proxy Statement, to be filed no later than 120 days after the close of our fiscal year ended December 31, 2010, is incorporated herein by reference, which is set forth below.
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Securities Authorized For Issuance Under Equity Compensation Plans
The following table provides summary information as of December 31, 2010, for our equity compensation plans:
Plan Category
|
Number of securities to be issued upon exercise of outstanding options, warrants and rights |
Weighted-average exercise price of outstanding options, warrants and rights |
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) |
|||||||
|---|---|---|---|---|---|---|---|---|---|---|
| |
(a) |
(b) |
(c) |
|||||||
Equity compensation plans approved by security holders |
379,550 | $ | 27.95 | 445,469 | ||||||
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information set forth under "Certain Relationship and Related Transactions," and "—Director Independence" in the Maui Land & Pineapple Company, Inc. Proxy Statement, to be filed no later than 120 days after the close of our fiscal year ended December 31, 2010, is incorporated herein by reference.
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information set forth under "Independent Registered Public Accounting Firm" in the Maui Land & Pineapple Company, Inc. Proxy Statement, to be filed no later than 120 days after the close of our fiscal year ended December 31, 2010, is incorporated herein by reference.
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
1. Financial Statements
The following Financial Statements of Maui Land & Pineapple Company, Inc. and subsidiaries and Report of Independent Registered Public Accounting Firm are included in Item 8 of this annual report:
Consolidated Statements of Operations and Comprehensive Income (Loss) for the Years Ended December 31, 2010 and 2009 |
||||
Consolidated Balance Sheets as of December 31, 2010 and 2009 |
||||
Consolidated Statements of Stockholders' Equity (Deficiency) for the Years Ended December 31, 2010 and 2009 |
||||
Consolidated Statements of Cash Flows for the Years Ended December 31, 2010 and 2009 |
||||
Notes to Consolidated Financial Statements |
2. Financial Statement Schedule
The following Financial Statement Schedule of Maui Land & Pineapple Company, Inc. and subsidiaries is filed herewith:
62
3. Exhibits
| Exhibit No. | |
||
|---|---|---|---|
| 3.1 | Restated Articles of Association, as of May 13, 2010 (filed as Exhibit 3.1 to Form 10-Q for the quarter ended June 30, 2010, filed August 4, 2010, and incorporated herein by reference). | ||
| 3.2 | Bylaws (Amended as of May 13, 2010). (filed as Exhibit 3.2 to Form 10-Q for the quarter ended June 30, 2010, filed August 4, 2010, and incorporated herein by reference). | ||
| 10.1 | Kapalua Bay Course Sale, Purchase and Escrow Agreement dated September 16, 2010 (filed as Exhibit 10.1 to Form 10-Q for the quarter ended September 30, 2010, filed November 2, 2010, and incorporated herein by reference). | ||
| 10.2 | Bay Golf Course Lease made and entered into effective September 30, 2010 (filed as Exhibit 10.2 to Form 10-Q for the quarter ended September 30, 2010, filed November 2, 2010, and incorporated herein by reference). | ||
| 10.3 | Golf Academy Lease, made and entered into effective October 1, 2010 (filed as Exhibit 10.3 to Form 10-Q for the quarter ended September 30, 2010, filed November 2, 2010, and incorporated herein by reference). | ||
| 10.4† | Supplemental Executive Retirement Plan (effective as of January 1, 1988) (filed as Exhibit (10)B to Form 10-K for the year ended December 31, 1988 (SEC File No. 001-06510), and incorporated herein by reference). | ||
| 10.5 | Limited Liability Company Agreement of Kapalua Bay Holdings, LLC, dated August 31, 2004 (filed as Exhibit 10(A) to Form 10-Q for the quarter ended September 30, 2004, filed November 12, 2004 (SEC File No. 001-06510), and incorporated herein by reference). | ||
| 10.6 | Settlement Agreement and Release of All Claims (Board of Water Supply of the County of Maui vs. Shell Oil Company, et al.) (filed as Exhibit 10.5(i) to Form 10-K for the year ended December 31, 1999 (SEC File No. 001-06510), filed March 24, 2000, and incorporated herein by reference). | ||
| 10.7 | Fee and Leasehold Mortgage, Security Agreement and Fixture Filing made by Kapalua Bay, LLC in favor of Lehman Brothers Holdings, Inc. (filed as Exhibit 10.2 to Form 8-K filed July 20, 2006 and incorporated herein by reference). | ||
| 10.8 | Completion Guaranty made by Maui Land & Pineapple Company, Inc., The Ritz-Carlton Development Company, Inc. and Exclusive Resorts Development Company, LLC in favor of Lehman Brothers Holdings, Inc. (filed as Exhibit 10.4 to Form 8-K filed July 20, 2006 and incorporated herein by reference). | ||
| 10.9 | Recourse Guaranty made by Maui Land & Pineapple Company, Inc., The Ritz-Carlton Development Company, Inc. and Exclusive Resorts Development Company, LLC in favor of Lehman Brothers Holdings, Inc. (filed as Exhibit 10.5 to Form 8-K filed July 20, 2006 and incorporated herein by reference). | ||
| 10.10 | Amended and Restated Construction Loan Agreement, dated as of February 11, 2009, by and among Kapalua Bay, LLC, Lehman Brothers Holdings Inc., Central Pacific Bank, Landesbank Baden-Württemberg, Deutsche Hypothekenbank, Swedbank AB, New York Branch, and MH Kapalua Venture, LLC (filed as Exhibit 10.55 to Form 10-K for the year ended December 31, 2008, filed March 31, 2009). | ||
63
| Exhibit No. | |
||
|---|---|---|---|
| 10.11 | Master Assignment and Assumption and Modification Agreement, dated as of February 11, 2009, by and among Kapalua Bay, LLC, Lehman Brothers Holdings Inc., Central Pacific Bank, Landesbank Baden-Württemberg, Deutsche Hypothekenbank, Swedbank AB, New York Branch, and MH Kapalua Venture, LLC (filed as Exhibit 10.56 to Form 10-K for the year ended December 31, 2008, filed March 31, 2009). | ||
| 10.12 | Second Omnibus Amendment to Construction Loan Documents, dated as of February 11, 2009, by and among Kapalua Bay, LLC, Lehman Brothers Holdings Inc., Central Pacific Bank, Landesbank Baden-Württemberg, Deutsche Hypothekenbank, Swedbank AB, New York Branch, and MH Kapalua Venture, LLC (filed as Exhibit 10.57 to Form 10-K for the year ended December 31, 2008, filed March 31, 2009). | ||
| 10.13† | Maui Land & Pineapple Company, Inc. 2006 Equity and Incentive Award Plan (incorporated by reference to Appendix B of the Definitive Proxy Statement on Schedule 14A filed on March 27, 2006). | ||
| 10.14† | Maui Land & Pineapple Company, Inc. 2003 Stock and Incentive Compensation Plan (incorporated by reference to Appendix B of the Definitive Proxy Statement on Schedule 14A filed on November 10, 2003). | ||
| 10.15† | Form of Stock Option Grant Notice and Form of Stock Option Agreement, pursuant to the Maui Land & Pineapple Company, Inc. 2006 Equity and Incentive Award Plan (filed as Exhibit 10.9 to Form 10-Q for the quarter ended June 30, 2006, filed August 8, 2006, and incorporated herein by reference). | ||
| 10.16† | Form of Restricted Stock Award Grant Notice and Form of Restricted Stock Award Agreement, pursuant to the Maui Land & Pineapple Company, Inc. 2006 Equity and Incentive Award Plan (filed as Exhibit 10.10 to Form 10-Q for the quarter ended June 30, 2006, filed August 8, 2006, and incorporated herein by reference). | ||
| 10.17± | Sale, Purchase and Lease Termination Agreement, entered into on March 28, 2007 (filed as Exhibit 10.1 to Form 10-Q for the quarter ended March 31, 2007, filed May 9, 2007, and incorporated herein by reference). | ||
| 10.18± | Second Amended and Restated Limited Liability Company Agreement of W2005 Kapalua/Gengate Hotel Holdings L.L.C., entered into on March 28, 2007 (filed as Exhibit 10.2 to Form 10-Q for the quarter ended March 31, 2007, filed May 9, 2007, and incorporated herein by reference). | ||
| 10.19 | Amended and Restated Credit Agreement, dated as of October 9, 2009, by and among Maui Land & Pineapple Company, Inc., and each of the financial institutions initially a signatory thereto, and Wells Fargo Bank, National Association, as Administrative Agent (filed as Exhibit 10.1 to Form 10-Q for the quarter ended September 30, 2009 and incorporated herein by reference). | ||
| 10.20 | First Modification Agreement dated as of September 17, 2010, entered into by and among Maui Land & Pineapple Company, Inc., and each of the financial institutions initially a signatory thereto (filed as Exhibit 10.4 to Form 10-Q for the quarter ended September 30, 2010, filed November 2, 2010, and incorporated herein by reference). | ||
| 10.21* | Second Modification Agreement and Waiver dated as of December 22, 2010, entered into by and among Maui Land & Pineapple Company, Inc. and Wells Fargo Bank, National Association. | ||
| 10.22* | Third Modification Agreement and Waiver dated as of February 23, 2011, entered into by and among Maui Land & Pineapple Company, Inc. and Wells Fargo Bank, National Association. | ||
64
| Exhibit No. | |
||
|---|---|---|---|
| 10.23* | Loan Agreement by and between American AgCredit, FLCA and Maui Land & Pineapple Company, Inc., entered into as of December 22, 2010. | ||
| 10.24 | Fee and Leasehold Mortgage with Absolute Assignment of Leases and Rents, Security Agreement and Fixture Filing, entered into on November 15, 2007 (filed as Exhibit 10.2 to Form 8-K filed November 19, 2007 and incorporated herein by reference). | ||
| 10.25 | Securities Purchase Agreement between Maui Land & Pineapple Company, Inc., and Ohana Holdings, LLC and ZG Ventures, LLC entered into on March 12, 2007 (filed as Exhibit 10.1 to Form 8-K filed March 15, 2007 and incorporated herein by reference). | ||
| 10.26 | Registration Rights Agreement between Maui Land & Pineapple Company, Inc. and Ohana Holdings, LLC and ZG Ventures, LLC entered into on March 12, 2007 (filed as Exhibit 10.2 to Form 8-K filed March 15, 2007 and incorporated herein by reference). | ||
| 10.27 | Amendment No. 1 to Registration Rights Agreement, entered into as of March 10, 2008 (filed as Exhibit 10.50 to Form 10-K/A for the year ended December 31, 2007, filed April 1, 2009, and incorporated herein by reference). | ||
| 10.28 | Waiver and Amendment No. 2 to Registration Rights Agreement, dated as of April 30, 2008, by and among Maui Land & Pineapple Company, Inc., Ohana Holdings, LLC, and ZG Ventures, LLC.(1) (filed as Exhibit 10.3 to Form 10-Q for the quarter ended March 31, 2008, filed May 7, 2008, and incorporated herein by reference). | ||
| 10.29 | Form of Convertible Note Purchase Agreement (filed as Exhibit 10.1 to Form 8-k dated June 22, 2010, Filed June 22, 2010 and incorporated herein by reference). | ||
| 21.* | Subsidiaries of Maui Land & Pineapple Company, Inc. | ||
| 23.1* | Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm, dated March 14, 2011. | ||
| 31.1* | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) / 15d-14(a) of the Securities Exchange Act of 1934. | ||
| 31.2* | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) / 15d-14(a) of the Securities Exchange Act of 1934. | ||
| 32.1** | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
| 32.2** | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
65
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, on March 14, 2011.
| MAUI LAND & PINEAPPLE COMPANY, INC. | ||||
By: |
/s/ WARREN H. HARUKI Warren H. Haruki Interim 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/ WARREN H. HARUKI Warren H. Haruki, Chairman of the Board & |
Date March 14, 2011 | ||
| Interim Chief Executive Officer (Principal Executive Officer) | ||||
By |
/s/ STEPHEN M. CASE Stephen M. Case, Director |
Date March 14, 2011 |
||
By |
/s/ DAVID A. HEENAN David A. Heenan, Director |
Date March 14, 2011 |
||
By |
/s/ KENT T. LUCIEN Kent T. Lucien, Director |
Date March 14, 2011 |
||
By |
/s/ DUNCAN MACNAUGHTON Duncan MacNaughton, Director |
Date March 14, 2011 |
||
By |
/s/ ARTHUR C. TOKIN Arthur C. Tokin, Director |
Date March 14, 2011 |
||
By |
/s/ FRED E. TROTTER III Fred E. Trotter III, Director |
Date March 14, 2011 |
66
By |
/s/ TIM T. ESAKI Tim T. Esaki, Chief Financial Officer (Principal |
Date March 14, 2011 |
||
| Financial Officer) | ||||
By |
/s/ ADELE H. SUMIDA Adele H. Sumida, Controller & Secretary |
Date March 14, 2011 |
||
| (Principal Accounting Officer) |
67
SECOND MODIFICATION AGREEMENT AND WAIVER
Secured Loan
THIS SECOND MODIFICATION AGREEMENT ("Agreement") dated as of December 22, 2010, is entered into by and among MAUI LAND & PINEAPPLE COMPANY, INC., a corporation formed under the laws of the State of Hawaii ("Borrower"), WELLS FARGO BANK, NATIONAL ASSOCIATION, as sole Lender signatory to the Loan Agreement (as defined below) ("Lender"), and WELLS FARGO BANK, NATIONAL ASSOCIATION ("Wells Fargo") as Administrative Agent under the Loan Agreement (in such capacity, the "Administrative Agent").
NOW, THEREFORE, Borrower, Administrative Agent and Lenders agree as follows:
"'AgCredit Facility' means a $25 million line of credit provided to Borrower by American AgCredit, PCA."
"'Applicable Margin' means 3.80%."
"'Appraisal' means, with respect to the Property, an M.A.I. appraisal commissioned by and addressed to the Administrative Agent (acceptable to the Administrative Agent as to form, substance and appraisal date), prepared by a professional appraiser reasonably acceptable to the Administrative Agent, having at least the minimum qualifications required under Applicable Law governing the Administrative Agent and the Lenders, including without limitation, FIRREA, and determining, without duplication, the 'as is' value of the Property."
"Kahului Prepayment" with respect to the sale or other disposition of all or any portion of the Kahului Property, means, for each such sale or disposition, a payment equal to (x) (i) the amount of any cash and fair value of any non-cash consideration payable in connection with such sale or disposition minus (ii) customary and reasonable closing costs actually paid by Borrower in connection with such sale or disposition including escrow, closing, recording, title and legal fees (not to exceed 7.0% of the aggregate value of the consideration in clause (i) above), (y) multiplied by fifty percent (50%)."
"'Legacy Costs' means amounts actually paid by Borrower in respect of settling and paying legacy costs relating to discontinued business operations including, without limitation, costs relating to the KBR amenities purchase obligation, the Yamamura contract, the Timmons/Roeper settlement, golf-related settlement, closure and termination expenses, and severance, pension and retiree expenses."
"'Maturity Date' means May 1, 2012."
"'New Property' shall have the meaning given such term in the Second Modification."
"'Property' means the real property described on Exhibit A to the Second Modification."
"'Second Modification' means that certain Second Modification Agreement dated as of December 22, 2010, by and among the Administrative Agent, the Borrower and the sole Lender."
The defined terms "Kahului Mortgage," Kahului Notes," "Kahului Release Price," and "Kahului SPA" are hereby deleted.
"'Mortgage' means the Fee and Leasehold Mortgage with Absolute Assignment of Leases and Rents, Security Agreement and Fixture, dated as of November 13, 2007, and recorded on November 15, 2007, as Document No. 2007-199589 in the Bureau of Conveyances of the State of Hawaii, executed by the Borrower and Leasehold Mortgagor in favor of the Administrative Agent for its benefit and the benefit of the Lenders, the Issuing Bank and each Specified Derivatives Provider in form and substance satisfactory to the Administrative Agent as amended from time to time, including, without limitation, pursuant to a Memorandum of Second Modification Agreement Amending Mortgage, dated as of March 10, 2009 and recorded March 13, 2009 as Document Number 2009-038132 in the Bureau of Conveyances of the State of Hawaii, and a Memorandum of Third Modification Agreement Amending Mortgage, dated as of March 27, 2009 and recorded March 27, 2009 as Document Number 2009-046242 in the Bureau of Conveyances of the State of Hawaii, a Memorandum of Amended and Restated Credit Agreement Amending Mortgage, dated as of October 9, 2009 and recorded October 14, 2009 as Document Number 2009-157331 in the State of Hawaii Bureau of Conveyances, a Memorandum of First Modification of Restated Credit Agreement Amending Mortgage , dated September 17, 2010 and recorded as Document No. 2010-145868 in the State of Hawaii Bureau of Conveyances, and an Additional Security Mortgage dated as of December 22, 2010."
"Notwithstanding the foregoing, while an Event of Default exists, the Borrower shall pay to the Administrative Agent for the account of each Lender and the Issuing Bank, as the case may be, interest at the Post-Default Rate on the outstanding principal amount of any Loan made by such Lender, on all Reimbursement Obligations and on any other amount payable by the Borrower hereunder or under the Notes held by such Lender to or for the account of such Lender (including without limitation, accrued but unpaid interest to the extent permitted under Applicable Law)."
"Section 7.16. Kahului Prepayment.
Not later than thirty (30) days after the sale or other disposition of all or any portion of the Kahului Property, Borrower shall prepay principal of the Obligations in an amount equal to the Kahului Prepayment. The Kahului Prepayment (i) shall be applied in accordance with Sections 3.2. and 10.5, (ii) shall permanently reduce the Commitment of each Lender in an amount equal to such Lender's Pro Rata Share of the Kahului Prepayment and (iii) may not be reborrowed. In the event that the Kahului Property is subdivided, the Kahului Prepayment shall be made upon each sale or other disposition of all or any portion of the Kahului Property. Notwithstanding the foregoing, the the Kahului Prepayment shall be reduced to the extent the Borrower uses all or a portion of sale or disposition proceeds which would otherwise constitute the Kahului Prepayment exclusively for the payment and settlement of Legacy Costs (provided it delivers evidence satisfactory to Administrative Agent that such amounts have been so used)."
"(a) Liquidity. The Borrower shall maintain, as of the end of each calendar quarter, Liquidity of not less than $4,000,000. As used herein, "Liquidity" shall mean the sum of (i) cash, (ii) Cash Equivalents, (iii) publicly traded and publicly quoted marketable securities acceptable to Administrative Agent in its reasonable discretion, (iv) undisbursed commitment under secured lines of credit available to Borrower including, without limitation, under this Loan, and (v) the amount, if any, not to exceed $2,000,000, by which accounts receivable of the Borrower exceed accounts payable of the Borrower, net, in connection with any of the foregoing, of any encumbrance, setoff or claim and minus any unsecured Indebtedness of Borrower."
"(b) Total Liabilities. The Borrower shall not permit its Total Liabilities to exceed $175,000,000 at any time, as calculated at the end of each fiscal quarter."
IN WITNESS WHEREOF, Borrower, Administrative Agent and Lenders have caused this Agreement to be duly executed as of the date first above written.
|
"ADMINISTRATIVE AGENT AND LENDER" | |||
|
WELLS FARGO BANK, |
|||
|
By: |
/s/ JEFF JOHNSON |
||
|
Name: | |||
|
Title: | |||
|
"BORROWER" | |||
|
MAUI LAND & PINEAPPLE COMPANY, INC., a |
|||
|
By: |
/s/ TIM T. ESAKI |
||
|
Name: | Tim T. Esaki | ||
|
Title: | Chief Financial Officer | ||
|
By: |
/s/ ADELE H. SUMIDA |
||
|
Name: | Adele H. Sumida | ||
|
Title: | Controller & Secretary | ||
The undersigned ("Leasehold Mortgagor") consents to the foregoing Second Modification Agreement and the transactions contemplated thereby and reaffirms its obligations under the Fee and Leasehold Mortgage with Absolute Assignment of Leases and Rents, Security Agreement and Fixture Filing ("Mortgage") dated as of November 13, 2007, as amended from time to time, and its waivers, as set forth in the Mortgage, of each and every one of the possible defenses to such obligations. Leasehold Mortgagor further reaffirms that its obligations under the Mortgage are separate and distinct from Borrower's obligations.
Dated as of: December 22, 2010
|
"LEASEHOLD MORTGAGOR" | |||
|
KAPALUA LAND COMPANY, LTD., |
|||
|
By: |
/s/ TIM T. ESAKI |
||
|
Name: | Tim T. Esaki | ||
|
Title: | Chief Financial Officer | ||
|
By: |
/s/ ADELE H. SUMIDA |
||
|
Name: | Adele H. Sumida | ||
|
Title: | Controller & Secretary | ||
THIRD MODIFICATION AGREEMENT
Secured Loan
THIS THIRD MODIFICATION AGREEMENT ("Agreement") dated as of February 23, 2011, is entered into by and among MAUI LAND & PINEAPPLE COMPANY, INC., a corporation formed under the laws of the State of Hawaii ("Borrower"), WELLS FARGO BANK, NATIONAL ASSOCIATION, as sole Lender signatory to the Loan Agreement (as defined below) ("Lender"), and WELLS FARGO BANK, NATIONAL ASSOCIATION ("Wells Fargo") as Administrative Agent under the Loan Agreement (in such capacity, the "Administrative Agent").
NOW, THEREFORE, Borrower, Administrative Agent and Lenders agree as follows:
"'Appraisal' means, with respect to the Property, an M.A.I. appraisal commissioned by and addressed to the Administrative Agent (acceptable to the Administrative Agent as to form, substance and appraisal date), prepared by a professional appraiser reasonably acceptable to the Administrative Agent, having at least the minimum qualifications required under Applicable Law governing the Administrative Agent and the Lenders, including without limitation, FIRREA, and determining, without duplication, the "as is" value of the Property."
"'As-Is Loan Constant'—means, as of the Original Maturity Date, a number expressed as a percentage, equal to the ratio of the As-Is Net Operating Income to the aggregate Revolving Commitments as of such date (including any undisbursed commitment)."
"'As-Is Net Operating Income'—means the 'as-is,' net operating income set forth in the Appraisal prepared in connection with the Option to Extend."
"'Extended Maturity Date' means May 1, 2014."
"'Maturity Date' means May 1, 2013."
"'Mortgage' means the Fee and Leasehold Mortgage with Absolute Assignment of Leases and Rents, Security Agreement and Fixture, dated as of November 13, 2007, and recorded on November 15, 2007, as Document No. 2007-199589 in the Bureau of Conveyances of the State of Hawaii, executed by the Borrower and Leasehold Mortgagor in favor of the Administrative Agent for its benefit and the benefit of the Lenders, the Issuing Bank and each Specified Derivatives Provider in form and substance satisfactory to the Administrative Agent as amended from time to time, including, without limitation, pursuant to a Memorandum of Second Modification Agreement Amending Mortgage, dated as of March 10, 2009 and recorded March 13, 2009 as Document Number 2009-038132 in the Bureau of Conveyances of the State of Hawaii, and a Memorandum of Third Modification Agreement Amending Mortgage, dated as of March 27, 2009 and recorded March 27, 2009 as Document Number 2009-046242 in the Bureau of Conveyances of the State of Hawaii, a Memorandum of Amended and Restated Credit Agreement Amending Mortgage, dated as of October 9, 2009 and recorded October 14, 2009 as Document Number 2009-157331 in the State of Hawaii Bureau of Conveyances, a Memorandum of First Modification of Restated Credit Agreement Amending Mortgage, dated September 17, 2010 and recorded as Document No. 2010-145868 in the State of Hawaii Bureau of Conveyances, an Additional Security Mortgage dated as of December 22, 2010 and recorded as 2010-203578 in the State of Hawaii Bureau of Conveyances, and a Memorandum of Third Modification of Restated Credit Agreement Amending Mortgage dated as of February 23, 2011."
Release Parcel [identified by TMK(s)]
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Release Price | |||
|---|---|---|---|---|
Merriman's [(2) 4-2-6-11 & (2) 4-2-4-25] |
$ | 2,280,000.00 | ||
Central Resort [(2) 4-2-4-49] |
$ | 8,865,000.00 | ||
Kapalua Mauka [(2) 4-2-1-42, (2) 4-3-1-6 & (2) 4-3-1-8] |
$ | 24,500,000.00 | ||
Village Center/Golf Academy [(2) 4-2-4-36] |
$ | 2,695,000.00 | ||
Honolua Village [(2) 4-2-4-35] |
$ | 2,900,000.00 | ||
Honolua Store [(2) 4-2-4-54] |
$ | 1,900,000.00 | ||
The release price shall be applied to reduce the outstanding principal balance of the Loan and shall permanently reduce the Revolving Commitments on a pro rata basis by a like amount.
Neither the acceptance of any payment nor the issuance of any partial release by Administrative Agent shall affect Borrower's obligation to repay all amounts owing under the Loan Documents or under the Mortgage on the remainder of the Property which is not released. Lender acknowledges that Borrower intends to subdivide the Village Center/Golf Academy [(2) 4-2-4-36] parcel described above and agrees that it will consider, in good faith and its reasonable discretion, a request by the Borrower to modify the release provisions herein to accommodate separate release of the parcels created by such subdivision upon such terms as Lender deems reasonable and appropriate.
Except as modified by this Option to Extend, the terms and conditions of this Agreement and the other Loan Documents as modified and approved by Lender shall remain unmodified and in full force and effect.
IN WITNESS WHEREOF, Borrower, Administrative Agent and Lenders have caused this Agreement to be duly executed as of the date first above written.
| "ADMINISTRATIVE AGENT AND LENDER" | ||||
WELLS FARGO BANK, NATIONAL ASSOCIATION |
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By: |
/s/ JEFF JOHNSON |
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| Name: | ||||
| Title: | |
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| "BORROWER" | ||||
MAUI LAND & PINEAPPLE COMPANY, INC., a Hawaii corporation |
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By: |
/s/ TIM T. ESAKI |
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| Name: | Tim T. Esaki | |||
| Title: | Chief Financial Officer | |||
By: |
/s/ ADELE H. SUMIDA |
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| Name: | Adele H. Sumida | |||
| Title: | Controller & Secretary | |||
The undersigned ("Leasehold Mortgagor") consents to the foregoing Third Modification Agreement and the transactions contemplated thereby and reaffirms its obligations under the Fee and Leasehold Mortgage with Absolute Assignment of Leases and Rents, Security Agreement and Fixture Filing ("Mortgage") dated as of November 13, 2007, as amended from time to time, and its waivers, as set forth in the Mortgage, of each and every one of the possible defenses to such obligations. Leasehold Mortgagor further reaffirms that its obligations under the Mortgage are separate and distinct from Borrower's obligations.
Dated as of: February 23, 2011
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"LEASEHOLD MORTGAGOR" | |||
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KAPALUA LAND COMPANY, LTD., |
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By: |
/s/ TIM T. ESAKI |
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Name: | Tim T. Esaki | ||
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Title: | Chief Financial Officer | ||
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By: |
/s/ ADELE H. SUMIDA |
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Name: | Adele H. Sumida | ||
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Title: | Controller & Secretary | ||
LOAN AGREEMENT
between
AMERICAN AGCREDIT, FLCA,
and
MAUI LAND & PINEAPPLE COMPANY, INC.
Loan No. 0426195000
December 22, 2010
1. |
Definitions and Rules of Construction |
1 | ||||||||
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(a) |
Definitions |
1 | |||||||
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(b) |
Rules of Construction |
9 | |||||||
2. |
Conditions Precedent |
9 |
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(a) |
Required Documents |
9 | |||||||
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(b) |
Wells Fargo Facility |
9 | |||||||
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(c) |
Approvals |
9 | |||||||
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(d) |
Event of Default |
9 | |||||||
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(e) |
Reimbursement of Expenses |
9 | |||||||
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(f) |
Modification Fee |
9 | |||||||
3. |
Conversion of Revolving Loan to Term Loan; Interest Rate |
9 |
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(a) |
Conversion of Revolving Loan to Term Loan on the Closing Date |
9 | |||||||
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(b) |
Interest Rate |
9 | |||||||
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(c) |
Computation of Interest |
10 | |||||||
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(d) |
Default Rate |
10 | |||||||
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(e) |
Interest Not to Exceed Maximum Lawful Rate |
10 | |||||||
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(f) |
Additional LIBOR Rate Provisions |
11 | |||||||
4. |
Repayment Terms |
11 |
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(a) |
Interest Payments |
11 | |||||||
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(b) |
Principal Payments; Maturity Date |
11 | |||||||
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(c) |
Payments Due on Business Days |
11 | |||||||
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(d) |
Late Charge |
12 | |||||||
5. |
Modification Fee |
12 |
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6. |
Prepayments |
12 |
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(a) |
Mandatory Principal Prepayment from Sale of Collateral |
12 | |||||||
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(b) |
Mandatory Principal Prepayment from Sale of Other Assets |
12 | |||||||
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(c) |
Mandatory Prepayment of Net Issuance Proceeds from Issuance of Equity Interests |
12 | |||||||
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(d) |
Optional Prepayments |
12 | |||||||
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(e) |
Payment of Interest with Respect to a Prepayment; No Reborrowing |
12 | |||||||
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(f) |
LIBOR Breakage |
12 | |||||||
7. |
Manner and Time of Payment |
13 |
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8. |
Capitalization |
13 |
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9. |
Collateral; No Subordination |
14 |
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10. |
Representations and Warranties |
14 | ||||||||
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(a) |
Corporate Existence; Compliance with Law and Agreements |
14 | |||||||
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(b) |
Corporate Power; Authorization; Enforceable Obligations |
14 | |||||||
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(c) |
Financial Statements and Condition; Disclosure |
15 | |||||||
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(d) |
Taxes |
15 | |||||||
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(e) |
Licenses; Permits; Intellectual Property Rights |
15 | |||||||
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(f) |
Labor Matters |
16 | |||||||
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(g) |
Investment Company Act |
16 | |||||||
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(h) |
Margin Regulations |
16 | |||||||
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(i) |
ERISA |
16 | |||||||
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(j) |
Brokers |
16 | |||||||
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(k) |
Environmental Matters |
17 | |||||||
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(l) |
Subsidiaries, Partnerships, and Joint Ventures |
17 | |||||||
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(m) |
Title Matters |
17 | |||||||
i
11. |
Affirmative Covenants |
17 | ||||||||
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(a) |
Eligibility |
17 | |||||||
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(b) |
Corporate Existence |
17 | |||||||
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(c) |
Compliance with Laws |
17 | |||||||
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(d) |
Property Maintenance |
18 | |||||||
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(e) |
Books and Records |
18 | |||||||
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(f) |
Inspection |
18 | |||||||
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(g) |
Reports and Notices |
18 | |||||||
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(1) |
Annual Financial Statements |
18 | |||||||
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(2) |
Quarterly Financial Statements, Projected Financial Statements and Operating and Capital Plan Updates |
18 | |||||||
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(3) |
Annual Capital Expenditures Budget |
19 | |||||||
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(4) |
Annual Budget and Three Year Plan |
19 | |||||||
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(5) |
Modifications to Six Quarter Rolling Budget |
19 | |||||||
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(6) |
Notice of Default |
19 | |||||||
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(7) |
Tax Returns |
19 | |||||||
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(8) |
Notice of Non-Environmental Litigation |
19 | |||||||
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(9) |
Notice of Environmental Litigation, Etc |
19 | |||||||
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(10) |
Consolidated Cash Flow Forecast |
19 | |||||||
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(11) |
Quarterly Conference Calls |
19 | |||||||
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(12) |
Other Information |
20 | |||||||
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(h) |
Insurance |
20 | |||||||
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(i) |
Kahului Parcel |
20 | |||||||
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(j) |
Compliance Certificate |
21 | |||||||
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(k) |
Title Insurance Policy |
21 | |||||||
12. |
Negative Covenants |
21 |
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(a) |
Mergers, Acquisitions, Etc. |
21 | |||||||
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(b) |
Transfer of Assets |
21 | |||||||
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(c) |
Change in Business |
21 | |||||||
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(d) |
Liens |
21 | |||||||
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(e) |
Capital Expenditures |
21 | |||||||
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(f) |
Investments |
21 | |||||||
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(g) |
Restricted Payments |
22 | |||||||
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(h) |
Transactions with Affiliates |
22 | |||||||
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(i) |
Indebtedness |
22 | |||||||
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(j) |
Total Liabilities |
22 | |||||||
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(k) |
Liquidity |
22 | |||||||
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(l) |
No Amendment of Wells Fargo Loan Documents |
22 | |||||||
13. |
Events of Default |
22 |
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(a) |
Payment Default |
22 | |||||||
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(b) |
Representations and Warranties |
22 | |||||||
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(c) |
Other Covenants and Agreements |
22 | |||||||
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(d) |
Other Indebtedness |
23 | |||||||
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(e) |
Judgments |
23 | |||||||
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(f) |
Insolvency, Etc |
23 | |||||||
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(g) |
Material Adverse Change |
23 | |||||||
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(h) |
Cross-Default to Wells Fargo Facility |
23 | |||||||
ii
14. |
Remedies Upon Events of Default |
23 | ||||||||
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(a) |
Termination of Rights; Acceleration |
23 | |||||||
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(b) |
Enforcement |
23 | |||||||
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(c) |
Application of Funds |
24 | |||||||
15. |
Indemnity |
24 |
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16. |
Complete Agreement; Amendments |
24 |
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17. |
Counterparts; Effectiveness |
24 |
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18. |
Applicable Law |
24 |
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19. |
MUTUAL WAIVER OF JURY TRIAL |
24 |
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20. |
Notices |
25 |
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21. |
Costs and Expenses |
25 |
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22. |
Effectiveness; Severability |
25 |
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23. |
Successors and Assigns |
26 |
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24. |
Communications with Wells Fargo Bank |
26 |
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25. |
Continuing Validity of Existing Agreements |
26 |
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26. |
Release |
26 |
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iii
Loan No. 0426195000
This LOAN AGREEMENT ("Agreement") is entered into as of December 22. 2010 (the "Effective Date") by and between AMERICAN AGCREDIT, FLCA ("Lender"), and MAUI LAND & PINEAPPLE COMPANY, INC., a Hawaii corporation ("Borrower").
A. Borrower and Lender are parties to that certain Revolving Line of Credit Loan Agreement dated as of September 1, 2005 (as amended from time to time, the "Previous Loan Agreement"), The Previous Loan Agreement amended, restated, and superseded an earlier loan agreement dated June 1, 1999, and entitled Term Loan Agreement, between Borrower and Lender (which was then known as Pacific Coast Farm Credit Services, ACA).
B. Borrower has requested, and Lender has agreed, to amend and restate the Previous Loan Agreement in its entirety to convert the Loan referenced therein from a revolving line of credit to a term loan and Lender has agreed to do so on the terms and conditions set forth in this Agreement and the other Loan Documents.
NOW, THEREFORE, in consideration of the premises and covenants set forth below, the parties hereby agree that the Previous Loan Agreement is hereby amended and restated in its entirety as follows effective from and after the Effective Date:
1. Definitions and Rules of Construction.
(a) Definitions. The following terms used in this Agreement shall have the following meanings:
"Affiliate" shall mean, with respect to any Person, (i) each Person that, directly or indirectly, owns or controls, whether beneficially, or as a trustee, guardian or other fiduciary, ten percent (10%) or more of the Stock having ordinary voting power in the election of directors of such Person, (ii) each Person that controls, is controlled by or is under common control with such Person or any Affiliate of such Person, or (iii) each of such Person's officers, directors, joint venturers and partners. For the purpose of this definition, "control" of a Person shall mean the possession, directly or indirectly, of the power to direct or cause the direction of its management or policies, whether through the ownership of voting securities, by contract or otherwise.
"Agreement" shall mean this Loan Agreement, together with Exhibits and Schedules attached hereto, and as hereafter amended, restated, modified, or supplemented.
"Applicable Spread" shall mean 4.25%; provided that (a) if the principal balance of the Loan is reduced below Twenty Two Million Five Hundred Thousand Dollars ($22,500,000), and no Event of Default shall have at any time occurred, the Applicable Spread shall be reduced to four percent (4.00)% commencing on the first day of the first month after the occurrence of such reduction, and (b) if the principal balance of the Loan is reduced below Twenty Million Dollars ($20,000,000), and no Event of Default shall have at any time occurred, the Applicable Spread shall be reduced to three and three-quarters percent (3.75%) commencing on the first day of the first month after the occurrence of such reduction.
"Business Day" shall mean any day that is not a Saturday, a Sunday, or a day on which banks are required or permitted to be closed in the State of California.
1
"Capital Expenditures" shall mean, for any period, the aggregate of all expenditures (whether paid in cash or other consideration or accrued as a liability and including that portion of Capital Leases that is capitalized on the balance sheet of Borrower including in connection with a sale-leaseback transaction) by Borrower and its Subsidiaries for the acquisition or leasing of fixed or capital assets or additions to equipment (including replacements, capitalized repairs and improvements during such period) which are required to be capitalized under GAAP on a consolidated balance sheet of Borrower and its Subsidiaries. Capital Expenditures shall not include (i) the actual value received for existing equipment either traded-in at time of purchase of new equipment or sold in the ordinary course of business (but only to the extent such equipment is replaced), and (ii) expenditures made from insurance proceeds.
"Capital Lease" shall mean any lease of any property (whether real, personal or mixed) by Borrower or a Subsidiary as lessee that, in accordance with GAAP, either would be required to be classified and accounted for as a capital lease on a balance sheet of Borrower or such Subsidiary or otherwise be disclosed as such in a note to such balance sheet.
"Capitalized Lease Obligation" shall mean obligations under a lease (to pay rent or other amounts under any lease or other arrangement conveying the right to use) that are required to be capitalized for financial reporting purposes in accordance with GAAP. The amount of a Capitalized Lease Obligation is the capitalized amount of such obligation determined in accordance with GAAP.
"Cash Equivalents" shall mean (a) securities issued, guaranteed or insured by the United States of America or any of its agencies with maturities of not more than one year from the date acquired; (b) certificates of deposit with maturities of not more than one year from the date acquired issued by a United States federal or state chartered commercial bank of recognized standing, or a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development, or a political subdivision of any such country, acting through a branch or agency, which bank has capital and unimpaired surplus in excess of $500,000,000 and which bank or its holding company has a short-term commercial paper rating of at least A-2 or the equivalent by S&P or at least P-2 or the equivalent by Moody's; (c) reverse repurchase agreements with terms of not more than seven days from the date acquired, for securities of the type described in clause (a) above and entered into only with commercial banks having the qualifications described in clause (b) above; (d) commercial paper issued by any Person incorporated under the laws of the United States of America or any State thereof and rated at least A-2 or the equivalent thereof by S&P or at least P-2 or the equivalent thereof by Moody's, in each case with maturities of not more than one year from the date acquired; and (e) investments in money market funds registered under the Investment Company Act of 1940, as amended, which have net assets of at least $500,000,000 and at least 85% of whose assets consist of securities and other obligations of the type described in clauses (a) through (d) above.
"Closing Date" shall mean the date on which all of the conditions precedent described in Section 2 shall have been satisfied or waived by Lender, and the Loan has been funded or applied by Lender to refinance the Term Loan.
"Collateral" shall mean all of the real property and interests in property described in Section 9, and all other property and interests in property that now or hereafter secure the payment of any of the Obligations.
2
"Consolidated Adjusted EBITDA" shall mean, for any period, for Borrower and its Subsidiaries on a consolidated basis, the sum (without duplication) of: (a) Consolidated Net Income; plus (b) the sum of (i) Federal, state, local, and foreign income taxes, (ii) interest expense (including the interest portion of any Capitalized Lease Obligations) and (iii) depletion, depreciation and amortization; plus (c) restructuring expenses; plus (d) the sum of extraordinary expenses and noncash expenses; minus (e) the sum of extraordinary gains and noncash gains.
"Consolidated Net Income" shall mean, for any period, on a consolidated basis, the net income, if any, of Borrower and its Subsidiaries, determined in accordance with GAAP.
"Cumulative Non-Collateral Sale Proceeds" shall mean the cumulative amount of Net Non-Collateral Sale Proceeds received by Borrower after the Closing Date.
"Default" shall mean the occurrence of any event or circumstance that, with the passage of time or the giving of notice or both, would become an Event of Default.
"Default Rate" shall mean a rate of interest that is four percent (4.00%) higher than the rate otherwise applicable.
"Disclosure Schedule" shall mean the Disclosure Schedule attached to this Agreement.
"Environmental Laws" shall mean all applicable federal, state, local and foreign laws, statutes, ordinances, codes, rules, standards and regulations, now or hereafter in effect, and any applicable judicial or administrative interpretation thereof, including any applicable judicial or administrative order, consent decree, order or judgment, imposing liability or standards of conduct for or relating to the regulation and protection of human health, safety, the environment and natural resources (including ambient air, surface water, groundwater, wetlands, land surface or subsurface strata, wildlife, aquatic species and vegetation). Environmental Laws include: the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (42 U.S.C. §§ 9601 et seq.) ("CERCLA"); the Hazardous Materials Transportation Authorization Act of 1994 (49 U.S.C. §§ 5 101 et seq.); the Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. §§ 136 et seq.); the Solid Waste Disposal Act (42 U.S.C. §§ 6901 et seq.); the Toxic Substance Control Act (15 U.S.C. §§ 2601 et seq.); the Clean Air Act (42 U.S.C. §§ 7401 et seq.); the Federal Water Pollution Control Act (33 U.S.C. §§ 1251 et seq.); the Occupational Safety and Health Act (29 U.S.C. §§ 651 et seq.); the Safe Drinking Water Act (42 U.S.C. §§ 300(f) et seq.); and any and all regulations promulgated thereunder, and all analogous state, local and foreign counterparts or equivalents and any transfer of ownership notification or approval statutes.
"Environmental Liabilities" shall mean, with respect to any Person, all liabilities, obligations, responsibilities, response, remedial and removal costs, investigation and feasibility study costs, capital costs, operation and maintenance costs, losses, damages, punitive damages, property damages, natural resource damages, consequential damages, treble damages, costs and expenses (including all fees, disbursements and expenses of counsel, experts and consultants), fines, penalties, sanctions and interest incurred as a result of or related to any claim, suit, action, investigation, proceeding or demand by any Person, whether based in contract, tort, implied or express warranty, strict liability, criminal or civil statute or common law, including any arising under or related to any Environmental Laws, environmental permits, or in connection with any release or threatened release or presence of a Hazardous Material whether on, at, in, under, from or about or in the vicinity of any real or personal property.
3
"Equity Interest" shall mean, with respect to any Person, any share of capital stock of (or other ownership or profit interests in) such Person, any warrant, option or other right for the purchase or other acquisition from such Person of any share of capital stock of (or other ownership or profit interests in) such Person whether or not certificated, any security convertible into or exchangeable for any share of capital stock of (or other ownership or profit interests in) such Person or warrant, right or option for the purchase or other acquisition from such Person of such shares (or such other interests), and any other ownership or profit interest in such Person (including partnership, member or trust interests therein), whether voting or nonvoting, and whether or not such share, warrant, option, right or other interest is authorized or otherwise existing on any date of determination.
"Event of Default" shall have the meaning assigned thereto in Section 13.
"Fiscal Quarter" shall mean any of the quarterly accounting periods of Borrower.
"Fiscal Year" shall mean the 12-month period of Borrower ending December 31 of each year. Subsequent changes of the fiscal year of Borrower shall not change the tem, "Fiscal Year," unless Lender shall consent in writing to such change.
"GAAP" shall mean United States generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession, which are applicable to the circumstances as of the date of determination.
"Governmental Authority" shall mean any national, state or local government (whether domestic or foreign), any political subdivision thereof or any other governmental, quasi governmental, judicial, administrative, public or statutory instrumentality, authority, body, agency, bureau, commission, board, department or other entity (including the Federal Deposit Insurance Corporation, the Comptroller of the Currency or the Federal Reserve Board, any central bank or any comparable authority) or any arbitrator with authority to bind a party at law.
"Guaranty Agreement" shall mean any Continuing Guaranty or other agreement by which a Guarantor has guaranteed all or any portion of the Loan.
"Hazardous Material" shall mean any substance, material or waste that is regulated by or forms the basis of liability now or hereafter under, any Environmental Laws, including any material or substance that is (a) defined as a "solid waste," "hazardous waste," "hazardous material," "hazardous substance," "extremely hazardous waste," "restricted hazardous waste," "pollutant," "contaminant," "hazardous constituent," "special waste," "toxic substance" or other similar term or phrase under any Environmental Laws, (b) petroleum or any fraction or by-product thereof, asbestos, polychlorinated biphenyls (PCBs), or any radioactive substance.
"Indemnified Person" shall mean all Persons indemnified by Borrower pursuant to Section 15.
4
"Indebtedness" shall mean, with respect to a Person, at the time of computation thereof, all of the following (without duplication): (a) all obligations of such Person in respect of money borrowed; (b) all obligations of such Person (other than trade debt incurred in the ordinary course of business), whether or not for money borrowed (i) represented by notes payable, or drafts accepted, in each case representing extensions of credit, (ii) evidenced by bonds, debentures, notes or similar instruments, or (iii) constituting purchase money indebtedness, conditional sales contracts, title retention debt instruments or other similar instruments, upon which interest charges are customarily paid or that are issued or assumed as full or partial payment for property; (c) Capitalized Lease Obligations of such Person; (d) all reimbursement obligations of such Person under or in respect of any letters of credit or acceptances (whether or not the same have been presented for payment); (e) all Off-Balance Sheet Obligations of such Person; (f) all obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any Mandatorily Redeemable Stock issued by such Person or any other Person, valued at the greater or its voluntary or involuntary liquidation preference plus accrued and unpaid dividends; (g) net obligations under any Derivative Contract (which shall be deemed to have an amount equal to the termination value thereof at such time but in no event shall be less than zero); and (h) all Indebtedness of other Persons which (i) such Person has Guaranteed or is otherwise recourse to such Person or (ii) is secured by a Lien on any property of such Person. For purposes of this definition, (x) the amount of any Indebtedness represented by a guaranty or other similar instrument shall be the lesser of the principal amount of the obligations guaranteed and outstanding and the maximum amount for which the guaranteeing Person may be liable pursuant to the terms of the guaranty, and (y) the amount of any Indebtedness described in clause (h)(ii) above shall be the lower of the amount of the obligation and the fair market value of the assets securing such obligation.
"Investments" shall mean all expenditures by Borrower and its Subsidiaries, other than Capital Expenditures, made for the purpose of acquiring, increasing, or supplementing equity interests of any nature in partnerships, joint ventures, corporations, trusts, associations, or other business entities, or in real or personal property of any kind and as reflected as investments in Borrower's financial statements.
"Kahului Parcel" shall mean the land owned by Borrower at Kahului, Hawaii, identified as Lots F-1 and F-2 of the Maui Land & Pineapple Company Subdivision, containing 12.818 acres and 7.077 acres, respectively.
"Legacy Costs" shall mean the expenses (including any settlement expenses) incurred in connection with the Borrower's obligation to purchase the spa, beach club improvements and the sundry store from Kapalua Bay Holdings, LLC, payments to M. Yamamura and Sons, Inc. ("Yamamura") in connection with the settlement of claims made by Yamamura against the Borrower, expenses related to the Timmons/Roeper settlement, various golf-related obligations in connections with claims made by the LPGA and PGA and other expenses resulting from the sale of the Plantation Golf Course and Bay Golf Course closure and termination expenses, various legacy, severance, pension, and retiree expenses, and such other items as may be agreed among Borrower, Lender, and Wells Fargo Bank.
"Legacy Escrow" shall mean an escrow account established by Borrower for the purpose of paying Legacy Costs.
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"LIBOR Rate" shall mean, for any month, the higher of (a) 1.00% per annum, and (b) the rate determined by Lender to be the rate offered for U.S. Dollar deposits for the thirty-day period commencing on or about the first day of such month (as quoted by Telerate News Service as of 11:00 A.M. London setting time or, at Lender's option, a comparable reference on the Reuters Screen LIBOR Page or such other quotation service as may be chosen by Lender); provided, that if two or more of such offered rates appear on Telerate (or on the Reuters Screen LIBOR Page or alternative service, as the case may be), the "LIBOR Rate" shall be highest of the two rates quoted.
"Lien" shall mean any mortgage or deed of trust, pledge, hypothecation, assignment, deposit arrangement, lien, charge, claim, security interest or encumbrance, or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including any lease or title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing).
"Loan Documents" shall mean the Note, this Agreement, the Mortgage, all guaranties of the Loan and all other documents and instruments that evidence and/or secure the Loan or any guaranty of the Loan, all as amended from time to time.
"Mandatorily Redeemable Stock" shall mean, with respect to any Person, any Equity Interest of such Person which by the terms of such Equity Interest (or by the terms of any security into which it is convertible or for which it is exchangeable or exercisable), upon the happening of any event or otherwise, (a) matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise (other than an Equity Interest to the extent redeemable in exchange for common stock or other equivalent common Equity Interests at the option of the issuer of such Equity Interest), (b) is convertible into or exchangeable or exercisable for Indebtedness or Mandatorily Redeemable Stock, or (c) is redeemable at the option of the holder thereof, in whole or part (other than an Equity Interest which is redeemable solely in exchange for common stock or other equivalent common Equity Interests), in each case on or prior to the date on which all Loans are scheduled to be due and payable in full.
"Maturity Date" shall mean May 1, 2012; provided that if (a) the principal balance of the Wells Fargo Facility equals or exceeds Thirty Million Dollars ($30,000,000), (b) the maturity date of the Wells Fargo Facility is renewed to May 1, 2013 on substantially the same terms as are in effect on the Closing Date, and (c) no Event of Default has at any time occurred, the maturity date for the Loan shall automatically be extended to May 1, 2013.
"Modification Fee" shall have the meaning set forth in Section 2.
"Mortgage" shall mean the Mortgage, Assignment of Rents, Security Agreement, Financing Statement and Fixture Filing, dated December 30, 1998, executed by Borrower in favor of Pacific Coast Farm Credit Services, ACA, as mortgagee, and recorded December 30, 1998 as Document No. 98-196978, Bureau of Conveyances, State of Hawaii ("Official Records"), as amended from time to time.
"MPC" shall mean Maui Pineapple Company, Ltd., a Hawaii corporation, or a successor entity that holds all or substantially all of its assets pursuant to a merger, sale or other transaction that has been approved by Lender in its reasonable discretion.
"Net Issuance Proceeds" shall mean, in respect of any issuance by Borrower of any Equity Interest, cash proceeds (including cash proceeds as and when received in respect of non-cash proceeds received or receivable in connection with such issuance), net of underwriting discounts and reasonable out-of-pocket costs and expenses paid or incurred in connection therewith in favor of any Person not an Affiliate of the Borrower.
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"Net Non-Collateral Sale Proceeds" shall mean, with respect to any real property sold by Borrower other than property constituting Collateral, the net sale proceeds received by Borrower after payment of sales commissions and payment of encumbrances on the property sold (including any payments payable under the Wells Fargo Facility to release the property); provided that, with respect to proceeds of the Kahului Parcel, only those sale proceeds constituting part of the "Working Capital Portion" (as defined in Section 11(i)) shall be included within the scope of this definition.
"Note" shall mean the promissory note dated of even date with this Agreement in the original principal amount of Twenty-Five Million Dollars ($25,000,000) evidencing Borrower's obligation to repay the Loan.
"Obligations" shall mean all loans, advances, debts, liabilities, and obligations, for the performance of covenants, tasks or duties or for payment of monetary amounts (whether or not such performance is then required or contingent, or amounts are liquidated or determinable and whether or not allowed as a claim in any proceeding referred to in Section 13(f)) owing by Borrower to Lender, and all covenants and duties regarding such amounts, of any kind or nature, present or future, whether or not evidenced by any note, agreement or other instrument, arising under any of the Loan Documents. This term includes the Loan, all principal, interest, fees, charges, expenses, attorneys' fees and any other sum chargeable to Borrower under this Agreement or any of the Loan Documents.
"Off-Balance Sheet Obligations" shall mean liabilities and obligations of Borrower, any Subsidiary or any other Person in respect of "off-balance sheet arrangements" (as defined in Item 303(a)(4)(ii) of Regulation S-K promulgated under the Securities Act) which Borrower would be required to disclose in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of Borrower's report on Form 10 Q or Form 10 K (or their equivalents) which Borrower is required to file with the SEC (or any Governmental Authority substituted therefor).
"Permitted Encumbrances" shall mean the following encumbrances: (i) Liens for taxes or assessments or other governmental charges or levies, either not yet due and payable or to the extent that nonpayment thereof is permitted by the terms of this Agreement; (ii) pledges or deposits securing obligations under workmen's compensation, unemployment insurance, social security or public liability laws or similar legislation; (iii) pledges or deposits securing bids, tenders, contracts (other than contracts for the payment of money) or leases to which Borrower or any Guarantor is a party as lessee made in the ordinary course of business; (iv) workers', mechanics', suppliers' or similar Liens arising in the ordinary course of business that are either not yet due and payable or that are being contested in good faith by appropriate proceedings and for which Borrower or any Guarantor has established adequate reserves; (v) carriers', warehousemen's, or other similar possessory Liens arising in the ordinary course of business; (vi) an attachment or judgment Lien, but only for a period of thirty (30) days following attachment of such Lien and such attachment or judgment lien shall cease to be a Permitted Encumbrance if the obligation that it secures has not been satisfied or bonded during such thirty (30) day period; (vii) zoning restrictions, easements, licenses, or other restrictions on the use of real property or other minor irregularities in title (including leasehold title) thereto, so long as the same do not materially impair the use, value, or marketability of such real property, leases or leasehold estates; (viii) Liens securing indebtedness owed by a Subsidiary to Borrower; (ix) security interests securing purchase money indebtedness in capital assets, the acquisition of which is permitted by this Agreement, and so long as the security interest does not encumber any asset other than the asset acquired; (x) any Lien listed as a Permitted Encumbrance on the Disclosure Schedule; and (xi) the refinancing of the real property mortgages referred to in the Disclosure Schedule, provided that such refinancing covers the same property covered by the original mortgages, secures a principal amount not in excess of that secured by such mortgages on the date of refinancing, and the terms of such refinancing have all been negotiated at arms length and are on fair market terms.
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"Person" shall mean any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, limited liability company, institution, public benefit corporation, entity or government (whether federal, state, county, city, municipal or otherwise, including any instrumentality, division, agency, body or department thereof).
"Prepayment" shall mean a prepayment, prior to the Maturity Date, of all or any portion of the principal amount of the Loan.
"Restricted Payments" shall mean (i) dividends or other distributions or payments on account of or with respect to any capital stock of Borrower or of any Guarantor, except distributions consisting of such stock or, in the case of a Guarantor, distributions or payments made to Borrower, (ii) the redemption or acquisition of such stock or of warrants, rights, or other options to purchase such stock, except, in the case of a Guarantor, redemption or acquisition of stock held by Borrower, and (iii) any payment, repayment, redemption, retirement, repurchase or other acquisition, direct or indirect, by Borrower, any Guarantor or any Subsidiary of Borrower or any Guarantor of any principal portion of any obligation or indebtedness that has been subordinated to the indebtedness owed by Borrower to Lender.
"Revolving Loan" shall mean the loan made by Lender to Borrower under the Previous Loan Agreement.
"Stock" shall mean all shares, options, warrants, general or limited partnership interests, participations or other equivalents (regardless of how designated) of or in a corporation, partnership or equivalent entity whether voting or nonvoting, including common stock, preferred stock, or any other "equity security" (as such term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended).
"Subsidiaries" shall mean any corporation, partnership, limited liability company, joint venture or any other legal entity that in accordance with GAAP would be properly consolidated on the books of the Borrower.
"Total Liabilities" shall mean, as to any Person as of a given date, all liabilities which would, in conformity with GAAP, be properly classified as a liability on a consolidated balance sheet of such Person as of such date.
"Transaction Costs" shall mean, with respect a sale of property by Borrower, an amount equal to the lesser of (a) the amount of customary and reasonable closing costs actually paid by Borrower in connection with such sale or disposition including escrow, closing, recording, title and legal fees, and a broker's commission (but if the sale involves Collateral, only if the amount of such broker's commission has been approved by Lender in advance), and (b) 7.0% of the gross sales price of the property being sold.
"Wells Fargo Facility" shall mean the secured revolving line of credit provided by Wells Fargo Bank to Borrower on or about the Closing Date.
"Wells Fargo Loan Documents" shall mean the agreements, documents, and instruments evidencing the Borrower's obligation to Wells Fargo Bank with respect to the Wells Fargo Facility.
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(b) Rules of Construction. Unless otherwise specified, references in this Agreement to a Section, Subsection, clause, Exhibit, or Schedule refer to such Section, Subsection, clause, Exhibit, or Schedule as contained in this Agreement. The words "herein," hereof," and "hereunder" and other words of similar import refer to this Agreement as a whole, including all Exhibits and Schedules hereto, as the same may from time to time be amended, restated, modified or supplemented. Wherever from the context it appears appropriate, each term stated in either the singular or plural shall include the singular and the plural. The words "including," "includes," and "include" shall be deemed to be followed by the words "without limitation"; references to persons include their respective successors and assigns, to the extent permitted by the loan documents executed in connection with this Agreement, or, in the case of governmental persons, persons succeeding to the relevant functions of such persons; all references to statutes and related regulations shall include any amendments of the same and any successor statutes and regulations; whenever any provision in this Agreement or any such loan document refers to the knowledge (or analogous phrase) of Borrower or any Affiliate of Borrower, such words are intended to signify that Borrower or such Affiliate has actual knowledge or awareness of a particular fact or circumstance of that Borrower or such Affiliate, if it had exercised reasonable due diligence, would have known or been aware of such fact or circumstance.
2. Conditions Precedent. Lender's obligation to enter into this Agreement is subject to the following conditions precedent:
(a) Required Documents. Borrower shall have delivered to Lender all documents set forth in the document checklist delivered by Lender to Borrower, each of which must be satisfactory to Lender in its sole discretion.
(b) Wells Fargo Facility. Borrower shall, on the Closing Date, have obtained the Wells Fargo Facility and delivered to Lender copies of all of the Wells Fargo Loan Documents, all of which shall satisfactory to Lender in its sole discretion.
(c) Approvals. Lender shall have received evidence satisfactory to Lender that all consents and approvals which are necessary for or required as a condition of the validity and enforceability of this Agreement and all documents and instruments contemplated hereby, have been obtained and are in full force and effect.
(d) Event of Default. No Default or Event of Default shall have occurred and be continuing under the Previous Credit Agreement.
(e) Reimbursement of Expenses. Borrower shall have paid to Lender the amount of all costs and expenses incurred by Lender in connection with the transaction evidenced by this Agreement.
(f) Modification Fee. Borrower shall have paid to Lender the Modification Fee required by Section 5.
3. Conversion of Revolving Loan to Term Loan; Interest Rate.
(a) Conversion of Revolving Loan to Term Loan on the Closing Date. On the Closing Date, the outstanding principal balance of the Revolving Loan in the amount of Twenty-Five Million Dollars ($25,000,000) shall be converted to a term loan (referred to herein as the "Loan"). If the balance of the Revolving Loan on the Closing Date shall exceed Twenty-Five Million Dollars ($25,000,000), Borrower shall pay such excess to Lender on the Closing Date.
(b) Interest Rate. Subject to subsections 3(d), 3(e), and 3(f), the Loan shall bear interest at a rate per annum equal to the LIBOR Rate plus the Applicable Spread.
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(c) Computation of Interest. All computations of interest shall be made by Lender on the basis of a three hundred sixty (360) day year for the actual number of days occurring in the period for which such interest is payable. Each determination by Lender of an interest rate hereunder shall be conclusive and binding for all purposes, absent manifest error or bad faith.
(d) Default Rate. Any overdue principal or interest with respect to any portion of the Loan, and the amount of any fees, costs, or expenses that Borrower is obligated to pay to Lender under this Agreement not paid when due, shall immediately and automatically bear interest, payable on demand, for each day until paid at a rate per annum equal to the Default Rate. In addition, upon and after the occurrence of an Event of Default and continuing until such Event of Default has been cured or waived in writing by Lender in accordance with the terms of this Agreement, interest shall accrue on all obligations owed by Borrower hereunder at the Default Rate. The interest rate increase to the Default Rate shall take effect immediately upon the occurrence of an Event of Default, without prior notice to Borrower.
(e) Interest Not to Exceed Maximum Lawful Rate. Notwithstanding anything to the contrary set forth in this Agreement, if at any time until payment in full of all of obligations under this Agreement, the rate of interest payable hereunder exceeds the highest rate of interest permissible under any law which a court of competent jurisdiction shall, in a final determination, deem applicable hereto (the "Maximum Lawful Rate"), then in such event and so long as the Maximum Lawful Rate would be so exceeded, the rate of interest payable hereunder shall be equal to the Maximum Lawful Rate; provided, that if at any time thereafter the rate of interest payable hereunder is less than the Maximum Lawful Rate, Borrower shall continue to pay interest hereunder at the Maximum Lawful Rate until such time as the total interest received by Lender is equal to the total interest which Lender would have received had the interest rate payable hereunder been (but for the operation of this Section 3(e) the interest rate payable since the date of this Agreement. Thereafter, the interest rate payable hereunder shall be the rate of interest set forth herein, unless and until the rate of interest again exceeds the Maximum Lawful Rate, in which event this paragraph shall again apply. In no event shall the total interest received by Lender pursuant to the terms hereof exceed the amount which Lender could lawfully have received had the interest due hereunder been calculated for the full term hereof at the Maximum Lawful Rate. In the event the Maximum Lawful Rate is calculated pursuant to this Section 3(e), such interest shall be calculated at a daily rate equal to the Maximum Lawful Rate divided by the number of days in the year in which such calculation is made. In the event that a court of competent jurisdiction, notwithstanding the provisions of this Section 3(e), shall make a final determination that Lender has received interest hereunder in excess of the Maximum Lawful Rate, Lender shall, to the extent permitted by applicable law, promptly apply such excess first to any interest due and not yet paid, then to the outstanding principal of the Loan (without premium or penalty), and then to any other unpaid obligations owed by Borrower under this Agreement and thereafter shall refund any excess to Borrower or as a court of competent jurisdiction may otherwise order.
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(f) Additional LIBOR Rate Provisions. If at any time Lender reasonably determines that for any reason adequate and reasonable means do not exist for ascertaining the LIBOR Rate or the LIBOR Rate generally becomes unavailable to Lender, Lender shall promptly give notice thereof to Borrower and shall designate an alternative index that is reasonably comparable to the LIBOR Rate; provided, that Lender's determination under this Section 3(f) as to Borrower shall be in accordance with its treatment of other borrowers under commercial loans generally. In the event that any law, treaty, rule, regulation, or determination of a court or governmental authority or any change therein or in the interpretation or application thereof or compliance by Lender with any request or directive (whether or not having the force of law) from any central bank or governmental authority:
(1) shall subject Lender to any tax of any kind whatsoever with respect to any LIBOR Rate, or change the basis of taxation of payments to Lender of principal, interest or any other amount payable under this Agreement (except for changes in the rate of tax on the overall net income of Lender); or
(2) shall impose, modify, or hold applicable any reserve, special deposit, compulsory loan, or similar requirement against assets held by, or deposits or other liabilities in or for the account of, advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of Lender; or
(3) shall impose on Lender any other condition; and the result of any of the foregoing is to increase the cost to Lender of making, renewing, or maintaining any portion of the Loan with interest rates tied to the LIBOR Rate and/or to reduce any amount receivable by Lender in connection therewith;
then in any such case, Borrower shall pay to Lender, immediately upon demand, such amount or amounts as may be necessary to compensate Lender for any additional costs incurred by Lender and/or reductions in amounts received by Lender which are attributable to LIBOR Rates made available to Borrower hereunder. In determining which costs incurred by Lender or reductions in amounts received by Lender are attributable to such LIBOR Rates, any reasonable allocation made by Lender among its operations shall be conclusive and binding upon Borrower; provided, that Lender's determination under this Section 3(f) as to Borrower is in accordance with its treatment of other borrowers under commercial loans generally.
4. Repayment Terms.
(a) Interest Payments. Borrower shall pay interest on the Loan, in arrears, every three (3) months, commencing on January 1, 2011, and continuing on the first day of each April, July, and October thereafter; provided, that interest accrued on the Loan but not otherwise due and payable on the Maturity Date shall become due and payable on the Maturity Date.
(b) Principal Payments; Maturity Date. Except as provided in Section 6(a) Section 6(b), or Section 6(c), the principal balance of the Loan shall be due and payable in full on the Maturity Date; provided, that if the Obligations shall become due and payable in accordance with Section 14 or any other provision of this Agreement prior to such date, then the Maturity Date shall be the date on which the Obligations become due and payable.
(c) Payments Due on Business Days. If any installment of interest or any other amount payable under any Loan Document becomes due and payable on a day other than a Business Day, the payment date for such payment shall be extended to the next succeeding Business Day and, with respect to payments of principal or other payments that bear interest (other than interest first due on such date), interest thereon shall be payable at the then applicable rate during such extension; provided, however, if any installment of interest shall become due and payable on a Saturday, the payment date for such payment shall be the preceding Business Day.
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(d) Late Charge. If any payment required under this Agreement is not paid within ten (10) days after it becomes due and payable, Borrower shall pay a late charge to compensate Lender for the loss of use of funds and for the expenses of handling the delinquent payment, in an amount equal to four percent (4%) of such delinquent payment. Such late charge shall be paid in any event not later than the due date of the next subsequent installment of interest. In the event the maturity of the Obligations hereunder occurs or is accelerated, this Section shall apply only to payments overdue prior to the time of such acceleration. This Section shall not be deemed to be a waiver of Lender's right to accelerate payment of any of the Obligations as permitted under the terms of this Agreement.
5. Modification Fee. In consideration of the execution and delivery of this Agreement by Lender, Borrower shall pay to Lender a loan modification fee of One Hundred Eighty-Seven Thousand Five Hundred Dollars ($187,500) (the "Modification Fee"), which Modification Fee is equal to 0.75% of the original principal balance of the Loan. The Modification Fee shall be due and payable upon the Closing Date. The full amount of the Modification Fee shall be considered earned upon receipt and no portion of the Modification Fee shall be refundable to Borrower under any circumstances.
6. Prepayments.
(a) Mandatory Principal Prepayment from Sale of Collateral. Borrower shall pay to Lender as a principal prepayment the net proceeds (after deduction of Transaction Costs) of any sale of any Collateral.
(b) Mandatory Principal Prepayment from Sale of Other Assets. Borrower shall pay to Lender as a principal prepayment a percentage of the Net Non-Collateral Sale Proceeds as follows: (i) 10% of the first $3,000,000 in Cumulative Non-Collateral Sale Proceeds; (ii) 25% of Cumulative Non-Collateral Sale Proceeds between $3,000,000 and $6,000,0000, (iii) 50% of Cumulative Non-Collateral Sale Proceeds between $6,000,000 and $10,000,0000, (iv) 60% of Cumulative Non-Collateral Sale Proceeds between $10,000,000 and $15,000,0000, and (v) 75% of Cumulative Non-Collateral Sale Proceeds in excess of $15,000,000.
(c) Mandatory Prepayment of Net Issuance Proceeds from Issuance of Equity Interests. Borrower shall pay to Lender as a principal prepayment a portion of the Net Issuance Proceeds received from the issuance by Borrower of any Equity Interest in amount equal to the greater of (i) $5,000,000, or (ii) 50% of the Net Issuance Proceeds.
(d) Optional Prepayments. Borrower shall have the right at any time to make a voluntary Prepayment of all or any portion of the Loan upon at least three Business Days prior notice to Lender; provided that any such Prepayment shall be not less than $100,000.
(e) Payment of Interest with Respect to a Prepayment; No Reborrowing. At any time a Prepayment is made, Borrower shall pay to Lender the amount of all interest that has accrued on the principal being prepaid. Principal amounts being prepaid may not be reborrowed.
(f) LIBOR Breakage. Upon the making of a Prepayment, whether such Prepayment is mandatory or optional, and upon any other payment of principal, Borrower shall simultaneously pay to Lender such amount as shall be specified by Lender as necessary to compensate Lender for all losses, expenses and liabilities that Lender may sustain as a result of Borrower's prepayment of the Loan based on the fact that the Loan is a LIBOR based loan.
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7. Manner and Time of Payment. Borrower shall make all payments by wire transfer of immediately available funds as follows:
| To: | US AgBank Wichita, Kansas |
||
| ABA Routing No.: | 101104562A | ||
| Account Number: | 11575000 | ||
| Account Name: | American AgCredit, FLCA | ||
| Reference: | Loan # 0426195000 | ||
| Attention | Tina Anaya, Accounting P.O. Box 1120, Santa Rosa, CA 95492 Tel: (707) 545-1200 Fax: (707) 545-4446 |
||
| Tax ID No.: | 94-1160795 |
(or to such other account as Lender may designate by notice). Borrower shall give Lender telephonic notice no later than 12:00 noon Pacific Time of its intent to make a wire transfer. Wire transfers received after 2:00 p.m. Pacific Time shall be credited on the next Business Day.
8. Capitalization. Borrower agrees to make such investments in Lender as Lender may from time to time require in accordance with Lender's bylaws and capital plan. In connection with the foregoing, Borrower hereby acknowledges receipt, prior to the execution of this document, of copies of the following: Notice Regarding Your Required Investment in this Association, 2009 Annual Report, and the Association's Capitalization Plan and Bylaws. All such investments and all other equities which the Borrower may now own or hereafter acquire or be allocated in Lender shall be subject to a statutory first lien in favor of Lender to secure any indebtedness of Borrower to Lender.
At the option of Lender, any amounts borrowed to purchase capital stock or participation certificates, and any amounts repaid from redemption of such stock or certificates, may be recorded as part of the loan accounting in the transaction summary, or in a separate stock or loan account.
A certificate will not be issued for capital stock or participation certificates, but ownership will be evidenced by the records of Lender. THE OWNERSHIP OF THE CAPITAL STOCK OR PARTICIPATION CERTIFICATES WILL BE REGISTERED ON THE RECORDS OF LENDER AS FOLLOWS: MAUI LAND & PINEAPPLE COMPANY, INC., A HAWAII CORPORATION.
Borrower hereby grants to Lender a security interest in and lien upon all capital stock and participation certificates as collateral for the Loan. Upon an Event of Default, Lender may but is not required to apply all or part of the proceeds from such capital stock or participation certificates against the Loan.
UNTIL WRITTEN NOTICE OF REVOCATION IS RECEIVED BY LENDER, TIM ESAKI IS AUTHORIZED TO VOTE FOR THE ABOVE-NAMED BORROWER AND IS AUTHORIZED TO REQUEST THE CONVERSION FROM ONE CLASS TO ANOTHER OF ALL SHARES OF CAPITAL STOCK WHICH MAY BE REGISTERED IN THE NAME OF BORROWER.
As required by Lender's bylaws and the federal income tax law, Borrower agrees that the amount of any distribution of patronage made by written notice of allocation to Borrower after the date of this Agreement will be included in Borrower's gross income for the purpose of federal income tax for the year in which the notice is received.
Lender hereby confirms that, as of the date of this Agreement, Borrower has made all investments in Lender currently required under its bylaws and capital plan.
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9. Collateral; No Subordination. The obligations of Borrower to Lender hereunder shall be secured as follows: (i) Lender shall have first priority Liens on Borrower's fee interests in the real property located on the Island and County of Maui, State of Hawaii and identified as Tax Map Key parcel numbers (2) 2-4-001-003, (2) 2-3-009-008, and (2) 4-3-001-031; (ii) Lender shall have the lien referred to in Section 8 and any other liens provided by the Farm Credit Act; and (iii) Lender shall have, and Borrower hereby grants Lender a security interest in, all cash, accounts, securities, investment property, instruments, documents, or other property of Borrower that is in Lender's possession or under its control (the items described in clauses (i), (ii), and (iii) collectively, the "Collateral"). The obligations of Borrower to Lender under this Agreement shall constitute senior indebtedness and are not subordinate in payment or priority to any other obligations of Borrower. Borrower is not authorized to sell or otherwise transfer of any of the Collateral.
10. Representations and Warranties. Borrower represents and warrants to Lender that, except as may be set forth in the Disclosure Schedule or in a subsequent written disclosure to Lender, each of the following statements is true and correct on the date hereof and shall remain true and correct at all times through the Maturity Date:
(a) Corporate Existence; Compliance with Law and Agreements. Borrower and each Guarantor: (i) are corporations duly organized, validly existing and in good standing under the laws of the State of Hawaii; (ii) are duly qualified as foreign corporations and in good standing under the laws of each jurisdiction where their ownership or lease of property or the conduct of their businesses require such qualification (except for jurisdictions in which such failure to so qualify or to be in good standing would not have a Material Adverse Effect); (iii) have the requisite corporate power and authority and the legal right to own, pledge, mortgage, or otherwise encumber and operate all real property that they own, to lease the real property they operate under lease, and to conduct their businesses as now, heretofore, and proposed to be conducted; (iv) have all material licenses, permits, consents, or approvals from or by, and have made all material filings with, and have given all material notices to, all governmental authorities having jurisdiction, to the extent required for such ownership, operation, and conduct; (v) are in compliance with their articles or certificates of incorporation and by-laws; (vi) are in compliance with all applicable provisions of law where the failure to comply would have a Material Adverse Effect, and (vii) are not in default, and, to Borrower's knowledge, no third party is in default, under or with respect to any contract, agreement, lease or other instrument to which Borrower or any Guarantor is a party which default in each case or in the aggregate would have a Material Adverse Effect.
(b) Corporate Power; Authorization; Enforceable Obligations. The execution, delivery, and performance by Borrower of the Agreement, and any Loan Document to which Borrower is a party, and by each Guarantor of such Guarantor's Guaranty Agreement: (i) are within Borrower's or such Guarantor's corporate power; (ii) have been duly authorized by all necessary or proper corporate action; (iii) are not in contravention of any provision of Borrower's or such Guarantor's articles of or certificate of incorporation or by-laws; (iv) will not violate any law or regulation, or any order or decree of any court or governmental instrumentality; (v) will not conflict with or result in the breach or termination of, constitute a default under or accelerate any performance required by, any material indenture, mortgage, deed of trust, lease, agreement or other instrument to which Borrower or any Guarantor is a party or by which Borrower or any Guarantor or any of Borrower's or any Guarantor's property is bound; (vi) will not result in the creation or imposition of any lien upon any of the property of Borrower or any Guarantor; and (vii) do not require the consent or approval of any governmental authority or any other Person, except for consents or approvals which have been duly obtained, made, or complied with. This Agreement constitutes a legal, valid, and binding obligation of Borrower enforceable against it in accordance with its terms except for general principles of equity and the effect of bankruptcy, insolvency, and other laws affecting the rights of creditors generally.
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(c) Financial Statements and Condition; Disclosure. The current audited and unaudited financial statements previously delivered by Borrower to Lender, and all financial statements to be delivered by Borrower to Lender pursuant to Section 11(g) fairly present in all material respects the financial position of Borrower as of the dates specified in such financial statements, (i) have been prepared in accordance with GAAP, consistently applied throughout the periods involved except as set forth in the notes thereto (subject, in the case of any interim financial statements, to normal year-end adjustments), and (ii) do not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading in light of the circumstances under which they were made. There has been no material adverse change in the financial condition, operations, business, properties or prospects of Borrower since the date of such financial statements except changes that individually or in the aggregate could not reasonably be expected to have a Material Adverse Effect. There is no fact or circumstance known to Borrower that could reasonably be expected to have a Material Adverse Effect. Borrower is solvent and will continue to be solvent after giving effect to the transactions contemplated by this Agreement. There is no action, claim or proceeding now pending or, to Borrower's knowledge, threatened against Borrower before any court, board, commission, agency, or instrumentality of any federal, state, or local government or of any agency or subdivision thereof, or before any arbitrator or panel of arbitrators, which, if determined adversely, could have a Material Adverse Effect.
(d) Taxes. Borrower and each Guarantor have filed all tax returns that are required to have been filed in any jurisdiction and have paid all taxes shown to be due and payable on such returns and all other taxes and assessments levied upon it or its properties, assets, income or franchises, to the extent such taxes and assessments have become due and payable and before they have become delinquent, except for any taxes and assessments (i) the amount of which is not individually or in the aggregate material or (ii) the amount, applicability or validity of which is currently being contested in good faith by appropriate proceedings and with respect to which Borrower or such Guarantor has established adequate reserves in accordance with GAAP. Borrower knows of no basis for any other tax or assessment that could reasonably be expected to have a Material Adverse Effect.
(e) Licenses; Permits; Intellectual Property Rights. Borrower and each Guarantor own or possess all licenses, permits, franchises, authorizations, patents, copyrights, service marks, trademarks and trade names, or rights thereto, that individually or in the aggregate are necessary to the conduct of Borrower's or such Guarantor's business, without known conflict with the rights of others. To the best knowledge of Borrower, no product of Borrower or any Guarantor infringes in any material respect any license, permit, franchise, authorization, patent, copyright, service mark, trademark and trade name or other right owned by any other Person. To the best knowledge of Borrower, there is no material violation by any Person of any right of Borrower or Guarantor with respect to any patent, copyright, service mark, trademark and trade name or other right owned by Borrower or any Guarantor.
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(f) Labor Matters. There are no strikes or other labor disputes against Borrower or any Guarantor that are pending or, to Borrower's knowledge, threatened which would have a Material Adverse Effect. All payments due from Borrower or any Guarantor on account of employee health and welfare insurance which would have a Material Adverse Effect if not paid have been paid or accrued as a liability on the books of Borrower or such Guarantor.
(g) Investment Company Act. Neither Borrower nor any Guarantor is an "investment company" or an "affiliated Person" of, or "promoter" or "principal underwriter" for, an "investment company," as such terms are defined in the Investment Company Act of 1940, as amended.
(h) Margin Regulations. Neither Borrower nor any Guarantor owns any "margin security", as that term is defined in Regulations G and U of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board").
(i) ERISA. Each "Plan" (as defined below) is in compliance in all material respects with the applicable provisions of ERISA and the Internal Revenue Code ("IRC") and with respect to each Plan, other than a Qualified Plan, all required contributions and benefits have been paid in accordance with the provisions of each such Plan to the extent that the failure to pay any such contribution or benefit would have a Material Adverse Effect. There are no pending or, to Borrower's knowledge, threatened claims, actions or lawsuits (other than claims for benefits in the normal course), asserted or instituted against Borrower or any Guarantor or any Plan or its assets. Neither Borrower, any Guarantor, nor any ERISA Affiliate of either has incurred or reasonably expects to incur any Withdrawal Liability under Section 4201 of ERISA as a result of a complete or partial withdrawal from a Multiemployer Plan. Neither Borrower nor any Guarantor has engaged in a prohibited transaction, as defined in Section 4975 of the IRC or Section 406 of ERISA, in connection with any Plan, which would subject Borrower or such Guarantor (after giving effect to any exemption) to a material tax on prohibited transactions imposed by Section 4975 of the IRC or any other material liability. As used above, the term "Plan" shall mean, with respect to Borrower or any Guarantor or any ERISA Affiliate of either, at any time, an employee benefit plan, as defined in Section 3(3) of ERISA, which Borrower maintains, contributes to or has an obligation to contribute to on behalf of participants who are or were employed by any of them. The terms "Qualified Plan" and "Multiemployer Plan" shall have the meaning given them in ERISA.
(j) Brokers. No broker or finder acting on behalf of Borrower or any Guarantor brought about the obtaining, making, or closing of the Loan and neither Borrower nor any Guarantor nor Lender have any obligation to any Person in respect of any finder's or brokerage fees in connection with the Loan.
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(k) Environmental Matters. Except as set forth in the Disclosure Schedule, and except for matters that do not relate to any of the Collateral and do not, individually or in the aggregate, constitute a Material Adverse Effect, as of the date of this Agreement: (i) all of Borrower's real property is free of contamination from any Hazardous Material except for such contamination that would not adversely impact the value or marketability of such real property and that would not result in Environmental Liabilities that could reasonably be expected to exceed $100,000; (ii) Borrower has not caused or suffered to occur any release of Hazardous Materials on, at, in, under, above, to, from or about any of its real property; (iii) Borrower is and has been in compliance with all Environmental Laws, except for such noncompliance which would not result in Environmental Liabilities which could reasonably be expected to exceed $100,000; (iv) Borrower has obtained, and is in compliance with, all environmental permits required by Environmental Laws for the operations of its respective businesses as presently conducted or as proposed to be conducted, except where the failure to so obtain or comply with such environmental permits would not result in Environmental Liabilities that could reasonably be expected to exceed $100,000, and all such Environmental Permits are valid, uncontested and in good standing; (v) Borrower is not involved in operations and does not know of any facts, circumstances or conditions, including any releases of Hazardous Materials, that are likely to result in any Environmental Liabilities of Borrower that could reasonably be expected to exceed $100,000, and Borrower has not permitted any current or former tenant or occupant of any of its real property to engage in any such operations; (vi) there is no litigation arising under or related to any Environmental Laws, environmental permits or Hazardous Material that seeks damages, penalties, fines, costs or expenses in excess of $50,000 or injunctive relief against, or that alleges criminal misconduct by, Borrower; (vii) no notice has been received by Borrower identifying it as a "potentially responsible party" or requesting information under CERCLA or analogous state statutes, and to the knowledge of Borrower, there are no facts, circumstances or conditions that may result in Borrower being identified as a "potentially responsible party" under CERCLA or analogous state statutes; and (viii) Borrower has provided to Lender copies of all existing, material environmental reports, reviews and audits and all written information pertaining to actual or potential Environmental Liabilities, in each case relating to Borrower.
(l) Subsidiaries, Partnerships, and Joint Ventures. Except as set forth in the Disclosure Schedule, Borrower (i) owns no Subsidiaries, (ii) is not a partner in any partnership, or (iii) is not engaged in any joint venture.
(m) Title Matters. There are no Liens encumbering the Collateral other than those that have been disclosed to Lender before the Closing Date.
11. Affirmative Covenants. Unless otherwise agreed to in writing by Lender, while this Agreement is in effect whether or not any indebtedness is outstanding hereunder, Borrower agrees to, and, except with respect to the covenant contained in Section 11(a), to cause each Guarantor to:
(a) Eligibility. Maintain its status as an entity eligible to borrow from Lender.
(b) Corporate Existence. Preserve and keep in full force its corporate status, existence and good standing in the jurisdiction of its organization, its qualifications to transact business in all places required by law, and all licenses, certificates, permits, authorizations, approvals and the like which are material to the conduct of its business or required by law.
(c) Compliance with Laws. Comply in all material respects with all applicable federal, state, and local laws, rules, regulations, ordinances, codes, and orders (collectively "Laws"). Without limiting the foregoing, Borrower agrees to comply in all material respects, and to cause all Guarantors and all Persons occupying or present on any properties of Borrower or any Guarantor to so comply, with all Laws relating to environmental protection.
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(d) Property Maintenance. Maintain all of its property that is necessary to or useful in the proper conduct of its business in good working condition, ordinary wear and tear excepted.
(e) Books and Records. Keep adequate records and books of account in which complete entries will be made in accordance with past practices.
(f) Inspection. Permit Lender or its agents, during normal business hours or at such other times as the parties may agree, to examine Borrower's or any Guarantor's properties, books, and records, and to discuss Borrower's or any Guarantor's affairs, finances, and accounts with its respective officers, directors, employees, and independent certified public accountants.
(g) Reports and Notices. Furnish to Lender:
(1) Annual Financial Statements. As soon as possible, but in no event later than ninety (90) days after the end of any Fiscal Year of Borrower occurring during the term hereof, annual financial statements of Borrower prepared in accordance with GAAP consistently applied. Such financial statements shall: (i) be audited by independent certified public accountants selected by Borrower and acceptable to Lender; (ii) be accompanied by a report of such accountants containing an opinion acceptable to Lender; (iii) be accompanied by a compliance certificate from Borrower's chief financial officer, in the form attached hereto as Exhibit A, certifying that as of the date of such financial statement there did not exist a Default or Event of Default under this Agreement; (iv) be prepared in reasonable detail and in comparative form; and (v) include a balance sheet, a statement of income, a statement of retained earnings, a statement of all cash flows and all notes and schedules relating thereto;
(2) Quarterly Financial Statements, Projected Financial Statements and Operating and Capital Plan Updates. No later than sixty (60) days after the end of each Fiscal Quarter: (i) internally prepared quarterly financial statements containing the same information regularly generated by Borrower on its internal quarterly financial statements and its quarterly filings with the Securities and Exchange Commission on Form 10-Q, accompanied by a compliance certificate from Borrower's chief financial officer, in the form attached hereto as Exhibit A, certifying that as of the date of such financial statement there did not exist a Default or Event of Default under this Agreement; (ii) projections of the financial statements of the Borrower for the next six Fiscal Quarters, including a projected income statement, balance sheet and cash flow statement of Borrower for the six Fiscal Quarter period immediately following such Fiscal Quarter, which projection shall state the assumptions used in the preparation thereof, include a description and discussion of the variance of the performance projected in such projected financial statements from the performance during the Fiscal Quarter then ended, and include a commentary with respect to the performance of the segments described in such projected financial statements, accompanied by a certificate from Borrower's chief financial officer certifying that such financial projections represent Borrower's best estimates and assumptions as to performance during such period, which Borrower believes to be fair and reasonable as of the time made in the light of then current and reasonably foreseeable business conditions; (iii) an update of Borrower's operating and capital plan for the Fiscal Quarter then ended, which shall include a segment overview, a review of objectives and work streams, progress updates, a review of actions to date, a responsibility matrix, and an outsourced, leased or sold update; (iv) a reconciliation, on a rolling four quarter basis ending with the most recent Fiscal Quarter then ended, of the actual Consolidated Adjusted EBITDA projected for each Fiscal Quarter during such period to the actual Consolidated Adjusted EBITDA contained in the quarterly financial statements provided by Borrower pursuant to this Section; and (v) a leasing/occupancy status report, together with a current rent roll, for any real property owned by Borrower that is used for retail or commercial purposes;
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(3) Annual Capital Expenditures Budget. No later than November 30 of each year, Borrower's capital expenditures budget for the forthcoming Fiscal Year;
(4) Annual Budget and Three Year Plan. No later than thirty (30) days prior to the beginning of each Fiscal Year, Borrower's annual budget for the forthcoming Fiscal Year and rolling three-year plan for the forthcoming three-year period;
(5) Modifications to Six Quarter Rolling Budget. No later than sixty (60) days after the end of each Fiscal Quarter, any modification or group of related modifications to Borrower's capital expenditures budget, its annual budget, or its rolling six quarter budget; if such modification or group of related modifications increases or decreases—the expenditures or revenues described therein by One Million Dollars ($1,000,000) or more;
(6) Notice of Default. Promptly after becoming aware thereof, notice of the occurrence of a Default or Event of Default;
(7) Tax Returns. Within thirty (30) days after filing of such tax returns, a copy of such portions of every federal income tax return filed by Borrower as are necessary to enable Lender to verify Borrower's calculations and, if requested by Lender, a signed copy of the entire tax return;
(8) Notice of Non-Environmental Litigation. Promptly after the commencement thereof, notice of the commencement of all actions, suits, or proceedings before any court, arbitrator, or governmental department, commission, board, bureau, agency, or instrumentality affecting Borrower or any Guarantor which, if determined adversely to Borrower or such Guarantor, could have a Material Adverse Effect;
(9) Notice of Environmental Litigation, Etc. Promptly after receipt thereof, notice of the receipt of all pleadings, orders, complaints, indictments, or any other communication alleging a condition that may require Borrower or Guarantor to undertake or to contribute to a cleanup or other response under environmental laws, or which seeks penalties, damages, injunctive relief, or criminal sanctions related to alleged violations of such Laws, or which claims personal injury or property damage to any Person as a result of environmental factors or conditions, in each case to the extent such communication relates to any of the Collateral or to matters that could reasonably be deemed to constitute a Material Adverse Effect;
(10) Consolidated Cash Flow Forecast. No later than twenty (20) days following the end of each month, a consolidated forecast of the cash flows of Borrower for the upcoming twenty-four month period, which forecast shall state the assumptions used in the preparation thereof and be accompanied by a certificate from Borrower's chief financial officer certifying that such forecast represents Borrower's best estimate and assumption as to performance during such period, which Borrower believes to be fair and reasonable as of the time made in the light of then current and reasonably foreseeable business conditions;
(11) Quarterly Conference Calls. Promptly upon delivery of the financial information described in Section 11(g)(2) above, Borrower's chief financial officer or his/her designee shall make himself/herself available, at a time acceptable to Lender, for a conference call to discuss such information; and
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(12) Other Information. Such other information regarding the condition or operations, financial or otherwise, of Borrower or any Guarantor as Lender may, from time to time, reasonably request. All information provided by Borrower to Lender pursuant to this Section shall be in form and substance satisfactory to Lender in all respects.
(h) Insurance. At Borrower's sole cost and expense, maintain, with financially sound and reputable insurers, insurance providing for the following types of coverages in at least the following amounts: (i) "All Risk" physical damage insurance on all of Borrower's tangible real and personal property and assets, including volcanic activity (but not eruption) coverage; (ii) comprehensive general liability insurance on an "occurrence basis" against claims for personal injury, bodily injury and property damage with a minimum limit of One Million Dollars ($1,000,000) per occurrence and Two Million Dollars ($2,000,000) in the aggregate, which coverage shall include premises/operations, broad form contractual liability, underground, explosion and collapse hazard, independent contractors, broad form property coverage, products and completed operations liability; (iii) with respect to worker's compensation insurance, either self-insurance through reserves in excess of the minimum required amounts, or commercial insurance within the applicable statutory limits, in either case which includes coverage for employee's occupational disease and employer's liability within such legal amounts or limits; (iv) automobile liability insurance for all owned, non-owned or hired automobiles against claims for personal injury, bodily injury, and property damage with a minimum combined single limit of One Million Dollars ($1,000,000) per occurrence; and (v) umbrella insurance of Fifty Million Dollars ($50,000,000) per occurrence and Fifty Million Dollars ($50,000,000) in the aggregate.
All of such policies shall at all times remain in full force and effect and in form and with insurers recognized as adequate by Lender, and provide coverage of such risks and for such amounts as are customarily maintained for businesses of the scope and size of Borrower's and Guarantor's and as otherwise acceptable to Lender. Lender reserves the right at any time, upon a review of Borrower's and Guarantors' risk profile, to require additional forms and limits of insurance. Borrower shall, if requested by Lender, provide Lender with a report of Borrower's insurance broker concerning Borrower's and Guarantors' insurance policies.
(i) Kahului Parcel. If Borrower shall sell or otherwise dispose of all or any portion of the Kahului Parcel, Borrower shall cause the net proceeds (after payment of Transaction Costs) of such sales to be disbursed as follows: (i) fifty percent (50%) of such proceeds (the "Legacy Portion") shall be disbursed to the Legacy Escrow; provided that after sufficient funds have been deposited into the Legacy Escrow to pay all Legacy Costs in full, the balance of the Legacy Portion shall be disbursed to Wells Fargo as a permanent paydown of the Wells Fargo Facility if required by the terms of the Wells Fargo Facility and, if not so required, disbursed to Lender as a mandatory principal prepayment of the Loan, and (ii) 50% (the "Working Capital Portion") shall be available to Borrower for working capital purposes; provided that a portion of the Working Capital Portion shall be remitted to Lender as a mandatory principal prepayment as set forth in Section 6(b). Borrower shall use funds in the Legacy Escrow to pay Legacy Costs on a reasonably prompt basis. If any funds remain in the Legacy Escrow after payment of all Legacy Costs, such funds shall be disbursed as set forth in clause (i) of this Section 11(i). Borrower shall take whatever reasonable steps shall be requested by Lender and/or Wells Fargo with respect to the Legacy Escrow to ensure that the funds in such account are used solely for payment of Legacy Costs.
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(j) Compliance Certificate. On or before the closing of sale of any real property of Borrower, Borrower shall deliver to Lender, and obtain Lender's approval of, a compliance certificate that includes (i) a pro forma closing statement with respect to the proceeds of such sale, and (ii) a reconciliation of how such proceeds are being applied by Borrower, which reconciliation shall demonstrate that such application is in compliance with the terms of this Agreement (including, Section 6(a), Section 6(b), and Section 11(i)).
(k) Title Insurance Policy. Deliver to Lender, no later than January 15, 2011 a title insurance policy (or, at the option of Lender, and endorsement to Lender's current title insurance policy) showing the Mortgage as being valid and enforceable and, in first priority on the Collateral, subject to no title exceptions other than those already shown in Lender's current title insurance policy.
12. Negative Covenants. Unless otherwise agreed to in writing by Lender, while this Agreement is in effect, Borrower will not, and will not permit any Guarantor to:
(a) Mergers, Acquisitions, Etc.
(1) Merge or consolidate with any other entity, or commence operations under any other name.
(2) Without the prior, written consent of Lender, (i) acquire all or substantially all of the assets of any Person or entity, (ii) form or create any new Subsidiary or Affiliate, or (iii) enter into any business venture, including any joint venture, partnership, or limited liability company other than in the ordinary course of business, as conducted on the Closing Date; provided, that Lender's consent to any of the foregoing shall not be unreasonably withheld.
(b) Transfer of Assets. Sell, transfer, lease or otherwise dispose of any of its assets, or cause or permit any Subsidiary to sell, transfer, lease or otherwise dispose of any of its assets, except: (i) inventory in the ordinary course of Borrower's or any Subsidiary's business; (ii) obsolete or worn out property, whether now owned or hereafter acquired, in the ordinary course of Borrower's or any Subsidiary's business; (iii) all or a portion of the assets of MPC; (iv) all or a portion of the Equity Interest held by Borrower in MPC; and (v) as approved by Lender in writing prior to the sale, transfer, lease or other disposition of such assets.
(c) Change in Business. Engage in any business activities or operations substantially different from or unrelated to Borrower's or such Guarantor's present business activities or operations.
(d) Liens. Create or permit any Lien on any assets of Borrower, except for Permitted Encumbrances.
(e) Capital Expenditures. Make Capital Expenditures in excess of One Million Dollars ($1,000,000) in any given Fiscal Year.
(f) Investments. Make any investment in or loan to any person, other than: (i) cash and Cash Equivalents; (ii) loans to wholly-owned Subsidiaries; (iii) loans to employees, so long as any such loan in excess of Two Hundred Fifty Thousand Dollars ($250,000) is disclosed to and approved by Lender; (iv) loans to Affiliates, subject to the limitations set forth in Section 12(h); (v) existing investments set forth in the Disclosure Schedule; (vi) Investments to acquire the assets of any Person, form or create any Subsidiary or Affiliate, or enter into any business venture, in each case that is related to Borrower's core businesses as of the date of this Agreement, and (vii) purchase money mortgages for the sale of real estate in the ordinary course of business.
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(g) Restricted Payments. Borrower shall not, and shall not permit any of its Subsidiaries to, declare or make, directly or indirectly, any Restricted Payment or incur any obligation (contingent or otherwise) to do so.
(h) Transactions with Affiliates. Enter into any transaction or arrangement with any Affiliate, or permit any Subsidiary to enter into any transaction or arrangement with any Affiliate of it (including the purchase from, sale to, or exchange of. property with, or the rendering of any service by or for any Affiliate), that is not entered into in the ordinary course of business and upon fair and reasonable terms that are no less favorable to Borrower or such Subsidiary than would be obtained in a comparable arms-length transaction with a Person not an Affiliate, other than (i) any transaction between Borrower and any Guarantor, or (ii) any transaction between Borrower and any Subsidiary entered into in the ordinary course of Borrower's business for interest-free loans to Borrower as part of Borrower's customary cash- management practices.
(i) Indebtedness. Incur any Indebtedness other than the Loan, except for Indebtedness disclosed on the consolidated balance sheet of Borrower and its Subsidiaries dated as of September 30, 2009, provided, however, that (i) Borrower may incur Indebtedness under the Wells Fargo Facility not to exceed Thirty Five Million Dollars ($35,000,000) at any time outstanding; and (ii) Borrower may incur up to $250,000 in total Indebtedness outstanding at any time in connection with the acquisition or lease of equipment used in the ordinary course of its business.
(j) Total Liabilities. Permit its Total Liabilities to exceed $175,000,000 at any time, as calculated at the end of each Fiscal Quarter.
(k) Liquidity. Permit its Liquidity, as of the end of any calendar quarter, to be less than $4,000,000. As used herein, "Liquidity" shall mean the sum of (i) cash, (ii) Cash Equivalents, (iii) publicly traded and publicly quoted marketable securities acceptable to Lender in its reasonable discretion, (iv) undisbursed commitment under secured lines of credit available to Borrower, and (v) the amount, if any, not to exceed $2,000,000, by which accounts receivable of Borrower exceed accounts payable of Borrower, net, in connection with any of the foregoing, of any encumbrance, setoff or claim and minus any unsecured Indebtedness of Borrower.
(l) No Amendment of Wells Fargo Loan Documents. Without Lender's prior written consent, Borrower shall not enter into any agreement that modifies or amends the Wells Fargo Loan Documents or modifies any terms applicable to the Wells Fargo Facility.
13. Events of Default. Each of the following shall constitute an "Event of Default" hereunder:
(a) Payment Default. Failure by Borrower to make any payment of principal or interest required to be made under this Agreement within three (3) days of the date when due, or failure to pay any other amount owed to Lender hereunder on the date when due.
(b) Representations and Warranties. Any representation or warranty made by Borrower herein or in any agreement, certificate, or document related hereto or furnished in connection herewith, or by any Guarantor in any Guaranty Agreement or in any agreement, certificate, or document related to such Guaranty Agreement, shall prove to have been false or misleading in any material respect on or as of the date made,
(c) Other Covenants and Agreements. Borrower fails to perform or comply with any covenant or agreement contained in this Agreement (other than those referred to in Section 13(a)) or any Guarantor fails to perform or comply with any covenant or agreement contained in any Guaranty Agreement; provided, that if such failure is by its nature capable of being cured, then such failure shall not become an Event of Default unless such failure remains uncured for fifteen (15) days.
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(d) Other Indebtedness. Borrower or any Guarantor shall fail to pay when due any Indebtedness or any other event occurs which, under any agreement or instrument relating to such Indebtedness, has the effect of accelerating or permitting the acceleration of such Indebtedness, whether or not such Indebtedness is actually accelerated.
(e) Judgments. A judgment, decree, or order for the payment of money in excess of One Million Dollars ($1,000,000) shall be rendered against Borrower or any Guarantor, the amount of which judgment, decree, or order is not subject to undisputed insurance coverage, and either: (i) enforcement proceedings shall have been commenced; or (ii) such judgment, decree, or order shall continue unsatisfied and in effect for a period of twenty (20) consecutive days without being vacated, discharged, satisfied, or stayed pending appeal.
(f) Insolvency, Etc. Borrower or any Guarantor: (i) shall become insolvent or shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they come due; or (ii) shall suspend its business operations or a material part thereof or make an assignment for the benefit of creditors; or (iii) shall apply for, consent to, or acquiesce in the appointment of a trustee, receiver, or custodian for it or any of its property; or (iv) shall commence or have commenced against it any proceeding under any bankruptcy, reorganization, arrangement, readjustment of debt, dissolution, or liquidation law or statute of any jurisdiction, provided, however, that, notwithstanding anything in this Section 13(f) to the contrary, Borrower may liquidate, wind-up, dissolve or cease the operations of MPC.
(g) Material Adverse Change. Any material adverse change occurs, as reasonably determined by Lender, in Borrower's ability to perform its obligations under this Agreement.
(h) Cross-Default to Wells Fargo Facility. An "event of default" (as defined in the Wells Fargo Loan Documents") shall occur under the Wells Fargo Facility and shall remain uncured or unwaived for a period of five days.
14. Remedies Upon Events of Default. Upon the occurrence of and during the continuance of each and every Event of Default:
(a) Termination of Rights; Acceleration. Lender may, without notice to Borrower, declare the entire unpaid principal balance under this Agreement, all accrued interest thereon and all other amounts payable under this Agreement, to be immediately due and payable. Upon such a declaration, the unpaid principal balance under this Agreement and all such other amounts shall become immediately due and payable, without protest, presentment, demand, or further notice of any kind, all of which are hereby expressly waived by Borrower.
(b) Enforcement. Lender may proceed to protect, exercise, and enforce such rights and remedies against Borrower and against the Collateral as may be provided by this Agreement, by any Guaranty Agreement, by any Loan Document, or under law, each and every one of such rights and remedies shall be cumulative and may be exercised from time to time, and no failure on the part of Lender to exercise, and no delay in exercising, any right or remedy shall operate as a waiver thereof, or the exercise of any other right. Without limiting the foregoing, Lender may, as provided in the Farm Credit Act of 1971, as amended, retire and cancel all or any portion of Borrower's stock or other equities in Lender and apply the proceeds thereof against Borrower's indebtedness to Lender. In addition, Lender may hold, set off, sell, and/or apply against Borrower's indebtedness any and all cash, accounts, securities, instruments, documents, or other property in Lender's possession or under its control. If, at the conclusion of any foreclosure or collection of any Collateral, the proceeds of such foreclosure or collection are insufficient to pay and discharge the Obligations in full, then Borrower shall remain liable for the full amount of the remaining Obligations, and Lender shall have all legal rights, remedies, and recourse against Borrower and any remaining Collateral for such remaining Obligations.
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(c) Application of Funds. All amounts received by Lender shall be applied to amounts owing under this Agreement in such order and manner as Lender may in its sole discretion elect.
15. Indemnity. Borrower shall indemnify and hold harmless each of Lender and its Affiliates, and each such Person's respective officers, directors, employees, attorneys, agents and representatives (each, an "Indemnified Person"), from and against any and all suits, actions, proceedings, claims, damages, losses, liabilities and expenses (including reasonable attorneys' fees and disbursements and other costs of investigation or defense, including those incurred upon any appeal) that may be instituted or asserted against or incurred by any such Indemnified Person as the result of credit having been extended, suspended or terminated under this Agreement and the other Loan Documents and the administration of such credit, and in connection with or arising out of the transactions contemplated hereunder and thereunder and any actions or failures to act in connection therewith, including any and all Environmental Liabilities and legal costs and expenses arising out of or incurred in connection with disputes between or among any parties to any of the Loan Documents (collectively, "Indemnified Liabilities"); provided, that Borrower shall not be liable for any indemnification to an Indemnified Person to the extent that any such suit, action, proceeding, claim, damage, loss, liability or expense results solely from that Indemnified Person's gross negligence or willful misconduct, as finally determined by a court of competent jurisdiction.
16. Complete Agreement; Amendments. This Agreement and all documents and instruments contemplated hereby are intended by the parties to be a complete and final expression of their agreement. No amendment, modification, or waiver of any provision hereof or thereof, nor any consent to any departure of Borrower herefrom or therefrom, shall be effective unless approved by Lender and contained in a writing signed by or on behalf of Lender and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. This Agreement amends and restates, in its entirety, the Previous Loan Agreement.
17. Counterparts; Effectiveness. This Agreement may be executed in any number of separate counterparts, each or which shall collectively and separately constitute one agreement. This Agreement shall become effective upon execution by each party and delivery to the other parties of either an executed original of the signature pages hereof or of a facsimile or other electronic transmission of such executed original of the signature pages hereof.
18. Applicable Law. Except to the extent governed by applicable federal law, this Agreement shall be governed and construed in accordance with the laws of the State of California, without reference to choice of law doctrine.
19. MUTUAL WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, OR TO RESOLVE ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP BETWEEN THE PARTIES.
24
20. Notices. All notices hereunder shall be in writing and shall be deemed to be duly given upon delivery, if personally delivered, delivered by messenger service, or sent by telegram or facsimile transmission, or three (3) days after mailing if sent by express, certified or registered mail, to the parties at the following addresses (or such other address for a party as shall be specified by like notice):
If to Lender as follows:
American
AgCredit, FLCA
5560 South Broadway
Eureka, CA 95503
Attn: Account Officer—Maui Land & Pineapple
Fax No.: (707) 442-1268
and to
American
AgCredit, FLCA
200 Concourse Blvd.
Santa Rosa, CA 95403
P.O. Box 1330
Santa Rosa, CA 95402
Attn: Account Officer—Maui Land & Pineapple
Fax No.: (707) 545-7200
If to Borrower, as follows:
Maui
Land & Pineapple Company, Inc.
PO Box 187
Kahului, Hawaii 96733-6687
Attn: Chief Financial Officer
Fax No.: (808) 442-1114
21. Costs and Expenses. Borrower shall pay all costs incurred by Lender, including reasonable attorneys fees, in connection with the preparation for, negotiation of, and documentation of this Agreement, the Loan Documents, and any Guaranty Agreement. If in the future Lender shall employ the services of legal counsel or any other professional or any third party in connection with (i) any request made by Borrower to Lender for a modification, amendment, waiver, or consent in connection with this Agreement, any Other Document, or any Guaranty Agreement, (ii) rendering advice or other services to Lender regarding Lender's rights or obligations under this Agreement or any Other Document or any Guaranty Agreement, whether or not an Event of Default has occurred or a request has been made by Borrower, (iii) representing the interests of Lender in any judicial or nonjudicial action, suit or proceeding instituted by Lender or any other Person connected with or related to or with reference to the Loan or to reclaim, seek relief from a judicial or statutory stay, sequester, protect, preserve or enforce Lender's interests, then in such event Borrower promises to pay reasonable attorney's fees and reasonable costs and expenses incurred by Lender and/or its attorney in connection with the above-mentioned events. Such amounts shall be payable upon demand.
22. Effectiveness; Severability. This Agreement shall continue in effect until all indebtedness and obligations of Borrower hereunder shall have been repaid and all commitments of Lender hereunder have terminated. Any provision of this Agreement or of any instrument or document contemplated hereby which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or thereof.
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23. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of Borrower and Lender and their respective successors and assigns except that Borrower may not assign or transfer its rights or obligations hereunder without the prior written consent of Lender. Lender may assign all or any portion of its obligations under this Agreement without prior notice to Borrower and such assignment shall relieve Lender of any future obligations hereunder. If Lender shall assign a portion of its obligations, Borrower shall enter into such amendments to the Loan Documents as Lenders shall request, such as providing new or replacement promissory notes and a revision to this Agreement to reflect and agent/lender structure. Lender may grant or sell participation interests in its interests under this Agreement without notice to Borrower.
24. Communications with Wells Fargo Bank. Borrower authorizes Lender and Wells Fargo Bank (or any successor agent or lender under the Wells Fargo Credit Facility) to communicate with each other concerning Borrower's financial affairs and to disclose to the other party any information concerning Borrower and its Subsidiaries.
25. Continuing Validity of Existing Agreements. Except as expressly modified or superseded by this Agreement or a Loan Document entered into in connection with this Agreement, the terms of any Loan Document in effect under the Previous Agreement shall remain unchanged and in full force and effect.
26. Release. Borrower hereby releases, remises, acquits and forever discharges Lender and its employees, agents, representatives, consultants, attorneys, fiduciaries, officers, directors, partners, predecessors, successors and assigns, subsidiary corporations, parent corporations, and related corporate divisions (collectively, the "Released Parties"), from any and all actions and causes of action, judgments, executions, suits, debts, claims, demands, liabilities, obligations, damages and expenses of any and every character, known or unknown, direct and/or indirect, at law or in equity, of whatsoever kind or nature, for or because of any matter or things done, omitted or suffered to be done by any of the Released Parties prior to and including the date of delivery hereof, and in any way directly or indirectly arising out of or in any way connected to this Agreement or the transactions contemplated in this Agreement (collectively, the "Released Matters"). Borrower acknowledges that the agreements in this Section are intended to be in full satisfaction of all or any alleged injuries or damages arising in connection with the Released Matters.
Without limiting the generality of the foregoing, Borrower hereby waives the provisions of any statute that prevents a general release from extending to claims unknown by the releasing party, including Section 1542 of the California Civil Code which provides:
A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.
By entering into this release, Borrower recognizes that no facts or representations are ever absolutely certain and Borrower may hereafter discover facts in addition to or different from those which Borrower presently knows or believes to be true, but that it is the intention of Borrower to hereby fully, finally and forever settle and release all matters, disputes and differences, known or unknown, suspected or unsuspected; accordingly, if Borrower should subsequently discover that any fact that Borrower relied upon in delivering this release was untrue, or that any understanding of the facts was incorrect, Borrower shall not be entitled to set aside this release by reason thereof, regardless of any claim of mistake of fact or law or any other circumstances whatsoever. Borrower acknowledges that Borrower is not relying upon and has not relied upon any representation or statement made by Lender with respect to the facts underlying this release or with regard to Borrower's rights or asserted rights.
This release may be pleaded as a full and complete defense and/ or as a cross-complaint or counterclaim against any action, suit, or other proceeding that may be instituted, prosecuted or attempted in breach of this release. Borrower acknowledges that the release contained herein constitutes a material inducement to Lender to enter into this Amendment and that Lender would not have done so but for Lender's expectation that such release is valid and enforceable in all events.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized officers as of the date shown above.
| BORROWER: | ||||
MAUI LAND & PINEAPPLE COMPANY, INC., a Hawaii corporation |
||||
By: |
/s/ TIM T. ESAKI |
|||
| Name: | Tim T. Esaki | |||
| Title: | Chief Financial Officer | |||
By: |
/s/ ADELE H. SUMIDA |
|||
| Name: | Adele H. Sumida | |||
| Title: | Controller & Secretary | |||
LENDER: |
||||
AMERICAN AGCREDIT, FLCA |
||||
By: |
/s/ GARY VAN SCHUYVER |
|||
| Name: | Gary Van Schuyver | |||
| Title: | Vice President | |||
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GUARANTORS:
The undersigned Guarantors hereby consent to, ratify and approve the terms, covenants, conditions and provisions of the foregoing Agreement and agree that the guaranties executed by them include the obligations of the Borrower under the Agreement and, if requested by Lender, to enter into new guaranties.
| KAPALUA LAND COMPANY, LTD., a Hawaii corporation | ||||
By: |
/s/ TIM T. ESAKI |
|||
| Name: | Tim T. Esaki | |||
| Title: | Vice President | |||
By: |
/s/ ADELE H. SUMIDA |
|||
| Name: | Adele H. Sumida | |||
| Title: | Controller & Secretary | |||
MAUI PINEAPPLE COMPANY, LTD., a Hawaii corporation |
||||
By: |
/s/ TIM T. ESAKI |
|||
| Name: | Tim T. Esaki | |||
| Title: | Vice President | |||
By: |
/s/ ADELE H. SUMIDA |
|||
| Name: | Adele H. Sumida | |||
| Title: | Controller & Secretary | |||
28
Maui Pineapple Company, Ltd.
Maui Ag Tech LLC
Royal Coast Tropical Fruit Company, Inc.
Costa Royal De Panama, S.A.
Costa Royal De Frutas, S.A.
Honolua Plantation Land Co., Ltd.
Kapalua Land Company, Ltd.
Kapalua Waste Treatment Co., Ltd.
Kapalua Water Co., Ltd.
Kapalua Advertising Co., Ltd.
Kapalua Realty Company, Ltd.
Pineapple Hill Estates, LLC
MLP KB Partner LLC
Kapalua Bay Holdings LLC
Kapalua Bay LLC
PGC Operations
W2005 Kapalua/Gengate Hotel Holdings, LLC
Kapalua Resort Activities Inc.
Kapalua General Store Inc.
Kapalua Plantation Golf LLC
MLP RCK LLC
WMV LLC
Central Resort LLC
Kapalua Farms LLC
Hawaii BioEnergy LLC
29
Maui
Land & Pineapple Company, Inc.—Subsidiaries
As of December 31, 2010
Name
|
State of Incorporation |
Percentage of Ownership |
|||
|---|---|---|---|---|---|
Maui Pineapple Company, Ltd. |
Hawaii | 100 | |||
Kapalua Land Company, Ltd. |
Hawaii | 100 | |||
Kapalua Realty Company, Ltd. |
Hawaii | 100 | |||
Kapalua Advertising Company, Ltd. |
Hawaii | 100 | |||
Kapalua Water Company, Ltd. |
Hawaii | 100 | |||
Kapalua Waste Treatment Company, Ltd. |
Hawaii | 100 | |||
Kapalua Bay Holdings, LLC |
Delaware | 51 | |||
Kapalua Bay, LLC |
Delaware | 100 | |||
1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statements Nos. 333-133898, 333-121705, 333-119808, and 333-112932 on Form S-8, and Amendment No. 1 to Registration Statement No. 333-150244 on Form S-3, of our report relating to the consolidated financial statements and financial statement schedule of Maui Land & Pineapple Company, Inc. and subsidiaries (which report expresses an unqualified opinion and includes an explanatory paragraph relating to a going concern uncertainty) dated March 14, 2011, appearing in the Annual Report on Form 10-K of Maui Land & Pineapple Company, Inc. and subsidiaries for the year ended December 31, 2010.
/s/ DELOITTE & TOUCHE LLP
Honolulu,
Hawaii
March 14, 2011
I, Warren H. Haruki, certify that:
Date: March 14, 2011 |
By: | /s/ WARREN H. HARUKI Warren H. Haruki Chairman of the Board & Interim Chief Executive Officer Maui Land & Pineapple Company, Inc. |
I, Tim T. Esaki, certify that:
| Date: March 14, 2011 | By: | /s/ TIM T. ESAKI Tim T. Esaki Chief Financial Officer Maui Land & Pineapple Company, Inc. |
In connection with the Annual Report of Maui Land & Pineapple Company, Inc. (the "Company") on Form 10-K for the fiscal year ended December 31, 2010, as filed with the Securities and Exchange Commission on March 14, 2011 (the "Report"), I, Chairman of the Board and Interim Chief Executive Officer of the Company, certify, pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 780(d)) and 18 U.S.C. Section 1350, that to the best of my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| By: | /s/ WARREN H. HARUKI Warren H. Haruki Chairman of the Board Interim Chief Executive Officer |
|||
March 14, 2011 |
This certification accompanies this Report pursuant to Rule 13a-14(b) or Rule 15d-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934.
In connection with the Annual Report of Maui Land & Pineapple Company, Inc. (the "Company") on Form 10-K for the fiscal year ended December 31, 2010, as filed with the Securities and Exchange Commission on March 14, 2011 (the "Report"), I, Tim T. Esaki, Chief Financial Officer of the Company, certify, pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 780(d)) and 18 U.S.C. Section 1350, that to the best of my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| By: | /s/ TIM T. ESAKI Tim T. Esaki Chief Financial Officer |
|||
March 14, 2011 |
This certification accompanies this Report pursuant to Rule 13a-14(b) or Rule 15d-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934.