-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, So2XsQaxSr2qjLJ/78FYiQhhb+9/QBsTIunE0udx12tVAIk/Pi98rDGipbaAy5AO 712mtM9xR3fktz2XJLH7zg== 0000839437-97-000004.txt : 19970401 0000839437-97-000004.hdr.sgml : 19970401 ACCESSION NUMBER: 0000839437-97-000004 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: CSX FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMFAC JMB HAWAII INC CENTRAL INDEX KEY: 0000839437 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE OPERATORS (NO DEVELOPERS) & LESSORS [6510] IRS NUMBER: 990217738 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 033-24180 FILM NUMBER: 97568386 BUSINESS ADDRESS: STREET 1: 900 N MICHIGAN AVE CITY: CHICAGO STATE: IL ZIP: 60611 BUSINESS PHONE: 3124404800 MAIL ADDRESS: STREET 1: 900 N MICHIGAN AVE CITY: CHICAGO STATE: IL ZIP: 60611 FORMER COMPANY: FORMER CONFORMED NAME: 900 AQH FINANCE INC DATE OF NAME CHANGE: 19881113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMFAC JMB FINANCE INC CENTRAL INDEX KEY: 0000842701 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE OPERATORS (NO DEVELOPERS) & LESSORS [6510] IRS NUMBER: 363611183 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 033-24180-01 FILM NUMBER: 97568387 BUSINESS ADDRESS: STREET 1: 900 N MICHIGAN AVE CITY: CHICAGO STATE: IL ZIP: 60611 BUSINESS PHONE: 3124404800 MAIL ADDRESS: STREET 1: 900 N MICHIGAN AVE CITY: CHICAGO STATE: IL ZIP: 60611 10-K405 1 U.S. Securities and Exchange Commission Operations Center, Stop 0-7 6432 General Green Way Alexandria, VA 22312 Re: Amfac/JMB Hawaii, Inc. Commission File No. 33-24180 Form 10-K Amfac/JMB Finance, Inc. Commission File No. 36-3611183 Form 10-K Gentlemen: Enclosed, for the above-captioned registrants, is one paper copy of which is manually executed of registrant's current report on Form 10-K for the year ended December 31, 1996. Please acknowledge receipt of the Form 10-K filing by signing and returning the enclosed self-addressed postcard. Thank You, Very truly yours, By: Northbrook Corporation Parent Company By: _______________________ Gary Smith Vice President and Principal Accounting Officer SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Act of 1934 For the fiscal year ended December 31, 1996 Commission File Number 33-24180 AMFAC/JMB HAWAII, INC. (Exact name of registrant as specified in its charter) Hawaii 99-0217738 (State of organization) (I.R.S. Employer Identification No.) AMFAC/JMB FINANCE, INC. (Exact name of registrant as specified in its charter) Illinois 36-3611183 (State of organization) (I.R.S. Employer Identification No.) 900 N. Michigan Ave., Chicago, Illinois 60611 (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code 312-440-4800 See Table of Additional Registrants Below. Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K X State the aggregate market value of the voting stock held by non-affiliates of the registrant. Not applicable. As of March 21, 1997, each of Amfac/JMB Hawaii, Inc. and Amfac/JMB Finance, Inc. had 1,000 shares of Common Stock outstanding. All such Common Stock is owned by its respective parent and not traded on a public market. Certain pages of the prospectus of the registrant dated December 5, 1988 and filed with the Commission pursuant to Rules 424(b) and 424(c) under the Securities Act of 1933 are incorporated by reference in Part III of this Annual Report on Form 10-K. ADDITIONAL REGISTRANTS (1) Address, including, zip code, Exact name of State or other IRS and telephone number, registrant as jurisdiction of Employer including area code of specified in its incorporation or Identification registrant's principal Charter organization Number executive offices Amfac Property Hawaii 99-0150751 900 North Michigan Avenue Development Corp. Chicago, Illinois 60611 312/440-4800 Amfac Property Hawaii 99-0202331 900 North Michigan Avenue Investment Chicago, Illinois 60611 Corp. 312/440-4800 Amfac Sugar and Hawaii 99-0185633 900 North Michigan Avenue Agribusiness, Chicago, Illinois 60611 Inc. 312/440-4800 Kaanapali Water Hawaii 99-0185634 900 North Michigan Avenue Corporation Chicago, Illinois 60611 312/440-4800 Amfac Agri- Hawaii 99-0176334 900 North Michigan Avenue business, Inc. Chicago, Illinois 60611 312/440-4800 Kekaha Sugar Hawaii 99-0044650 900 North Michigan Avenue Company, Chicago, Illinois 60611 Limited 312/440-4800 The Lihue Hawaii 99-0046535 900 North Michigan Avenue Plantation Chicago, Illinois 60611 Company, 312/440-4800 Limited Oahu Sugar Hawaii 99-0105277 900 North Michigan Avenue Company, Chicago, Illinois 60611 Limited 312/440-4800 Pioneer Mill Hawaii 99-0105278 900 North Michigan Avenue Company, Chicago, Illinois 60611 Limited 312/440-4800 Puna Sugar Hawaii 99-0051215 900 North Michigan Avenue Company, Chicago, Illinois 60611 Limited 312/440-4800 H. Hackfeld Hawaii 99-0037425 900 North Michigan Avenue & Co., Ltd. Chicago, Illinois 60611 312/440-4800 Waiahole Hawaii 99-0144307 900 North Michigan Avenue Irrigation Chicago, Illinois 60611 Company, 312/440-4800 Limited Waikele Golf Hawaii 99-0304744 900 North Michigan Avenue Club, Inc. Chicago, Illinois 60611 312/440-4800 1) The Additional Registrants listed are wholly-owned subsidiaries of the registrant and are guarantors of the registrant's Certificate of Land Appreciation Notes due 2008. TABLE OF CONTENTS Page PART I Item 1. Business 1 Item 2. Properties 7 Item 3. Legal Proceedings 12 Item 4. Submission of Matters to a Vote of Security Holders 12 PART II Item 5. Market for the Company's and Finance's Common Equity and Related Security Holder Matters 13 Item 6. Selected Financial Data 14 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 15 Item 8. Financial Statements and Supplementary Data 30 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 59 PART III Item 10. Directors and Executive Officers of the Registrant 59 Item 11. Executive Compensation 62 Item 12. Security Ownership of Certain Beneficial Owners and Management 63 Item 13. Certain Relationships and Related Transactions 63 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 65 SIGNATURES 71 PART I Item 1. Business All references to "Notes" are to Notes to the Consolidated Financial Statements contained in this report. Amfac/JMB Hawaii, Inc. (the "Company"), has assets substantially all of which are agricultural and developmental real property and related assets located in Hawaii. The Company is an affiliate of JMB Realty Corporation ("JMB") as a result of the 1988 merger (the "Merger") of an affiliate of JMB into Amfac, Inc. ("Amfac"), the former parent corporation of the Company (see Note 1 for discussion of Amfac, Inc. merger into its parent, Northbrook Corporation, in May 1995), and the subsequent merger of a subsidiary of such affiliate into Amfac Hawaii, Inc., which (after changing its name to Amfac/JMB Hawaii, Inc.) continues as the surviving corporation. Unless otherwise indicated, references herein to the Company shall include the Company's subsidiaries. The assets of the Company, held primarily through its wholly-owned subsidiaries, consist principally of approximately 46,700 acres of land, portions of which include acreage (i) in the process of development into residential, resort, commercial and industrial projects, (ii) currently being managed and operated as recreational facilities, and (iii) used in connection with the cultivation and processing of agricultural products, principally sugar cane and related sugar products. In addition, the Company leases approximately 55,300 acres of land used primarily in the production of sugar cane and for access to water sources. The real properties owned by the Company are located on the four principal islands of the State of Hawaii: Oahu, Maui, Kauai and Hawaii. The Company has no real property located outside of the State of Hawaii. The Company's real properties are described in more detail under Item 2 below. The real estate development and agricultural operations of the Company comprise its two primary industry segments, "Property" and "Agricultural", respectively. The Company segregates total revenues, operating income (loss), total assets, capital expenditures and depreciation and amortization by each industry segment. At December 31, 1996, the Company employed 967 persons. PROPERTY. The Company is attempting to maximize the value of its owned land through land use planning, management and development. Such planning, management and development take into account local zoning and economic and political constraints in order to obtain the necessary land use designations for development and realize appreciated values. The Company also pursues opportunities, to the extent economically advantageous, to sell undeveloped and partially developed parcels of land, to develop directly the improvements at a particular property and, in some instances, to enter into joint venture arrangements for its land development activities. The Company's land holdings on Maui and Kauai are its primary sources of future land sale revenues. However, due to current market conditions, the difficulty in obtaining land use approvals and the high development cost of required infrastructure, the planned development of these land holdings and the ability to generate cash flow from these land holdings are expected to be long- term in nature. Approximately 1,800 acres of the land owned by the Company are currently classified as urban district by the State of Hawaii Land Use Commission and have various zoning and land use approvals for residential, resort, commercial and industrial development, including 500 acres for the Company's three existing golf courses. Additional governmental approvals, permits and certifications will be required to be obtained with respect to the other 1,300 acres as part of the development process. There can be no assurance, however, that all of the necessary approvals or permits will be obtained. An additional 2,700 acres of Company-owned land are in the preliminary planning stages for urbanization and potential future sale or development. The Company intends to sell or develop all of such land in connection with various residential, resort, commercial and light industrial projects. The Company's development projects may be affected by competition from other projects of a similar nature in Hawaii, as well as from other states or countries offering resort-type properties. The Company's real estate development approach is intended to enhance the value of its real property in successive phases. The determination of whether to develop a property is based on factors such as location, physical characteristics, demographic patterns and perceived absorption rates, as well as regulatory and environmental considerations, zoning, availability of utilities and governmental services and estimated profitability. Generally, once the determination has been made to develop a property, the first step is to design a master development plan. The Company then seeks to obtain regulatory and environmental approvals. The approval process, which requires a lengthy period of time (often at least three to five years), is a major factor in determining the viability and prospects for profitability of the Company's various development projects. The first phase in the regulatory approval process usually consists of obtaining proper state land use designations and County planning and zoning approvals for the intended development. Occasionally, environmental and special management area approvals will be required, particularly if the property borders the shoreline. Additionally, certain other permits and approvals (such as grading permits, building permits and subdivision approvals) must then be obtained. Upon receipt of such approvals and permits, the Company may then begin construction of infrastructure including roads, water mains, sewer lines and other public facilities. The expenditures for infrastructure are generally significant and usually required early in the project development process. All of the Company's development projects are subject to approval and regulation by various federal, state and county agencies, especially as it relates to the nature and extent of improvements, zoning, building densities, environmental impacts and in some instances marketing and sales. Generally, governmental entities have the right to impose limits or controls on growth in communities through limited land use designations, restrictive zoning, density reduction, impact fees and development requirements. Such limits and controls have materially affected, and in the future may affect materially, the utilization of the Company's real properties and the costs associated with developing such properties. Land use in Hawaii is regulated by both the State of Hawaii and each county (Hawaii, Kauai, Maui and Oahu), each in accordance with its own general set of objectives and policies. At the State level, all land is classified into four major land use districts: urban, rural, agricultural and conservation. The Company believes that it will generally be able to pursue development of that portion of its land for which it has or can reasonably obtain an urban district classification. Conservation land is that land which is necessary for preserving natural conditions (e.g., watershed or prevention of soil erosion) and, hence, generally cannot be developed. Agricultural and rural districts are not permitted to have concentrated development. Certain lands, particularly shoreline parcels, are subject to special regulatory scrutiny. For these lands, the Company must obtain additional federal, state and/or county approvals, including a special management area permit from the county in which such land is located. Certain other approvals are also necessary once zoning has been obtained. Obtaining any and all of these approvals can involve a substantial amount of time and expense, and approvals may need to be resubmitted if there is any subsequent, substantial deviation from previously submitted plans. In connection with seeking approvals for its development plans, the Company has been required (and may be required in the future) to make significant improvements in public facilities (such as roads), to dedicate property for public use, to provide employee and affordable housing units and to make other concessions (monetary and otherwise). The ability of the Company to perform its development activities may be materially adversely affected by state or county restrictions or conditions that may be imposed in certain communities because of inadequate public facilities (such as roads and sewer facilities) and/or by local opposition to continued growth. The Company is subject to a number of statutes imposing registration, filing and disclosure requirements with respect to its residential real property developments including, among others, the Federal Interstate Land Sales Full Disclosure Act, the Federal Consumer Credit Protection Act and the State Uniform Land Sales Practices Act. During 1994, the Company derived a significant portion of its property revenues from the sale of residential land parcels to Schuler Homes, Inc., a local home builder in Hawaii. The Company currently owns no patents, trademarks, licenses or franchises which are material to its business. AGRICULTURE. Substantially all of the Company's agricultural activities relate to the cultivation and processing of sugar cane. Approximately 9,200 acres of the Company's land holdings and approximately 14,800 acres of land leased by the Company are currently under cultivation. The remaining approximately 77,900 acres of owned and leased land are predominantly conservation land and land appurtenant to the cultivation of sugar cane. During 1995, the Company implemented plans to restructure its sugar operations to improve efficiencies and reduce costs, including consolidation of the operations at its two Kauai plantations and changing to a seasonal mode of operation at each plantation (consistent with many other sugar operations). The Company's sugar plantation subsidiaries sell their raw sugar production to the Hawaiian Sugar and Transportation Company ("HSTC"), which is an agricultural cooperative owned by the major Hawaii producers of raw sugar (including the Company), under a marketing agreement. HSTC sells the raw sugar production to the California and Hawaiian Sugar Company ("C&H") pursuant to a long-term supply contract. The terms of the supply contract do not require a specified level of production by the Hawaii producers; however, HSTC is obligated to sell and C&H is obligated to purchase any raw sugar produced. HSTC returns to its raw sugar suppliers proceeds based upon the domestic sugar price less delivery and administrative costs. The Company recognizes revenues and related cost of sales upon delivery of its raw sugar by HSTC to C&H. The price of raw sugar that the Company receives is based upon the price of domestic sugar (less delivery and administrative costs) as currently controlled by U.S. Government price supports legislation. On April 4, 1996, President Clinton signed the Federal Agriculture Improvement and Reform Act of 1996 ("the Act"). The Act, which expires in 2002, keeps the loan rate at 18 cents per pound. However, the Act includes certain other adjustments to the sugar program including making crop loans recourse to the producer and repealing marketing allotments which may over time depress the domestic price of raw sugar. There can be no assurance that, in the future, the government price support will not be reduced or eliminated entirely. Such a reduction or elimination of price supports could have a material adverse affect on the Company's agriculture operations, and possibly could cause the Company to evaluate the cessation of its remaining sugar cane operations. In August 1993, the Company announced its plans to phase out the sugar operations at its Oahu Sugar Company by mid- 1995, such phase out coinciding with the expiration of its major land lease on Oahu. Oahu Sugar, which operated almost entirely on leased land, had incurred losses in its sugar operations in prior years and expected those losses to continue in the future. Oahu Sugar completed the final harvest of its crop in April 1995. The Company has shutdown Oahu Sugar and any estimated future costs related to the shut down are not expected to have a material adverse effect on the financial condition of the Company. The Company is currently pursuing development of the fee simple land it owns adjacent to the Oahu Sugar mill site, including seeking the necessary government approvals for a light industrial subdivision for a portion of the property, as discussed below. The sugar industry in Hawaii has experienced significant difficulties during the past several years. Growers in Hawaii have struggled with the high costs of production, which have led to the closure of several plantations, including the Company's sugar operations on Oahu in 1995. The Company has tried to address these challenges through a number of different measures, including a restructuring in 1995, whereby its two Kauai plantations were consolidated and its Maui plantation was changed to a seasonal mode. While the above-noted changes have helped to reduce expenses, the Company must continue to explore alternatives to further address the high costs of sugar production. One such alternative relates to the three-year labor contract the Company has with its sugar plantation employees, which expires in February 1998. Within the contract is a provision that allows the Company and the union to renegotiate wages in 1997. In light of the difficulties the Company has had in trying to improve the operating results of its sugar business, management has been meeting with union representatives to discuss appropriate wage levels. After discussions and negotiations with the union, it was agreed that wages would remain at the current levels until the end of the contract. This agreement is subject to ratification by the union membership. The Company and the union have tentatively agreed to return to the bargaining table during the summer of 1997 to negotiate the terms for a new contract which will begin in 1998. Although the Company is hopeful that it will reach agreement on contract modifications that would help improve the viability of its sugar plantations, there can be no assurance that sufficient changes will be agreed upon. In September 1992, Hurricane Iniki struck the Island of Kauai, causing considerable damage and loss to the people and businesses on Kauai. The Company has two sugar plantations on Kauai, both of which sustained considerable damage. The Company's real estate assets on Kauai suffered very little damage, since most of the Company's development expenditures up to that time had been focused on the islands of Oahu and Maui. The Company settled its insurance claims in 1995 for the damage suffered and collected approximately $30 million in proceeds over the three year period subsequent to the hurricane. In the past, the Company has considered various uses for its sugar-growing lands, such as alternative crops, to address the uncertainty of the long-term viability of the sugar industry. Although the Company still continues to explore alternative crops, including cultivating approximately 500 acres of coffee trees on Maui, alternative crops remain an insignificant portion of the Company's agriculture segment. The principal competitive factors in the Company's sugar agricultural business are price, sugar yields, processing capabilities, technological know-how and delivery. In addition, the Company's agricultural business must contend with high labor costs and with transportation expenses of shipping its raw sugar from Hawaii to the C & H refinery in California. As part of the Company's agriculture operations, the Company enters into commodities futures contracts and options in sugar as deemed appropriate to reduce the risk of future price fluctuations in sugar. These futures contracts and options are accounted for as hedges and, accordingly, gains and losses are deferred and recognized in cost of sales as part of the production cost. Except for C&H (through the Company's interest in HSTC, as discussed above), there is no single agricultural customer of the Company the loss of which would have a material adverse effect on the Company. C&H is contractually bound to purchase all of the sugar the Company produces. If, for any reason, C&H were to cease its operations, the Company would seek other purchasers for its sugar. The Company historically has been involved in the production of energy through the burning of bagasse, the fibrous by-product from sugar cane processing, in the Company's sugar plantations' boilers. The Company is currently using these boilers to generate electrical energy and steam for the sugar plantations' own consumption and for the sale of the excess energy, if any, to the local public utilities. WATER RESOURCES. On the islands of Kauai, Oahu and Maui, the Company controls approximately 300 million gallons of water per day, 100 million gallons of water per day on land which the Company owns and the remainder on land which is leased by the Company. The Company also owns extensive civil engineering improvements including tunnels, ditches and pumps which distribute water. Most of the Company's water is currently used for irrigating sugar cane. If sugar cane cultivation is curtailed, water resources may become available for other uses. However, there can be no assurance that the Company will be able to apply the water that it currently controls to other uses since landowners' rights under laws governing the use and ownership of water in Hawaii, especially as it pertains to surface water, are restricted and unsettled in many respects. The Company must maintain access to its significant water sources to conduct its agricultural operations and, in many cases, must demonstrate a sufficient supply of water in order to obtain land development permits. The Company believes that it has sufficient water sources for its present and planned uses; however, there can be no assurance that the Company will be able to retain or obtain sufficient water rights to support all of its current or future development plans. The Company owns the Waiahole Ditch, which is a series of tunnels and ditches (constructed in the early 1900's) that collects and has the capacity to transport in excess of twenty million gallons of water per day from the windward part of Oahu to the central Oahu plain on the Leeward side of the Koolau mountain range. The Company has filed a petition with the State of Hawaii Water Commission (the "Commission") for continued use of water that flows through the Waiahole Ditch and is currently waiting for a decision from the Commission regarding such petition. Water from the Waiahole Ditch had previously been used to irrigate sugar cane by Oahu Sugar Company, a wholly-owned subsidiary of the Company. With the closure of the Company's sugar operations on Oahu, the Company had to apply for a new use permit for the Waiahole Ditch water. The Company is seeking to realize significant value from this extensive ditch system by finding alternate end users for the water. The State of Hawaii favors continuation of the flow of water through the Waiahole Ditch for many reasons, among them being the recharge of the central Oahu aquifer and the fact that central Oahu is one of the fastest growth areas in the State. However, there are a number of individuals and certain environmental groups that oppose the continued flow of water in the Waiahole Ditch and want the water to remain on the windward side of Oahu. There has been an interim determination by the Water Commission that over one- half of the Waiahole Ditch water must remain on windward Oahu temporarily. A final decision from the Water Commission is expected late in the second quarter of 1997. There can be no assurance that the Water Commission will issue long-term use permits to the Company or to potential users on the leeward side. Amfac/JMB Finance, Inc. ("Finance") is a wholly-owned subsidiary of Northbrook Corporation ("Northbrook"). The sole business of Finance is to repurchase, upon request of the holders thereof, the Certificate of Land Appreciation Notes ("COLAS") pursuant to the Repurchase Agreement. In connection with such repurchase obligations of Finance, Northbrook has agreed to contribute sufficient capital or make loans to Finance pursuant to a Keep-Well Agreement, to enable Finance to meet its repurchase obligations of the COLAS. For a descrip tion of such obligations pursuant to the Repurchase Agreement and the Keep-Well Agreement referred to above, see Notes 2 and 3 of Notes to Balance Sheets of Finance. For a description of the COLAS, see Note 5 of Notes to Consolidated Financial Statements of the Company. Item 2. Properties LAND HOLDINGS. The major real properties owned by the Company are described below by island. (a) Oahu At December 31, 1996, the Company owned approximately 800 acres of land on Oahu. These consist of approximately 136 acres for the Waikele Golf Course at Waikele, approximately 60 acres at the Oahu Sugar Company mill- site in Waipahu, approximately 500 acres on the northeastern, watershed area of windward Oahu (which have been designated by the State as conservation lands) and certain other land parcels. Waikele is a master-planned community developed by the Company. It is situated on 577 acres of land located adjacent to Waipahu, a rapidly growing town eight miles west of downtown Honolulu, and at the intersection of Oahu's two major highways. Construction of the Waikele Project commenced in 1989 and includes approximately 2,900 residential units on 19 parcels, a retail commercial center and an 18-hole golf course. The development of the commercial center at Waikele is complete, while development of residential units, ranging from multi-family units to single-family homes, is continuing and is expected to be completed by the end of 1998. All of the residential land in Waikele was sold to 3 builders from 1990 through 1994. The Company sold the land used for the retail commercial center in 1992. The Waikele golf course, which is still owned by the Company, opened for public play in May 1993. Waikele competes with other master-planned communities on Oahu. The Company expended approximately $1.3 million, $.5 million and $3.0 million in 1996, 1995 and 1994, respectively, for project costs at Waikele. Such costs include construction of roadways, utilities and related infrastructure improvements and the golf course and clubhouse. On a cumulative project-to- date basis, the Company has expended approximately $118 million on project costs and completed sales at Waikele of approximately $231 million. Such sales have included commercial property and parcel sales to home builders. Except for certain contingent participation rights, the Company has already received all of its proceeds from the sales of the residential and commercial parcels at Waikele. The Company is currently developing the approximately 60 acres of fee simple land it owns at the mill-site of Oahu Sugar Company (which was shut down in 1995). The Company has received zoning for a light industrial subdivision on a 37- acre portion of the property, which excludes property containing the sugar mill and adjacent buildings. In connection with the development of this property, the Company has received state land use urbanization for the entire 60- acre site. Marketing of parcels within the light industrial subdivision is slated for mid-to-late 1997 after the subdivision is complete. In addition, the Company has begun the process of seeking the necessary government approvals for the redevelopment for the remainder of the mill-site parcels, including planned commercial, public and quasi-public uses. During 1996, the Company sold approximately 3 acres on Oahu for $1 million, and received $.3 million for certain contingent participation rights at Waikele. (b) Maui On the island of Maui, the Company owns approximately 13,800 acres of land, most of which is currently in agriculture or classified as conservation land. Approximately all of the Company's land holdings are located on West Maui near the Kaanapali Beach Resort area. Approximately 900 acres in West Maui are presently designated urban and zoned for resort and residential development, including approximately 320 acres comprising the two Kaanapali Golf Courses. The Company is currently pursuing development approvals for portions of the surrounding acreage. In March 1991, the Company received final land use approval from the State for development of approximately 240 residential lots on approximately 125 acres of land, known as "South Beach Mauka" and located adjacent to the existing Kaanapali Beach Resort. In connection with this land use approval, the Company is committed to providing additional housing on Maui in the affordable price range and to participating in the funding of the design and construction of the planned bypass highway extending from Lahaina to the north end of Kaanapali. The Company has entered into a development agreement with the State Department of Transportation covering the Company's participation in the design and construction of the bypass highway. It is anticipated that the Company will expend up to $3.5 million (in the aggregate), of which $2.2 million has been spent as of December 31, 1996, in the design of the bypass highway and widening of the existing highway. The Company is marketing Kaanapali Golf Estates, a residential community that is part of South Beach Mauka adjacent to the Kaanapali Beach Resort in West Maui. During 1996, the Company sold 18 homesites for approximately $5.5 million, which includes 10 homesites to a developer who plans to construct and sell houses on these lots. The Company currently has 6 homesites on the market, which are priced at approximately $.5 million each. During 1993, the Company obtained final land use approval from the State, and certification through the State's Housing Finance Development Corporation ("HFDC"), for the development of a project on approximately 300 acres of Company land known as "Puukolii Village", which is also located near Kaanapali Beach Resort. A significant portion of the housing in this project will be in the affordable price range. The final land use approval and the HFDC development agreement contain certain conditions which must be satisfied in order for the Company to develop its lands in future periods. Moreover, development of most of Puukolii Village cannot commence until after completion of the state-planned Lahaina bypass highway (mentioned above). The proposed development of Puukolii Village is anticipated to satisfy the Company's affordable housing requirements in connection with the South Beach Mauka land use approval as well as for the Company's North Beach property (described below). The Company commenced construction of infrastructure for Puukolii Village in the last quarter of 1996, beginning with an access road. The planned development of the Company's land on Maui is longer term in nature than the time frame experienced at Waikele. As Maui is less populated than Oahu and more dependent on the resort/tourism industry, much of the Company's land is intended for resort and resort-related uses. Due to overall economic conditions and trends in tourism, recent demand for these land uses has been relatively weak. The Company's currently available inventory of homesites on Maui, which is primarily targeted to the second home buyer, has experienced very slow sales activity to date. The Company's competitors on Maui have also experienced slow sales activity in the second home market. In connection with the development of North Beach Mauka and adjacent parcels, the Company has committed an additional $6.7 million for the construction of the bypass highway, subject to certain conditions. The development and construction of the bypass highway is expected to be a long-term project that will not be completed until the year 2004 or later. The Company has over 300 acres of land in the adjacent North Beach Mauka area, currently designated by the State Land Use Commission for agricultural use, but with an underlying project district designation in the county community plan. The Company plans to seek State urbanization approval for this land. The Company is continuing to evaluate its planned products and the timing of development of its land holdings in light of the current weak market demand and the capital resources needed for future development. Concurrently, the Company is evaluating certain land parcels for bulk sales. These parcels are not considered strategic to the Company's long-term development plans. In 1986, the Company entered into a joint venture agreement with Tobishima Pacific Inc., a wholly-owned subsidiary of a Japanese company, the purpose of which is to plan, manage and develop approximately 96 acres of beachfront property at Kaanapali (known as North Beach). The joint venture (in which the Company has a 50% interest) has State land use and County zoning approvals for the subdivision and development of the infrastructure improvements necessary to accommodate up to 3,200 hotel and/or condominium units on this site. This North Beach property constitutes nearly all of the remaining developable beachfront acreage at Kaanapali. In October 1992, the Company completed construction of a 3-acre park for public use on the North Beach site, which is part of the master plan for this property and was a requirement imposed by Maui County in obtaining certain permits. The development of North Beach continues to be tied to the completion of the aforementioned Lahaina bypass highway or other traffic mitigation measures satisfactory to the Maui County Planning Commission. The Company is seeking final approvals to develop a time- share resort on 14 acres of the North Beach property (the "Site"). A land option/purchase agreement was entered into with Tobishima in October 1996. This agreement gives the Company an option to purchase Tobishima's 50% interest in the Site for $7 million. The Company does not expect to consummate the purchase until all discretionary land use permits are received for development of the time-share resort. In accordance with the land option/purchase agreement, the Company has made a nonrefundable deposit of $.1 million (which may be applied to the purchase price) to keep the option available through September 30, 1997. Additional nonrefundable deposits may be made to extend the option through August 31, 2000. The Company has filed development plans and related information with the County of Maui to obtain a Special Management Area ("SMA") permit for the time- share resort. Although there can be no assurance that the SMA permit will be received (and that if such permit is received, that its terms and conditions will be acceptable to the Company), management is optimistic that the Company will receive the necessary approvals to proceed with the project. The Company believes that the potential for a successful time-share development at North Beach will be greatly enhanced by the involvement of a company with experience in the time- share business. As a result, on February 1, 1997, the Company entered into a partnership with affiliates of Interval Resorts West, the developer of The Ridge Tahoe resort in South Lake Tahoe, Nevada. The partnership will be responsible for constructing, developing, operating, maintaining, owning and managing the time-share resort project. The Company has a majority ownership interest in the partnership. After receipt of the SMA permit, the partnership will need to arrange project financing for the development of the time-share resort. In addition, the aforementioned land option/purchase agreement with Tobishima Pacific, Inc. includes short-term seller financing, which the time-share partnership may decide to utilize. In February 1996, the Maui County Council adopted a Community Plan ordinance for West Maui that does not include any amendments to the current Community Plan designation of the Company's North Beach property, thus rejecting the recommendation of certain citizens groups that wanted two- third's of North Beach to be downzoned to "Park" designation. The ordinance was signed by the Mayor of the County of Maui and became effective on February 27, 1996. Further, the Department of the Army has determined that there are two wetlands sites on the North Beach property, totaling approximately 21,800 square feet. The Company has retained experts to evaluate these sites and to ensure compliance with all laws. While there can be no assurance as to the ultimate determinations with respect to the wetlands issue, the Company does not anticipate that these sites will materially adversely affect the development plans for North Beach. During 1996, the Company sold 10 acres on Maui for approximately $8.4 million, including 18 residential lots at Kaanapali Golf Estates. The Company also owns and manages the championship Kaanapali Golf Courses, consisting of a clubhouse and two 18- hole golf courses located at the Kaanapali Beach Resort. Approximately 4,900 acres of the Company's land on Maui are designated as a conservation district. (c) Kauai The Company owns approximately 28,700 acres of land on the island of Kauai, most of which is on the eastern (windward) side of the island. The large parcels of Company land on eastern Kauai are predominantly used for sugar cane cultivation. Approximately 700 acres of this land is zoned for urban development and approximately 12,300 acres has been classified as conservation land. In June 1994, the Company submitted a Land Use Boundary Amendment Petition with the State of Hawaii Land Use Commission ("LUC") and a General Plan Amendment Application with the County of Kauai for the urbanization of approximately 552 acres of land on Kauai currently in sugar cane cultivation. The Company proposed a project planned to be a mixed use master planned community which will include a variety of both affordable and market rate residential units, commercial and industrial projects and a number of community and public based facilities. The filing of these land use applications is the first step required in converting agriculture zoned land into urban zoned land. There are a number of additional reports, studies, applications and permits that will be required before final land use approvals are obtained. In May 1995, the County of Kauai approved the Company's General Plan Amendment Application, subject to a number of conditions. In December 1995, the LUC granted the land use amendments sought by the Company, subject to a number of conditions. In May 1996, the Kauai County approved the Company's application to rezone the project. Before construction can commence, the Company must satisfy several conditions imposed during the approval process and obtain additional administrative development permits for requirements such as grading and subdivision. The permitting process in Hawaii has historically been a very difficult, time consuming and arduous process. There can be no guarantee that all permits will be obtained. Once construction commences, subject to market conditions and profitability needs, the project is expected to span over 20 years. During 1996, the Company sold, in the aggregate, 711 acres of miscellaneous land parcels on Kauai for approximately $5.6 million. (d) Hawaii The approximately 3,400 acres of land owned by the Company on the island of Hawaii are located on the eastern (windward) side of the island, primarily in the Keaau and Pahoa districts, south of the town of Hilo. Portions of these lands are currently leased to independent papaya growers. The Company does not currently have any plans for real property development on the island of Hawaii, but will continue to pursue ad hoc parcel sales when opportunities exist. During 1996, the Company sold, in the aggregate, 3,525 acres of miscellaneous land parcels on Hawaii for approximately $3.6 million. LONG-TERM LEASES. Each of the Company's plantation subsidiaries leases agricultural lands from unrelated third parties. Such leases vary in length from month-to-month to 9 years and cover parcels of land ranging in acreage from one acre to 27,474 acres. Certain of such leases provide the Company, as lessee, with licenses for water use. Almost all of the leased land of the Company is used in its agricultural businesses, primarily in connection with the cultivation and processing of sugar cane, with almost 15,000 acres of leased land currently under cultivation. Most of the leases provide for the Company to pay fixed annual minimum rents (ranging from $13 to $131 per usable acre), plus additional rents based upon a percentage of gross receipts generated by the Company's sugar cane operations on such land. The following summary lists the material agricultural land leases of the Company's subsidiaries, as lessees, and certain material terms thereof: Approximate Current Current Approximate Annual Additional Rent Expiration Sugar Cane Gross Minimum as % of Gross Renewal Lease Date Acreage Acreage Rent Receipts Option - ------ ------- --------- ----------- ------- -------- ---------- Kekaha mnth to mnth 7,926 27,474 $251,500 variable -- Lihue 10/30/99 4,054 6,200 $ 56,370 variable -- Lihue 12/15/02 0 3,106 $ 20,630 none -- Lihue 1/31/95(1) 1,919 5,151 $ 21,500 variable -- Pioneer mnth to mnth 889 1,639 $ 51,000 variable -- Pioneer 12/31/05 770 2,509 $100,917 7.25% -- (1) The Company is currently finalizing a new lease with the lessor. Item 3. Legal Proceedings The Company and/or certain of its affiliates have been named as defendants in several pending lawsuits, most of which constitute routine litigation arising from the ordinary conduct of its businesses. While it is impossible to predict the outcome of the pending (or threatened) litigation and for which potential liability is not covered by insurance, the Company is of the opinion that the ultimate liability from such litigation will not materially adversely affect the Company's financial condition. Item 4. Submission of Matters to a Vote of Security Holders There were no matters submitted to a vote of security holders during 1995 and 1996. PART II Item 5. Market for the Company's and Finance's Common Equity and Related Security Holder Matters The Company is a wholly-owned subsidiary of Northbrook Corporation and, hence, there is no public market for the Company's common stock. Finance is a wholly-owned subsidiary of Northbrook Corporation and there is no public market for Finance's common stock. Item 6. Selected Financial Data AMFAC/JMB HAWAII, INC. For the years ended December 31, 1996, 1995, 1994, 1993 and 1992 (Dollars in Thousands)
1996 1995 1994 1993 1992(c) ------ ------- -------- ------- ------- Total revenues (d) $97,406 101,607 157,963 140,462 230,212 ======== ======= ======= ======= ======== Net income (loss) (e) $(34,166) 12,708 (13,033) (509) (60,979) ======== ======= ======== ======= ======== Net income (loss) per share (b) Total assets $483,605 527,598 614,547 644,711 633,995 ======== ======= ======= ======== ======== Amounts due affiliates - financing $ 103,579 76,911 15,097 15,097 28,098 ======== ======== ======= ======== ======== Certificate of Land Appreciation Notes $220,692 220,692 384,737 384,737 384,737 ======== ======== ======= ======== ======== (a) The above selected financial data should be read in conjunction with the financial statements and the related notes appearing elsewhere in this annual report on Form 10-K. (b) The Company is a wholly-owned subsidiary of Northbrook Corporation ; therefore, net loss per share is not presented. (c) In 1992, the Company adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." The Company elected to immediately recognize the cumulative effect of the change in accounting for postretirement benefits of $43,442 (after reduction of income taxes of $26,626), which is reflected in the 1992 net loss. (d) Total revenues includes interest income of $463 in 1996, $1,288 in 1995, $1,977 in 1994, $1,070 in 1993 and $1,534 in 1992. (e) In 1995, the Company recognized an extraordinary gain from the extinguishment of debt of $32,544 (after reduction of income taxes of $20,807), which is reflected in 1995 net income.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources All references to "Notes" herein are to Notes to Consolidated Financial Statements contained in this report. On December 5, 1988, the Company commenced an offering to the public of COLAS pursuant to a Registration Statement on Form S-1 under the Securities Act of 1933. A total of 384,737 COLAS were issued prior to the termination of the offering on August 31, 1989. The net proceeds received from the sale of the COLAS totaled approximately $352 million (after deduction of organization and offering expenses of approximately $33 million). Such net proceeds have been used to repay a portion of the acquisition-related financing, which was incurred to pay certain costs associated with the Merger including a portion of the Merger consideration paid to shareholders of Amfac. On March 14, 1989, Amfac/JMB Finance, Inc. ("Finance"), a wholly-owned subsidiary of Northbrook Corporation ("Northbrook") and the Company entered into an agreement (the "Repurchase Agreement") concerning Finance's obligations (on June 1, 1995 and June 1, 1999) to repurchase, upon request of the holders thereof, the COLAS. The COLAS were issued in units consisting of one Class A COLA and one Class B COLA. As specified in the Repurchase Agreement, the repurchase of the Class A COLAS on June 1, 1995 may have been requested of Finance by the holders of such COLAS at a price equal to the original principal amount of such COLAS ($500) minus all payments of principal and interest allocated to such COLAS. The repurchase of the Class B COLAS on June 1, 1999 may be requested of Finance by the holders of such COLAS at a price equal to 125% of the original principal amount of such COLAS ($500) minus all payments of principal and interest allocated to such COLAS. Through the date of this report, the cumulative interest paid per Class A COLA and Class B COLA is approximately $165 and $165, respectively. On March 14, 1989, Northbrook entered into a keep-well agreement with Finance, whereby it agreed to contribute sufficient capital or make loans to Finance to enable Finance to meet the COLA repurchase obligations, if any, described above. Notwithstanding Finance's repurchase obligations, the Company may elect to redeem any COLAS requested to be repurchased at the specified price. On March 15, 1995, pursuant to the indenture that governs the terms of the COLAS (the "Indenture"), the Company elected to offer to redeem (the "Redemption Offer") all Class A COLAS from its registered holders. Pursuant to the Redemption Offer, and in accordance with the terms of the Indenture, the Company was therefore obligated to purchase any and all Class A COLAS submitted pursuant to the Redemption Offer at a price of $365 per Class A COLA. In conjunction with the Company's Redemption Offer, the Company made a tender offer (the "Tender Offer") to purchase up to approximately $68 million principal value of the Class B COLAS at a price of $220 per Class B COLA from COLA holders electing to have their Class A COLAS repurchased. Approximately 229,000 Class A COLAS were submitted for repurchase pursuant to the Redemption Offer and approximately 99,000 Class B COLAS were submitted for repurchase pursuant to the Tender Offer, requiring an aggregate payment of the Company of approximately $105 million on June 1, 1995. The Company used its available cash to purchase Class B COLAS pursuant to the Tender Offer and borrowed $52 million from Northbrook to purchase Class A COLAS pursuant to the Redemption Offer. In addition to the $52 million borrowed from Northbrook to redeem Class A COLAS pursuant to the Redemption Offer (see Note 5), the Company has also borrowed approximately $18.8 million and $9.8 million during 1996 and 1995, respectively, to fund COLA Base Interest payments and other operational needs. These loans from Northbrook are payable interest only, mature on June 1, 1998 and carry an interest rate per annum equal to the prime interest rate plus two percent. Pursuant to the Indenture relating to the COLAS, the amounts borrowed from Northbrook are considered "Senior Indebtedness" to the COLAS. As a result of the COLA repurchases, the Company retired approximately $164 million face value of debt and recognized a financial statement gain in the second quarter of 1995 of approximately $32.5 million (net of income taxes of $20.8 million, the write-off of deferred financing costs of $10.0 million, the write-off of accrued contingent base interest of $5.7 million and expenses of $.9 million). Such gain was treated as cancellation of indebtedness income for tax purposes and, accordingly, the income taxes related to the Class A Redemption Offer (approximately $9.1 million) were not indemnified by the tax agreement with Northbrook (see Note 1). Pursuant to the terms of the Indenture relating to the COLAS, the Company is required to maintain a Value Maintenance Ratio of 1.05 to 1.00. Such ratio is equal to the relationship of the Company's Net Asset Value (defined as the excess of (i) Fair Market Value of the gross assets of the Company over (ii) the amount of the liabilities (excluding liabilities resulting from generally accepted accounting principles enacted subsequent to the date of the Indenture) of the Company other than the outstanding principal balance of the COLAS, any unpaid Mandatory and Contingent Base Interest, and certain other liabilities, to the sum of (x) the outstanding principal amount of the COLAS, plus (y) any unpaid Base Interest, plus (z) the outstanding principal balance of any Indebtedness incurred to redeem COLAS. The COLA Indenture requires the Company to obtain independent appraisals of the fair market value of the gross assets used to calculate the Value Maintenance Ratio as of December 31 in each even-numbered calendar year. Accordingly, the Company obtained independent appraisals of substantially all of its gross real estate assets as of December 31, 1996; the appraised values of such assets were sufficient to meet the Value Maintenance Ratio. In odd-numbered years (during which time appraisals are not required) the Fair Market Value of the gross assets of the Company used to compute the Value Maintenance Ratio is determined by the Company's management. To the extent that management believes that the aggregate Fair Market Value of the Company's assets exceeds by more than 5% the Fair Market Value of such assets included in the most recent appraisal, the Company must obtain an updated appraisal supporting such increase. It should be noted that the concept of Fair Market Value is intended to represent the value that an independent arm's-length purchaser, seeking to utilize such asset for its highest and best use would pay, taking into consideration the risks and benefits associated with such use or development, current restrictions on development (including zoning limitations, permitted densities, environmental restrictions, restrictive covenants, etc.) and the likelihood of changes to such restrictions; provided, however, that with respect to any Fair Market Value determination of all of the assets of the Company, such assets shall not be valued as if sold in bulk to a single purchaser. There can be no assurance that the Company's properties can be ultimately sold at prices equivalent to their appraised values. In June 1991, the Company obtained a five-year $66 million loan from the Employees' Retirement System of the State of Hawaii ("ERS"). The nonrecourse loan is secured by a first mortgage on the Kaanapali Golf Courses, and is considered "Senior Indebtedness" (as defined in the Indenture relating to the COLAS). The loan bore interest at a rate per annum equal to the greater of (i) the base interest rate announced by the Bank of Hawaii on the first of July for each year or (ii) ten percent per annum through June 30, 1993 and nine percent per annum thereafter. The annual interest payments were in excess of the cash flow generated by the Kaanapali Golf Courses. In April 1996, the Company reached an agreement to amend the loan with the ERS, extending the maturity date for five years. In exchange for the loan extension, the ERS received the right to participate in the "Net Disposition Proceeds" (as defined) related to the sale or refinancing of the golf courses or at the maturity of the loan. The ERS share of the Net Disposition Proceeds increases from 30% through June 30, 1997, to 40% for the period from July 1, 1997 to June 30, 1999 and to 50% thereafter. The loan amendment effectively adjusted the interest rate as of January 1, 1995 to 9.5% until June 30, 1996. After June 30, 1996, the loan bears interest at a rate per annum equal to 8.73%. The loan amendment requires the Company to pay interest at the rate of 7% for the period from January 1, 1995 to June 30, 1996, 7.5% from July 1, 1996 to June 30, 1997, 7.75% from July 1, 1997 to June 30, 1998 and 8.5% thereafter ("Minimum Interest"). The Company has made payments in 1996 totaling $6.5 million, which represents the Minimum Interest due through October 1, 1996. Accrued Minimum Interest as of December 31, 1996 was $1.2 million. The scheduled minimum payments are paid quarterly on the principal balance of the $66 million loan. The difference between the accrued interest expense and the Minimum Interest payment accrues interest and is payable on an annual basis from excess cash flow, if any, generated from the Kaanapali Golf Courses. The total accrued interest payable from excess cash flow was approximately $3.2 million as of December 31, 1996. Although the outstanding loan balance remains nonrecourse, certain payments and obligations, such as the Minimum Interest payments and the ERS's share of appreciation, if any, are recourse to the Company. However, the Company's obligations to make future Minimum Interest payments and to pay the ERS a share of appreciation would be terminated if the Company tendered an executed deed to the golf course property to the ERS in accordance with the terms of the amendment. In October 1993, Waikele Golf Club, Inc. ("WGCI"), a wholly-owned subsidiary of the Company that owns and operates the Waikele Golf Course, obtained a five year $20 million loan facility from two lenders. The loan consists of two $10 million amortizing loans. Each loan bore interest only for the first two years with interest and principal payments based upon a 20 year amortization period for the remaining three years. The loans bear interest at prime (8.25% at December 31, 1996) plus 1/2% and LIBOR (5.5% at December 31, 1996) plus 3%, respectively. WGCI received an initial funding of $14 million of which $.6 million was held back by the lenders to pay interest. In October 1994, in accordance with the loan agreement, the Company received an additional funding of $6 million (part of the aggregate $20 million) and a release of the $.6 million interest holdback, both of which were contingent upon achieving a certain level of Net Operating Income (as defined) by the golf course during the first six months of 1994. The loan is secured by WGCI's assets (see Note 6), is guaranteed by the Company and is considered "Senior Indebtedness" (as defined in the COLA Indenture). In February 1997, WGCI entered into an amended and restated loan agreement with the Bank of Hawaii, whereby the outstanding principal amount of the loan has been increased to $25 million, the maturity date has been extended to February 2007, the interest rate has been changed to LIBOR plus 2% until the fifth anniversary and LIBOR plus 2.5% thereafter and principal is to be repaid based on a 30-year amortization schedule. Pursuant to an agreement entered into with the City of Honolulu in 1991 relating to the development of the Company's Waikele project, if the Company sells the Waikele golf course and depending on the price and resolution of certain issues, a payment of up to $15 million might be required to be given to the City to be used to assist in the City's affordable housing developments. In December 1996, Amfac Property Development Corporation, a wholly-owned subsidiary of the Company, obtained a $10 million loan facility from a Hawaii bank. The loan is secured by a mortgage on property under development at the former mill- site of Oahu Sugar, and is considered "Senior Indebtedness" (as defined in the Indenture relating to the COLAS). The loan bears interest at the bank's base rate (8.25% at December 31, 1996) plus .5% and matures on December 1, 1998. A significant portion of the Company's cash needs result from the nature of the real estate development business, which requires significant investment in preparing development plans, seeking land urbanization and other governmental approvals, and completing infrastructure improvements prior to the realization of sales proceeds. The Company has funded its cash requirements to date primarily through the use of short- term bank borrowings, long-term financing secured by its golf courses on Maui and Oahu and by a planned real estate project on Oahu, borrowings from affiliates and revenues generated from the development and sale of its properties and investments. Funding of the Company's future cash requirements is dependent upon obtaining appropriate financing and revenues generated from the development and sale of its properties. In order to generate additional cash flows for the Company, management has identified certain land parcels that are not included in the Company's long-term development plans. During 1996, the Company generated approximately $13.4 million from non-strategic land sales and an additional $5.5 million from the sale of 18 lots at the Kaanapali Golf Estates development on the island of Maui. During 1995, the Company generated approximately $30.8 million in land sales, most of which related to non-strategic parcels. In addition, during 1995 the Company received an approximate $1.0 million deposit, which represents the purchase price for 10 acres on Oahu. During 1994, the Company generated approximately $44.3 million in property sales primarily from the sale of the last two remaining residential parcels at the Waikele project on Oahu for approximately $37 million. The remaining $7.3 million of property sales in 1994 related to land sales on the islands of Maui, Kauai and Hawaii. Additionally, the Company received an approximate $4.2 million deposit, which represented the purchase price for 452 acres on Maui. At December 31, 1996, the Company had cash and cash equivalents of approximately $8.7 million. The Company intends to use its cash reserves, sales proceeds and financing or joint venture arrangements to meet its short-term and long-term liquidity requirements, which include funding the remaining development costs at Waikele and on West Maui, Oahu and Kauai, agricultural deficits, payment of interest expense, and the repayment of principal on debt obligations, as necessary. The Company's long-term remaining liquidity is dependent upon its ability to obtain additional financing and the consummation of certain property sales. There can be no assurance that additional long-term financing can be obtained or property sales consummated. The Company's land holdings on Maui and Kauai are its primary source of future land sale revenues. However, due to current market conditions, the difficulty in obtaining land use approvals and the high development cost of required infrastructure, the planned development of these land holdings and the ability to generate cash flow from these land holdings are longer term in nature than the time frame experienced at Waikele. Accordingly, if no such financing can be obtained or additional property sales consummated, the Company will defer (to the extent possible) development costs and capital expenditures to meet long-term liquidity requirements. Additionally, the Company's plans for property sales may also be adversely impacted by the inability of potential buyers to obtain financing. The Company uses the effective interest method and accrued interest on the COLAS at 4% per annum ("Mandatory Base Interest") for the years ended December 31, 1994, 1995 and 1996. The Company did not generate a sufficient level of Net Cash Flow to pay Base Interest on the COLAS (see Note 5) in excess of 4% for 1994, 1995 and 1996. With respect to any calendar year, JMB or its affiliates may receive a Qualified Allowance in an amount equal to: (i) approximately $6,200 during each of the calendar years 1989 through 1993, and (ii) thereafter, 1-1/2% per annum of the Fair Market Value (as defined) of the gross assets of the Company and its subsidiaries (other than cash and cash equivalents and Excluded Assets (as defined)) for providing certain advisory services for the Company. However, such amounts shall be earned and paid for each year only following the payment of a specified level of Base Interest to the holders of the COLAS. Any portion of the Qualified Allowance not paid for any year shall accumulate without interest. Any Qualified Allowance subsequent to 1989 has been deferred and is payable only to the extent future Net Cash Flows are sufficient to pay the holders of the COLAS a specified level of return and, accordingly, no such amounts have been reflected in the accompanying consolidated financial statements. JMB has informed the Company that no incremental costs or expenses have been incurred relating to the provision of these advisory services. The Company believes that using an incremental cost methodology is reasonable. The Company continues to implement certain cost savings measures and to defer development project costs and capital expenditures for longer-term projects. The Company's Property segment expended approximately $7.9 million in project costs during 1996. During 1995, the Company restructured its sugar operations to improve efficiencies and reduce costs, including consolidation of the operations at its two Kauai plantations and changing to a seasonal mode of operations at its Maui plantation (consistent with other global sugar operations). The price of raw sugar that the Company receives is based upon the price of domestic sugar (less delivery and administrative costs) as currently controlled by U.S. Government price supports legislation. On April 4, 1996, President Clinton signed the Federal Agriculture Improvement and Reform Act of 1996 ("the Act"). The Act, which expires in 2002, keeps the loan rate at 18 cents per pound. However, the Act includes certain other adjustments to the sugar program including making crop loans recourse to the producer and repealing marketing allotments which may over time depress the domestic price of raw sugar. There can be no assurance that, in the future, the government price support will not be reduced or eliminated entirely. Such a reduction or elimination of price supports could have a material adverse affect on the Company's agriculture operations, and possibly could cause the Company to evaluate the cessation of its remaining sugar cane operations. In August 1993, the Company announced its plans to phase out the sugar operations at its Oahu Sugar Company by mid- 1995, such phase out coinciding with the expiration of its major land lease on Oahu. Oahu Sugar, which operated almost entirely on leased land, had incurred losses in its sugar operations in prior years and expected those losses to continue in the future. Oahu Sugar completed the final harvest of its crop in April 1995. The Company has shut down Oahu Sugar and any estimated future costs related to the shut down are not expected to have a material adverse effect on the financial condition of the Company. The Company is currently pursuing development of the fee simple land it owns adjacent to the Oahu Sugar mill site, including seeking the necessary government approvals for a light industrial subdivision for a portion of the property, as discussed below. The sugar industry in Hawaii has experienced significant difficulties during the past several years. Growers in Hawaii have struggled with the high costs of production, which have led to the closure of several plantations, including the Company's sugar operations on Oahu in 1995. The Company has tried to address these challenges through a number of different measures, including a restructuring in 1995, whereby its two Kauai plantations were consolidated and its sugar operations on Maui were changed to a seasonal mode. While the above-noted changes have helped to reduce expenses, the Company must continue to explore alternatives to further address the high costs of sugar production. One such alternative relates to the three-year labor contract the Company has with its sugar plantation employees, which expires in February 1998. Within the contract is a provision that allows the Company and the union to renegotiate wages in 1997. In light of the difficulties the Company has had in trying to improve the operating results of its sugar business, management has been meeting with union representatives to discuss appropriate wage levels. After discussions and negotiations with the union, it was agreed that wages would remain at the current levels until the end of the contract. This agreement is subject to ratification by the union membership. The Company and the union have tentatively agreed to return to the bargaining table during the summer of 1997 to negotiate the terms for a new contract which will begin in 1998. Although the Company is hopeful that it will reach agreement on contract modifications that would help improve the viability of its sugar plantations, there can be no assurance that sufficient changes will be agreed upon. In early March 1997, the Company announced a management restructuring that has resulted in the creation of six separately operating entities in the following businesses: Sugar, Golf, Coffee, Water, Land Management and Real Estate Development. Each separate company or division will be responsible for its own operations. The Company believes it will operate more effectively as several smaller entrepreneurial companies, rather than as one large conglomerate. Approximately four percent of the Company's total employees were released as a result of the restructuring. Results of Operations General: The Company and its subsidiaries report its taxes as a part of the consolidated tax return of the Company's parent, Northbrook. The Company and its subsidiaries have entered into a tax indemnification agreement with Northbrook, which indemnifies the Company and its subsidiaries for responsibility for all past, present and future federal and state income tax liabilities (other than income taxes which are directly attributable to cancellation of indebtedness income caused by the repurchase or redemption of securities as provided for in or contemplated by the Repurchase Agreement). Current and deferred taxes have been allocated to the Company as if the Company were a separate taxpayer in accordance with the provisions of SFAS No. 109 - Accounting for Income Taxes. However, to the extent the tax indemnification agreement does not require the Company to actually pay income taxes, current taxes payable or receivable (excluding income taxes which are directly attributable to cancellation of indebtedness income caused by the repurchase or redemption of securities as provided for in or contemplated by the Repurchase Agreement) have been reflected as deemed contributions and distributions, respectively, to additional paid-in capital in the accompanying consolidated financial statements. Accrued expenses decreased as of December 31, 1996 as compared to December 31, 1995, primarily due to the reclassification of deferred interest on the ERS loan to non- current. Current portion of long-term debt decreased and long-term debt increased as of December 31, 1996 as compared to December 31, 1995, due primarily to the reclassification of the ERS loan from current to long-term (see Note 6). In addition, long-term debt increased as of December 31, 1996 as compared to December 31, 1995 due to financing obtained for the Oahu Industrial Project. The current portion of amounts due to affiliates decreased as of December 31, 1996 as compared to December 31, 1995 due to the payment of interest on financing provided by affiliates and the reclassification of certain intercompany payables from current to long-term (see Note 9). The long-term portion of amounts due to affiliates increased as of December 31, 1996 as compared to December 31, 1995, due to the reclassification of certain intercompany payables from current to long-term (see Note 9). Other long-term liabilities increased as of December 31, 1996 as compared to December 31, 1995 primarily due to the difference between the interest expense accrued and Minimum Interest payments required under the amended terms of the ERS loan (see Note 6) offset in part by reductions to reserves for prior land sales. Interest expense increased for the year ended December 31, 1996 as compared to the year ended December 31, 1995 primarily due to interest expense related to additional affiliated financing, partially offset by the early retirement of Class A and Class B COLAS. Agriculture: The Company's Agriculture segment is responsible for activities related to the cultivation, processing and sale of sugar cane and other agricultural products. Agriculture's revenues are primarily derived from the Company's sale of its raw sugar. The Company's sugar plantation subsidiaries sell their raw sugar production to the Hawaiian Sugar and Transportation Company ("HSTC"), which is an agricultural cooperative owned by the major Hawaii producers of raw sugar (including the Company), under a marketing agreement. HSTC sells the raw sugar production to the California and Hawaii Sugar Company ("C&H") pursuant to a long-term supply contract. The terms of the supply contract do not require a specified level of production by the Hawaii producers; however, HSTC is obligated to sell and C&H is obligated to purchase any raw sugar produced. HSTC returns to its raw sugar suppliers proceeds based upon the domestic sugar price less delivery and administrative charges. The Company recognizes revenues and related cost of sales upon delivery of its raw sugar to C&H. The price of raw sugar that the Company receives is based upon the price of domestic sugar (less delivery and administrative costs) as currently controlled by U.S. Government price supports legislation. On April 4, 1996, President Clinton signed the Federal Agriculture Improvement and Reform Act of 1996 ("the Act"). The Act, which expires in 2002, keeps the loan rate at 18 cents per pound. However, the Act includes certain other adjustments to the sugar program including making crop loans recourse to the producer and repealing marketing allotments which may over time depress the domestic price of raw sugar. There can be no assurance that, in the future, the government price support will not be reduced or eliminated entirely. Such a reduction or elimination of price supports could have a material adverse affect on the Company's agriculture operations, and possibly could cause the Company to evaluate the cessation of its remaining sugar cane operations. As part of the Company's agriculture operations, the Company enters into commodities futures contracts and options in sugar as deemed appropriate to reduce the risk of future price fluctuations in sugar. These futures contracts and options are accounted for as hedges and, accordingly, gains and losses are deferred and recognized in cost of sales as part of the production cost. The sugar industry in Hawaii has experienced significant difficulties during the past several years. Growers in Hawaii have struggled with the high costs of production, which have led to the closure of several plantations, including the Company's sugar operations on Oahu in 1995. The Company has tried to address these challenges through a number of different measures, including a restructuring in 1995, whereby its two Kauai plantations were consolidated and its sugar operations on Maui were changed to a seasonal mode. While the above-noted changes have helped to reduce expenses, the Company must continue to explore alternatives to further address the high costs of sugar production. One such alternative relates to the three-year labor contract the Company has with its sugar plantation employees, which expires in February 1998. Within the contract is a provision that allows the Company and the union to renegotiate wages in 1997. In light of the difficulties the Company has had in trying to improve the operating results of its sugar business, management has been meeting with union representatives to discuss appropriate wage levels. After discussions and negotiations with the union, it was agreed that wages would remain at the current levels until the end of the contract. This agreement is subject to ratification by the union membership. The Company and the union have tentatively agreed to return to the bargaining table during the summer of 1997 to negotiate the terms for a new contract which will begin in 1998. Although the Company is hopeful that it will reach agreement on contract modifications that would help improve the viability of its sugar plantations, there are no assurances that sufficient changes will be agreed upon. In September 1992, Hurricane Iniki struck the Island of Kauai causing considerable damage and loss to the people and businesses on Kauai. The Company has two sugar plantations on Kauai, both of which sustained considerable damage. The Company's real estate assets on Kauai suffered very little damage, since most of the Company's development expenditures up to that time had been focused on the islands of Oahu and Maui. The Company finalized the settlement of its insurance claims in 1995 for damage suffered and collected approximately $30 million in proceeds over the approximately three year period subsequent to the hurricane. Receivables decreased as of December 31, 1996 as compared to December 31, 1995 primarily due to the timing of production and related payments received for deliveries of raw sugar and the collection of certain insurance claims outstanding as of December 31, 1995. Machinery and equipment increased as of December 31, 1996 as compared to December 31, 1995 due primarily to the purchase of equipment and improvements at the sugar plantations. Agricultural revenues and cost of sales increased and the operating loss decreased for the year ended December 31, 1996 as compared to the year ended December 31, 1995 due to increased sales of raw sugar. The increase in cost of sales was offset in part by higher cost in 1995 associated with the final phase of operations at Oahu Sugar. Agriculture's revenues from sugar operations decreased for the year ended December 31, 1995 as compared to the year ended December 31, 1994 as a result of lower production due to less acres harvested. Non-sugar revenues also decreased due to non-recurring revenues received in 1994. Agriculture's operating loss for the year ended December 31, 1995 increased as compared to the year ended December 31, 1994 due to a deterioration of gross margin resulting from lower production and the receipt of non-recurring non-sugar revenues in 1994. The lower production is attributable to the shutdown of Oahu Sugar and inclement weather which adversely affected operations at the Company's two Kauai plantations. Inclement weather has a greater impact on the Company's seasonal mode of operations because of reduced flexibility in the harvesting schedule. Property: The Company's Property segment is responsible for the following: land planning and development activities; obtaining land use, zoning and other governmental approvals; selling or financing developed and undeveloped land parcels; and the management and operation of the Company's golf course facilities. Inventory increased as of December 31, 1996 as compared to December 31, 1995 due to the reclassification of land to inventory discussed below, offset in part by a decrease in agricultural inventory. Land and land improvements decreased as of December 31, 1996 as compared to December 31, 1995 due primarily to land sales and the reclassification of certain land parcels held for sale to inventory. In accordance with the provisions of the COLA Indenture, appraisals were performed for certain assets of the Company as of December 31, 1996 and 1994, which reflected a decline in value for certain properties. Accordingly, the Company recorded, as a matter or prudent accounting practice, reductions to the carrying value of these properties in the fourth quarter of 1996 and the fourth quarter of 1994 in the amounts of $18.3 million and $5.0 million, respectively, to properly reflect the estimated market value of the property in its current state of development. Other assets increased as of December 31, 1996 as compared to December 31, 1995 primarily due to deferred costs related to preliminary planning costs associated with potential future development projects. For the year ended December 31, 1996 and December 31, 1995, the Company generated approximately $18.9 million and $30.8 million of land sales, respectively. Property sales decreased and cost of sales increased as of December, 31, 1996 as compared to December 31, 1995 primarily due to the lower level of sales of non-strategic land parcels in 1996 and the lower margins realized for the parcels sold in 1996. During 1994, the Company generated approximately $44.3 million of land sales, primarily from the sales of the remaining two residential parcels at the Waikele project on Oahu for approximately $37 million. The balance of the 1994 proceeds resulted from the sale of parcels aggregating 225 acres on various islands for approximately $7.3 million. Additionally, the Company received an approximate $4.2 million deposit, which represented the purchase price for 452 acres of agriculture-zoned land on Maui. The gain from such sale is being deferred due to certain profit participation rights retained by the Company. OAHU ACTIVITY The Company expended approximately $1.3 million, $.5 million and $3 million in 1996, 1995 and 1994, respectively, for project costs at Waikele. Such costs include construction of roadways, utilities and related infrastructure improvements and the golf course and clubhouse. On a cumulative project-to- date basis, the Company has expended approximately $118 million on project costs and has completed sales at Waikele of approximately $231 million. Such sales have included commercial property and parcel sales to home builders. Except for certain contingent participation rights, the Company has received all of its proceeds from the sales of the residential and commercial parcels at Waikele. The Company is currently developing the approximately 60 acres of fee simple land it owns at the mill-site of Oahu Sugar Company (which was shut down in 1995). The Company has received zoning for a light industrial subdivision on an approximately 37-acre portion of the property, which excludes property containing the sugar mill and adjacent buildings. In connection with the development of this property, the Company has received state land use urbanization for the entire 60 acre site. Marketing of parcels within the light industrial subdivision is slated for mid-to-late 1997 after subdivision is complete. In addition, the Company has begun the process of seeking the necessary government approvals for the redevelopment for the remainder of the mill-site parcels, including planned commercial, public and quasi-public uses. MAUI ACTIVITY The planned development of the Company's land on Maui is longer term in nature than the time frame experienced with Waikele. As Maui is less populated than Oahu and more dependent on the resort/tourism industry, much of the Company's land is intended for resort and resort-related uses. Due to overall economic conditions and trends in tourism, recent demand for these land uses has been relatively weak. The Company's currently available homesite product on Maui, which is targeted to the second home buyer, has experienced very slow sales activity to date. The Company's competitors on Maui have also experienced slow sales activity in the second home market. The Company is continuing to evaluate its planned products and the timing of development of its land holdings in light of the current weak market demand and the capital resources needed for future development. The Company is marketing Kaanapali Golf Estates, a residential community that is part of South Beach Mauka, adjacent to the Kaanapali Beach Resort in West Maui. During 1996, the Company sold 18 homesites for approximately $5.5 million, which includes 10 homesites to a developer who plans to construct and sell houses on these lots. The Company currently has 6 homesites on the market, which are priced at approximately $.5 million. In addition, the Company subdivided an ocean front parcel in Kaanapali into six single family homesites of approximately one acre each. The individual lot prices range from $1.9 million to $2.4 million. Sales of two of the lots in the project closed in December 1995, generating total sales proceeds of approximately $4.1 million. The Company is marketing the remaining four lots individually, and as a package to local builders. In 1986, the Company entered into a joint venture agreement with Tobishima Pacific Inc. ("Tobishima"), a wholly- owned subsidiary of a Japanese company, the purpose of which is to plan, manage and develop approximately 96 acres of beachfront property at Kaanapali (known as "North Beach"). The joint venture (in which the Company has a 50% interest) has State land use and County zoning approvals for the subdivision and development of the infrastructure improvements necessary to accommodate up to 3,200 hotel and/or condominium units on this site. These development plans may be affected by the current review of state land designations (discussed below). This North Beach property constitutes nearly all of the remaining developable beachfront acreage at Kaanapali. In October 1992, the Company completed construction of a 3-acre park on the North Beach site, which is part of the master plan for this property and was a requirement imposed by the County in obtaining certain permits. The development of North Beach continues to be tied to the completion of the aforementioned Lahaina bypass highway or other traffic mitigation measures satisfactory to the Maui County Planning Commission. The Company is seeking final approvals to develop a time- share resort on 14 acres of the North Beach property (the "Site"). A land option/purchase agreement was entered into with Tobishima in October 1996. This agreement gives the Company an option to purchase Tobishima's 50% interest in the Site for $7 million. The Company does not expect to consummate the purchase until all discretionary land use permits are received for development of the time-share resort. In accordance with the land option/purchase agreement, the Company has made a nonrefundable deposit of $.1 million (which may be applied to the purchase price) to keep the option available through September 30, 1997. Additional nonrefundable deposits may be made to extend the option through August 31, 2000. The Company has filed development plans and related information with the County of Maui to obtain a Special Management Area ("SMA") permit for the time- share resort. Although there can be no assurance that the SMA permit will be received (and that if such permit is received, that its terms and conditions will be acceptable to the Company), management is optimistic that the Company will receive the necessary approvals to proceed with the project. The Company believes that the potential for a successful time-share development at North Beach will be greatly enhanced by the involvement of a company with experience in the time- share business. As a result, in February 1997, the Company entered into a partnership with affiliates of Interval Resorts West, the developer of The Ridge Tahoe resort in South Lake Tahoe, Nevada. The partnership will be responsible for constructing, developing, operating, maintaining, owning and managing the time-share resort project planned for the 14-acre portion of North Beach. The Company has majority ownership interest in the partnership. After receipt of the SMA permit, the partnership will need to arrange project financing for the development of the time-share resort. The aforementioned land option/purchase agreement with Tobishima includes short-term seller financing, which the time-share partnership may decide to utilize. In February 1996, the Maui County Council adopted a Community Plan ordinance for West Maui that does not include any amendments to the current Community Plan designation of the Company's North Beach property, thus rejecting the recommendation of certain citizens groups that wanted two- third's of North Beach to be downzoned to "Park" designation. The ordinance was signed by the Mayor of the County of Maui and became effective on February 27, 1996. Further, the Department of the Army has determined that there are two wetlands sites on the North Beach property, totaling approximately 21,800 square feet. The Company has retained experts to evaluate these sites and to insure compliance with all laws. While there can be no assurance as to the ultimate determinations with respect to the wetlands issue, the Company does not anticipate that these sites will materially adversely affect the development plans for North Beach. In March 1991, the Company received final land use approval from the State for development of approximately 240 residential lots on approximately 125 acres of land known as "South Beach Mauka" and located adjacent to the existing Kaanapali Beach Resort. In connection with this land use approval, the Company is committed to providing additional housing on Maui in the affordable price range, and to participating in the funding of the design and construction of the planned bypass highway extending from Lahaina to the north end of Kaanapali. The Company has entered into a development agreement with the State Department of Transportation covering the Company's participation in the design and construction of the bypass highway. It is anticipated that the Company will expend up to $3.5 million (in the aggregate), of which $2.2 million has been spent as of December 31, 1996, in the design of the bypass highway and/or the widening of the existing highway. In connection with the development of North Beach Mauka and adjacent parcels, the Company has committed $6.7 million for the construction of the bypass highway, subject to certain conditions. The development and construction of the bypass highway is expected to be a long-term project that will not be completed until the year 2004 or later. During 1993, the Company obtained final land use approval from the State, and certification through the State's Housing Finance Development Corporation ("HFDC"), for the development of a project on approximately 300 acres of Company land known as "Puukolii Village", which is also located near Kaanapali Beach Resort. A significant portion of the housing in this project will be in the affordable price range. The final land use approval and the HFDC development agreement contain certain conditions which must be satisfied in order for the Company to develop Puukolii Village, including realigning the access road, which will benefit uses for adjacent Company's to develop its lands in future periods. Moreover, development of most of Puukolii Village cannot commence until after completion of the state-planned Lahaina bypass highway (mentioned above). The proposed development of Puukolii Village is anticipated to satisfy the Company's affordable housing requirements in connection with the South Beach Mauka land use approval as well as for the Company's North Beach property (described above). The Company commenced construction of infrastructure of Puukolii Village in the last quarter of 1996, beginning with an access road. KAUAI ACTIVITY In June 1994, the Company submitted a Land Use Boundary Amendment Petition with the State of Hawaii Land Use Commission ("LUC") and a General Plan Amendment Application with the County of Kauai for the urbanization of approximately 552 acres of land on Kauai currently in sugar cane cultivation. The proposed project is planned to be a mixed use master planned community which will include a variety of both affordable and market rate residential units, commercial and industrial projects and a number of community and public based facilities. The filing of these land use applications is the first step required in converting agriculture zoned land into urban zoned land. There are a number of additional reports, studies, applications and permits that will be required before final land use approvals are obtained. In May 1995, the County of Kauai approved the Company's General Plan Amendment Application, subject to a number of conditions. In December 1995, the LUC granted the Company the land use amendments sought by the Company subject to a number of conditions. In May 1996, the Kauai County approved the Company's application to rezone the project. Before construction can commence, the Company must satisfy several conditions imposed during the approval process and obtain additional administrative development permits for requirements such as grading and subdivision. The permitting process in Hawaii has historically been a very difficult and arduous process and there is no guarantee that all permits will be obtained. Once construction commences, subject to market conditions, the project is expected to span over 20 years. Inflation Due to the lack of significant fluctuations in the level of inflation in recent years, inflation generally has not had a material effect on real estate development. In the future, high rates of inflation may adversely affect real estate development generally because of their impact on interest rates. High interest rates not only increase the cost of borrowed funds to the Company, but can also have a significant effect on the affordability of permanent mortgage financing to prospective purchasers. However, high rates of inflation may permit the Company to increase the prices that it charges in connection with real property sales, subject to general economic conditions affecting the real estate industry and local market factors. Item 8. Financial Statements and Supplementary Data AMFAC/JMB HAWAII, INC. INDEX Report of Independent Auditors Consolidated Balance Sheets, December 31, 1996 and 1995 Consolidated Statements of Operations for the years ended December 31, 1996, 1995 and 1994 Consolidated Statements of Stockholder's Equity (Deficit) for the years ended December 31, 1996, 1995 and 1994 Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 Notes to Consolidated Financial Statements Schedule Valuation and Qualifying Accounts II Schedules not filed: All schedules other than the one indicated in the index have been omitted as the required information is inapplicable or the information is presented in the financial statements or related notes. AMFAC/JMB FINANCE, INC. INDEX Report of Independent Auditors Balance Sheets, December 31, 1996 and 1995 Notes to the Balance Sheets Schedules not filed: All schedules have been omitted as the required information is inapplicable or the information is presented in the financial statements or related notes. REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholder AMFAC/JMB HAWAII, INC. We have audited the accompanying consolidated balance sheets of Amfac/JMB Hawaii, Inc. as of December 31, 1996 and 1995, and the related consolidated statements of operations, stockholder's equity (deficit), and cash flows for each of the three years in the period ended December 31, 1996. Our audits also included the financial statement schedule listed in the Index at Item 8. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Amfac/JMB Hawaii, Inc. at December 31, 1996 and 1995, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. ERNST & YOUNG LLP Honolulu, Hawaii March 21, 1997 AMFAC/JMB HAWAII, INC. Consolidated Balance Sheets December 31, 1996 and 1995 (Dollars in Thousands) A s s e t s
1996 1995 Current assets: Cash and cash equivalents $8,736 11,745 Receivables - net 4,741 8,720 Inventories 56,808 49,641 Prepaid expenses 3,439 3,102 ------- -------- Total current assets 73,724 73,208 ------- -------- Investments 46,187 45,080 ------- -------- Property, plant and equipment: Land and land improvements 289,294 336,069 Machinery and equipment 60,981 56,882 Construction in progress 1,365 1,428 ------- -------- 351,640 394,379 Less accumulated depreciation and amortization 33,856 27,762 ------- -------- 317,784 366,617 Deferred expenses 12,975 14,225 Other assets 32,935 28,468 ------- -------- $483,605 527,598 ======== ======== L i a b i l i t i e s Current liabilities: Accounts Payable $ 5,719 8,562 Accrued expenses 9,274 13,268 Current portion of long-term debt 1,471 67,730 Current portion of deferred income taxes 5,422 10,902 Amounts due to affiliates 8,905 22,862 ------- ------- Total current liabilities 30,791 123,324 ------- ------- Amounts due to affiliates 103,579 76,911 Accumulated postretirement benefit obligation 57,662 61,037 AMFAC/JMB HAWAII, INC. Consolidated Balance Sheets - Continued December 31, 1996 and 1995 (Dollars in Thousands) 1996 1995 Long-term debt 100,606 26,765 Other long-term liabilities 35,501 34,366 Deferred income taxes 88,345 98,691 Certificate of Land Appreciation Notes 220,692 220,692 -------- -------- Total liabilities 637,176 641,786 -------- -------- Commitments and contingencies (notes 3, 4, 5, 6, 7, 8, 9, and 11) S t o c k h o l d e r ' s E q u i t y ( D e f i c i t ) Common stock, no par value Authorized, issued and outstanding 1,000 shares 1 1 Additional paid-in capital 6,278 11,495 Retained earnings (deficit) (159,850) (125,684) -------- -------- Total stockholder's equity (deficit) (153,571) (114,188) -------- -------- 483,605 527,598 ========= ========= The accompanying notes are an integral part of the consolidated financial statements.
AMFAC/JMB HAWAII, INC. Consolidated Statements of Operations Years ended December 31, 1996, 1995 and 1994 (Dollars in Thousands)
1996 1995 1994 Revenues: Agriculture $51,805 47,656 89,237 Property 45,138 52,663 66,749 ------- ------- -------- 96,943 100,319 155,986 ------- ------- -------- Cost of sales: Agriculture 54,640 53,430 86,181 Property 34,627 30,853 38,531 ------- ------- ------- 89,267 84,283 124,712 Operating expenses: Selling, general and administrative 11,160 11,666 13,817 Depreciation and amortization 6,354 6,723 7,216 Reduction to carrying value of investments in real estate 18,315 -- 5,000 ------- ------- -------- Total costs and expenses 125,096 02,672 150,745 ------- ------- -------- Operating income (loss) (28,153) (2,353) 5,241 ------- ------- -------- Non-operating income (expenses): Amortization of deferred costs (1,222) (1,557) (2,086) Interest income 463 1,288 1,977 Interest expense (26,297) (25,233) (25,929) ------- ------- -------- (27,056) (25,502) (26,038) ------- ------- ------- Loss before taxes and extraordinary item (55,209) (27,855) (20,797) Income tax benefit (21,043) (8,019) (7,764) ------- -------- ------- Loss before extraordinary item (34,166) (19,836) (13,033) Extraordinary gain from extinquishment of debt (less applicable income taxes of $20,807) -- 32,544 -- ------- -------- -------- Net income (loss) (34,166) 12,708 (13,033) ======== ======== ======== The accompanying notes are an integral part of the consolidated financial statements
AMFAC/JMB HAWAII, INC. Consolidated Statements of Stockholder's Equity (Deficit) Years ended December 31, 1996, 1995 and 1994 (Dollars in Thousands)
Total Stock- Retained holder's Common Paid-In Earnings Equity Stock Capital (Deficit) (Deficit) Balance, December 31, 1993 $ 1 (10,370) (125,359) (135,728) Net loss -- -- (13,033) (13,033) Capital contribution - current income taxes (note 12) -- 24,754 -- 24,754 ------- -------- --------- --------- Balance, December 31, 1994 1 14,384 (138,392) (124,007) Net income -- -- 12,708 12,708 Capital distribution - current income taxes (note 12) -- (2,889) -- (2,889) ------- -------- --------- -------- Balance, December 31, 1995 $ 1 11,495 (125,684) (114,188) Net loss -- -- (34,166) (34,166) Capital distribution - current income taxes (note 12) -- (5,217) -- (5,217) ------- -------- --------- --------- Balance, December 31, 1996 $ 1 6,278 (159,850) (153,571) ====== ======== ======== ======== The accompanying notes are an integral part of the consolidated financial statements.
AMFAC/JMB HAWAII, INC. Consolidated Statements of Cash Flows Years ended December 31, 1996, 1995 and 1994 (Dollars in Thousands)
1996 1995 1994 -------- -------- -------- Cash flows from operating activities: Net income (loss) $ (34,166) 12,708 (13,033) Items not requiring (providing) cash: Depreciation and amortization 6,354 6,723 7,216 Amortization of deferred costs 1,222 1,557 2,086 Equity in earnings of investments (14) 69 69 Income tax expense (benefit) (21,043) 12,788 (7,764) Extraordinary gain from extinguishment of debt -- (53,351) -- Reduction to carrying value of investments in real estate 18,315 -- 5,000 Changes in: Receivables - net 3,979 6,223 29 Inventories 22,052 12,364 33,437 Prepaid expenses (337) 1,277 1,453 Accounts payable (2,843) (1,320) (4,093) Accrued expenses (3,994) (2,104) (1,116) Amounts due to affiliates (13,957) 12,751 922 Other long-term liabilities (4,489) (7,006) (2,258) ------- ------- -------- Net cash provided by (used in) operating activities (28,921) 2,679 21,948 ------- ------- -------- Cash flows from investing activities: Property additions (4,257) (5,145) (6,763) Property sales, disposals and retirements - net` 63 4,478 129 Investments in joint ventures and partnerships (1,093) (103) (174) Short-term investments -- 31,998 (31,998) Other assets (4,467) (1,927) (1,442) Other long-term liabilities 1,388 (4,945) 1,413 ------- ------- ------- Net cash provided by (used in) investing activities (8,366) 24,356 (38,835) ------- ------- ------- Cash flows from financing activities: Deferred expenses 28 29 (394) AMFAC/JMB HAWAII, INC. Consolidated Statements of Cash Flows - Continued Years ended December 31, 1996, 1995 and 1994 (Dollars in Thousands) 1996 1995 1994 -------- -------- -------- Payment to redeem and purchase Certificate of Land Appreciation Notes (COLAS) -- (105,452) -- Net borrowings (repayments) under bank line-of-credit agreement -- -- (8,000) Net amounts due to affiliates 26,668 61,814 -- Net (repayments) proceeds of long-term debt 7,582 (2,489) 5,103 Other costs related to extinguishment of debt -- (894) -- ------- ------- ------- Net cash provided by(used in)financing activities 34,278 (46,992) (3,291) ------- ------- ------- Net decrease in cash and cash equivalents (3,009) (19,957)(20,178) Cash and cash equivalents, beginning of year 11,745 31,702 51,880 ------- ------- ------- Cash and cash equivalents, end of year $ 8,736 11,745 31,702 ======= ======= ======= Supplemental disclosure of cash flow information: Cash paid for interest(net of amt capitalized) $31,111 24,347 25,898 ======= ======= ======= Schedule of non-cash investing and financing activities: Transfer of property actively held for sale to real estate inventories and accrued costs relating to real estate sales 29,481 9,240 9,531 ======= ======= ======= Disposition of debt: Gain on extinguishment of debt $ -- 53,351 -- Face value of debt extinguished -- (164,045) -- Other costs related to debt extinguishment -- 894 -- Write-off of Contingent Base Interest -- (5,667) -- Write-off of deferred COLA costs -- 10,015 -- -------- ------- ------- Cash paid to redeem and purchase COLAS $ -- (105,452) -- ======== ======= ======= The accompanying notes are an integral part of the consolidated financial statements.
AMFAC/JMB HAWAII, INC. Notes to Consolidated Financial Statements December 31, 1996, 1995 and 1994 (Dollars in Thousands) (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AND BASIS OF ACCOUNTING On November 17, 1988, the stockholders of Amfac, Inc. ("Amfac") agreed to the merger ("Merger") of Amfac with an affiliate of JMB Realty Corporation ("JMB"). The Merger was consummated on November 18, 1988. Amfac/JMB Hawaii, Inc. ("the Company") was wholly-owned by Amfac, a subsidiary of Northbrook Corporation ("Northbrook"). In May 1995, Amfac merged into Northbrook, with Northbrook being the surviving corporation. The Company, or its subsidiaries, hold title to substantially all of the agricultural and developmental real property and related assets of its parent corporation, Northbrook, located in Hawaii. The Company is wholly-owned by Northbrook, and is an affiliate of JMB as a result of the Merger and the subsequent merger of a subsidiary of an affiliate of JMB into Amfac Hawaii, Inc., which (after changing its name to Amfac/JMB Hawaii, Inc.) continues as the surviving corporation. On December 5, 1988, the Company commenced a public offering of Certificate of Land Appreciation Notes due 2008 ("COLAS") of which a total of 384,737 COLAS were subscribed for and issued. The offering terminated on August 31, 1989. The Company has two primary business segments. The agriculture segment ("Agriculture") is responsible for the Company's activities related to the cultivation and processing of sugar cane and other agricultural products. The real estate segment ("Property") is responsible for land development activities related to the Company's owned land in the State of Hawaii. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. STATEMENT OF CASH FLOWS The Company's policy is to consider all amounts held with original maturities of three months or less in U.S. government obligations, certificates of deposit and money market funds (approximately $4,900 and $3,700 at December 31, 1996 and 1995, respectively) as cash equivalents which approximates market. These amounts include $1,552 and $1,623 at December 31, 1996 and 1995, respectively, which were restricted primarily to fund debt service on long-term debt related to the acquisition of power generation equipment (see note 6). AMFAC/JMB HAWAII, INC. Notes to Consolidated Financial Statements - Continued (Dollars in Thousands) FAIR VALUE OF FINANCIAL INSTRUMENTS Statement of Financial Accounting Standards No. 107 ("SFAS No. 107"), "Disclosures about Fair Value of Financial Instruments", requires entities to disclose the SFAS No. 107 value of certain on-and off-balance sheet financial instruments for which it is practicable to estimate. Value is defined in SFAS No. 107 as the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The Company believes the carrying amounts of its financial instruments classified as current assets and liabilities in its balance sheet approximate SFAS No. 107 value due to the relatively short maturity of these instruments. The Company believes the carrying value of its long-term debt (notes 4 and 6) approximates fair value. SFAS No. 107 states that quoted market prices are the best evidence of the SFAS No. 107 value of financial instruments, even for instruments traded only in thin markets. On March 15, 1995, pursuant to the indenture that governs the terms of the COLAS (the "Indenture"), the Company elected to exercise its right to redeem, and therefore was obligated to purchase, any and all Class A COLAS submitted pursuant to the Redemption Offer at a price of $.365 per Class A COLA (see note 5). In conjunction with the Company's election to repurchase the Class A COLAS submitted for repurchase, the Company made a tender offer (the "Tender Offer") to purchase up to approximately $68,000 principal value of the Class B COLAS at a price of $.220 per Class B COLA from COLA holders electing to have their Class A COLAS repurchased. The Redemption Offer and the Tender Offer expired on June 1, 1995. Since such expiration, the secondary market for COLAS has been extremely thin. Since June 1, 1995, a limited number of COLA units have been sold in transactions arranged by brokers for amounts ranging from approximately $.250 to $.330 per Class B COLA and from approximately $.482 to $.545 per combined Class A and Class B COLA. Based on the range of transactions since June 1, 1995 and the number of COLAS outstanding (with a per unit carrying value of $1.0 and a total carrying value of $220,692 at December 31, 1996 in the accompanying consolidated financial statements), the implied SFAS No. 107 value of the COLAS would range from approximately $108,000 to 128,000. However, due to restrictions on prepayment and redemption as specified in the COLA Indenture, as well as the methodology used to determine such value, the Company does not believe that it would be able to refinance or repurchase all of its outstanding COLA units as of December 31, 1996 at this value. Reference is made to note 5 for results of the Redemption and Tender Offer. INVENTORY CAPITALIZATION AND RECOGNITION OF REVENUE FROM THE SALE OF SUGAR The Company capitalizes all of the expenditures incurred in bringing crops to their existing condition and location. Such capitalized expenditures include those costs related to the planting, cultivation and growing of sugar cane grown on the agricultural properties of the Company. Inventory reflected in the accompanying consolidated balance sheets at AMFAC/JMB HAWAII, INC. Notes to Consolidated Financial Statements - Continued (Dollars in Thousands) December 31, 1996 and 1995 is not in excess of its estimated net realizable value. Reductions in the estimated net realizable value of unsold sugar are recognized when anticipated. In determining the net realizable value of unsold sugar, the price the Company uses is based upon the domestic price of sugar. The Company recognizes revenue and related cost of sales upon delivery of its raw sugar to the California and Hawaii Sugar Company ("C&H"). The price of raw sugar that the Company receives is based upon the price of domestic sugar (less delivery and administrative costs) as currently controlled by U.S. Government price supports legislation. On April 4, 1996, President Clinton signed the Federal Agriculture Improvement and Reform Act of 1996 ("the Act"). The Act, which expires in 2002, keeps the loan rate at 18 cents per pound. However, the Act includes certain other adjustments to the sugar program including making crop loans recourse to the producer and repealing marketing allotments which may over time depress the domestic price of raw sugar. There can be no assurance that, in the future, the government price support will not be reduced or eliminated entirely. Such a reduction or elimination of price supports could have a material adverse affect on the Company's agriculture operations, and possibly could cause the Company to evaluate the cessation of its remaining sugar cane operations. As part of the Company's agriculture operations, the Company enters into commodities futures contracts and options in sugar as deemed appropriate to reduce the risk of future price fluctuations in sugar. These futures contracts and options are accounted for as hedges and, accordingly, gains and losses are deferred and recognized in cost of sales as part of the production cost. INVESTMENTS Investments in certain partnerships and joint ventures, if any, over which the Company exercises significant influence are accounted for by the equity method. To the extent the Company engages in such activities as general partner, the Company is contingently liable for the obligations of its partnership and joint venture investments. LAND DEVELOPMENT Project costs associated with the acquisition, development and construction of real estate projects are capitalized and classified as construction in progress. Such capitalized costs are not in excess of the project's estimated fair value as reviewed periodically or as considered necessary. In addition, interest is capitalized to qualifying assets AMFAC/JMB HAWAII, INC. Notes to Consolidated Financial Statements - Continued (Dollars in Thousands) during the period that such assets are undergoing activities necessary to prepare them for their intended use. Such capitalized interest is charged to cost of sales as revenue from the real estate development is recognized. Interest costs of approximately $1,327 have been capitalized for the year ended 1996. No material amounts have been capitalized for the year ended 1995 and 1994. Land actively held for sale and any related development costs transferred from construction in progress are reported as inventories in the accompanying consolidated balance sheets and are stated at the lower of cost or fair value less costs to sell. LONG-LIVED ASSETS In March 1995, the Financial Accounting Standard Board issued Statement of Financial Accounting Standards No. 121 ("SFAS No. 121"), Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, which requires impairment losses to be recorded on long-lived assets used in operation when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. SFAS No. 121 also addresses the accounting for long-lived assets that are expected to be disposed of. The Company adopted SFAS No. 121 in 1995, with no effect on the accompanying financial statements. In accordance with the provisions of the COLA Indenture, appraisals were performed for certain assets of the Company as of December 31, 1996 and 1994, which reflected a decline in value for certain properties. Accordingly, the Company recorded, as a matter or prudent accounting practice, reductions to the carrying value of these properties in the fourth quarter of 1996 and the fourth quarter of 1994 in the amounts of $18,315 and $5,000, respectively, to properly reflect the estimated market value of the property in its current state of development. EFFECTIVE INTEREST For financial reporting purposes, the Company uses the effective interest rate method and accrued interest on the COLAS at 4% per annum ("Mandatory Base Interest") for the years ended December 31, 1996, 1995 and 1994. INTEREST RATE SWAPS AND CAPS Net interest received (paid) on contracts that qualify as hedges is recognized over the life of the contract as an adjustment to interest income (expense) of the hedged financial instrument. AMFAC/JMB HAWAII, INC. Notes to Consolidated Financial Statements - Continued (Dollars in Thousands) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost. Depreciation is based on the straight-line method over the estimated economic lives of 20-40 years for land improvements and 3-18 years for machinery and equipment, or the lease term, whichever is less. Maintenance and repairs are charged to operations as incurred. Renewals and significant betterments and improvements are capitalized and depreciated over their estimated useful lives. DEFERRED EXPENSES Deferred expenses consist primarily of financing costs related to the COLAS. Such costs are being amortized over the term of the COLAS on a straight- line basis. RECOGNITION OF PROFIT FROM REAL PROPERTY SALES For real property sales, profit is recognized in full when the collectibility of the sales price is reasonably assured and the earnings process is virtually complete. When the sale does not meet the requirements for full profit recognition, a portion of the profit is deferred until such requirements are met. INCOME TAXES The Company and its subsidiaries report their taxes as part of the consolidated tax return of the Company's parent, Northbrook. The Company and its subsidiaries have entered into a tax indemnification agreement with Northbrook that indemnifies the Company and its subsidiaries for responsibility for all past, present and future federal and state income tax liabilities (other than income taxes which are directly attributable to cancellation of indebtedness income caused by the repurchase or redemption of securities as provided for in or contemplated by the Repurchase Agreement). Current and deferred taxes have been allocated to the Company as if the Company were a separate taxpayer in accordance with the provisions of SFAS No. 109-Accounting for Income Taxes. However, to the extent the tax indemnification agreement does not require the Company to actually pay income taxes, current taxes payable or receivable have been reflected as deemed contributions or distributions to additional paid-in capital in the accompanying consolidated financial statements. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. AMFAC/JMB HAWAII, INC. Notes to Consolidated Financial Statements - Continued (Dollars in Thousands) (2) ASSETS AND LIABILITIES INFORMATION 1996 1995 ------- ------- Receivables - net: Trade accounts and notes (net of allowance) $ 2,161 2,252 Sugar and molasses 1,663 3,877 Insurance claims, net -- 1,440 Other 917 1,151 ------- ------- $4,741 8,720 ======= ======= Accrued expenses: Payroll and benefits $ 2,540 2,592 Interest 4,470 7,929 Other 2,264 2,747 ------- ------- $ 9,274 13,268 ======= ======= (3) INVESTMENTS The Company's investments at December 31, 1996 and 1995 consist of the following: Carrying Value -------------- Ownership Description Percentage 1996 1995 - ----------- ----------- ------ ------ Sugar Cooperatives 26.0% $ 41 40 North Beach Joint Venture 50.0% 46,146 45,040 ------- ------- $ 46,187 45,080 ======= ======= The Company's sugar plantation subsidiaries sell their raw sugar production to the Hawaiian Sugar and Transportation Company ("HSTC"), which is an agricultural cooperative owned by the major Hawaii producers of raw sugar (including the Company), under a marketing agreement. HSTC sells the raw sugar production to C&H pursuant to a long-term supply contract. The terms of the supply contract do not require a specified level of production by the Hawaii producers; however, HSTC is obligated to sell and C&H is obligated to purchase any raw sugar produced. The Company holds a 26 percent equity interest in HSTC. HSTC returns to its raw sugar suppliers proceeds based upon the domestic sugar price less delivery and administrative charges. The Company recognizes revenues and related cost of sales upon delivery of its raw sugar to C&H. AMFAC/JMB HAWAII, INC. Notes to Consolidated Financial Statements - Continued (Dollars in Thousands) The North Beach joint venture was formed during 1986 to plan, manage and develop approximately 96 acres of beachfront property located at the Kaanapali Beach Resort on West Maui. The following is the condensed, combined financial statement information (unaudited) of HSTC and the North Beach joint venture: 1996 1995 ----------------- ----------------- North Beach North Beach Joint Venture HSTC Joint Venture HSTC -------------------- ------------------- Current assets $ 255 13,613 210 31,558 Noncurrent assets 40,100 1,907 40,122 3,797 Current liabilities (202) (14,011) (205) (31,046) Noncurrent liabilities -- (1,400) -- (4,200) -------- ------- ------- -------- Equity $ 40,153 109 40,127 109 ======== ======= ======== ======== 1996 1995 1994 ------ ------ ------ Revenue $203,406 202,954 312,526 Cost and expenses 19,755 20,493 28,472 -------- -------- -------- Net income $183,651 182,461 284,054 ======== ======== ======== AMFAC/JMB HAWAII, INC. Notes to Consolidated Financial Statements - Continued (Dollars in Thousands) (4) AMOUNTS DUE AFFILIATES - FINANCING The maturity date of the approximately $15,097 of remaining acquisition- related financing owed to affiliates has been extended to June 1, 1998 and bears interest at a rate per annum based upon the prime interest rate (8.25% at December 31, 1996), plus one percent. In addition to the $52,000 borrowed from Northbrook in 1995 to redeem Class A COLAS pursuant to the Redemption Offer (see Note 5), the Company has also borrowed approximately $18,746 and $9,814 during 1996 and 1995, respectively, to fund COLA Base Interest payments and other operational needs. These loans from Northbrook are payable interest only, mature on June 1, 1998 and carry an interest rate per annum equal to the prime interest rate plus two percent. Pursuant to the Indenture relating to the COLAS, the amounts borrowed from Northbrook are considered "Senior Indebtedness" to the COLAS. In February 1997 the above noted affiliate loans, along with certain other amounts due Northbrook, were converted into a new $104,759 ten year note payable. The new note is payable interest only, which accrues at the prime interest rate plus 2%. (5) CERTIFICATE OF LAND APPRECIATION NOTES The COLAS are unsecured debt obligations of the Company. Interest on the COLAS is payable semi-annually on February 28 and August 31 of each year. The COLAS mature on December 31, 2008, and bear interest after the Final Issuance Date (August 31, 1989) at a rate of 10% per annum ("Base Interest") of the outstanding principal balance of the COLAS on a cumulative, non-compounded basis, of which 6% per annum is contingent ("Contingent Base Interest") and payable only to the extent of Net Cash Flow (Net Cash Flow for any period is generally an amount equal to 90% of the Company's net cash revenues and receipts after payment of cash expenditures, including the Qualified Allowance (as defined) other than federal and state income taxes and after the establishment by the Company of reserves). In each calendar year, principal reductions may be made from remaining Net Cash Flow, if any, in excess of all current and unpaid deferred Contingent Base Interest and will be made at the election of the Company (subject to certain restrictions). The COLAS will bear additional contingent interest in any year, after any principal reduction, equal to 55% of remaining Net Cash Flow. Upon maturity, holders of COLAS will be entitled to receive the remaining outstanding principal balance of the COLAS plus unpaid mandatory Base Interest plus additional interest equal to the unpaid Contingent Base Interest, to the extent of the Maturity Market Value (Maturity Market Value generally means 90% of the excess of the Fair Market Value (as defined) of the Company's assets at Maturity over its liabilities incurred in connection with its operations), plus 55% of the remaining Maturity Market Value. AMFAC/JMB HAWAII, INC. Notes to Consolidated Financial Statements - Continued (Dollars in Thousands) On March 14, 1989, Amfac/JMB Finance ("Finance"), a wholly-owned subsidiary of Northbrook, and the Company entered into an agreement (the "Repurchase Agreement") concerning Finance's obligations to repurchase, on June 1, 1995 and 1999, the COLAS upon request of the holders thereof. The COLAS were issued in two units consisting of one Class A and one Class B COLA. As specified in the Repurchase Agreement, the repurchase of the Class A COLAS may have been requested by the holders of such COLAS on June 1, 1995 at a price equal to the original principal amount of such COLAS ($.5) minus all payments of principal and interest allocated to such COLAS. The cumulative interest paid per Class A COLA through June 1, 1995 was $.135. The repurchase of the Class B COLAS may be requested of Finance by the holders of such COLAS on June 1, 1999 at a price equal to 125% of the original principal amount of such COLAS ($.5) minus all payments of principal and interest allocated to such COLAS. Through the date of this report, the cumulative interest paid per Class A and Class B COLA is approximately $.165 and $.165, respectively. On March 14, 1989, Northbrook entered into a keep-well agreement with Finance, whereby it agreed to contribute sufficient capital or make loans to Finance to enable Finance to meet its COLA repurchase obligations described above. Notwithstanding Finance's repurchase obligations, the Company may elect to redeem any COLAS requested to be repurchased at the specified price. On March 15, 1995, pursuant to the indenture that governs the terms of the COLAS (the "Indenture"), the Company elected to offer to redeem (the "Redemption Offer") all Class A COLAS from the registered holders, thereby eliminating Finance's obligation to satisfy the Class A COLA repurchase options requested by such holders as of June 1, 1995. Pursuant to the Redemption Offer, and in accordance with the terms of the Indenture, the Company was therefore obligated to purchase any and all Class A COLAS submitted pursuant to the Redemption Offer at a price of $.365 per Class A COLA. In conjunction with the Company's Redemption Offer, the Company made a tender offer (the "Tender Offer") to purchase up to approximately $68,000 principal value of the Class B COLAS at a price of $.220 per Class B COLA from COLA holders electing to have their Class A COLAS repurchased. Approximately 229,000 Class A COLAS were submitted for repurchase pursuant to the Redemption Offer and approximately 99,000 Class B COLAS were submitted for repurchase pursuant to the Tender Offer, requiring an aggregate payment by the Company of approximately $105,450 on June 1, 1995. The Company used its available cash to purchase Class B COLAS pursuant to the Tender Offer and borrowed $52,000 from Northbrook to purchase Class A COLAS pursuant to the Redemption Offer. As a result of the repurchases, the Company retired approximately $164,045 in face value of COLA debt and recognized a financial statement extraordinary gain of approximately $32,544 (net of income taxes of $20,807, the write-off of deferred financing costs of $10,015, the write-off of accrued Contingent Base Interest of $5,667 and expenses of $894). Such gain AMFAC/JMB HAWAII, INC. Notes to Consolidated Financial Statements - Continued (Dollars in Thousands) was treated as cancellation of indebtedness income for tax purposes and, accordingly, the income taxes related to the Class A Redemption Offer (approximately $9,106) were not indemnified by the tax agreement with Northbrook (see note 1). The terms of the Indenture relating to the COLAS place certain restrictions on the Company's declaration and payment of dividends. Such restrictions generally relate to the source, timing and amounts which may be declared and/or paid. The COLAS also impose certain restrictions on, among other things, the creation of additional indebtedness for certain purposes, the Company's ability to consolidate or merge with or into other entities, and the Company's transactions with affiliates. (6) LONG-TERM DEBT In June 1991, the Company obtained a five-year $66,000 loan from the Employees' Retirement System of the State of Hawaii ("ERS"). The nonrecourse loan is secured by a first mortgage on the Kaanapali Golf Courses, and is considered "Senior Indebtedness" (as defined in the Indenture relating to the COLAS). The loan bore interest at a rate per annum equal to the greater of (i) the base interest rate announced by the Bank of Hawaii on the first of July for each year or (ii) ten percent per annum through June 30, 1993 and nine percent per annum thereafter. The annual interest payments were in excess of the cash flow generated by the Kaanapali Golf Courses. In April 1996, the Company reached an agreement to amend the loan with the ERS, extending the maturity date for five years. In exchange for the loan extension, the ERS received the right to participate in the "Net Disposition Proceeds" (as defined) related to the sale or the refinancing of the golf courses or at the maturity of the loan. The ERS share of the Net Disposition Proceeds increases from 30% through June 30, 1997, to 40% for the period from July 1, 1997 to June 30, 1999 and to 50% thereafter. The loan amendment effectively adjusted the interest rate as of January 1, 1995 to 9.5% until June 30, 1996. After June 30, 1996, the loan bears interest at a rate per annum equal to 8.73%. The loan amendment requires the Company to pay interest at the rate of 7% for the period from January 1, 1995 to June 30, 1996, 7.5% from July 1, 1996 to June 30, 1997, 7.75% from July 1, 1997 to June 30, 1998 and 8.5% thereafter ("Minimum Interest"). The Company made payments in 1996 totaling $6,512, which represents the Minimum Interest due through October 1, 1996. Accrued Minimum Interest as of December 31, 1996 was $1,244. The scheduled minimum payments are paid quarterly on the principal balance of the $66,000 loan. The difference between the accrued interest expense and the Minimum Interest payment accrues interest and is payable on an annual basis from excess cash flow, if any, generated from the Kaanapali Golf Courses. The total accrued interest payable from excess cash flow was approximately $3,151 as of December 31, 1996. Although the outstanding loan balance remains nonrecourse, certain payments and obligations, such as the Minimum Interest payments and the ERS's share of appreciation, if any, are recourse to the Company. However, the Company's obligations to make future Minimum Interest payments and to pay the ERS a share of appreciation would be terminated if the Company tendered an executed deed to the golf course property to the ERS in accordance with the terms of the amendment. AMFAC/JMB HAWAII, INC. Notes to Consolidated Financial Statements - Continued (Dollars in Thousands) In January 1993, The Lihue Plantation Company, Limited ("Lihue") obtained a ten-year $13,250 loan used to fund the acquisition of Lihue's power generation equipment. The $13,250 loan, constituting "Senior Indebtedness" under the COLAS' Indenture, consists of two ten year amortizing term loans of $10,000 and $3,250, respectively, payable in forty consecutive installments commencing July 1, 1993 in the principal amount of $250 and $81, respectively (plus interest). The $10,000 and $3,250 loans have outstanding balances of $6,500 and $66, respectively, as of December 31, 1996 and bear interest at a rate equal to prime rate (8.25% at December 31, 1996) plus three and one half percent and prime rate plus four and one-half percent, respectively. Lihue has purchased an interest rate agreement which protects against fluctuations in interest rates and effectively caps the prime rate for the first seven years of the loan agreement at eight percent. The loan is secured by the Lihue power generation equipment, sugar inventories and receivables, certain other assets and real property of the Company and has limited recourse to the Company and certain other subsidiaries. In October 1993, Waikele Golf Club, Inc. ("WGCI"), a wholly-owned subsidiary of the Company that owns and operates the Waikele Golf Course, obtained a five year $20,000 loan facility from two lenders. The loan consists of two $10,000 amortizing loans. Each loan bears interest only for the first two years and interest and principal payments based upon an assumed 20 year amortization period for the remaining three years. The loans bear interest at prime plus 1/2% and LIBOR (5.5% at December 31, 1996) plus 3%, respectively. WGCI received an initial funding of $14,000, of which $600 was held back by the lenders to pay interest. In October 1994, in accordance with the loan agreement, the Company received an additional funding of $6,000 and a release of the $600 interest holdback, both of which were contingent upon achieving a certain level of Net Operating Income (as defined) by the golf course during the first six months of 1994. The loan is secured by WGCI's assets (the golf course and related improvements and equipment), is guaranteed by the Company, and is considered "Senior Indebtedness" (as defined in the Indenture relating to the COLAS). As of December 31, 1996, the outstanding balance was $19,511, with scheduled annual principal maturities of $405 in 1997 and the balance of $19,106 in 1998. In February 1997, WGCI entered into an amended and restated loan agreement with the Bank of Hawaii, whereby the outstanding principal amount of the loan has been increased to $25,000, the maturity date has been extended to February 2007, the interest rate has been changed to LIBOR plus 2% until the fifth anniversary and LIBOR plus 2.5% thereafter and principal is to be repaid based on a 30-year amortization schedule. In December 1996, Amfac Property Development Corporation, a wholly-owned subsidiary of the Company, obtained a $10,000 loan facility from a Hawaii bank. The loan is secured by a mortgage on property under development at the mill-site of Oahu Sugar, and is considered "Senior Indebtedness" (as defined in the Indenture relating to the COLAS). The loan bears interest at the bank's base rate (8.25% at December 31, 1996) plus .5% and matures on December 1, 1998. AMFAC/JMB HAWAII, INC. Notes to Consolidated Financial Statements - Continued (Dollars in Thousands) (7) RENTAL ARRANGEMENTS As Lessee The Company rents, as lessee, various land, facilities and equipment under operating leases. Most land leases provide for renewal options and minimum rentals plus contingent payments based on revenues or profits. Included in rent expense are minimum rentals and contingent payments for operating leases in the following amounts: 1996 1995 1994 ------ ------ ------ Minimum and fixed rents $2,357 2,789 3,956 Contingent payments 1,181 1,261 2,476 Property taxes, insurance and other charges 1,241 445 669 ------- ------ ------ $4,779 4,495 7,101 ======== ======== ======= Future minimum lease payments under noncancelable operating leases aggregate approximately $13,403 and are due as follows: 1997, $1,960; 1998, $2,138; 1999, $1,959; 2000, $2,005; 2001, $1,663; and thereafter, $3,678. (8) EMPLOYEE BENEFIT PLANS The Company participates in benefit plans covering substantially all its employees, which provide benefits based primarily on length of service and compensation levels. These plans are administered by Northbrook in conjunction with other plans providing benefits to employees of Northbrook and its affiliates. Northbrook's policy is to fund pension costs in accordance with the minimum funding requirements under provisions of the Employee Retirement Income Security Act ("ERISA"). Under ERISA guidelines, amounts funded may be more or less than the pension expense recognized for financial reporting purposes. One of the Company's defined benefit plans, the Retirement Plan for the Employees of Amfac, Inc. (the "Plan"), terminated effective December 31, 1994. The settlement of the plan occurred in May 1995. The Company replaced this plan with the "Core Retirement Award Program", a defined contribution plan that commenced on January 1, 1995. In the new plan, an Eligible Employee (as defined) is credited with an annual contribution equal to 3% of the employee's qualified compensation. The new plan's cost to the Company and the benefits provided to the participants are comparable to the former plan. Charges for pension and Core Retirement Award costs allocated to the Company aggregated approximately $628, $961 and $1,000 for the years ended December 31, 1996, 1995 and 1994, respectively. AMFAC/JMB HAWAII, INC. Notes to Consolidated Financial Statements - Continued (Dollars in Thousands) In addition to providing pension benefits, the Company also provides certain healthcare and life insurance benefits to eligible retired employees of some of its businesses. Where such benefits are offered, substantially all employees may become eligible for such benefits if they reach a specified retirement age while employed by the Company and if they meet a certain length of service criteria. The postretirement healthcare plan is contributory and contains cost-sharing features such as deductibles and copayments. However, these features, as they apply to bargaining unit retirees, are subject to collective bargaining provisions of a labor contract between the Company and the International Longshoremen's & Warehousemen's Union. The postretirement life insurance plan is non-contributory. The Company continues to fund benefit costs for both plans on a pay-as-you-go basis. Net periodic postretirement benefit cost (credit) for 1996, 1995 and 1994 includes the following components: December 31, December 31, December 31, 1996 1995 1994 ------------------ ----------------- ---------------- Life Life Life Medical Insurance Medical Insurance Medical Insurance Plans Plans Total Plans Plans Total Plans Plan Total ------- ------- ------ ------ ------- ------ ---- ----- ----- Service cost $394 23 417 378 15 393 483 17 500 Interest cost 1,681 289 1,970 1,991 296 2,287 3,428 292 3,720 Amortization of net(gain)loss (3,396) 30 (3,366) (3,310) 24 (3,286)(1,290) 35 (1,255) ------- ------ ------ ------ ----- ------ ----- ----- ---- Net periodic postretirement benefit cost (credit) $(1,321) 342 (979) (941) 335 (606) 2,621 344 2,965 ====== ====== ====== ====== ====== ===== ====== ===== ===== The following table sets forth the plans' combined funded status reconciled with the amounts included in the Company's consolidated financial statements at December 31, 1996 and 1995: December 31, December 31, 1996 1995 ------------------- ------------------ Life Life Medical Insurance Medical Insurance Plans Plan Total Plans Plan Total ------ ------- ------- ------ ------ -------- Accumulated postretirement benefit obligation: Retirees $17,385 3,827 21,212 16,048 3,915 19,963 Fully eligible active plan members 195 16 211 310 29 339 Other active plan members 4,514 164 4,678 6,928 153 7,081 ------ ------ ------ ------ ------ ----- 22,094 4,007 26,101 23,286 4,097 27,383 Unrecognized net gain(loss) 31,912 (351) 31,561 33,958 (304) 33,654 ------ ------ ------ ------ ------ ------ Acc. postretirement benefit cost 54,006 3,656 57,662 57,244 3,793 61,037 ====== ====== ====== ====== ===== ====== AMFAC/JMB HAWAII, INC. Notes to Consolidated Financial Statements - Continued (Dollars in Thousands) For measuring the expected postretirement benefit obligation, an 11% annual rate of increase in the per capita claims cost was assumed for 1996 through 2002. This rate was assumed to decrease to 6% in 2003 and remain at that level thereafter. The healthcare cost trend rate assumption has a significant effect on the amount of the obligation and periodic cost reported. An increase in the assumed healthcare trend rate by 1% in each year would increase the medical plans' accumulated postretirement benefit obligation as of December 31, 1996 by 7% and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year then ended by 8%. During 1995, premiums for health benefits for retirees were adjusted to match actual claims experience. This adjustment resulted in a reduction to the cost absorbed by the Company due to the cost sharing provisions of the health care benefit plan. This adjustment also resulted in the reduction of the accumulated postretirement benefit obligation as of December 31, 1995. The Company currently amortizes unrecognized gains over the shorter of 10 years or the average remaining service period of active plan participants. However, due to the significant amount of unrecognized gain at December 31, 1996, which is included in the financial statements as a liability, and the disproportionate relationship between the unrecognized gain and accumulated postretirement benefit obligation at December 31, 1996, the Company may, in the future, change its amortization policy to accelerate the recognition of the unrecognized gain. In considering such change, the Company would need to determine whether significant changes in the accumulated postretirement benefit obligation and unrecognized gain may occur in the future as a result of changes in actuarial assumptions, experience and other factors. Any future change to accelerate the amortization of the unrecognized gain would have no effect on the Company's cash flows, but could have a significant effect on its statement of operations. The weighted-average discount rate used in determining the accumulated postretirement benefit obligation was 7.5% as of December 31, 1996 and 1995. (9) TRANSACTIONS WITH AFFILIATES The Company incurred interest expense of approximately $8,935, $5,360 and $1,267 for the years ended December 31, 1996, 1995 and 1994, respectively, in connection with the financing obtained from an affiliate (see note 4), all of which was paid as of December 31, 1996. With respect to any calendar year, JMB or its affiliates may receive a Qualified Allowance in an amount equal to: (i) approximately $6,200 during each of the calendar years 1989 through 1993; and (ii) thereafter, 1-1/2% per annum of the Fair Market Value (as defined) of the gross assets of the Company and its subsidiaries (other than cash and cash equivalents and Excluded Assets (as defined)) for providing certain advisory services for the Company. However, such amounts shall be earned and paid for each year only following the payment of a specified level of Base Interest to the holders of the COLAS. Any portion of the Qualified Allowance not paid for any year shall accumulate without interest. A Qualified Allowance for 1989 of approximately $6,200 was paid on February 28, 1990. Any Qualified Allowance for 1990 through 1996 has been deferred and is payable only to the AMFAC/JMB HAWAII, INC. Notes to Consolidated Financial Statements - Continued (Dollars in Thousands) extent future Net Cash Flows are sufficient to pay the holders of the COLAS a specified level of return, and accordingly, no such amounts have been reflected in the accompanying consolidated financial statements. JMB has informed the Company that no incremental costs or expenses have been incurred relating to the provision of these advisory services. The Company believes that using an incremental cost methodology is reasonable. The Company, its subsidiaries and their joint ventures reimburse Northbrook, JMB and their affiliates for direct expenses incurred on their behalf, including salaries and salary-related expenses incurred in connection with the management of the Company's or its subsidiaries' and the joint ventures' operations. The total of such costs for the years ended December 31, 1996, 1995 and 1994 was approximately $653, $587 and $500, respectively, of which $1,241 was unpaid as of December 31, 1996. In addition, as of December 31, 1996, the current portion of amounts due to affiliates includes $9,106 of income tax payable related to the Class A COLA Redemption Offer (see note 5). Also, the Company pays a non-accountable reimbursement of approximately $30 per month to JMB or its affiliates in respect of general overhead expense, all of which was paid as of December 31, 1996. JMB Insurance Agency, Inc. earns insurance brokerage commissions in connection with providing the placement of insurance coverage for certain of the properties and operations of the Company. Such commissions are comparable to those available to the Company in similar dealings with unaffiliated third parties. The total of such commissions for the years ended December 31, 1996, 1995 and 1994 was approximately $774, $653 and $983, respectively, all of which was paid as of December 31, 1996. Northbrook and its affiliates allocated certain charges for services to the Company based upon the estimated level of services for the years ended December 31, 1996, 1995 and 1994 of approximately $1,460, $7,868 and $1,757, respectively, of which $6,488 was unpaid as of December 31, 1996. These services and costs are intended to reflect the Company's separate costs of doing business and are principally related to the inclusion of the Company's employees in the Northbrook pension plan, payment of severance and termination benefits and reimbursement for insurance claims paid on behalf of the Company. All amounts described above, deferred or currently payable, do not bear interest and are expected to be paid in future periods. As discussed in note 4, in February 1997 certain intercompany payables to Northbrook totaling $7,922 were converted into a new ten year note payable. Accordingly, these intercompany amounts were classified as long-term as of December 31, 1996 in the accompanying consolidated financial statements. (10) SIGNIFICANT CUSTOMER During 1994, approximately 24% of the Company's revenues were derived from the sale of land parcels at Waikele to a single builder. AMFAC/JMB HAWAII, INC. Notes to Consolidated Financial Statements - Continued (Dollars in Thousands) As a result of the Company's interest in HSTC, C&H is contractually bound to purchase all of the sugar the Company produces. If, for any reason, C&H were to cease its operations, the Company would seek other purchasers for its sugar. (11) COMMITMENTS AND CONTINGENCIES The Company is involved in various matters of litigation and other claims. Management, after consultation with legal counsel, is of the opinion that the Company's liability (if any) when ultimately determined will not have a material adverse effect on the Company's financial position. The Company's property segment had contractual commitments (related to project costs) of approximately $2,100 as of December 31, 1996. Additional development expenditures are dependent upon the ability to obtain financing and the timing and extent of property development and sales. As of December 31, 1996, certain portions of the Company's land not currently under development or used in sugar operations are mortgaged as security for $1,300 of performance bonds related to property development. (12) INCOME TAXES Total income tax expense (benefit) for the years ended December 31, 1996, 1995 and 1994 was allocated as follows: 1996 1995 1994 ------ -------- ------- Loss before extraordinary gain $(21,043) (8,019) (7,764) Extraordinary gain -- 20,807 -- ------- ------- ------ $(21,043) 12,788 (7,764) ======= ======= ====== Income tax expense (benefit) attributable to loss before extraordinary gain for the years ended December 31, 1996, 1995 and 1994 consists of: Current Deferred Total ------- --------- ------- Year ended December 31, 1996: U.S. federal $(4,414) (13,391) (17,805) State (803) (2,435) (3,238) ------- -------- -------- $(5,217) (15,826) (21,043) ======= ======= ======== Year ended December 31, 1995: U.S. federal $(10,475) 3,689 (6,786) State (1,904) 671 (1,233) ------- ------ ------ $(12,379) 4,360 (8,019) ======= ======= ======= Year ended December 31, 1994: U.S. federal $ 20,946 (27,515) (6,569) State 3,808 (5,003) (1,195) -------- ------- -------- $24,754 (32,518) (7,764) ======== ======= ======== AMFAC/JMB HAWAII, INC. Notes to Consolidated Financial Statements - Continued (Dollars in Thousands) In 1995, income tax expense related to the COLA redemption approximated $20,807. Of this amount, approximately $9,106 was attributable to current taxes related to the redeemed Class A COLA's and, accordingly, was not indemnified by Northbrook (see note 9). Current income tax expense attributable to the Class B COLA's of approximately $9,490 was indemnified by Northbrook and, accordingly, was deducted from the 1995 current tax benefit of $12,379 attributable to loss before extraordinary gain to derive the 1995 capital contribution related to current income taxes. Income tax benefit attributable to loss before extraordinary gain differs from the amounts computed by applying the U.S. federal income tax rate of 35 percent to pretax loss before extraordinary gain as a result of the following: 1996 1995 1994 ------ ------ ------ Computed "expected" tax benefit $(19,323) (9,749) (7,279) Increase (reduction) in income taxes resulting from: Pension and Core Retirement Award expense 321 2,478 365 State income taxes, net of federal income tax benefit (2,158) (823) (796) Other, net 117 75 (54) ------- ------- ------- Total $(21,043) (8,019) (7,764) ======== ======= ======= AMFAC/JMB HAWAII, INC. Notes to Consolidated Financial Statements - Continued (Dollars in Thousands) Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax liabilities and assets as of December 31, 1996 and 1995 are as follows: 1996 1995 --------- -------- Deferred tax (assets): Postretirement benefits $ (22,488) (23,804) Interest accruals (2,975) (3,149) Other accruals (3,549) (3,074) -------- -------- Total deferred tax assets (29,012) (30,027) -------- -------- Deferred tax liabilities: Accounts receivable related to profit on sales of sugar 3,065 3,332 Inventories, principally due to sugar production costs,capitalized costs, capitalized interest and purchase accounting adjustments 258 4,716 Plant and equipment, principally due to depreciation and purchase accounting adjustments 8,129 7,696 Land and land improvements, principally due to purchase accounting adjustments 89,537 101,204 Deferred gains due to installment sales for income tax purposes 7,429 8,492 Investments in unconsolidated entities, principally due to purchase accounting adjustments. 14,361 14,180 ------- ------- Total deferred tax liabilities 122,779 139,620 ------- ------- Net deferred tax liability $ 93,767 109,593 ========= ======== AMFAC/JMB HAWAII, INC. Notes to Consolidated Financial Statements - Concluded (Dollars in Thousands) (13) SEGMENT INFORMATION Agriculture and Property comprise the separate industry segments of the Company. Operating income (loss)-Other consists primarily of unallocated overhead expenses and Total assets-Other consists primarily of cash and deferred expenses. Total revenues, operating income (loss), assets, capital expenditures, and depreciation and amortization by industry segment for 1996, 1995 and 1994 are set forth below: 1996 1995 1994 Revenues: Agriculture $51,805 47,656 89,237 Property 45,138 52,663 66,749 -------- -------- -------- $96,943 100,319 155,986 ======== ======== ======== Operating income (loss): Property: Reduction to carrying value of investments in real estate $(18,315) -- (5,000) Other 732 11,122 17,934 Agriculture (7,525) (10,882) (3,893) Other (3,045) (2,593) (3,800) -------- -------- -------- $ (28,153) (2,353) 5,241 ======== ======== ======== Total assets: Property $225,372 199,999 207,980 Agriculture 239,222 304,170 321,906 Other 19,011 23,429 84,661 -------- -------- -------- $483,605 527,598 614,547 ======== ======== ======== Capital expenditures: Property $ 845 1,529 2,872 Agriculture 3,160 3,616 3,891 Other 252 -- -- ------- -------- -------- $ 4,257 5,145 6,763 ======= ======== ======== Depreciation and amortization: Property $ 2,179 1,991 2,128 Agriculture 4,120 4,538 4,889 Other 55 194 199 ------- ------- -------- $ 6,354 6,723 7,216 ======= ======= ======== (14) Subsequent Event On February 28, 1997, an interest payment of approximately $4,414 was paid to the holders of COLAS. The Company borrowed approximately $4,414 from Northbrook to make the interest payment. Schedule II AMFAC/JMB HAWAII, INC. Valuation and Qualifying Accounts Years ended December 31, 1996, 1995 and 1994 (Dollars in Thousands)
Additions Additions Balance at Charges to Charges to Balance at Beginning Cost and Other End Description of Period Expenses Accounts Deductions of Period -------- ------- --------- ---------- ------- Year ended December 31, 1996: Allowance for doubtful accounts: Trade accounts $ 361 11 -- 54 318 Claims and other -- -- -- -- -- ------- ------ ------ ------ ------ $ 361 11 -- 54 318 ======= ====== ====== ====== ====== Year ended December 31, 1995: Allowance for doubtful accounts: Trade accounts $ 285 102 -- 26 361 Claims and other 1,144 -- -- 1,144 -- ------ ------ ------ ------ ------ $1,429 102 -- 1,170 361 ====== ====== ====== ====== ====== Year ended December 31, 1994: Allowance for doubtful accounts: Trade accounts $ 235 89 -- 39 285 Claims and other 1,144 -- -- -- 1,144 ------ ------ ------ ------- ------- $1,379 89 -- 39 1,429 ====== ====== ====== ======= =======
REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholder AMFAC/JMB FINANCE, INC. We have audited the accompanying balance sheets of Amfac/JMB Finance, Inc. as of December 31, 1996 and 1995. These balance sheets are the responsibility of the Company's management. Our responsibility is to express an opinion on these balance sheets based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the balance sheets are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the balance sheets. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall balance sheet presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the balance sheets referred to above present fairly, in all material respects, the financial position of Amfac/JMB Finance, Inc. at December 31, 1996 and 1995, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Honolulu, Hawaii March 21, 1997 AMFAC/JMB FINANCE, INC. Balance Sheets December 31, 1996 and 1995 (Dollars in thousands, except per share information) A S S E T S 1996 1995 Current assets: Cash $ 1 1 ======= ======== L I A B I L I T Y A N D S T O C K H O L D E R ' S E Q U I T Y Repurchase obligation (note 3) Common stock, $1 par value; authorized, issued and outstanding - 1,000 shares $ 1 1 ======= ======= The accompanying notes are an integral part of these balance sheets. AMFAC/JMB FINANCE, INC. Notes to the Balance Sheets December 31, 1996 and 1995 (Dollars in Thousands) (1) ORGANIZATION AND ACCOUNTING POLICY Amfac/JMB Finance, Inc. ("Finance") was incorporated November 7, 1988 in the State of Illinois. Finance has had no financial operations. All of the outstanding shares of Finance are owned by Northbrook Corporation ("Northbrook"). (2) KEEP-WELL AGREEMENT On March 14, 1989, Northbrook entered into a keep-well agreement with Finance, whereby it agreed to contribute sufficient capital or make loans to Finance to enable Finance to meet the COLA repurchase obligations described below in note 3. On March 15, 1995, pursuant to the indenture that governs the terms of the COLAS (the "Indenture"), Amfac/JMB Hawaii, Inc. elected to exercise its right to redeem, and therefore was obligated to purchase, any and all Class A COLAS submitted pursuant to the June 1, 1995 Redemption Offer at a price of $.365 per Class A COLA. Pursuant to Amfac/JMB Hawaii, Inc.'s election to redeem the Class A COLAS for repurchase, Amfac/JMB Hawaii, Inc. assumed Finance's maximum amount of its liability from the June 1, 1995 COLA repurchase obligation of $140,425. (3) REPURCHASE OBLIGATION On March 14, 1989, Finance and a subsidiary of Northbrook (Amfac/JMB Hawaii, Inc.) entered into an agreement (the "Repurchase Agreement") concerning Finance's obligation (on June 1, 1995 and 1999) to repurchase, upon request of the holders thereof, the Certificate of Land Appreciation Notes due 2008 ("COLAS"), to be issued by Amfac/JMB Hawaii, Inc. in conjunction with the acquisition of Amfac/JMB Hawaii, Inc.. A total aggregate principal amount of $384,737 of COLAS were issued during the offering, which terminated on August 31, 1989. The COLAS were issued in two units consisting of one Class A and one Class B COLA. As specified in the Repurchase Agreement, the repurchase of the Class A COLAS may have been requested of Finance by the holders of such COLAS on June 1, 1995 at a price equal to the original principal amount of such COLAS ($.500) minus all payments of principal and interest allocated to such COLAS. The cumulative interest paid per Class A COLA through June 1, 1995 was $.135. The repurchase of the Class B COLAS may be requested of Finance by the holders of such COLAS on June 1, 1999 at a price equal to 125% of the original principal amount of such COLAS ($.500) minus all payments of principal and interest allocated to such COLAS. To date, the cumulative interest paid per Class A and Class B COLA is approximately $.165 and $.165, respectively. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There were no changes in or disagreements with the accountants during the fiscal years 1996 and 1995. PART III Item 10. Directors and Executive Officers of the Registrant As of December 31, 1996, the directors, executive officers and certain other officers of the Company were as follows: Position Held with Name the Company Judd D. Malkin Chairman Neil G. Bluhm Vice Chairman Edward G. Karl President, Chief Executive Officer and Director Gary Grottke Executive Vice President, Chief Operating Officer and Director Chris J. Kanazawa Senior Vice President and Director Peggy H. Sugimoto Senior Vice President and Chief Financial Officer Timothy E. Johns Vice President Teney K. Takahashi Vice President Certain of these officers are also officers and/or directors of JMB and numerous affiliated companies of JMB (hereinafter collectively referred to as "JMB affiliates") and many of such officers are also partners of certain partnerships (herein collectively referred to as the "Associate Partnerships") which are associate general partners (or general partners thereof) in publicly offered real estate limited partnerships. The publicly offered partnerships in which the Associate Partnerships are partners have not engaged in the agriculture business and have primarily purchased, or made mortgage loans securing, existing commercial, retail, office, industrial and multi-family residential rental buildings. However, certain partnerships sponsored by JMB and other affiliates of JMB are engaged in development activities including planned communities, none of which are in Hawaii. There is no family relationship among any of the foregoing directors or officers. The foregoing directors have been elected to serve one- year terms until the next annual meeting to be held on the Second Tuesday of August 1997 or until his successor is elected and qualified. There are no arrangements or understandings between or among any of said directors or officers and any other person pursuant to which any director or officer was selected as such. The business experience during the past five years of the directors and such officers of the Company includes the following: Judd D. Malkin (age 59) is Chairman of the Board of JMB, an officer and/or director of various JMB affiliates and an individual general partner of several publicly offered real estate limited partnerships affiliated with JMB. Mr. Malkin has been associated with JMB since October 1969. Mr. Malkin is a director of Urban Shopping Centers, Inc., an affiliate of JMB that is a real estate investment trust in the business of owning, managing and developing shopping centers. He is a Certified Public Accountant. Neil G. Bluhm (age 59) is President and director of JMB, an officer and/or director of various JMB affiliates and an individual general partner of several publicly offered real estate limited partnerships affiliated with JMB. Mr. Bluhm has been associated with JMB since August 1970. Mr. Bluhm is a director of Urban Shopping Centers, Inc., an affiliate of JMB that is a real estate investment trust in the business of owning, managing and developing shopping centers. He is a member of the Bar of the State of Illinois and a Certified Public Accountant. Edward G. Karl (age 41) is President and Chief Executive Officer since January 1994. He was previously an officer of JMB and various partnerships related to JMB. Prior to joining JMB in 1984, Mr. Karl was a Manager at Peat, Marwick, Mitchell & Co. He is a Certified Public Accountant. Gary R. Grottke (age 41) is Executive Vice President and Chief Operating Officer since January 1994. He was an officer of JMB from May 1989 to December 1993. Prior to joining JMB in 1989, Mr. Grottke was a Senior Manager at Peat, Marwick, Mitchell & Co. He holds a Masters degree in Business Administration from the Krannert School of Management at Purdue University and is a Certified Public Accountant. Peggy H. Sugimoto (age 46) is Senior Vice President and Chief Financial Officer since 1994. Ms. Sugimoto has been associated with the Company since 1976. She is a Certified Public Accountant. Chris Kanazawa (age 44) is Senior Vice President and Director of the Company since January 1, 1994 and has served as such since January 1990. Prior to assuming this position, Mr. Kanazawa was Vice President of Amfac Property Development Corporation (1986 to 1990). He has been associated with the Registrant since September 1981. Mr. Kanazawa holds a Bachelors degree in Economics from the University of Hawaii and a Masters degree in Business Administration from the University of Southern California. Teney K. Takahashi (age 58) is Vice President of Amfac/JMB Hawaii - Properties since rejoining the Company in April 1995. Prior to rejoining Amfac, Mr. Takahashi served as President and Director of Princeville Corporation, and President and Director of Malama Pacific, Inc. Mr. Takahashi previously worked for Amfac from 1973 - 1988. P. Eric Hohmann (age 38) is Vice President of Amfac/JMB Hawaii, Inc. - Properties Division since 1994. Mr. Hohmann served for 4 years as a Vice President of Amfac Property Development Corporation, which is a wholly-owned subsidiary of the Company. Prior to 1990, Mr. Hohmann was associated with JMB for 5 years. He holds a Masters degree in Business Administration from the UCLA Anderson Graduate School of Business. Timothy E. Johns (age 40) is Vice President of Amfac/JMB Hawaii - Properties Division since January 1994. He holds a J.D. degree from the University of Southern California Law Center and is a member of the Hawaii State Bar Association. Item 11. Executive Compensation Except for the executive officers listed on the table below, certain of the listed officers and directors of the Company in item 10 above are officers and/or directors of JMB or Northbrook and are compensated by JMB, Northbrook, or an affiliate thereof (other than the Company and its subsidiaries). The Company will reimburse Northbrook, JMB and their affiliates for any expenses incurred while providing services to the Company as described under the caption "Description of the COLAS - Limitations on Mergers and Certain Other Transactions" at pages 42-43 of the Prospectus, a copy of which description was filed herewith and incorporated herein by reference. In addition, JMB and its affiliates may earn an amount, the Qualified Allowance (as defined), as described under the caption "Description of the COLAS - Certain Definitions" at page 51 of the Prospectus, a copy of which description was filed herewith and is incorporated herein by reference. See Item 13 below. SUMMARY COMPENSATION TABLE Annual Compensation ------------------------------------- Other Annual Compensa- Name Principal Salary Bonus tion (1) Position Year ($) (2) ($) ($) -------- ----------- ------- -------- ------- -------- Edward G. President, Chief Exec. 1996 80,000 N/A N/A Karl Officer and Director 1995 75,000 N/A N/A 1994 72,000 N/A N/A Gary Executive Vice Pres. 1996 199,500 N/A N/A Grottke and Chief Operating 1995 190,000 N/A N/A Officer 1994 187,500 N/A N/A Chris J. Senior Vice President 1996 275,000 200,000 N/A Kanazawa 1995 250,000 175,000 N/A 1994 250,000 75,000 N/A Teney K. Vice President 1996 191,000 100,000 N/A Takahashi 1995 128,076 N/A N/A 1994 N/A N/A N/A P. Eric Vice President 1996 150,000 90,000 N/A Hohmann 1995 142,000 85,000 N/A 1994 135,000 30,000 N/A ------------ (1) Includes CEO and 4 most highly compensated executives whose salary and bonus exceed $100,000. (2) Salaries for Mr. Karl and Mr. Grottke represent the portions of their total compensation allocated and charged to the Company. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT All of the outstanding shares of the Company are owned by Northbrook. Approximately 6% of the shares of Northbrook are owned by JMB and approximately 90% are owned directly or indirectly by individuals who are shareholders or employees of JMB or members of their families (or trusts for their benefit). Randi Malkin Steinberger, Stephen Malkin and Barry Malkin, individually or through trusts which they control, each have beneficial ownership of approximately 9.7% of the shares of Northbrook. Leslie Bluhm, Andrew Bluhm and Meredith Bluhm, individually or through trusts which they control, each have beneficial ownership of approximately 10.0% of the shares of Northbrook. Kathleen Schreiber, in her capacity as trustee of various trusts for the benefit of members of her family, which trusts comprise the managing partners of a partnership which owns Northbrook shares, has beneficial ownership of approximately 5.1% of the shares of Northbrook. Stuart Nathan, Executive Vice President and a director and shareholder of JMB, and his children, Scott Nathan and Robert Nathan, collectively have beneficial ownership of slightly more than 5.1% of the shares of Northbrook; each of them, primarily by virtue of their status as general partners of partnerships which own such shares would also be considered to individually have beneficial ownership of substantially all of such shares. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Other than as set forth in Notes to Consolidated Financial Statements and Notes to Balance Sheets contained under Item 8 above, Items 10 and 11 above, and this Item 13, there were no other significant transactions or business relationships with Northbrook, JMB, affiliates or their management. The Company, its subsidiaries and the joint ventures in which the Company or its subsidiaries are partners are permitted to engage in various transactions involving Northbrook, JMB and their affiliates, as described under the captions "Description of the COLAS - Limitation on Dividends, Purchases of Capital Stock and Indebtedness" and "Limitations on Mergers and Certain Other Transactions" and "Purchase or Joint Venture of Properties by Affiliates; Development of Properties as Excluded Assets; Residual Value of Company in Certain Projects" at pages 41-45, and "Risk Factors - Conflicts of Interest" at page 19 of the Prospectus, a copy of which descriptions are hereby incorporated herein by reference to Exhibit 28.1 to the Company's Report on Form 10-K for December 31, 1988 (File No. 33-24180) dated March 27, 1989. The relationship of the Company (and its directors and executive officers and certain other officers) to its affiliates is set forth above in Item 10. The Company incurred interest expense of approximately $8.9 million, $5.4 million and $1.3 million for the years ended 1996, 1995 and 1994, respectively, in connection with the acquisition and additional financing obtained from an affiliate, all of which was paid as of December 31, 1996. With respect to any calendar year, JMB or its affiliates may receive a Qualified Allowance in an amount equal to: (i) approximately $6.2 million during each of the calendar years 1989 through 1993; and (ii) thereafter, 1-1/2% per annum of the Fair Market Value (as defined) of the gross assets of the Company and its subsidiaries (other than cash and cash equivalents and Excluded Assets (as defined)) for providing certain advisory services for the Company. However, such amount shall be earned and paid for each year only following the payment of a specified level of Base Interest to the holders of the COLAS. Any portion of the Qualified Allowance not paid for any year shall accumulate without interest. A Qualified Allowance for 1989 of approximately $6.2 million was paid on February 28, 1990. Any Qualified Allowance for 1990 through 1996 has been deferred and is payable only to the extent future Net Cash Flows are sufficient to pay the holders of the COLAS a specified level of return, and accordingly, no such amounts have been reflected in the accompanying consolidated financial statements. JMB has informed the Company that no incremental costs or expenses have been incurred relating to the provision of these advisory services. The Company believes that using an incremental cost methodology is reasonable. The Company, its subsidiaries and their joint ventures, reimburse Northbrook, JMB and their affiliates for direct expenses incurred on their behalf, including salaries and salary related expenses incurred in connection with the management of the Company's or its subsidiaries and the joint ventures' operations. The total of such costs through December 31, 1996, 1995 and 1994 was $.7 million, $.6 million, $.5 million, respectively, of which $1.2 million was unpaid as of December 31, 1996. In addition, as of December 31, 1996, the current portion of amounts due affiliates includes approximately $9.1 million of income tax payable related to the Class A Redemption Offer. Also, the Company pays a non- accountable reimbursement of approximately $.03 million per month to JMB or its affiliates in respect of general overhead expense, all of which was paid as of December 31, 1996. JMB Insurance Agency, Inc. earns insurance brokerage commissions in connection with providing the placement of insurance coverage for certain of the properties and operations of the Company. Such commissions are comparable to those available to the Company in similar dealings with unaffiliated third parties. The total of such commissions for the years ended December 31, 1996, 1995 and 1994 was approximately $.8 million, $.7 million and $1 million, all of which was paid as of December 31, 1996. Northbrook and its affiliates allocated certain charges for services to the Company based upon the estimated level of services for the years ended December 31, 1996, 1995 and 1994 of approximately $1.5 million, $7.9 million and $1.7 million, respectively, of which $6.5 million was unpaid as of December 31, 1996. These services and costs are intended to reflect the Company's separate costs of doing business and are principally related to the inclusion of the Company's employees in the Northbrook pension plan, payment of severance and termination benefits and reimbursement for insurance claims paid on behalf of the Company. All amounts described above, deferred or currently payable, do not bear interest and are expected to be paid in future periods. In February 1997 certain intercompany payables to Northbrook totaling $7.9 million were converted into a new ten year note payable. Accordingly these intercompany payables were classified as long-term as of December 31, 1996 in the accompanying consolidated financial statements. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) The following documents are filed as part of this report: (1) Financial Statements (See Index to Financial Statements and Supplementary Data filed with this report.) (2) Exhibits 3.1* Articles of Incorporation of Amfac/JMB Hawaii, Inc. 3.2* Amended and Restated By-Laws of Amfac/JMB Hawaii, Inc. 3.3* Articles of Incorporation of Amfac/JMB Finance, Inc. 3.4* Amended and Restated By-Laws of Amfac/JMB Finance, Inc. 3.7* Articles of Incorporation of Amfac Property Development Corp. 3.8* Amended and Restated By-Laws of Amfac Property Developments Corp. 3.9* Articles of Incorporation of Amfac Property Investment Corp. 3.10* Amended and Restated By-Laws of Amfac Property Investment Corp. 3.11* Articles of Incorporation of Amfac Sugar and Agribusiness, Inc. 3.12* Amended and Restated By-Laws of Kaanapali Water Corporation 3.13* Articles of Incorporation of Kaanapali Water Corporation. 3.14* Amended and Restated By-Laws of Amfac Agribusiness, Inc. 3.15* Articles of Incorporation of Amfac Agribusiness, Inc. 3.16* Amended and Restated By-Laws of Kekaha Sugar Company, Limited. 3.17* Articles of Association of Kekaha Sugar Company, Limited. 3.18* Amended and Restated By-Laws of The Lihue Plantation Company, Limited. 3.19* Articles of Association of The Lihue Plantation Company, Limited 3.20* Amended and Restated By-Laws of Oahu Sugar Company, Limited. 3.21* Articles of Association of Oahu Sugar Company, Limited. 3.22 Amended and Restated By-Laws of Pioneer Mill Company, Limited 3.23* Articles of Association of Pioneer Mill Company, Limited. 3.24 Amended and Restated By-Laws of Puna Sugar Company, Limited. 3.25* Articles of Association of Puna Sugar Company, Limited. 3.26 Amended and Restated By-Laws of H. Hackfeld & Co., Ltd. 3.27* Articles of Association of H. Hackfeld & Co., Ltd. 3.28 Amended and Restated By-Laws of Waiahole Irrigation Company, Limited. 3.29* Articles of Incorporation of Waiahole Irrigation Company, Limited. 4.1** Indenture, including the form of COLAS, among Amfac/JMB Hawaii, Inc., its subsidiaries as Guarantors and Continental Bank National Association, as Trustee (dated as of March 14, 1989). 4.2*** Amendment dated as of January 17, 1990 to the Indenture relating to the COLAS. 4.3*** $28,097,832 Promissory Note from Amfac, Inc. to Amfac/JMB Hawaii, Inc. Extended and Reissued Effective December 31, 1993. 4.4**** The five year $66,000,000 loan with the Employees' Retirement System of the State of Hawaii to Amfac/JMB Hawaii, Inc. as of June 25, 1991. 4.5***** $15,000,000 Credit Agreement dated March 31, 1993 among AMFAC/JMB Hawaii, Inc. and Continental Bank N.A. 4.6****** $10,000,000 loan agreement between Waikele Golf Club, Inc. and ORIX USA Corporation. $10,000,000 loan agreement between Waikele Golf Club, Inc. and Bank of Hawaii. 4.7******* $52,000,000 Promissory Note to Northbrook Corporation from Amfac/JMB Hawaii, Inc., effective May 31, 1995 is filed herewith. 4.8******** Agreement for delivery and sale of raw sugar between Hawaii Sugar Transportation Corporation, as seller, and C&H, as Buyer, dated June 4, 1993. 4.9********* Previously filed as an exhibit to the Company's Form 10-Q report under the Securities Act of 1934 (File No. 33-24180) filed May 13, 1996 and hereby incorporated by reference. Standard Sugar Marketing Contracts between Hawaiian Sugar Transportation Company and Hawaii Sugar Growers dated June 4, 1993. 4.10********** Amendment to the $66,000,000 loan with the Employees' Retirement System of the State of Hawaii to Amfac/JMB Hawaii, Inc. as of April 18, 1996. 4.11*********** Amended and Restated $52,000,000 Promissory Note to Northbrook Corporation from Amfac/JMB Hawaii, Inc. extended and reissued effective June 1, 1996. 4.12************ Amended and Restated $28,087,832 Promissory Note from Amfac, Inc. to Amfac/JMB Hawaii, Inc. extended and reissued effective June 1, 1996. 4.13 $10,000,000 loan agreement between Amfac Property Development Corp. and City Bank at December 18, 1996 4.14 $104,759,324 promissory Note between Northbrook Corporation and Amfac/JMB Hawaii, Inc. dated February 17, 1997 10.1* Escrow Deposit Agreement. 10.2* General Lease S-4222, dated January 1, 1969, by and between the State of Hawaii and Kekaha Sugar Company, Limited. 10.3* Grove Farm Haiku Lease, dated January 25, 1974 by and between Grove Farm Company, Incorporated and The Lihue Plantation Company, Limited. 10.4* General Lease S-4412, dated October 31, 1974, by and between the State of Hawaii and the Lihue Plantation Company, Limited. 10.5* General Lease S-4576, dated March 15, 1978, by and between the State of Hawaii and The Lihue Plantation Company, Limited. 10.6* General Lease S-3827, dated July 8, 1964, by and between the State of Hawaii and East Kauai Water Company, Ltd. 10.7* Amended and Restated Power Purchase Agreement, dated as of June 15, 1992, by and between The Lihue Plantation Company, Limited and Citizens Utilities Company. 10.8* U.S. Navy Waipio Peninsula Agricultural Lease, dated May 26, 1964, between The United States of America (as represented by the U.S. Navy) and Oahu Sugar Company, Ltd. 10.9* Amendment to the Robinson Estate Hoaeae Lease, dated May 15, 1967, by and between various Robinsons, heirs of Robinsons, Trustees and Executors, etc. and Oahu Sugar Company, Limited amending and restating the previous lease. 10.10* Amendment to the Campbell Estate Lease, dated April 16, 1970, between Trustees under the Will and of the Estate of James Campbell, Deceased, and Oahu Sugar Company, Limited amending and restating the previous lease. 10.11* Bishop Estate Lease No. 24,878, dated June 17, 1977, by and between the Trustees of the Estate of Bernice Pauahi Bishop and Pioneer Mill Company, Limited. 10.12* General Lease S-4229, dated February 25, 1969, by and between the State of Hawaii, by its Board of Land and Natural Resources and Pioneer Mill Company, Limited. 10.13* Honokohau Water License, dated December 22, 1980, between Maui Pineapple Company Ltd. and Pioneer Mill Company, Limited. 10.14* Water Licensing Agreement, dated September 22, 1980, by and between Maui Land & Pineapple Company, Inc. and Amfac, Inc. 10.15* Joint Venture Agreement, dated as of March 19, 1986, by and between Amfac Property Development Corp. and Tobishima Properties of Hawaii, Inc. 10.16* Development Agreement, dated March 19, 1986, by and between kaanapali North Beach Joint Venture and Amfac Property Investment Corp. and Tobishima Pacific, Inc. 10.19** Keep-Well Agreement between Northbrook Corporation and Amfac/JMB Finance, Inc. 10.20** Repurchase Agreement, dated March 14, 1989, by and between Amfac/JMB Hawaii, Inc. and Amfac/JMB Finance, Inc. 10.21** Amfac Hawaii Tax Agreement, dated November 21, 1988 between Amfac/JMB Hawaii, Inc., and Amfac Property Development Corp.; Amfac Property Investment Corp.; Amfac Sugar and Agribusiness, Inc.; Kaanapali Water Corporation; Amfac Agribusiness, Inc.; Kekaha Sugar Company, Limited; The Lihue Plantation Company, Limited; Oahu Sugar Company, Limited; Pioneer Mill Company, Limited; Puna Sugar Company, Limited; H. Hackfeld & Co., Ltd.; and Waiahole Irrigation Company, Limited. 10.22** Amfac-Amfac Hawaii Tax Agreement, dated February 27, 1989 between Amfac, Inc. and Amfac/JMB Hawaii, Inc. 10.23** Services Agreement, dated November 18, 1988, between Amfac/JMB Hawaii, Inc., and Amfac Property Development Corp.; Amfac Property Investment Corp.; Amfac Sugar and Agribusiness, Inc.; Kaanapali Water Corporation; Amfac Agribusiness, Inc.; Kekaha Sugar Company, Limited; The Lihue Plantation Company, Limited; Oahu Sugar Company, Limited; Pioneer Mill Company, Limited; Puna Sugar Company, Limited; H. Hackfeld & Co., Ltd.; and Waiahole Irrigation Company, Limited and JMB Realty Corporation. 19.0******* $35,700,000 agreement for sale of C&H and certain other C&H assets, to A&B Hawaii, Inc. in June of 1993. 22.1* Subsidiaries of Amfac/JMB Hawaii, Inc. 28.1** A copy of pages 19, 41-45 and 51 of the Prospectus of the Company dated December 5, 1988 (relating to SEC Registration Statement on Form S- 1 (as amended) File No. 33-24180) and hereby incorporated by reference. Pursuant to Item 6.01 (b)(4) of Regulation SK, the registrant hereby undertakes to provide the Commission upon its request a copy of any agreement with respect to long-term indebtedness of the registrant and its consolidated subsidiaries that does not exceed 10 percent of the total assets of the registrant and its subsidiaries on a consolidated basis. * Previously filed as exhibits to the Company's Registration Statement of Form S-1 (as amended) under the Securities Act of 1933 (File No. 33-24180) and hereby incorporated by reference. ** Previously filed as exhibits to the Company's Form 10- K report under the Securities Act of 1934 (File No. 33-24180) filed on March 27, 1989 and hereby incorporated by reference. *** Previously filed as exhibits to the Company's Form 10- K report under the Securities Act of 1934 (File No. 33-24180) filed on March 27, 1991 and hereby incorporated by reference. **** Previously filed as exhibits to the Company's Form 10- Q report under the Securities Act of 1934 (File No. 33-24180) filed on August 13, 1991 and hereby incorporated by reference. ***** Previously filed as exhibit to the Company's Form 10- Q report under the Securities Act of 1934 (File No. 33-24180) filed on May 14, 1993 and hereby incorporated by reference. ****** Previously filed as exhibit to the Company's Form 10- Q report under the Securities Act of 1934 (File No. 33-24180) filed on November 11, 1993 and hereby incorporated by reference. ******* Previously filed as exhibits to the Company's Form 10- K report under the Securities Act of 1934 (File No. 33-24180) filed on March 27, 1994 and hereby incorporated by reference. ******* Previously filed as an exhibit to the Company's Form 10-Q report under the Securities Act of 1934 (File No. 33- 24180) filed May 12, 1995 and hereby incorporated by reference. ******** Previously filed as an exhibit to the Company's Form 10-Q report under the Securities Act of 1934 (File No. 33- 24180) filed May 13, 1996 and hereby incorporated by reference. ********* Previously filed as an exhibit to the Company's Form 10-Q report under the Securities Act of 1934 (File No. 33- 24180) filed May 13, 1996 and hereby incorporated by reference. ********** Previously filed as exhibit to the Company's Form 10-K report under the Securities Act of 1934 (File No. 33- 24180) filed on August 13, 1996 and hereby incorporated by reference. *********** Previously filed as exhibit to the Company's Form 10-Q report under the Securities Act of 1934 (File No. 33- 24180) filed August 13, 1996 and hereby incorporated by reference. ************ Previously filed as exhibit to the Company's Form 10-Q report under the Securities Act of 1934 (File No. 33- 24180) filed August 13, 1996 and hereby incorporated by reference. (b)No Reports on Form 8-K were required or filed since the beginning of the last quarter of the period covered by this report. No annual report or proxy material for 1996 was sent to the COLA holders of the Company. An annual report will be sent to the COLA holders subsequent to this filing. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AMFAC/JMB HAWAII, INC. By: Gary Smith Vice President Date: March 27, 1997 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: Edward G. Karl President, Chief Executive Officer and Director Date: March 27, 1997 By: Peggy Sugimoto Senior Vice President and Chief Financial Officer Date: March 27, 1997 By: Gary Grottke Executive Vice President, Chief Operating Officer and Director Date: March 27, 1997 By: Gary Smith Vice President and Principal Accounting Officer Date: March 27, 1997 By: Chris Kanazawa Senior Vice President and Director Date: March 27, 1997 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AMFAC/JMB FINANCE, INC. By: Gary Smith Vice President Date: March 27, 1997 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: Edward G. Karl President and Chief Executive Officer Date: March 27, 1997 By: Steven E. Plonsker Senior Vice President Date: March 27, 1997 By: Gary Nickele Director Date: March 27, 1997 By: Gary Smith Vice President Finance and Principal Accounting Officer Date: March 27, 1997 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AMFAC PROPERTY DEVELOPMENT CORP. By: Gary Smith Vice President Date: March 27, 1997 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: Chris J. Kanazawa President and Director Date: March 27, 1997 By: Gary Grottke Vice President and Director Date: March 27, 1997 By: Gary Smith Vice President and Principal Accounting Officer Date: March 27, 1997 By: Edward G. Karl Vice President and Director Date: March 27, 1997 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AMFAC PROPERTY INVESTMENT CORP. By: Gary Smith Vice President Date: March 27, 1997 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: Chris J. Kanazawa President and Director Date: March 27, 1997 By: Gary Grottke Vice President and Director Date: March 27, 1997 By: Gary Smith Vice President and Principal Accounting Officer Date: March 27, 1997 By: Edward G. Karl Vice President and Director Date: March 27, 1997 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AMFAC SUGAR AND AGRIBUSINESS, INC. By: Gary Smith Vice President Date: March 27, 1997 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: Robert B. Heiserman, Jr. President and Director Date: March 27, 1997 By: Gary Grottke Vice President and Director Date: March 27, 1997 By: Gary Smith Vice President and Principal Accounting Officer Date: March 27, 1997 By: Edward G. Karl Vice President and Director Date: March 27, 1997 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. KAANAPALI WATER CORPORATION By: Gary Smith Vice President Date: March 27, 1997 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: Chris J. Kanazawa President and Director Date: March 21, 1997 By: Gary Grottke Vice President and Director Date: March 21, 1997 By: Gary Smith Vice President and Principal Accounting Officer Date: March 21, 1997 By: Edward G. Karl Vice President and Director Date: March 21, 1997 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AMFAC AGRIBUSINESS, INC. By: Gary Smith Vice President Date: March 21, 1997 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: Robert B. Heiserman, Jr. President and Director Date: March 21, 1997 By: Gary Grottke Vice President and Director Date: March 21, 1997 By: Gary Smith Vice President and Principal Accounting Officer Date: March 21, 1997 By: Edward G. Karl Vice President and Director Date: March 21, 1997 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. KEKAHA SUGAR COMPANY, LIMITED By: Gary Smith Vice President Date: March 21, 1997 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: Robert B. Heiserman, Jr. President and Director Date: March 21, 1997 By: Gary Grottke Vice President and Director Date: March 21, 1997 By: Gary Smith Vice President and Principal Accounting Officer Date: March 21, 1997 By: Edward G. Karl Vice President and Director Date: March 21, 1997 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE LIHUE PLANTATION COMPANY, LIMITED By: Gary Smith Vice President Date: March 21, 1997 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: Robert B. Heiserman, Jr. President and Director Date: March 21, 1997 By: Gary Grottke Vice President and Director Date: March 21, 1997 By: Gary Smith Vice President and Principal Accounting Officer Date: March 21, 1997 By: Edward G. Karl Vice President and Director Date: March 21, 1997 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. OAHU SUGAR COMPANY, LIMITED By: Gary Smith Vice President Date: March 21, 1997 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: Robert B. Heiserman, Jr. President and Director Date: March 21, 1997 By: Gary Grottke Vice President and Director Date: March 21, 1997 By: Gary Smith Vice President and Principal Accounting Officer Date: March 21, 1997 By: Edward G. Karl Vice President and Director Date: March 21, 1997 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PIONEER MILL COMPANY, LIMITED By: Gary Smith Vice President Date: March 21, 1997 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: Robert B. Heiserman, Jr. President and Director Date: March 21, 1997 By: Gary Grottke Vice President and Director Date: March 21, 1997 By: Gary Smith Vice President and Principal Accounting Officer Date: March 21, 1997 By: Edward G. Karl Vice President and Director Date: March 21, 1997 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PUNA SUGAR COMPANY, LIMITED By: Gary Smith Vice President Date: March 21, 1997 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: Robert B. Heiserman, Jr. President and Director Date: March 21, 1997 By: Gary Grottke Vice President and Director Date: March 21, 1997 By: Gary Smith Vice President and Principal Accounting Officer Date: March 21, 1997 By: Edward G. Karl Vice President and Director Date: March 21, 1997 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. H. HACKFELD & CO., LTD. By: Gary Smith Vice President Date: March 21, 1997 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: Robert B. Heiserman, Jr. President and Director Date: March 21, 1997 By: Gary Grottke Vice President and Director Date: March 21, 1997 By: Gary Smith Vice President and Principal Accounting Officer Date: March 21, 1997 By: Edward G. Karl Vice President and Director Date: March 21, 1997 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. WAIAHOLE IRRIGATION COMPANY, LIMITED By: Gary Smith Vice President Date: March 21, 1997 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: Gary Grottke Vice President and Director Date: March 21, 1997 By: Gary Smith Vice President and Principal Accounting Officer Date: March 21, 1997 By: Chris Kanazawa President and Director Date: March 21, 1997 By: Edward G. Karl Vice President and Director Date: March 21, 1997 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. WAIKELE GOLF CLUB, INC. By: Gary Smith Vice President Date: March 21, 1997 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: Chris J. Kanazawa President and Director Date: March 21, 1997 By: Gary Grottke Vice President and Director Date: March 21, 1997 By: Gary Smith Vice President and Principal Accounting Officer Date: March 21, 1997 By: Edward G. Karl Vice President and Director Date: March 21, 1997 EXHIBIT INDEX Document Sequentially incorporated numbered Exhibit No. Exhibit by reference page 3.1 to 3.30* Articles of Incorporation and Amended and Restated By-Laws Yes -- 4.1** Indenture, including the forms of COLAS, among Amfac/JMB Hawaii, Inc., its subsidiaries and Continental Illinois Bank National Association, as Trustees (dated March 14, 1989) Yes -- 4.2*** Amendment dated as of January 17, 1990 to the Indenture relating to the COLAS. Yes -- 4.3*** $28,097,832 Promissory Note from Amfac, Inc. to Amfac/JMB Hawaii, Inc. Extended and Reissued Effective December 31, 1990. Yes -- 4.4**** The five year $66,000,000 loan with the Employees' Retirement System of the State of Hawaii to Amfac/JMB Hawaii, Inc. as of June 25, 1991. Yes -- 4.5***** $15,000,000 Credit Agreement dated March 31, 1993 among AMFAC/JMB Hawaii, Inc. and Continental Bank N.A. Yes -- 4.6****** $10,000,000 loan agreement between Waikele Golf Club, Inc. and ORIX USA Corporation. $10,000,000 loan agreement between Waikele Golf Club, Inc. and Bank of Hawaii. Yes -- 4.7******* $52,000,000 Promissory Note to Northbrook Corporation from Amfac/JMB Hawaii, Inc., effective May 31, 1995 is filed herewith Yes -- 4.8******** Agreement for delivery and sale of raw sugar between Hawaii Sugar Transportation Corporation, as seller, and C&H, as Buyer, dated June 4, 1993. Yes -- 4.9********* Previously filed as an exhibit to the Company's Form 10-Q report under the Securities Act of 1934 (File No. 33-24180) filed May 13, 1996 and hereby incorporated by reference. Standard Sugar Marketing Contracts between Hawaiian Sugar Transportation Company and Hawaii Sugar Growers dated June 4, 1993. Yes -- 4.10**********Amendment to the $66,000,000 loan with the Employees' Retirement System of the State of Hawaii to Amfac/JMB Hawaii, Inc. as of April 18, 1996. Yes -- 4.11***********Amended and Restated $52,000,000 Promissory Note to Northbrook Corporation from Amfac/JMB Hawaii, Inc. extended and reissued effective June 1, 1996. Yes -- 4.12************Amended and Restated $28,087,032 Promissory Note from Amfac, Inc. to Amfac/JMB Hawaii, Inc. extended and reissued effective June 1, 1996.Yes -- 10.1 to 10.22* Material Contracts Yes -- 10.3* Grove Farm Haiku Lease, dated January 25, 1974 by and between Grove Farm Company, Incorporated and The Lihue Plantation Company Limited. Yes -- 10.4* General Lease S-4412, dated October 31, 1974 by and between the State of Hawaii and the Lihue Plantation Company Limited. Yes -- 10.5* General Lease S-4576, dated March 15, 1978, by and between the State of Hawaii and The Lihue Plantation Company, Limited. Yes -- 10.6* General Lease S-3827, dated July 8, 1964 by and between the State of Hawaii and East Kauai Water Company, Ltd. Yes -- 10.8* U.S. Navy Waipio Peninsula Agricultural Lease, dated May 26, 1964, between The United States of America (as represented by the U.S. Navy) and Oahu Sugar Company, Ltd. Yes -- 10.9* Amendment to the Robinson Estate Hoaeae Lease, dated May 15, 1967, by and between various Robinsons, heirs of Robinsons, Trustees and Executors, etc. and Oahu Sugar Company, Limited amending and restating the previous lease. Yes -- 10.10* Amendment to the Campbell Estate Lease, dated April 16, 1970, between Trustees under the Will and of the Estate of James Campbell, Deceased, and Oahu Sugar Company, Limited amending and restating the previous lease. Yes -- 10.11* Bishop Estate Lease No. 24,878, dated June 17, 1977, by and between the Trustees of the Estate of Bernice Pauahi Bishop and Pioneer Mill Company, Limited. Yes -- 10.12* General Lease S-4229, dated February 25, 1969, by and between the State of Hawaii, by its Board of Land and Natural Resources and Pioneer Mill Company, Limited. Yes -- 10.13* Honokohau Water License, dated December 22, 1980, between Maui Pineapple Company Ltd. and Pioneer Mill Company, Limited. Yes -- 10.14* Water Licensing Agreement, dated September 22, 1980, by and between Maui Land & Pineapple Company, Inc. and Amfac, Inc. Yes -- 10.15* Joint Venture Agreement, dated as of March 19, 1986, by and between Amfac Property Development Corp. and Tobishima Properties of Hawaii, Inc. Yes -- 10.16* Development Agreement, dated March 19, 1986, by and between Kaanapali North Beach Joint Venture and Amfac Property Investment Corp. and Tobishima Pacific, Inc. Yes -- 10.19** Keep-Well Agreement between Northbrook Corporation and Amfac/JMB Finance, Inc., dated March 14, 1989. Yes -- 10.20** Repurchase Agreement, dated March 14, 1989, by and between Amfac/JMB Hawaii, Inc. and Amfac/JMB Finance, Inc. Yes -- 10.21** Amfac Hawaii Tax Agreement, dated November 21, 1988 between Amfac/JMB Hawaii, Inc., and Amfac Property Development Corp.; Amfac Property Investment Corp.; Amfac Sugar and Agribusiness, Inc.; Kaanapali Water Corporation; Amfac Agribusiness, Inc.; Kehaha Sugar Company, Limited; The Lihue Plantation Company, Limited; Oahu Sugar Company, Limited; Pioneer Mill Company, Limited; Puna Sugar Company, Limited; H. Hackfeld & Co., Ltd.; and Waiahole Irrigation Company, Limited. Yes -- 10.22** Amfac-Amfac Hawaii Tax Agreement, dated February 27, 1989 between Amfac, Inc. and Amfac/JMB Hawaii, Inc. Yes -- 10.23** Services Agreement, dated November 18, 1988, between Amfac/JMB Hawaii, Inc., and Amfac Property Develop- ment Corp.; Amfac Property Invest- ment Corp.; Amfac Sugar and Agri- business, Inc.; Kaanapali Water Corporation; Amfac Agribusiness, Inc.; Kehaha Sugar Company, Limited; The Lihue Plantation Company, Limited; Oahu Sugar Company, Limited; Pioneer Mill Company, Limited; Puna Sugar Company, Limited; H. Hackfeld & Co., Ltd.; Waiahole Irriga- tion Company, Limited and JMB Realty Corporation Yes -- 19.0******* $35,700,000 agreement for sale of C&H and certain other C&H assets, to A&B Hawaii, Inc. in June of 1993 Yes -- 22.1 Subsidiaries of Amfac/JMB Hawaii Inc. Yes -- 28.1** A copy of pages 19, 41-45 and 51 of the Company's Prospectus dated December 5, 1988 filed pursuant to Rules 424(b) and 424(c) (relating to SEC Registration Statement on Form S-1 (as amended) File No. 33-24180) Yes -- * Previously filed as exhibits to the Company's Registration Statement on Form S-1 (as amended) under the Securities Act of 1933 (File No. 33-24180) and hereby incorporated by reference. ** Previously filed as exhibits to the Company's Form 10-K report under the Securities Act of 1934 (File No. 33- 24180) filed on March 27, 1989 and hereby incorporated by reference. *** Previously filed as exhibits to the Company's Form 10-K report under the Securities act of 1934 (File No. 33- 24180) filed on March 27, 1991 and hereby incorporated by reference. **** Previously filed as exhibits to the Company's Form 10-Q report under the Securities Act of 1934 (File No. 33- 24180) filed on August 13, 1991 and hereby incorporated by reference. ***** Previously filed as exhibit to the Company's Form 10-Q report under the Securities Act of 1934 (File No. 33-24180) filed on May 14, 1993 and hereby incorporated by reference. ****** Previously filed as exhibit to the Company's Form 10-Q report under the Securities Act of 1934 (File No. 33-24180) filed on November 11, 1993 and hereby incorporated by reference. ******* Previously filed as exhibit to the Company's Form 10-K report under the Securities Act of 1934 (File No. 33-24180) filed on March 27, 1994 and hereby incorporated by reference. ******* Previously filed as an exhibit to the Company's Form 10-Q report under the Securities Act of 1934 (File No. 33-24180) filed May 12, 1995 and hereby incorporated by reference. ********** Previously filed as exhibit to the Company's Form 10- K report under the Securities Act of 1934 (File No. 33-24180) filed on August 17, 1996 and hereby incorporated by reference. *********** Previously filed as exhibit to the Company's Form 10- Q report under the Securities Act of 1934 (File No. 33-24180) filed August 13, 1996 and hereby incorporated by reference. ************ Previously filed as exhibit to the Company's Form 10- K report under the Securities Act of 1934 (File No. 33-24180) filed August 13, 1996 and hereby incorporated by reference. EX-1 2 NOTE $104,759,324 February 17, 1997 FOR VALUE RECEIVED, the undersigned, AMFAC/JMB HAWAII, INC. (herein called "Borrower"), a Hawaii corporation, hereby promises to pay to NORTHBROOK CORPORATION (the "Payee") the principal sum of ONE HUNDRED FOUR MILLION SEVEN HUNDRED FIFTY-NINE THOUSAND THREE HUNDRED TWENTY-FOUR DOLLARS ($104,759,324) on February 17, 2007 (the "Maturity Date"), with interest (computed on the basis of a 365- (or, if applicable, 366-) day year) on the unpaid balance thereof at a per annum rate equal to the "Base Rate" as announced from time to time by Bank of Hawaii plus 2% per annum (changing as and when such "Base Rate" changes) from the date hereof, payable on the 15th day of May, August, November and February in each year, commencing May 15, 1997; provided, that the Payee may, at its option, defer all or any portion of the interest payable on any such date (in which case such deferred amounts shall be added to the principal of the loan), but in no event shall such payment be deferred beyond the Maturity Date. Payments of principal and premium, if any, and of interest on this Note are to be made in lawful money of the United States of America at the principal office of the Payee in Chicago, Illinois. If any of the following events ("Events of Default") occurs and is continuing (a) Borrower fails to pay any principal hereon when the same shall become due and payable, or fails, within five day after the same becomes due payable, to pay any undeferred interest hereon; (b) Borrower fails to make any payment in respect of any of Borrower's indebtedness for borrowed money having an aggregate principal amount of more than $1,000,000 when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise, but subject to any applicable grace period) or fails to perform or observe any other condition or covenant, or any other event shall occur or condition shall exist, under any agreement or instrument relating to any such indebtedness for borrowed money, if the effect of such failure, event or condition is to cause, or to permit holders of such indebtedness to cause, such indebtedness to become due prior to its expressed maturity; (c) Borrower becomes insolvent or generally fails to pay, or admits in writing its inability to pay its debts as they become due; Borrower applies for a trustee, receiver or other custodian for it or a substantial part of its property; a trustee, receiver or other custodian is appointed for Borrower or for a substantial part of its property; or any bankruptcy, reorganization, debt arrangement, or other case or proceeding under any bankruptcy or insolvency law, or any dissolution or liquidation proceeding, is commenced in respect of Borrower; or (d) a final judgment or order for the payment of money in excess of $50,000 shall be rendered against Borrower or any of its subsidiaries and such judgment or order shall continue unsatisfied and unstayed for a period of 30 days, then, in the case of any Event of Default under clause (c) above, all indebtedness evidenced by this Note and all interest hereon shall automatically be and become immediately due and payable, and in the case of any other Event of Default, the holder hereof may, by notice to Borrower, declare all indebtedness evidenced by this Note and all interest hereon to be forthwith due and payable, whereupon all indebtedness evidenced by this Note and all such interest will become and be forthwith due and payable, all without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by Borrower. Borrower acknowledges that its obligations hereunder constitute "Senior Indebtedness" for purposes of the Indenture, dated as of March 14, 1989, among Borrower, certain of Borrower's affiliates, and Continental Bank, National Association, as trustee, as the same may be amended, supplemented or otherwise modified from time to time. Notwithstanding anything to the contrary contained in this Note, no director, officer or employee of the Borrower shall have any personal liability of any kind or nature directly or indirectly in connection with this Note. This Note shall be governed by and construed in accordance with the laws of the State of Illinois applicable to contracts made and to be wholly performed in said State, including, but not limited to, the legality of interest rate. AMFAC/JMB HAWAII, INC. By___________________________ Title: Vice President EX-2 3 PROMISSORY NOTE (Secured by Mortgage) $10,000,000.00 December 18, 1996 Honolulu, Hawaii FOR VALUE RECEIVED, the undersigned (the "Maker") promises to pay to CITI BANK, a Hawaii corporation, at 201 Merchant Street, Honolulu, Hawaii 96813, or at such other place as may be designated in writing by the holder of this Note (the "Holder") the principal sum of TEN MILLION AND NO/100 DOLLARS ($10,000,000.00), or so much hereof as may be advanced pursuant to the Loan Agreement hereinafter referred to, in lawful money of the United States of America with interest on each advance of the principal sum from the date of such advance at a floating rate per annum equal to one-half percentage point (0.5%) higher than the City Bank Base Rate, fluctuating from time to time during the term of this Note. Each change in such interest rate shall take effect at such time as the City Bank Base Rate changes. Interest shall be computed for the actual number of days elapsed, on the basis of a 365 or 366 day year, as the case may be. The "City Bank Base Rate" is that rate which corresponds with, and is the same rate as, the Prime Rate ("Rate") published in the Money Rates section of the West Coast Edition of the Wall Street Journal, which is as of December 11, 1996, 8.25%. The City Bank Base Rate shall be adjusted on the same date as, or within three (3) business days after, the Rate changes. If the Rate ceases to be established and publicly announced, the prime rate of major money center banks, as published in the Money Rates section of the Wall Street Journal, shall be used in lieu thereof. If such prime rate is no longer so published, then a comparable index rate selected by City Bank's Loan Administration Section in its sole discretion will be used in lieu thereof. Accrued interest in arrears shall be payable monthly commencing on January 1st, 1997 and on the 1st day of each month (the "Due Date") thereafter until December 1, 1998, when all unpaid principal, any cost, and accrued and unpaid interest shall be due and payable. Except in the case of an election to the contrary by the Holder in the event of a default, all payments will be applied first to interest, then principal. The Maker may make prepayments of principal without a prepayment charge at any time. By acceptance of this Note, Holder agrees to provide Maker with a notice or billing not less than five (5) business days after the Due Date (the "Billing Date") stating the amount of interest due on the Due Date and the interest rate or rates applied in calculating the amount due. Should any installment required under this Note be not paid within twenty (20) days after the Due Date, it is recognized by the undersigned that the holder of this Note will incur extra expenses for handling of delinquent payments, the exact amount of such extra expensed being impossible to ascertain, but that a charge of five percent (5%) of the amount of the delinquent installment payments would be a fair and reasonable approximation of the expenses so incurred by the holder. Therefore, the undersigned shall, in such event, without further notice and without prejudice to the right of the holder of this Note to collect any other amounts provided to be paid hereunder or under any security for this Note, or to declare a default, pay to holder as the holder's sole monetary recovery to cover such expenses incurred in handling delinquent payments, a "late charge" of five percent (5%) of the amount of such delinquent installment payment. If there is a default under Section 11 of the Loan Agreement then, and in any such event, the Holder shall have the option to declare the unpaid principal sum of this Note together with all charges and interest accrued thereon to be immediately due and payable, together with any applicable prepayment charge, and such principal sum, charges, interest and prepayment charge (if applicable) shall thereupon become and be due and payable without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived, and upon such maturity or acceleration, the unpaid principal balance shall bear interest at the higher 18% per annum or 4% over City Bank's Base Rate. Failure to exercise this option shall not constitute a waiver of the right to exercise the same in the event of the same or any subsequent default. In the event of any such default, the Holder may, but shall not be required to, apply sums received, first to any fees or charges due and owing to the Holder pursuant to the Loan Documents, then to principal and then to interest. The Maker acknowledges that nonpayment at maturity as described in the foregoing paragraph (whether or not resulting from acceleration due to an event of default under the Loan Agreement) will cause damages to the Holder by reason of the additional expenses incurred in servicing the indebtedness evidenced by this Note and by reason of the loss to the Holder of the use of the money due and frustration to the Holder in meeting its other commitments. The Maker further acknowledges that it is and will be extremely difficult and impracticable to ascertain the extent of such damages caused by such nonpayment of any sums when due or resulting from any other such event of default under the Loan Agreement. The Maker by its execution and delivery hereof and the Holder hereof by the acceptance of this Note agree that a reasonable estimate of such damages must be based in part upon the duration of the default and that the rate of interest prescribed above with respect to the amount due and payable upon maturity or acceleration would not unreasonable compensate the Holder for such damages. Principal and interest shall be payable in lawful money of the United States of America. The Maker promises to pay reasonable attorney's fees and such expenses as are incurred to induce or compel the payment of this Note or any portion of the indebtedness evidenced hereby, whether suit is brought hereon or not. Except as otherwise provided herein, the Maker and all others who may become liable for any part of this obligation severally waive presentment, protest, demand and notice of protest, demand, dishonor and nonpayment of this Note and consent to any number of renewals or extensions of the time of payment hereof and to any release obligated hereunder or forbearance in the enforcement hereof. This Note shall be governed and construed according to the laws of the State of Hawaii. This Note is secured by the Loan Documents as defined in that certain Loan Agreement executed concurrently with this Note. Notwithstanding any provision to the contrary contained in the Loan Documents, the rate of interest which the Maker shall be required to pay to the Holder shall in no event, contingency or circumstances exceed the greater of the maximum rate which may be stipulated by written contract under the laws of the State of Hawaii or any higher rate which may be permitted under the laws of the State of Hawaii. If, from any circumstance whatsoever, performance by the Maker of any obligation under the Loan Documents at the time performance shall be due (including, without limiting the generality of the foregoing, the payment of any fee, charge or expense paid or incurred by the maker which shall be held to be interest), shall involve transcending the limits of validity prescribed by law, then, automatically, such obligation to be performed shall be reduced to the limit of such validity prescribed by law. If, notwithstanding the foregoing limitations, any excess interest shall at the maturity of the Note be determined to have been received, the same shall be deemed to have been held as additional security. The foregoing provisions shall never be superseded or waived and shall control every other provision of all agreements between the Holder and the Maker. IN WITNESS WHEREOF, the Maker has caused this Note to be duly executed the date first above written. AMFAC PROPERTY DEVELOPMENT CORP. a Hawaii corporation By___________________________ Its Senior Vice President STATE OF HAWAII ) )SS. CITY AND COUNTY OF HONOLULU ) On this 18th day of December, 1996, personally appeared Peggy H. Sugimoto, to me personally known, who, being by me duly sworn or affirmed did say such person(s) executed the foregoing instrument as the free act and deed of such person(s), and if applicable, in the capacity shown, having been duly authorized to execute such instrument in such capacity. __________________________________ Notary Public, State of Hawaii My Commission Expires: Dec. 29, 1997 LAND COURT SYSTEM REGULAR SYSTEM - ----------------------------------------------------------- - --------- Return by Mail ( ) Pickup ( ) To: CITY BANK 201 Merchant Street Honolulu, Hawaii 96813 - -------------------------------------------------------------------- TMK: (1) 9-4-02:4 (portion) UNIFORM COMMERCIAL CODE - FINANCING STATEMENT ------------------------------------------------- 1. Name of Debtor: AMFAC PROPERTY DEVELOPMENT CORP. a Hawaii corporation 700 Bishop Street, 21st Floor Honolulu, Hawaii 96813 2. Name of Secured Party: CITY BANK a Hawaii corporation 201 Merchant Street Honolulu, Hawaii 96813 3. This financing statement cover, and the Debtor hereby grants to the Secured Party a security interest in, the types of items or property described in Exhibit "B" attached hereto. 4. The Debtor is the owner of record of the property described in Exhibit "A" attached hereto. 5. This financing statement also covers proceeds of the collateral. 6. Check if applicable ( ): The above described goods are affixed or are to affixed to: 7. This financing statement is to be filed in the real estate records. DEBTOR: SECURED PARTY: AMFAC PROPERTY DEVELOPMENT CORP. CITY BANK By__________________________ By_______________________ Its Senior Vice President Its Vice President By__________________________ Its EXHIBIT "A" All of that certain parcel of land (all of the lands described in and covered by Royal Patent Number 592, Land Commission Award Number 60 to T. Hunt, and portions of Royal Patent Grant Number 712 to Kaholo and Land Patent Number 8408, Land Commission Award Number 5930, Apana 1 to Puhalahua) situate, lying and being at the northerly side of Waipahu Street, at Ahualii, Waikele, District of Ewa, City and County of Honolulu, State of Hawaii, being Lot D- 1, and thus bounded and described as per survey of Ronald Casuga, Licensed Professional Land Surveyor, with Community Planning, Inc., dated --, revised December 1, 1995, to-wit: Beginning at the southeast corner of this parcel of land, on the westerly side of Hans L'Orange Park, the coordinates if which referred to Government Survey Triangulation Station "Ewa Church" being 1,146.98 feet south and 9,090.13 feet west and running by azimuths measured clockwise from true South: 1. 55 52' 48" 327.79 feet along remainder of Grant 712 to Kaholo (Lot D-2); 2. 58 10' 30" 849.12 feet along remainder of Grant 712 to Kaholo (Lot D-2); 3. 58 00' 341.65 feet along remainder of Grant 712 to Kaholo (Lot D-2); 4. 117 16' 0.12 feet along remainder of Grant 712 to Kaholo, along the north side of Waipahu Street; 5. 70 50' 558.70 feet along remainder of Grant 712 to Kaholo, along the north side of Waipahu Street; 6. Thence along remainder of Grant 712 to Kaholo, on a curve to the right with a radius of 548.14 feet, the chord azimuth and distance being: 183 49' 47" 72.56 feet; 7. 187 37' 30" 121.10 feet along remainder of Grant 712 to Kaholo; 8. Thence along remainder of Grant 712 to Kaholo, on a curve to the left with a radius of 598.14 feet, the chord azimuth and distance being: 177 24' 212.36 feet; 9. 77 10' 30" 5.00 feet along remainder of Grant 712 to Kaholo; 10. Thence along remainder of Grant 712 to Kaholo and Land Patent 8408, Land Commission Award 5930, Apana 1 to Puhalahua, on a curve to the left with a radius of 593.14 feet,the chord azimuth and distance being: 156 06' 227.88 feet; 11. 145 01' 30" 97.80 feet along remainder of Land Patent 8408, Land Commission Award 5930, Apana 1 to Puhalahua; 12. 173 45' 69.20 feet along remainder of Land Patent 8408, Land Commission Award 5930, Apana 1 to Puhalahua; 13. 216 15' 134.00 feet along remainder of Land Patent 8408, Land Commission Award 5930, Apana 1 to Puhalahua; 14. 251 50' 665.00 feet along remainder of Grant 712 to Kaholo (Lot 6); 15. 254 00' 227.65 feet along remainder of Grant 712 to Kaholo (Lot 6); 16. 322 30' 30" 135.61 feet along Lot 80 of Waipahu Estates, Unit 4-A (File Plan 1577); 17. 236 52' 978.09 feet along Lots 80, 79 and 18 of Waipahu Estates, Unit 4-A (File Plan 1577); 18. 310 07' 57" 195.95 feet along remainder of Grant 712 to Kaholo (Lots A and B); 19. 220 07' 57" 150.34 feet along remainder of Grant 712 to Kaholo (Lot B); 20. Thence along remainder of Grant 712 to Kaholo (Lot B), on a curve to the right with a radius of 320.00 feet, the chord azimuth and distance being: 223 32' 29" 38.06 feet; 21. Thence along remainder of Grant 712 to Kaholo (Lot C), on a curve to the right with a radius of 42.00 feet, the chord azimuth and distance being: 274 03' 09" 61.54 feet; 22. Thence along remainder of Grant 712 to Kaholo (Lot C), on a curve to the left with a radius of 641.00 feet, the chord azimuth and distance being: 318 21' 54.5" 62.39 feet; 23. Thence along remainder of Grant 712 to Kaholo (Lot C), on a curve to the left with a radius of 330.00 feet, the chord azimuth and distance being: 310 13' 46.5" 61.49 feet; 24. Thence along remainder of Grant 712 to Kaholo (Lot C), on a curve to the left with a radius of 930.00 feet, the chord azimuth and distance being: 299 20' 21.5" 179.71 feet; 25. Thence along the southerly side of Paiwa Street, on a curve to the left with a radius of 630.00 feet, the chord azimuth and distance being: 280 33' 51" 288.38 feet; 26. 87 18' 27" 258.43 feet along Hans L'Orange Park; 27. 81 09' 15" 69.06 feet along Hans L'Orange Park; 28. 63` 27' 30" 392.50 feet along Hans L'Orange Park; 29. 20 01' 166.35 feet along Hans L'Orange Park, to the point of beginning and containing an area of 34.561 acres, more or less. Being a portion of the real property conveyed to Amfac Property Development Corp., a Hawaii corporation, by Limited Warranty Deed and Reservation of Rights dated December 16, 1996, recorded in the Bureau of Conveyances, State of Hawaii, as Document No. 96-176731. SUBJECT, HOWEVER, to the following: 1. Title to all minerals and metallic mines reserved to the State of Hawaii. 2. Lease in favor of Hawaiian Electric Company, Inc., dated September 26, 1944, recorded in the Bureau of Conveyances, State of Hawaii, in Book 1849, Page 186; leasing and demising a right and easement to build, construct, rebuild, reconstruct, repair, maintain and operate pole and wire lines, etc., for the transmission of electricity, etc., along, across and over a portion of said electricity, etc., along, across and over a portion of said parcel, besides other lands, for a period commencing with the date hereof and ending April 6, 1957, and thereafter from year to year until terminated, said easement being twelve (12) feet wide, six (6) feet on either side of the center line. 3. Lease in favor of Hawaiian Electric Company, Inc., and Hawaiian Telephone Company, dated January 20, 1956, recorded in said Bureau, in Book 3088, Page 223; leasing and demising a right and easement to build, construct, rebuild, reconstruct, repair, maintain and operate pole and wire lines, etc., for the transmission of electricity, etc., over, across, through and within a portion of said parcel, besides other lands, for a period of 60 years commencing on the date hereof, said easement being ten (10) feet wide, extending five (5) feet on either side of the center line. 4. Grant in favor of Hawaiian Electric Company, Inc., dated July 15, 1970, recorded in said Bureau, in Book 7108, Page 319; granting a perpetual right and easement to build, construct, reconstruct, rebuild, repair, maintain and operate a transformer pad, etc., for the transmission and distribution of electricity, etc., over, under, upon, across and through those certain premises as shown on the map attached thereto. 5. Grant if favor of the City and County of Honolulu, dated January 25, 1971, recorded in said Bureau, in Book 7428, Page 417; granting the right, in the nature of an easement, to construct, install, maintain, operate and repair a roadway. 6. Easement "3" for temporary access purposes, containing an area of 181,018 square feet, as granted to Amfac Nurseries, Inc., a Hawaii corporation, doing business as "Amfac Nurseries-Hawaii", in unrecorded Lease dated as of January 1, 1978, of which a Short Form is recorded in said Bureau, in Book 12817, Page 576, said easement being more particularly described therein. 7. Grant in favor of the City and County of Honolulu, dated June 17, 1980, recorded in said Bureau, in Book 15220, Page 264; granting easement for the proper operation, maintenance, repair, replacement and removal of sanitary sewer pipelines, replacement and removal of sanitary sewer pipelines, facilities and appurtenant equipment under and across a portion of said parcel, said easement being more particularly described as follows: All of that certain parcel of land (portion of the land described in and covered by Royal Patent Grant Number 712 to Kaholo) situate, lying and being at Ahualii, Waikele, District of Ewa, City and County of Honolulu, State of Hawaii, being Easement "L", ten feet wide for sanitary sewer purposes, and thus bounded and described: Beginning at the Southeast corner of this easement, the coordinates of which referred to Government Survey Triangulation Station "Ewa Church" being 1106.63 feet South and 10039.40 feet West and running by azimuths measured clockwise from true south: 1. 56 52' 19.92 feet along remainder of Grant 712 to Kaholo; 2. 146 52' 10.00 feet along remainder of Grant 712 to Kaholo; 3. 236 52' 19.16 feet along remainder of Grant 712 to Kaholo; 4. 322 30' 30" 10.03 feet along Lot 80 of Waipahu Estates Unit 4-A (File Plan 1577) to the point of beginning and containing an area of 195 square feet, more or less. 8. Grant in favor of the City and County of Honolulu, dated July 9, 1981, recorded in said Bureau, in Book 15708, Page 64; granting the right, in the nature of an easement, to be exercised and enjoyed by the Board of Water Supply, to construct, install, maintain, operate, replace and remove an underground water pipeline or pipelines together with such meters, control cable and other appurtenances, through a portion of Easement "G" for water pipeline purposes. 9. Easement "M" (10 feet wide) for drainage purposes, as shown on survey map prepared by Ronald Casuga, Licensed Professional Land Surveyor, with Community Planning, Inc., dated -, revised December 1,1995. 10. Floodway zone, as shown on survey map prepared by Ronald Casuga, Licensed Professional Land Surveyor, with Community Planning, Inc., dated ---, revised December 1, 1995. 11. A 60' roadway setback, as shown on survey map prepared by Ronald Casuga, Licensed Professional Land Surveyor, with Community Planning, Inc., dated ---, revised December 1, 1995. 12. A 60' wide roadway setback line, as shown on survey map prepared by Ronald Casuga, Licensed Professional Land Surveyor, with Community Planning, Inc., dated ---, revised December 1, 1995. 13. The terms and provisions, including the failure to comply with any covenants, conditions and reservations, contained in the Unilateral Agreement and Declaration for Conditional Zoning dated November 6, 1996, recorded in said Bureau, as Document No. 96-159180. 14. The terms and provisions, including the failure to comply with any covenants, conditions and reservations, contained in the Amended Unilateral Agreement and Declaration for Conditional Zoning dated November 12, 1996, recorded in said Bureau, as Document No. 96-160631. EXHIBIT "B" FIRST: All right, title and interest of the Debtor to all personal property of any kind including without limitation, machinery, equipment, building materials, furniture, fixtures, furnishings, fittings, attachments, appliances and appurtenances of every kind and nature now fixed or hereafter fixed, placed upon or used in connection with the improvements located on Paiwa Street, Lot D-1, Waipahu, Hawaii, TMK: (1) 9-4-02-4 (portion). SECOND: All right, title and interest of Debtor in sub- contracts, escrow proceeds, deposits, refunds, rebates, security deposits, accounts, contract rights, management agreements and any other personal property of every kind and nature now or hereafter existing for the improvements located on Paiwa Street, Lot D-1, Waipahu, Hawaii, TMK (1) 9-4-02-4 (portion). THIRD: All right, title and interest of the Debtor in and to rents, leases, subleases and/or concessions and in any contracts affecting the buildings, spaces in buildings and/or in the improvements located on Paiwa Street, Lot D- 1, Waipahu, Hawaii, TMK: (1) 9-4-02-4 (portion) FOURTH: All of the Debtor's right, title and interest in and to construction contracts and engineering agreements, building permits, other permits, applications, licenses, soil tests, survey, engineering reports, and appraisals used in connection with the subdivision, development and improvements located on Paiwa Street, Lot D-1, Waipahu, Hawaii, TMK: (1) 9-4-02-4 (portion). LAND COURT REGULAR SYSTEM - --------------------------------------------------------------------- AFTER RECORDATION, RETURN BY MAIL( ) PICK-UP ( ) - --------------------------------------------------------------------- TMK: (1) 9-4-2:4(Por.) MORTGAGE 1 WORDS USED OFTEN IN THIS MORTGAGE 1.1 "Mortgage" means this document which is dated December 18, 1996. 1.2 "Mortgagor" means AMFAC PROPERTY DEVELOPMENT CORP., a Hawaii corporation, whose address is 700 Bishop Street, 21st Floor, Honolulu, Hawaii 96813. 1.3 "Lender" means CITI BANK, a Hawaii corporation, whose address is 201 Merchant Street, Honolulu, Hawaii 96813. 1.4 "Loan Agreement" means collectively, the Loan Agreement and the Loan Documents, as defined therein, entered into by and between Mortgagor and Lender concurrently with the Note and this Mortgage. 1.5 "Note" means the promissory note signed by Mortgagor and payable to Lender which is dated the same date as this Mortgage and any extensions, renewals and amendments of the Note. The Note shows that Mortgagor owes Lender U.S. TEN MILLION AND NO/100 DOLLARS ($10,000,000.00), plus interest and other applicable charges. 1.6 "Property" means the fee simple real property located on Paiwa Street, Lot D-1, Waipahu, Hawaii, which is more particularly described in Exhibit "A" attached hereto and incorporated herein by this reference. The Property includes the other property that is described below in Section 3. 1.7 "Hazardous Materials" means and includes any and all radioactive materials, asbestos organic compounds known as polychlorinated biphenyls, chemicals known to cause cancer or reproductive toxicity, pollutants, contaminants, hazardous wastes, toxic substances, and any and all other substances or materials defined as or included in the definition of "hazardous substances," "hazardous wastes", "hazardous materials", or "toxic substances" under, or for the purposes of, all federal, state or local laws, ordinances or regulations, now or hereafter in effect, relating to environmental conditions, industrial hygiene or Hazardous Materials on, within, under or about the Property, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq., the Resource Conservation and Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Clean Water Act, 33 U.S.C. Section 1251, et seq., the Clean Air Act, 42 U.S.C. Section 7401, et seq., the Toxic Substances Control Act, 15 U.S.C. Sections 2601 through 2629, the Safe Drinking Water Act, 42 U.S.C. Sections 300f through 300j, and any similar state or local laws or ordinances and the regulations now or hereafter adopted, published and/or promulgated pursuant thereto. 2 MORTGAGOR'S TRANSFER TO LENDER RIGHTS IN THE PROPERTY Mortgagor mortgages, grants and conveys the Property to Lender subject to the terms of this Mortgage. This means that, by signing this Mortgage, Mortgagor is giving Lender those rights that are stated in this Mortgage and also those rights the law gives to lenders who hold mortgages on real property. Mortgagor is giving Lender these rights to protect Lender from possible losses that might result if Mortgagor does not: 2.1 Pay all the amounts that Mortgagor owes Lender as stated in the Note; 2.2 Pay, with interest, any amounts that Lender spends under this Mortgage to protect the value of the Property and Lender's rights in the Property; 2.3 Pay for any damages sustained by Lender arising from Mortgagor failing to perform under any of the terms or covenants in the Loan Agreement; 2.4 Keep all of the Mortgagor's promises and agreements under this Mortgage. 3 DESCRIPTION OF THE PROPERTY Mortgagor gives to Lender all of Mortgagor's rights in the following Property; 3.1 The Property which is described in Section 1.6 above which has the legal description set forth in Exhibit "A" attached hereto; 3.2 All buildings and other improvements that are located on the Property or included in the Property described in Section 1.6 above; 3.3 All easements, rights and appurtenances attached to the Property; 3.4 All rents or royalties arising from or relating to the Property; 3.5 To the extent permitted by law, all profits, water and water rights that are part of the Property; 3.6 All rights that Mortgagor has in the land which ties in the streets or roads in front of, or next to, the Property; 3.7 All fixtures that are now or in the future will be on the Property, and all replacements of and additions to those fixtures; 3.8 All rights that Mortgagor has in any insurance proceeds or condemnation proceeds, (but only to the extent provided in Section 8) which are described in this Mortgage and any other right described in this Mortgage; 3.9 All of the rights and property described in subsections 3.2, 3.3, 3.4, 3.5, 3.6 and 3.7 of this Section 3 that Mortgagor acquires in the future; 3.10 All replacements of or additions to the property described in subsections 3.2, 3.3, 3.4, 3.5, 3.6 and 3.7 of this Section 3. 4 MORTGAGOR'S OWNERSHIP OF THE PROPERTY, RIGHT TO MORTGAGE AND WARRANTY TO LENDER Mortgagor covenants and promises that: (A) Mortgagor lawfully owns the Property; (B) Mortgagor has the right to mortgage, grant and convey the Property to Lender; and (C) there are no outstanding claims or charges against the Property other than claims and charges of record or which has been disclosed to and approved by Lender in writing. Mortgagor is fully responsible for any losses which Lender may suffer if someone other than Mortgagor has any of the rights in the Property which Mortgagor promises and agrees that it has. Mortgagor promises that it will defend its ownership of the Property against any claims of such rights. 5 STANDARD COVENANTS AND PROMISES Mortgagor covenants, promises and agrees as follows: 5.1 Mortgagor will promptly pay to Lender when due principal and interest under the Note and any penalties and late charges and prepayment charges (if any) as stated in the Note. 5.2 Unless the law requires otherwise, Lender will apply each of Mortgagor's payments under the note in the order set forth and described in the Note. 5.3 Mortgagor will pay all taxes, assessments and any other charges and fines that may be imposed on the Property and that may be superior to this Mortgage. 5.4 Any claim, demand or charge that is made against the Property because an obligation has not been fulfilled is know as a "lien." Mortgagor agrees to promptly pay or satisfy all lines against the Property that may be superior to this Mortgage except for those listed on Exhibit "A" attached hereto. However, this Mortgage does not require Mortgagor to satisfy a superior lien if: (1) Mortgagor agrees to pay the obligation which gave rise to the superior lien and Lender approves in writing, the way in which Mortgagor has agreed to pay that obligation; or (2) Mortgagor, in good faith, argues or defends and bonds, if required by Lender, against the superior lien in a lawsuit so that, during the lawsuit, the superior lien may not be enforced and no part of or any rights in the Property must be given up. 5.5 Mortgagor will not commit waste of the Property and will not take any action with respect to the Property which would impair its value, provided however, that Mortgagor may demolish any structures or improvements existing on the Property on the date of this Mortgage. 5.6 Mortgagor will maintain in effect a blanket policy of Commercial General Liability insurance, naming Lender as an additional insured with aggregate limits of not less than $5,000,000. THIS MORTGAGE SERVES AS WRITTEN NOTICE TO THE BORROWER AND MORTGAGOR THAT BORROWER AND MORTGAGOR ARE FREE TO PROCURE ANY INSURANCE REQUIRED BY THIS MORTGAGE, THE LOAN AGREEMENT, OR ANY OTHER SECURITY INSTRUMENT FROM ANY INSURANCE COMPANY AUTHORIZED TO DO BUSINESS IN THE STATE OF HAWAII. 6 LENDER'S RIGHT TO TAKE ACTION TO PROTECT THE PROPERTY If: (A) Mortgagor does not keep its promises and agreements made in this Mortgage, or (B) someone, including Mortgagor, begins a legal proceeding that may significantly affect Lender's rights in the Property (such as, for example, a legal proceeding in bankruptcy, in probate, for condemnation, to enforce laws or regulations, foreclosure on a mortgage or lien affecting the Property), then Lender may do an pay for whatever is necessary to protect the value of the Property and Lender's rights in the Property after thirty (30) days prior written notice to Borrower that it intends to take such action. Lender's actions under this Section 6 may include, for example, appearing in court, paying reasonable attorney's fees and court costs, and entering on the Property to make repairs. Mortgagor will pay to Lender any amounts, with interest, which Lender spends under this Section 6. This Mortgage will protect Lender in case Mortgagor does not keep this promise to pay those amounts with interest. Mortgagor will pay those amounts to Lender when Lender sends Mortgagor a notice requesting that it do so. Mortgagor will pay interest on those amounts at the same rate stated in the Note. However, if payment of interest at that rate would violate the law, Mortgagor will pay interest on the amounts spent by Lender under this Section 6 at the highest rate that the law allows. Interest on each amount will begin on the date that the amount is spent by Lender. However, Lender and Mortgagor may agree in writing to terms of payment that are differences from those in this Section 6. At the election of Lender, the amount spent by Lender under this Section 6 may be added to the Note. Although Lender may take action under this Section 6, Lender does not have to do so. 7 LENDER'S RIGHT TO INSPECT THE PROPERTY Lender, and other authorized by Lender, may enter on and inspect the Property. Lender will conduct its inspections in a reasonable manner and at reasonable times. Before one of those inspections is make, Lender will provide Mortgagor with notice stating a reasonable purpose for the inspection. 8 AGREEMENTS ABOUT CONDEMNATION OF THE PROPERTY Mortgagor gives to Lender its right: (A) to proceeds of all awards or claims for damages resulting from condemnation or other governmental taking of the Property; and (B) to proceeds from a sale of the Property that is made to avoid condemnation, but only if, in either case, as a result of the condemnation, the loan to value ratio of the remaining balance of the loan to the fair market value of the remaining Property is more than sixty percent (60%). Mortgagor may at its option (i) elect to waive any right to condemnation proceeds notwithstanding the loan to value ration after condemnation, and if Mortgagor so elects, all condemnation proceeds shall be paid to Lender and Lender shall have no further rights against Borrower, or (ii) obtain a current appraisal at its sole expense, and if it is determined by Lender in its reasonable discretion after review of such appraisal, that the loan to value ratio is more than sixty (60%) after the condemnation, then such portion of the condemnation proceeds necessary to reduce the balance of the loan to an amount which is sixty percent (60%) of the then fair market value of the remaining Property shall be paid to Lender, and Lender shall apply the net proceeds toward the payment of the Note. Any remaining proceeds will be paid to the Mortgagor. 9 CONTINUATION OF MORTGAGOR'S OBLIGATION If Mortgagor transfers or conveys all or any part of the Property, that person to whom the property is transferred or conveyed and Mortgagor will both be fully obligated under this Mortgage unless otherwise agreed in writing between the Lender and Mortgagor. 10 CONTINUATION OF LENDER'S RIGHTS Even if Lender does not exercise or enforce any right of Lender under this Mortgage or under the law, Lender will still have all of those rights and may exercise and enforce them in the future. Even if Lender obtains insurance, pays taxes, or pays other claims, charges or liens against the Property, Lender will still have the right under Section 15 below, to demand that Mortgagor pay in full the amount that Mortgagor owes to Lender under the Note, Loan Agreement and under this Mortgage. 11 LENDER'S ABILITY TO ENFORCE MORE THAN ONE OF LENDER'S RIGHTS Each of Lender's rights under this Mortgage are separate. Lender may exercise and enforce one or more of those rights, as well as any of Lender's other rights under the law, one at a time, all at once and at any time. 12 OBLIGATIONS OF MORTGAGOR AND OF PERSONS TAKING OVER MORTGAGOR'S RIGHTS OR OBLIGATIONS; AGREEMENTS CONCERNING CAPTIONS Any person who takes over Mortgagor's rights or obligations under this Mortgage will have all of Mortgagor's liabilities and rights and will be obligated to keep all of Mortgagor's covenants, promises and agreements made in this Mortgage. Any person who takes over Lender's rights or obligations under this Mortgage will have all of Lender's rights and will be obligated to keep all of Lender's convenience, promises and agreements. 13 AGREEMENTS ABOUT GIVING NOTICES REQUIRED UNDER THE MORTGAGE Unless the law requires otherwise, any notice that must be given under this Mortgage will be given by delivering it or by mailing it addressed to the respective parties at the address stated in Section 1 above. A notice will be delivered or mailed to Mortgagor at a different address if Mortgagor gives Lender written notice of a different address. Any notice that must be given to Lender under this Mortgage will be given by mailing it to Lender's address stated in Section 1. A notice will be mailed to Lender at a different address if Lender gives Mortgagor notice of the different address. A notice required by this Mortgage is given when it is mailed (postage prepaid) or when it is delivered according to the requirements of this Section 13. 14 AGREEMENTS ABOUT LENDER'S RIGHTS IF MORTGAGOR TRANSFERS THE PROPERTY If any of the Property described in this Mortgage is conveyed or assigned by Mortgagor to any other party except as hereinafter set forth in this Section 14, then unless the Lender consents in writing to the conveyance or assignment, the Note shall become due at once, at the option of the Lender (any provision to the contrary herein notwithstanding), and any delay on the part of the Lender to demand Immediate Payment in full shall not prejudice Lender's rights. For the purposes of this Section 14, the phrase "conveyance or assignment" shall be deemed to include the voluntary or involuntary dissolution or termination of the Mortgagor. Mortgagor may make transfers of the Property directly or indirectly as provided in the following subparagraphs a. and b. with the prior written consent of Lender, which consent will not be unreasonably withheld, and will be given or denied within twenty (20) days of a written request from Mortgagor, or be deemed given if Lender has responded to the request for consent within said 20-day period: a. a transfer its assets to a subsidiary, a parent, a subsidiary of its parent, an affiliated corporation, limited liability company or partnership, or to a corporation under common control with its parent or another subsidiary; or b. a transfer its assets by way or merger to a corporation or limited liability company which is an affiliate of Borrower or its parent, or with which its parent consolidates or pools its assets. Notwithstanding the foregoing, Lender will not have the right to require Immediate Payment in Full as a result of certain transfers. Those transfers are: (i) the creation of liens or other claims against the Property that are inferior to this Mortgage with the prior written consent of Lender; or (ii) leasing the Property for a term of one year or less, as long as the lease does not include an option to purchase the Property. 15 LENDER'S RIGHTS IF MORTGAGOR FAILS TO KEEP PROMISES AND AGREEMENTS If there is a default under Section 11 of the Loan Agreement, Lender may require that Mortgagor immediately pay the entire amount then remaining unpaid under the Note, Loan Agreement and under this Mortgage. Lender may do this without making any further demand for payment. This requirement will be called "Immediate Payment in Full." If Lender requires Immediate Payment in Full, Lender may bring a lawsuit to take away all of Mortgagor's remaining rights in the Property and to have Property sold. At this sale Lender or another person may acquire the Property. This is known as "foreclosure and sale." In any lawsuit for foreclosure and sale, Lender will have the right to collect all of Lender's reasonable attorney's fees and costs allowed by law and any fees and costs expended by Lender under the terms of this Mortgage. At the election of Lender, Lender may foreclose on the Property by a power of sale as provided in Section 667-5, Hawaii Revised Statutes, as amended. 16 LENDER'S RIGHTS TO RENTAL PAYMENTS FROM THE PROPERTY AND TO TAKE POSSESSION OF THE PROPERTY As additional protection for Lender, Mortgagor gives to Lender all of its rights to any rental payments from the Property. However, until default under Section 11 of the Loan Agreement, or until Mortgagor abandons the Property, Mortgagor has the right to collect and keep those rental payments as they become due. Mortgagor warrants that it is has not given any of its rights to rental payments from the Property to anyone else (except as acknowledged in writing by Lender), and Mortgagor will not do so without Lender's consent in writing. If there is a default under Section 11 of the Loan Agreement, or if Mortgagor abandons the Property, then Lender, persons authorized by Lender or receiver appointed by a court at Lender's request may: (A) collect the rental payments, including overdue rental payments, directly from the tenants; (B) enter on and take possession of the Property; (C) manage the Property; and (D) sign, cancel and change leases. Mortgagor agrees that if Lender notifies the tenants that Lender has the right to collect rental payments directly from them under this Section 16, the tenants may make those rental payments to Lender without having to verify whether Mortgagor has failed to keep its promises and agreements under this Mortgage. All rental payments collected by Lender or by a receiver, other than the rent paid by Mortgagor under this Section, will be first used to pay the costs of collecting rental payments and of managing the Property. If any part of the rental payment remains after those costs have been paid if full, the remaining part will be used to reduce the amount that Mortgagor owes to Lender under the Note, Loan Agreement and under this Mortgage. The costs of managing the Property may include the rental agent fees, receiver's fees, reasonable attorney's fees, the cost of any necessary bonds, and any reimbursement of rent and deposits to tenants. Lender and the receiver will be obligated to account only for those rental payments that they actually receive. Notwithstanding the foregoing, Mortgagor agrees that it will not anticipates for more than one month any rents that may be collectible under any leases affecting the Property. Additionally, Mortgagor shall perform every obligation of the lessor and shall enforce every material obligation of the lessee in every lease affecting the Property. 17 ELECTION OF REMEDIES Lender has the right to enforce one or more remedies hereunder, or any other remedy the Lender may have including any remedies it has in the Note, Loan Agreement, or Loan Documents (as defined in the Loan Agreement) successively or concurrently including the right to foreclose the lien of this Mortgage or to enforce the assignment of rents herein mentioned with respect to any portion of the Property, without thereby impairing the lien or security interest created by this Mortgage on the remainder of the Property or affecting the other remedies of Lender available with respect thereto or any other remedies available in the Note, Loan Agreement or Loan Documents (as defined in the Loan Agreement). 18 HAZARDOUS WASTE 18.1 Representations Mortgagor represents and warrants to Lender that the Property has never been used as a dump site or storage site (whether permanent or temporary) for any Hazardous Materials or has any Hazardous Materials ever been disposed on the Property to the best of Mortgagor's knowledge after due and diligent inquiry, except as disclosed in those certain Environmental Site Assessments, (Phase I dated August 26, 1996 covering Parcel "A" as identified therein; Phase II dated November 20, 1996 covering Parcel "B" as identified therein; Phase I dated August 26, 1996 covering Parcel "C" as identified therein, and that certain letter dated October 7, 1996 BES Job No. 4815) prepared by Brewer Environmental Services. 18.2 Positive Covenants a. Mortgagor covenants to Lender that the Mortgagor will not use, generate, manufacture, treat, handle, refine, produce, process, store, discharge, release, dispose of or allow to exist on, within, under or about the Property, any Hazardous Material, except in full compliance with all applicable Hazardous Materials laws. b. If the Mortgagor at any time becomes aware of any discharge of any Hazardous Material whether by Mortgagor or any prior owner or user of the Property or of any claim affecting Hazardous Materials in respect of the Property, the Mortgagor will immediately advise Lender thereof, in writing, and provide to Lender such detailed reports thereof as may be reasonably requested by Lender. Upon such discovery, Mortgagor shall cease to allow any further discharge and/or shall cause the Hazardous Material to be removed and/or abated. Lender shall have the right to join and participate in, as a party if it so elects, any settlements, remedial actions, legal proceedings or actions initiated in respect of any Hazardous Material claims. c. If Lender reasonably believes that the Property has been contaminated after recording of this Mortgage, then if requested by Lender, Mortgagor (or a third party designated by Lender) shall conduct an environmental audit of the Property to verify the existence or non-existence of Hazardous Materials. All cost and expenses of any such audit shall be paid by Mortgagor. 18.3 Indemnification Mortgagor will indemnify Lender against and hold the Lender harmless from all costs and expenses (including reasonable attorney's fees), losses, damages (including foreseeable or unforeseeable consequential damages) and liabilities incurred by Lender which may arise out of or may be directly or indirectly attributable to (1) the use, generation, manufacture, treatment, handling, refining, production, processing, storage, release, discharge, disposal or presence of any Hazardous Material on, within, under or about the Property, (2) Lender's investigation and handling (including the defense) of any formal legal proceedings shall have been commenced in respect thereof (3) any expenditures made by Lender in connection with the removal, abatement or containment of any Hazardous Materials on, within, or under the Property, and (4) Lender's enforcement of this Section 18, whether or not suit is brought therefor. The provisions of this Section 18 shall survive the repayment of the indebtedness secured by this Mortgage; any foreclosure of this Mortgage; and any deed (or assignment) of the Property in lieu of foreclosure. 19 LENDER'S OBLIGATION TO DISCHARGE OR PARTIALLY RELEASE THIS M MORTGAGE 19.1 Payment in Full. When Lender has been paid all amounts due under the Note, Loan Agreement and under this Mortgage, Lender will discharge this Mortgage by delivering a certificate stating that this Mortgage has been satisfied. Mortgagor will not be required to pay Lender for the discharge, but Mortgagor will pay all reasonable costs of preparing the discharge and recording the discharge in the proper official records. 19.2 Partial Payment. If Mortgagor pays to Lender the sum of FOUR MILLION AND NO/DOLLARS ($4,000,000.00), then Lender will release from the lien of this Mortgage, that portion of the Property to be known as Lot 1-A, resulting from the consolidation and resubdivision of the Property and Lot D-2 and containing 14.240 acres, more or less. 20 NO WAIVER The failure on the part of Lender to insist and demand upon the strict performance by Mortgagor of any of the terms and provisions of this Mortgage shall not be deemed to be a waiver of any of the terms and provisions hereof and Lender, notwithstanding any such failure, shall have the right thereafter to insist and demand upon the strict performance of Mortgagor of any and all of the terms and provisions of this Mortgage to be performed by Mortgagor. 21 SEVERABILITY If any term or provision of this Mortgage or the application thereof to any person or entity or circumstances shall to any extent by invalid or unenforceable, the remainder to this Mortgage, or the application of such term or provision to persons or entities or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby, and each term and provision of this Mortgage shall be valid and enforceable to the fullest extent permitted by law. 22 NO RELEASE OF LIABILITY Mortgagor hereby agrees and Lender hereby reserves the right to release any security or collateral securing the loan including any guarantor(s) without notice to, or the consent or approval of the Mortgagor, which release, if any, shall not impair or in any manner affect the validity or priority of this Mortgage on the Property, nor act as a release of the full performance of all covenants and provisions contained herein, provided however, that no such release shall impair or limit the right of Mortgagor to a partial release as provided in Section 19.2 above. 23 DESTRUCTION OF NOTE In the event the original Note shall be lost, mutilated or destroyed, Mortgagor will upon receipt of a written request from Lender and including an affidavit of an authorized officer of Lender certifying that the original Note was lost, mutilated or destroyed, execute a substitution of the Note containing the same terms and conditions as the old Note with a notation thereon of the then outstanding principal balance. 24 GOVERNING LAW This Mortgage shall be governed by the laws of the State of Hawaii. By signing this Mortgage, Mortgagor agrees to all of the above. MORTGAGOR: AMFAC PROPERTY DEVELOPMENT CORP. a Hawaii corporation By_______________________________ its Senior Vice President STATE OF HAWAII ) )SS. CITY AND COUNTY OF HONOLULU ) On this 18th day of December, 1996, personally appeared Peggy H. Sugimoto, to me personally known, who being by me duly sworn or affirmed did say that such person(s) executed the foregoing instrument as the free act and deed of such person(s), and if applicable, in the capacity shown, having been duly authorized to execute such instrument in such capacity. ________________________________ Notary Public, State of Hawaii My Commission Expires Dec 29, 1997 EXHIBIT "A" All of that certain parcel of land (all of the lands described in and covered by Royal Patent Number 592, Land Commission Award Number 60 to T. Hunt, and portions of Royal Patent Grant Number 712 to Kaholo and Land Patent Number 8408, Land Commission Award Number 5930, Apana 1 to Puhalahua) situate, lying and being at the northerly side of Waipahu Street, at Ahualii, Waikele, District of Ewa, City and County of Honolulu, State of Hawaii, being Lot D- 1, and thus bounded and described as per survey of Ronald Casuga, Licensed Professional Land Surveyor, with Community Planning, Inc., dated --, revised December 1, 1995, to-wit: Beginning at the southeast corner of this parcel of land, on the westerly side of Hans L'Orange Park, the coordinates if which referred to Government Survey Triangulation Station "Ewa Church" being 1,146.98 feet south and 9,090.13 feet west and running by azimuths measured clockwise from true South: 1. 55 52' 48" 327.79 feet along remainder of Grant 712 to Kaholo (Lot D-2); 2. 58 10' 30" 849.12 feet along remainder of Grant 712 to Kaholo (Lot D-2); 3. 58 00' 341.65 feet along remainder of Grant 712 to Kaholo (Lot D-2); 4. 117 16' 0.12 feet along remainder of Grant 712 to Kaholo, along the north side of Waipahu Street; 5. 70 50' 558.70 feet along remainder of Grant 712 to Kaholo, along the north side of Waipahu Street; 6. Thence along remainder of Grant 712 to Kaholo, on a curve to the right with a radius of 548.14 feet, the chord azimuth and distance being: 183 49' 47" 72.56 feet; 7. 187 37' 30" 121.10 feet along remainder of Grant 712 to Kaholo; 8. Thence along remainder of Grant 712 to Kaholo, on a curve to the left with a radius of 598.14 feet, the chord azimuth and distance being: 177 24' 212.36 feet; 9. 77 10' 30" 5.00 feet along remainder of Grant 712 to Kaholo; 10. Thence along remainder of Grant 712 to Kaholo and Land Patent 8408, Land Commission Award 5930, Apana 1 to Puhalahua, on a curve to the left with a radius of 593.14 feet,the chord azimuth and distance being: 156 06' 227.88 feet; 11. 145 01' 30" 97.80 feet along remainder of Land Patent 8408, Land Commission Award 5930, Apana 1 to Puhalahua; 12. 173 45' 69.20 feet along remainder of Land Patent 8408, Land Commission Award 5930, Apana 1 to Puhalahua; 13. 216 15' 134.00 feet along remainder of Land Patent 8408, Land Commission Award 5930, Apana 1 to Puhalahua; 14. 251 50' 665.00 feet along remainder of Grant 712 to Kaholo (Lot 6); 15. 254 00' 227.65 feet along remainder of Grant 712 to Kaholo (Lot 6); 16. 322 30' 30" 135.61 feet along Lot 80 of Waipahu Estates, Unit 4-A (File Plan 1577); 17. 236 52' 978.09 feet along Lots 80, 79 and 18 of Waipahu Estates, Unit 4-A (File Plan 1577); 18. 310 07' 57" 195.95 feet along remainder of Grant 712 to Kaholo (Lots A and B); 19. 220 07' 57" 150.34 feet along remainder of Grant 712 to Kaholo (Lot B); 20. Thence along remainder of Grant 712 to Kaholo (Lot B), on a curve to the right with a radius of 320.00 feet, the chord azimuth and distance being: 223 32' 29" 38.06 feet; 21. Thence along remainder of Grant 712 to Kaholo (Lot C), on a curve to the right with a radius of 42.00 feet, the chord azimuth and distance being: 274 03' 09" 61.54 feet; 22. Thence along remainder of Grant 712 to Kaholo (Lot C), on a curve to the left with a radius of 641.00 feet, the chord azimuth and distance being: 318 21' 54.5" 62.39 feet; 23. Thence along remainder of Grant 712 to Kaholo (Lot C), on a curve to the left with a radius of 330.00 feet, the chord azimuth and distance being: 310 13' 46.5" 61.49 feet; 24. Thence along remainder of Grant 712 to Kaholo (Lot C), on a curve to the left with a radius of 930.00 feet, the chord azimuth and distance being: 299 20' 21.5" 179.71 feet; 25. Thence along the southerly side of Paiwa Street, on a curve to the left with a radius of 630.00 feet, the chord azimuth and distance being: 280 33' 51" 288.38 feet; 26. 87 18' 27" 258.43 feet along Hans L'Orange Park; 27. 81 09' 15" 69.06 feet along Hans L'Orange Park; 28. 63` 27' 30" 392.50 feet along Hans L'Orange Park; 29. 20 01' 166.35 feet along Hans L'Orange Park, to the point of beginning and containing an area of 34.561 acres, more or less. Being a portion of the real property conveyed to Amfac Property Development Corp., a Hawaii corporation, by Limited Warranty Deed and Reservation of Rights dated December 16, 1996, recorded in the Bureau of Conveyances, State of Hawaii, as Document No. 96-176731. SUBJECT, HOWEVER, to the following: 1. Title to all minerals and metallic mines reserved to the State of Hawaii. 2. Lease in favor of Hawaiian Electric Company, Inc., dated September 26, 1944, recorded in the Bureau of Conveyances, State of Hawaii, in Book 1849, Page 186; leasing and demising a right and easement to build, construct, rebuild, reconstruct, repair, maintain and operate pole and wire lines, etc., for the transmission of electricity, etc., along, across and over a portion of said electricity, etc., along, across and over a portion of said parcel, besides other lands, for a period commencing with the date hereof and ending April 6, 1957, and thereafter from year to year until terminated, said easement being twelve (12) feet wide, six (6) feet on either side of the center line. 3. Lease in favor of Hawaiian Electric Company, Inc., and Hawaiian Telephone Company, dated January 20, 1956, recorded in said Bureau, in Book 3088, Page 223; leasing and demising a right and easement to build, construct, rebuild, reconstruct, repair, maintain and operate pole and wire lines, etc., for the transmission of electricity, etc., over, across, through and within a portion of said parcel, besides other lands, for a period of 60 years commencing on the date hereof, said easement being ten (10) feet wide, extending five (5) feet on either side of the center line. 4. Grant in favor of Hawaiian Electric Company, Inc., dated July 15, 1970, recorded in said Bureau, in Book 7108, Page 319; granting a perpetual right and easement to build, construct, reconstruct, rebuild, repair, maintain and operate a transformer pad, etc., for the transmission and distribution of electricity, etc., over, under, upon, across and through those certain premises as shown on the map attached thereto. 5. Grant if favor of the City and County of Honolulu, dated January 25, 1971, recorded in said Bureau, in Book 7428, Page 417; granting the right, in the nature of an easement, to construct, install, maintain, operate and repair a roadway. 6. Easement "3" for temporary access purposes, containing an area of 181,018 square feet, as granted to Amfac Nurseries, Inc., a Hawaii corporation, doing business as "Amfac Nurseries-Hawaii", in unrecorded Lease dated as of January 1, 1978, of which a Short Form is recorded in said Bureau, in Book 12817, Page 576, said easement being more particularly described therein. 7. Grant in favor of the City and County of Honolulu, dated June 17, 1980, recorded in said Bureau, in Book 15220, Page 264; granting easement for the proper operation, maintenance, repair, replacement and removal of sanitary sewer pipelines, replacement and removal of sanitary sewer pipelines, facilities and appurtenant equipment under and across a portion of said parcel, said easement being more particularly described as follows: All of that certain parcel of land (portion of the land described in and covered by Royal Patent Grant Number 712 to Kaholo) situate, lying and being at Ahualii, Waikele, District of Ewa, City and County of Honolulu, State of Hawaii, being Easement "L", ten feet wide for sanitary sewer purposes, and thus bounded and described: Beginning at the Southeast corner of this easement, the coordinates of which referred to Government Survey Triangulation Station "Ewa Church" being 1106.63 feet South and 10039.40 feet West and running by azimuths measured clockwise from true south: 1. 56 52' 19.92 feet along remainder of Grant 712 to Kaholo; 2. 146 52' 10.00 feet along remainder of Grant 712 to Kaholo; 3. 236 52' 19.16 feet along remainder of Grant 712 to Kaholo; 4. 322 30' 30" 10.03 feet along Lot 80 of Waipahu Estates Unit 4-A (File Plan 1577) to the point of beginning and containing an area of 195 square feet, more or less. 8. Grant in favor of the City and County of Honolulu, dated July 9, 1981, recorded in said Bureau, in Book 15708, Page 64; granting the right, in the nature of an easement, to be exercised and enjoyed by the Board of Water Supply, to construct, install, maintain, operate, replace and remove an underground water pipeline or pipelines together with such meters, control cable and other appurtenances, through a portion of Easement "G" for water pipeline purposes. 9. Easement "M" (10 feet wide) for drainage purposes, as shown on survey map prepared by Ronald Casuga, Licensed Professional Land Surveyor, with Community Planning, Inc., dated -, revised December 1,1995. 10. Floodway zone, as shown on survey map prepared by Ronald Casuga, Licensed Professional Land Surveyor, with Community Planning, Inc., dated ---, revised December 1, 1995. 11. A 60' roadway setback, as shown on survey map prepared by Ronald Casuga, Licensed Professional Land Surveyor, with Community Planning, Inc., dated ---, revised December 1, 1995. 12. A 60' wide roadway setback line, as shown on survey map prepared by Ronald Casuga, Licensed Professional Land Surveyor, with Community Planning, Inc., dated ---, revised December 1, 1995. 13. The terms and provisions, including the failure to comply with any covenants, conditions and reservations, contained in the Unilateral Agreement and Declaration for Conditional Zoning dated November 6, 1996, recorded in said Bureau, as Document No. 96-159180. 14. The terms and provisions, including the failure to comply with any covenants, conditions and reservations, contained in the Amended Unilateral Agreement and Declaration for Conditional Zoning dated November 12, 1996, recorded in said Bureau, as Document No. 96-160631. EXHIBIT "B" FIRST: All right, title and interest of the Debtor to all personal property of any kind including without limitation, machinery, equipment, building materials, furniture, fixtures, furnishings, fittings, attachments, appliances and appurtenances of every kind and nature now fixed or hereafter fixed, placed upon or used in connection with the improvements located on Paiwa Street, Lot D-1, Waipahu, Hawaii, TMK: (1) 9-4-02-4 (portion). SECOND: All right, title and interest of Debtor in sub- contracts, escrow proceeds, deposits, refunds, rebates, security deposits, accounts, contract rights, management agreements and any other personal property of every kind and nature now or hereafter existing for the improvements located on Paiwa Street, Lot D-1, Waipahu, Hawaii, TMK (1) 9-4-02-4 (portion). THIRD: All right, title and interest of the Debtor in and to rents, leases, subleases and/or concessions and in any contracts affecting the buildings, spaces in buildings and/or in the improvements located on Paiwa Street, Lot D- 1, Waipahu, Hawaii, TMK: (1) 9-4-02-4 (portion) FOURTH: All of the Debtor's right, title and interest in and to construction contracts and engineering agreements, building permits, other permits, applications, licenses, soil tests, survey, engineering reports, and appraisals used in connection with the subdivision, development and improvements located on Paiwa Street, Lot D-1, Waipahu, Hawaii, TMK: (1) 9-4-02-4 (portion). SECURITY AGREEMENT THIS AGREEMENT is made and entered into this 18th day of December, 1996, between AMFAC PROPERTY DEVELOPMENT CORP., a Hawaii corporation, whose address is 700 Bishop Street, 21st Floor, Honolulu, Hawaii 96813, hereinafter referred to as "Debtor", and CITY BANK, a Hawaii corporation, having its principal office at 201 Merchant Street, Honolulu, Hawaii 96813, hereinafter called "Secured Party." W I T N E S S E T H: WHEREAS, Debtor has requested Secured Party to lend to Debtor such sums as may be from time to time be mutually agreed upon, on the security of certain collateral described below; and WHEREAS, in order to induce Secured Party to make the loan described below to Debtor, Debtor has agreed to pledge and assign certain collateral to the Secured Party; and WHEREAS, Secured Party is willing to lend such sums upon the terms and conditions described below; NOW, THEREFORE, it is hereby agreed as follows: 1. Pursuant to the provisions of the Uniform Commercial Code, (Chapter 490, Hawaii Revised Statutes, as amended) Debtor hereby grants to Secured Party, and Secured Party hereby accepts a security interest in the property described in Exhibit "B" attached hereto and incorporated herein by reference, and as to Items FIRST through FOURTH, inclusive, are located in or affecting the improvements on the land described in Exhibit "A" attached hereto and incorporated herein by reference. 2. This agreement secures the payment, in lawful money of the United States of America to said Secured Party, at its address set forth above, of the following: (a) a Promissory Note of even date herewith, executed by Debtor and payable to Secured Party, in the principal amount of TEN MILLION AND NO/DOLLARS ($10,000,000.00) with interest as provided therein; (b) all further advances which may be made by Secured Party to Debtor in connection with that loan including, but not limited to all advances and expenditures made by Secured Party for the protection, maintenance, preservation or repair of the collateral; and (c) all liabilities of any kind, whether primary or secondary which are now due or which may hereafter become due from Debtor to Secured Party in connection with the loan; and (d) performance by Debtor of the agreements hereinafter set forth and all other loan documents executed in connection with the Note described in (a) above. 3. Debtor warrants that (a) Debtor is the owner of the collateral clear of all items and security interest except the security interest granted herein and (b) Debtor has the right to make this Agreement. 4. Debtor will: a. Pay the Secured Party all amounts payable on the notes mentioned above and on all other obligations of Debtor held by Secured Party as and when the same shall be due and payable, whether at maturity, by acceleration or otherwise, and will perform all obligations for which this Security Agreement has been given as security. b. Defend the collateral against the claims and demand of all persons. c. Insure any tangible existing collateral against all hazards requested by Secured Party in form and amount satisfactory to Secured Party. d. Immediately pay Secured Party for all monies expended by it which shall be construed as part of the debt hereby secured including but not limited to attorneys' fees with interest thereon paid or advanced by Secured Party (i) for taxes, levies, insurance, repairs to or maintenance of the collateral, and (ii) in taking possession of, disposing of, or preserving the collateral after any default hereinafter described. e. Immediately inform Secured Party in writing of any change in the address of Debtor. 5. Without the prior consent in writing of the Secured Party, Debtor will not permit any liens or security interest (other than Secured Party's security interest or any junior mortgages to which Secured Party may consent, such consents not to be unreasonably withheld) to attach to any of the collateral or to be levied upon under any legal process. Debtor may, without any consent of or notice to Secured Party, demolish any buildings or other improvements existing on the land described in Exhibit A. 6. If Debtor fails to obtain insurance as required herein, Secured Party shall have the right to obtain it at Debtor's expense and Debtor assigns to Secured Party all rights to receive proceeds of insurance, not exceeding the liabilities of Debtor to Secured Party hereunder; Debtor directs any insurer to pay all proceeds directly to Secured Party and authorizes Secured Party to endorse any draft or check for the proceeds. If Debtor fails to make any payments necessary to preserve and protect the collateral, the Secured Party may make such payments. Any payments made by the Secured Party under the provisions of this Section 6 shall be secured by this Security Agreement and shall be immediately due and payable by Debtor to Secured Party. 7. Debtor hereby nominates and appoints Secured Party at attorney-in-fact to do all acts and things which Secured Party may deem necessary or advisable to perfect and continue perfected the security interest created by this Security Agreement and to preserve, process, develop, maintain and protect the collateral. In order to protect, preserve and develop the collateral, Debtor authorizes Secured Party to enter upon the premises where said collateral is located and to use for such purposes any equipment and facilities of Debtor. Debtor authorizes Secured Party to collect and receive proceeds and products of the said collateral, and this Agreement shall be deemed an assignment thereof to Secured Party. 8. If there is a default under Section 11 of the Loan Agreement, Secured Party shall have all of the rights and remedies of a secured party under the Uniform Commercial Code following default, all of which rights and remedies shall, to the full extent permitted by law be cumulative. Without limiting the generality of the foregoing, upon the occurrence of such default the Secured Party is entitled to take possession of the collateral or any part thereof, and to take such other measures as Secured Party may deem necessary for the protection of the collateral. Secured Party may, after any such event of default, require Debtor to assemble the collateral and to make it available to Secured Party at a place designated by Secured Party which is reasonable convenient to Secured Party and Debtor. Any notice of sale, disposition or other intended action by Secured Party sent to Debtor at least five days prior to such action shall constitute reasonable notice to Debtor. The waiver of any default hereunder shall not be a waiver of any subsequent default. 9. Upon payment by Debtor of the sum of FOUR MILLION AND NO/100 DOLLARS ($4,000,000.00), Secured Party will release from the lien of this Security Agreement, that portion of the Property to be known as Lot 1-A, resulting from the consolidation and resubdivision of the Property and Lot D-2 and containing 14.240 acres, more or less. Secured Party will provide to Debtor at the time of such release a form UCC-2 releasing said Lot 1-A from the lien of the security interest granted herein. 10. Any notices or communications provided for to be given in this agreement shall be sent by either party to the address set forth above, or to such other address as may be substituted in writing by either party from time to time. 11. All rights of Secured Party hereunder shall inure to the benefit of its successors and assigns, all obligations of Debtor shall bind its successors and assigns. If there be more than one Debtor hereunder, their obligations shall be joint and several. Debtor will execute any additional agreements, assignments or documents that may be deemed necessary or advisable by Secured Party to effectuate the purposes of this agreement. IN WITNESS WHEREOF, Debtor and Secured Party have caused this agreement to be executed the day and year first above written. SECURED PARTY: DEBTOR: CITY BANK AMFAC PROPERTY DEVELOPMENT CORP. By________________________ By________________________ Its Vice President Senior Vice President EXHIBIT "B" FIRST: All right, title and interest of the Debtor to all personal property of any kind including without limitation, machinery, equipment, building materials, furniture, fixtures, furnishings, fittings, attachments, appliances and appurtenances of every kind and nature now fixed or hereafter fixed, placed upon or used in connection with the improvements located on Paiwa Street, Lot D-1, Waipahu, Hawaii, TMK: (1) 9-4-02-4 (portion). SECOND: All right, title and interest of Debtor in sub- contracts, escrow proceeds, deposits, refunds, rebates, security deposits, accounts, contract rights, management agreements and any other personal property of every kind and nature now or hereafter existing for the improvements located on Paiwa Street, Lot D-1, Waipahu, Hawaii, TMK (1) 9-4-02-4 (portion). THIRD: All right, title and interest of the Debtor in and to rents, leases, subleases and/or concessions and in any contracts affecting the buildings, spaces in buildings and/or in the improvements located on Paiwa Street, Lot D- 1, Waipahu, Hawaii, TMK: (1) 9-4-02-4 (portion) FOURTH: All of the Debtor's right, title and interest in and to construction contracts and engineering agreements, building permits, other permits, applications, licenses, soil tests, survey, engineering reports, and appraisals used in connection with the subdivision, development and improvements located on Paiwa Street, Lot D-1, Waipahu, Hawaii, TMK: (1) 9-4-02-4 (portion). EXHIBIT "A" All of that certain parcel of land (all of the lands described in and covered by Royal Patent Number 592, Land Commission Award Number 60 to T. Hunt, and portions of Royal Patent Grant Number 712 to Kaholo and Land Patent Number 8408, Land Commission Award Number 5930, Apana 1 to Puhalahua) situate, lying and being at the northerly side of Waipahu Street, at Ahualii, Waikele, District of Ewa, City and County of Honolulu, State of Hawaii, being Lot D- 1, and thus bounded and described as per survey of Ronald Casuga, Licensed Professional Land Surveyor, with Community Planning, Inc., dated --, revised December 1, 1995, to-wit: Beginning at the southeast corner of this parcel of land, on the westerly side of Hans L'Orange Park, the coordinates if which referred to Government Survey Triangulation Station "Ewa Church" being 1,146.98 feet south and 9,090.13 feet west and running by azimuths measured clockwise from true South: 1. 55 52' 48" 327.79 feet along remainder of Grant 712 to Kaholo (Lot D-2); 2. 58 10' 30" 849.12 feet along remainder of Grant 712 to Kaholo (Lot D-2); 3. 58 00' 341.65 feet along remainder of Grant 712 to Kaholo (Lot D-2); 4. 117 16' 0.12 feet along remainder of Grant 712 to Kaholo, along the north side of Waipahu Street; 5. 70 50' 558.70 feet along remainder of Grant 712 to Kaholo, along the north side of Waipahu Street; 6. Thence along remainder of Grant 712 to Kaholo, on a curve to the right with a radius of 548.14 feet, the chord azimuth and distance being: 183 49' 47" 72.56 feet; 7. 187 37' 30" 121.10 feet along remainder of Grant 712 to Kaholo; 8. Thence along remainder of Grant 712 to Kaholo, on a curve to the left with a radius of 598.14 feet, the chord azimuth and distance being: 177 24' 212.36 feet; 9. 77 10' 30" 5.00 feet along remainder of Grant 712 to Kaholo; 10. Thence along remainder of Grant 712 to Kaholo and Land Patent 8408, Land Commission Award 5930, Apana 1 to Puhalahua, on a curve to the left with a radius of 593.14 feet,the chord azimuth and distance being: 156 06' 227.88 feet; 11. 145 01' 30" 97.80 feet along remainder of Land Patent 8408, Land Commission Award 5930, Apana 1 to Puhalahua; 12. 173 45' 69.20 feet along remainder of Land Patent 8408, Land Commission Award 5930, Apana 1 to Puhalahua; 13. 216 15' 134.00 feet along remainder of Land Patent 8408, Land Commission Award 5930, Apana 1 to Puhalahua; 14. 251 50' 665.00 feet along remainder of Grant 712 to Kaholo (Lot 6); 15. 254 00' 227.65 feet along remainder of Grant 712 to Kaholo (Lot 6); 16. 322 30' 30" 135.61 feet along Lot 80 of Waipahu Estates, Unit 4-A (File Plan 1577); 17. 236 52' 978.09 feet along Lots 80, 79 and 18 of Waipahu Estates, Unit 4-A (File Plan 1577); 18. 310 07' 57" 195.95 feet along remainder of Grant 712 to Kaholo (Lots A and B); 19. 220 07' 57" 150.34 feet along remainder of Grant 712 to Kaholo (Lot B); 20. Thence along remainder of Grant 712 to Kaholo (Lot B), on a curve to the right with a radius of 320.00 feet, the chord azimuth and distance being: 223 32' 29" 38.06 feet; 21. Thence along remainder of Grant 712 to Kaholo (Lot C), on a curve to the right with a radius of 42.00 feet, the chord azimuth and distance being: 274 03' 09" 61.54 feet; 22. Thence along remainder of Grant 712 to Kaholo (Lot C), on a curve to the left with a radius of 641.00 feet, the chord azimuth and distance being: 318 21' 54.5" 62.39 feet; 23. Thence along remainder of Grant 712 to Kaholo (Lot C), on a curve to the left with a radius of 330.00 feet, the chord azimuth and distance being: 310 13' 46.5" 61.49 feet; 24. Thence along remainder of Grant 712 to Kaholo (Lot C), on a curve to the left with a radius of 930.00 feet, the chord azimuth and distance being: 299 20' 21.5" 179.71 feet; 25. Thence along the southerly side of Paiwa Street, on a curve to the left with a radius of 630.00 feet, the chord azimuth and distance being: 280 33' 51" 288.38 feet; 26. 87 18' 27" 258.43 feet along Hans L'Orange Park; 27. 81 09' 15" 69.06 feet along Hans L'Orange Park; 28. 63` 27' 30" 392.50 feet along Hans L'Orange Park; 29. 20 01' 166.35 feet along Hans L'Orange Park, to the point of beginning and containing an area of 34.561 acres, more or less. Being a portion of the real property conveyed to Amfac Property Development Corp., a Hawaii corporation, by Limited Warranty Deed and Reservation of Rights dated December 16, 1996, recorded in the Bureau of Conveyances, State of Hawaii, as Document No. 96-176731. SUBJECT, HOWEVER, to the following: 1. Title to all minerals and metallic mines reserved to the State of Hawaii. 2. Lease in favor of Hawaiian Electric Company, Inc., dated September 26, 1944, recorded in the Bureau of Conveyances, State of Hawaii, in Book 1849, Page 186; leasing and demising a right and easement to build, construct, rebuild, reconstruct, repair, maintain and operate pole and wire lines, etc., for the transmission of electricity, etc., along, across and over a portion of said electricity, etc., along, across and over a portion of said parcel, besides other lands, for a period commencing with the date hereof and ending April 6, 1957, and thereafter from year to year until terminated, said easement being twelve (12) feet wide, six (6) feet on either side of the center line. 3. Lease in favor of Hawaiian Electric Company, Inc., and Hawaiian Telephone Company, dated January 20, 1956, recorded in said Bureau, in Book 3088, Page 223; leasing and demising a right and easement to build, construct, rebuild, reconstruct, repair, maintain and operate pole and wire lines, etc., for the transmission of electricity, etc., over, across, through and within a portion of said parcel, besides other lands, for a period of 60 years commencing on the date hereof, said easement being ten (10) feet wide, extending five (5) feet on either side of the center line. 4. Grant in favor of Hawaiian Electric Company, Inc., dated July 15, 1970, recorded in said Bureau, in Book 7108, Page 319; granting a perpetual right and easement to build, construct, reconstruct, rebuild, repair, maintain and operate a transformer pad, etc., for the transmission and distribution of electricity, etc., over, under, upon, across and through those certain premises as shown on the map attached thereto. 5. Grant if favor of the City and County of Honolulu, dated January 25, 1971, recorded in said Bureau, in Book 7428, Page 417; granting the right, in the nature of an easement, to construct, install, maintain, operate and repair a roadway. 6. Easement "3" for temporary access purposes, containing an area of 181,018 square feet, as granted to Amfac Nurseries, Inc., a Hawaii corporation, doing business as "Amfac Nurseries-Hawaii", in unrecorded Lease dated as of January 1, 1978, of which a Short Form is recorded in said Bureau, in Book 12817, Page 576, said easement being more particularly described therein. 7. Grant in favor of the City and County of Honolulu, dated June 17, 1980, recorded in said Bureau, in Book 15220, Page 264; granting easement for the proper operation, maintenance, repair, replacement and removal of sanitary sewer pipelines, replacement and removal of sanitary sewer pipelines, facilities and appurtenant equipment under and across a portion of said parcel, said easement being more particularly described as follows: All of that certain parcel of land (portion of the land described in and covered by Royal Patent Grant Number 712 to Kaholo) situate, lying and being at Ahualii, Waikele, District of Ewa, City and County of Honolulu, State of Hawaii, being Easement "L", ten feet wide for sanitary sewer purposes, and thus bounded and described: Beginning at the Southeast corner of this easement, the coordinates of which referred to Government Survey Triangulation Station "Ewa Church" being 1106.63 feet South and 10039.40 feet West and running by azimuths measured clockwise from true south: 1. 56 52' 19.92 feet along remainder of Grant 712 to Kaholo; 2. 146 52' 10.00 feet along remainder of Grant 712 to Kaholo; 3. 236 52' 19.16 feet along remainder of Grant 712 to Kaholo; 4. 322 30' 30" 10.03 feet along Lot 80 of Waipahu Estates Unit 4-A (File Plan 1577) to the point of beginning and containing an area of 195 square feet, more or less. 8. Grant in favor of the City and County of Honolulu, dated July 9, 1981, recorded in said Bureau, in Book 15708, Page 64; granting the right, in the nature of an easement, to be exercised and enjoyed by the Board of Water Supply, to construct, install, maintain, operate, replace and remove an underground water pipeline or pipelines together with such meters, control cable and other appurtenances, through a portion of Easement "G" for water pipeline purposes. 9. Easement "M" (10 feet wide) for drainage purposes, as shown on survey map prepared by Ronald Casuga, Licensed Professional Land Surveyor, with Community Planning, Inc., dated -, revised December 1,1995. 10. Floodway zone, as shown on survey map prepared by Ronald Casuga, Licensed Professional Land Surveyor, with Community Planning, Inc., dated ---, revised December 1, 1995. 11. A 60' roadway setback, as shown on survey map prepared by Ronald Casuga, Licensed Professional Land Surveyor, with Community Planning, Inc., dated ---, revised December 1, 1995. 12. A 60' wide roadway setback line, as shown on survey map prepared by Ronald Casuga, Licensed Professional Land Surveyor, with Community Planning, Inc., dated ---, revised December 1, 1995. 13. The terms and provisions, including the failure to comply with any covenants, conditions and reservations, contained in the Unilateral Agreement and Declaration for Conditional Zoning dated November 6, 1996, recorded in said Bureau, as Document No. 96-159180. 14. The terms and provisions, including the failure to comply with any covenants, conditions and reservations, contained in the Amended Unilateral Agreement and Declaration for Conditional Zoning dated November 12, 1996, recorded in said Bureau, as Document No. 96-160631. LOAN AGREEMENT Borrower: AMFAC PROPERTY Lender: CITY BANK DEVELOPMENT CORP. Address: 700 Bishop St, 21st Floor Address: 201 Merchant St. Honolulu, Hawaii 96813 Honolulu, HI 96813 Date: December 18, 1996 Borrower has made an application to the Lender for the loan, as described in that certain commitment letter dated November 22, 1996, as it may have been amended, between Borrower and Lender ("Commitment Letter"), and Lender and Borrower desire to enter into this Loan Agreement (the "Agreement") to evidence the terms and conditions of the loan contemplated by the Commitment Letter. For good and valuable consideration, the parties agree as follows: 1. AMOUNT. Lender agrees to lend to Borrower, the principal amount of TEN MILLION AND NO/100 DOLLARS ($10,000,000.00) (the "loan"). 2. PROMISSORY NOTE. The obligation of the Borrower to repay the loan shall be evidenced by a Promissory Note executed by the Borrower and payable to the order of the Lender (the "Note"). The Note sets forth terms relating to maturity, repayment schedule, interest rate, and other matters governing the repayment of the loan made hereunder. Lender agrees to provide to Borrower a notice or billing on each Billing Date (as defined in the Note) stating the amount of interest due for the interest period immediately preceding the Billing Date. 3. LOAN DOCUMENTS. Borrower has signed and/or caused the following loan documents to be executed in connection with this Agreement and the loan (collectively the "Loan Document"): a. Security Agreement and Financing Statement b. Mortgage over property described as follows (the `property") Oahu Sugar Mill Property TMK (1) 9-4-02:4 (portion) Paiwa Street, Lot D-1 Honolulu, Hawaii c. Hazardous Waste and Materials Agreement 4. COSTS AND FEES. Borrower shall reimburse the Lender for all reasonable and customary costs incurred with documentation and closing of the loan including all filing fees, recording costs and also where permitted by applicable law, for all costs and expenses (including, without limitation, reasonable attorneys' fees) paid or incurred by the Lender in connection with the enforcement of this Agreement, the Note or any of the Loan Documents, or the collection of any indebtedness of the Borrower to the Lender hereunder or under the Note, whether or not suit is filed with respect thereto. In consideration of the loan, Borrower shall pay to Lender, prior to any advance under the loan, the remaining balance of the Loan Fee being the sum of $50,000.00. Lender acknowledges receipt of $25,000.00 paid by Borrower in advance toward the total Loan Fee of $75,000.00. 5. COVENANTS. So long as any indebtedness or liability (whether under the Note or otherwise) of the Borrower to the Lender remains outstanding and unpaid, the Borrower covenants and agrees with the Lender: a. To furnish to Lender such documents, credit documents, information, instruments, and such other financial statements or other information as the Lender any reasonably request from time to time relating to or affecting the property. An annual income statement and a balance sheet in reasonable detail and form approved by Lender, shall be furnished to Lender not later than 90 days after the end of the fiscal or calendar year as the case may, and shall be certified by Borrower as true and correct. b. Without the prior written consent of Lender, which consent shall not be unreasonably withheld, Borrower will not further encumber the property. Notwithstanding the foregoing sentence, Borrower may record Covenants, Conditions and Restrictions (the "CC&Rs") covering the Property as required by Unilateral Agreement and Declaration for Conditional Zoning dated November 6, 1996 and recorded in the Bureau of Conveyances of the State of Hawaii as Document No. 96-159180 and Amended Unilateral Agreement and Declaration for Conditional Zoning dated November 12, 1996, recorded in said Bureau as Document No. 96-60631, and containing such other matters as Borrower shall deem necessary and appropriate for development of the Property as an industrial park. Lender shall be given thirty (30) days after receipts of the proposed CC&Rs to consent or recommend any proposed changes. Consent shall be deemed to have been given if Lender has not responded within said 30-day period. c. Borrower shall file all tax returns it was required by law to have filed prior to the date of this Agreement, and covenants that it has paid or caused to be paid all taxes, assessments and other governmental charges that were due and payable prior to the date of this Agreement. d. Borrower shall not sell, assign, transfer, pledge, mortgage, or otherwise dispose of all or substantially all of the major assets of Borrower, except in the ordinary course of its business; provided however, that Borrower may, with the prior written consent of Lender, which consent will not be unreasonably withheld or delayed if the surviving entity or assignee has at least the financial strength of Borrower: i. transfer its assets to a subsidiary, a parent, a subsidiary of its parent, an affiliated corporation, limited liability company or partnership, or to a corporation under common control with its parent or another subsidiary; or ii. transfer its assets by way of merger to a corporation or limited liability company which is an affiliate of Borrower or its parent, or with which its parent consolidates or pools its assets. e. Borrower has shall comply with all laws, restrictions or other requirements pertaining to the operation of the property, the use, maintenance and operations of the property. f. Borrower agrees to furnish to Lender within 45 days of receiving a written notice from Lender, a current appraisal on the property which appraisal shall be made by an appraisal duly licensed under the laws of Hawaii. The appraiser shall be acceptable to Lender and the cost of the appraisal shall be borne by Borrower. In the event Borrower fails to obtain such appraisal, Lender may obtain the appraisal on behalf of and at the expense of Borrower. Notwithstanding the foregoing, Lender may only require an appraisal if one or more of the following events or conditions have occurred: i. Borrower is in default under this Agreement and has failed to cure such default within any applicable period set forth in Section 11 of this Loan Agreement; or ii. There has been a substantial decline in the value of the property as determined by Lender and Lender has determined in its reasonable discretion that such decline in value substantially and materially impairs Borrower's ability to repay the loan. Borrower shall be liable for the cost of the appraisal even if Borrower subsequently cures the default or it is determined that the value of the property did not decline in value as indicated in subparagraph ii. above. 6. CONSOLIDATION AND RESUBDIVISION OF PROPERTY. Lender hereby consents to the consolidation of the property and Lot D-2, and resubdivision of Lot D-1 into Lots 1-A and 1-B and the further resubdivision of Lot 1-A into 23 industrial lots, and the further resubdivision of Lot 1-B and 41 industrial lots, and other miscellaneous lots. Lender further consents to the grant, acquisition, cancellation, modification or replacement by Borrower of such easements, licenses or rights-of entry as are necessary or advisable in connection with the subdivision and development of the property as an industrial park. Lender agrees to join in and execute any consent or joinder reasonably required by Borrower in connection with the application for consolidation and resubdivision, easements, licenses of rights-of-way; and such other documents as are reasonably requested by the Borrower in connection with such consolidation and resubdivision, easements, licenses or rights-of-way, including but not limited to the CC&Rs, subject to Lender's consent requirements set forth in Section 5.b. Borrower shall likewise execute and deliver to Lender such documents as are reasonably requested by Lender in connection with such consolidation and resubdivision, easement, licenses or rights-of-way, including without limitation an amendment of mortgage to reflect the consolidation and resubdivision. 7. NOTICES. All notices or other correspondence with Borrower or Lender should be sent to their respective addresses stated above. The notice or correspondence shall be effective when deposited in the mail, properly addressed and postage prepaid, or delivered to Borrower in person or by facsimile. Any notice sent by facsimile shall be confirmed with an original within two business days after the facsimile is sent. Facsimiles shall be sent as follows: a. If to Borrower Phone No. (808) 543-8925 Fax No. (808) 543-8933 Attention: Paula Y. Hino, Vice President/Controller With a Copy to Phone No. (808) 543-8523 Fax No. (808) 543-8528 Attention: Kirk H. Anderson, Esq. b. If to Lender Phone No. (808) 546-2480 Fax No. (808) 546-2400 Attention: Commercial Mortgage Department Melvin Tanaka, Vice President 8. MISCELLANEOUS. This Agreement may not be changed except by a written agreement signed by Borrower and Lender. This Agreement, the Loan Documents, the Note, and the rights and obligations of the parties hereunder and thereunder shall be governed by and interpreted in accordance with the laws of the State of Hawaii. If there are any conflicts between the terms of the Commitment Letter and this Agreement, the latter shall control. 9. REPRESENTATIONS. The Borrower represents, covenants and warrants to the Lender that: a. The Borrower is a Hawaii corporation, is duly organized and existing, in good standing under the laws of the State of Hawaii, and has the power to own its property and to carry on its business as now being conducted, and is duly qualified to do business and is in good standing in each jurisdiction in which the character of the properties owned by it therein or in which the transaction of its business makes such qualifications necessary. b. The Borrower has full power and authority to enter into this Agreement, to enter into the Loan Documents, to make the borrowing hereunder, to execute and deliver the Note, to grant a mortgage on the property and a security interest in its personal property as provided in any of the Loan Documents and to incur the obligations provided for in this Agreement, the Note and the Loan Documents, all of which have been duly authorized. No consent nor further approval of any public authority or of any other person or entity is required as a condition to the validity and enforcement of this Agreement, the Loan Documents, the Note or any other written agreement with the Lender. c. This Agreement and all Loan Documents, and the Note when issued and delivered pursuant to this Agreement, and for value received, will constitute the valid and legally binding obligations of the Borrower and are enforceable in accordance with their respective terms. d. There are no proceedings pending or threatened to the actual knowledge of Borrower before any court or administrative agency which will materially adversely affect the financial condition or operations of the Borrower. e. There is no provision of any organization documents of Borrower and no provision of any existing mortgage, security agreement, indenture, lease, contract, or agreement binding on the Borrower or affecting its property, which would conflict with or in any way prevent the execution, delivery, or carrying out of the terms of this Agreement, any Loan Document or the Note. f. All financial statements, schedules, and other written documents relating to the financial conditions of the property and Borrower which have been submitted by Borrower to the Lender are correct, and there has been no material adverse change in the financial condition of the property and Borrower as shown by any such statements, schedules or documents. 10. CONDITIONS FOR ADVANCE. Lender agrees to make a single advance of the entire loan at closing. The obligation of the Lender to make the advance of loan proceeds under this Agreement, is and shall be subject to the following conditions precedent: a. The Borrower shall have executed and delivered the Loan Documents to the Lender, and the Lender shall have a mortgage lien (with such priority as set forth in such mortgage) in form and content reasonably acceptable to Lender, and a security interest or other interest on or in all of the properties identified in any of the Loan Documents. If there is a mortgage, Borrower shall have obtained an ALTA Form Lender's Title Insurance Policy in the amount of $10,000,000, assuring to Lender the validity and agreed upon priority of its mortgage lien. b. The Borrower shall have paid the Loan Fee identified in Section 4. c. The Lender shall have received. i. a certified copy of Borrower's corporate resolutions authorizing this Agreement, the Loan Documents, the Note, and the borrowing under this Agreement, and authorizing the execution of this Agreement, the Loan Documents and the Note by the officers of the Borrower who have executed the same; and ii. a copy of the Articles of Incorporation and Bylaws of the Borrower certified by the Secretary of the Corporation. d. The Lender shall have received a favorable written opinion of counsel for the Borrower, dated the date hereof and satisfactory in form and substance to the Lender, as to the matters referred to in Section 9.c. 11. EVENTS OF DEFAULT. Borrower shall be in default under this Agreement: a. If Borrower has failed to pay the amounts that Borrower owes Lender under the Note within twenty (20) days after the Due Date as defined in the Note, or fails to keep any promise or agreement made in this Agreement, the Note, or the Loan Documents and fails to remedy the same within thirty (30) days after written notice from Lender; b. If it is determined that Borrower has made a material representation or warranty in this Loan Agreement, the Note or the Loan Documents that is untrue, and Borrower shall have failed to remedy the same within thirty (3) days after written notice from Lender; c. If Borrower is adjudged to be insolvent or to be a bankrupt, or Borrower files any petition or answer seeking relief as a debtor under any law for the relief or aid of debtors, whether voluntary or involuntary, or Borrower enters into any arrangement or composition with creditors, or if the State of Hawaii or any other governmental authority seeks to dissolve the Borrower or cancel, withdraw any charger, certificate, license or registration necessary for Borrower's operations, or if Borrower shall consent or acquiesce to the appointment of any trustee, liquidator or receiver of a substantial part of Borrower's properties or assets, UNLESS such event shall have been rescinded, dismissed, terminated, or vacated within sixty (60) days of the commencement of such proceeding or event; d. If a final judgment shall be rendered against Borrower in the aggregate amount of $50,000 or more and such judgment has a material adverse effect on Borrower's ability to repay the loan, and shall not be discharged or execution thereof stayed pending appeal within thirty (30) days after entry of such judgment; e. If any of the collateral described in the Loan Documents is confiscated or subject to forfeiture proceedings under state or federal law and such confiscation or forfeiture proceedings materially impair Borrower's ability to repay the loan; f. If Borrower changes its name or assumes an additional name without first notifying Lender before making such change; g. If the value of the property substantially declines in value as determined by Lender in its reasonable discretion and such decline in value materially impairs Borrower's ability to repay the loan; and h. If Lender shall reasonably determine that there has been a material adverse change in the financial condition of the Borrower which would affect the ability of the Borrower to perform Borrower's obligations under this Loan Agreement, the Note, or the Loan Documents, and any such adverse change was not been fully remedied to the satisfaction of Lender within thirty (30) days from Lender's demand. 12. REMEDIES. If an Event of Default occurs under Section 11, then: a. The Note and any and all other liability or indebtedness of Borrower to Lender, shall be immediately due and payable: b. Lender may take any action as provided under the terms of the Note and Loan Documents including but not limited to its right of set off against any checking, savings, or other accounts held with Lender. To secure the repayment of the Note, Borrower grants to Lender a security interest in all checking and savings accounts now or hereafter maintained by Borrower with Lender; or c. Lender may use any remedy provided by state or federal law. By selecting any of the remedies, Lender does not give up its right to later use any other remedy. By not deciding to use any remedy should Borrower default, Lender does not waive its right to later consider the Event of Default should it happen again. 13. CUMULATIVE RIGHTS AND NO WAIVER. Each and every right granted to the Lender under this Agreement, the Note, and any Loan Documents or any other document delivered hereunder, thereunder, in connection herewith, or in connection therewith, or allowed it by law or equity, shall be cumulative and may be exercised from time to time. No failure on the part of the Lender to exercise, and no delay in exercising any right shall operate as a waiver thereof, nor shall any single or partial exercise by the Lender of any right preclude any other or future exercise thereof, or the exercise of any other right. 14. SEVERABILITY. The invalidity of any one or more covenants, phases, clauses, sentences, or paragraphs of this Agreement, any Loan Documents, the Note or any other document or instrument executed and delivered in connection herewith shall not affect the remaining portions of this Agreement, any Loan Documents, the Note or any other document or instrument executed and delivered in connection herewith or any part thereof, and in case of such invalidity, this Agreement, any Loan Documents, the Note, or any other document or instrument executed and delivered in connection herewith or therewith, shall be construed as if such invalid covenants, phases, clauses, sentences, or paragraphs had not been inserted. 15. ASSIGNMENT. a. Except as permitted in Paragraph 5.d, Borrower shall have no right to assign any of its rights or obligation under the Loan Documents without the prior written consent of Lender, which consent may be withheld in the sole and absolute discretion of Lender. b. Lender may sell participations in the loan, so long as Lender remains primarily obligated to Borrower under this Agreement and so long as Borrower shall not be obligated in any manner to deal directly with the purchaser of such participation. Lender may also negotiate, pledge, transfer or assign the Note. 16. CAPTIONS AND DESIGNATIONS. The captions of the various sections, subsections and clauses hereof are for convenience only and shall not control, limit or otherwise affect the meaning or construction hereof. All collective designations shall refer to the subject thereof severally as well as collectively. 17. PARTIES. This Agreement shall inure to the benefit of and shall be binding jointly and severally upon all signing as Borrower and its successors and assigns. 18. COMPLETE AGREEMENT. This Agreement and Loan Documents supersede any prior agreements and contains the entire agreement of the parties and all representations with respect to the loan. Any prior correspondence, memoranda or agreements are replaced in their entirety by this Agreement and the Loan Agreement. The Borrower and Lender have executed this Agreement the date first above written. BORROWER: LENDER: AMFAC PROPERTY DEVELOPMENT CITY BANK CORP. By________________________ By_______________________ Its Senior Vice President Its Vice President HAZARDOUS WASTE AND MATERIALS AGREEMENT This Agreement is made this 18th day of December, 1996, by AMFAC PROPERTY DEVELOPMENT CORP., a Hawaii corporation, whose address is 700 Bishop Street, 21st Floor, Honolulu, Hawaii 96813 (hereinafter called the "Borrower") in favor of and for the benefit of CITY BANK, a Hawaii corporation, whose address is 201 Merchant Street, Honolulu, Hawaii 96813 (hereinafter called the "Bank"). 1 DEFINITIONS. Unless the context otherwise requires, in this Agreement, and in the Loan Documents, the following terms when capitalized have the meanings respectively ascribed to them: 1.1 "Hazardous Discharge" means any event involving the use, deposit, disposal, spill, release or discharge of any Hazardous Material on, within or under the Property. 1.2 "Hazardous Material" means and includes any and all radioactive materials, asbestos, organic compounds known as polychlorinated biphenyls, chemicals known to cause cancer or reproductive toxicity, pollutants, contaminants, hazardous wastes, toxic substances, and any and all other substances or materials defined as or included in the definition of `hazardous substances", "hazardous wastes", "hazardous materials", or "toxic substances" under, or for the purposes of, the Hazardous Materials Law. 1.3 "Hazardous Materials Claims" means and includes (i) any and all enforcement, clean-up, removal, mitigation or other governmental or regulatory actions instituted, or to the best of the Borrower's actual knowledge contemplated or threatened, in respect of the Property pursuant to any Hazardous Materials Laws, and (ii) any and all claims made or (iii) any and all claims to Borrower's actual knowledge, contemplated or threatened by any third party against the Borrower seeking damages, contribution, cost recovery, compensation, injunctive relief or similar relief resulting from any Hazardous Discharge or from the existence of any Hazardous Material on, within or under the Property. 1.4 "Hazardous Materials Law" means and includes all federal, state or local laws, ordinances or regulations, now or hereafter in effect, relating to environmental conditions, industrial hygiene or Hazardous Materials on, within, under or about the Property, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq., the Resource Conversation and Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Clean Water Act, 33 U.S.C. Section 1251, et seq., the Clean Air Act, 42 U.S.C. Section 7401, et seq., the Toxic Substances Control Act, 15 U.S.C. Sections 2601 through 2629, the Safe Drinking Water Act, 42 U.S.C. Sections 300f through 300j, and any similar state or local laws or ordinances and the regulations now or hereafter adopted, published and/or promulgated pursuant thereto. 1.5 "Loan" means the loan made to Borrower in the principal amount of $10,000,000.00 or any other indebtedness of the Borrower to Bank. 1.6 "Loan Documents" means any documents executed and delivered by Borrower to Bank in connection with, or to secure the loan as defined in the Loan Agreement executed concurrently herewith and covering the conditions of the Loan. 1.7 "Property" means all of the Borrower's right, title and interest in and to the real property located on Paiwa Street, Lot D-1, Waipahu, Hawaii (TMK: (1) 9-4-02:4 [portion]), and all improvements located or to be located on the real property, the legal description of which is attached hereto as Exhibit "A". 2 AGREEMENT IN CONSIDERATION of the Loan to Borrower from Bank and to induce the Bank to make the loan or extend the credit secured by the Loan documents, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by Borrower, the Borrower does hereby agree as follows: 2.1 Representations. The Borrower represents and warrants to Bank that the Property has never been used as a dump site or storage site (whether permanent or temporary) for any Hazardous materials or has any Hazardous Materials ever been disposed on the Property to the best of Borrower's actual knowledge after due and diligent inquiry, except as disclosed in those certain Environmental Site Assessments (Phase I dated August 26, 1996 covering Parcel "A" as identified therein, Phase II dated November 13, 1996 covering Parcel "B" as identified therein; and Phase I dated August 26, 1996 covering Parcel "C" as identified therein, and that certain letter dated October 7, 1996 covering BES Job No. 4815, together referred to herein as the "Reports") prepared by Brewer Environmental Services. The Consultant Agreement between Borrower and Brewer Environmental Industries, Inc. for the remedial work described therein is attached hereto as Exhibit "B" attached hereto and made a part hereof. Borrower covenants and agrees that it will use its best efforts to cause the consultant to carry out the remediation recommended by said Consultant Agreement within the time period specified in such Consultant's Agreement. 2.2 Positive Covenants. 2.2.1 Borrower covenants to the Bank that the Borrower will not use, generate, manufacture, treat, handle, refine, produce, process, store, discharge, release, dispose of or allow to exist on, within, under or about the Property, any Hazardous Material, except in full compliance with all applicable Hazardous Materials Laws. 2.2.2 If the Borrower at any time becomes aware of any Hazardous Discharge whether by Borrower or any prior owner or user of the Property or of any Hazardous Materials Claim in respect of the Property, the Borrower will immediately advise the Bank thereof, in writing, and provide to the Bank such detailed reports thereof as may be reasonably requested by the Bank. Upon such discovery, Borrower shall cease to allow any further discharge and/or shall cause the Hazardous Waste to be removed and/or abated. The Bank shall have the right to join and participate in, as a party if it so elects, any settlements, remedial actions, legal proceedings or actions initiated in respect of any Hazardous Materials Claims. 2.2.3 If Bank reasonably believes that the Property has been contaminated after the date of this Agreement, then if requested by Bank, Borrower (or a third party designated by Bank) shall conduct an environmental audit of Borrower's operations and/or the Property to verify the existence or non-existence of Hazardous Materials or Hazardous Discharge. All cost and expenses of any such audit shall be paid by Borrower. 2.2.4 To the best of Borrower's actual knowledge and belief, no Hazardous Materials has been stored, disposed of, is generated nor is there any Hazardous Discharge on or within or under the property identified as Parcel B in that certain Environmental Site Assessment (Phase II dated November 20, 1996, hereinafter called the "B Report") prepared by Brewer Environmental Services, except as described in the B Report. Borrower covenants that it has and will complete the remediation recommended by the B Report. 2.3 Indemnification. The Borrower will indemnify the Bank against and hold the Bank harmless from all costs and expenses (including reasonable attorney's fees), losses, damages (including foreseeable or unforeseeable consequential damages) and liabilities incurred by the Bank which may arise out of or may be directly or indirectly attributable to (a) the use, generation, manufacture, treatment, handling, refining, production, processing, storage, release, discharge, disposal or presence of any Hazardous Material on, within, under or about the Property, (b) the Bank's investigation and handling (including the defense) of any formal legal proceedings shall have been commenced in respect thereof, and (c) the Bank's enforcement of this Agreement, whether or not suit is brought thereof. The provisions of this Paragraph (c) shall survive the repayment of the indebtedness secured by the Mortgage, any foreclosure of the Mortgagor; and any deed (or assignment) of the Property in lieu of foreclosure. 2.4 Applicable Law. This Agreement shall be construed and interpreted in accordance with the laws of the State of Hawaii. 2.5 Successors and Assigns. This Agreement shall be inure to the benefit of and may be enforced by the Bank and any subsequent holder of the Mortgage to whom the Bank may have assigned this Agreement, and shall be binding upon and enforceable against the Borrower and its successors, and assigns of the Borrower. 2.6 Attorney's Fees. If any proceeding is brought for the enforcement of this Agreement, the prevailing party shall be entitled to recover from the other party reasonable attorneys' fees, costs of court and all other expenses incurred in such proceeding, in addition to any other relief to which such party may be entitled. 2.7 Severability. If any term or provision of this Agreement or the application thereof to any person or entity or circumstances shall to any extent be invalid or unenforceable, the remainder of this Agreement, or the application of such term or provision to persons or entities or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby, and each term and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law. IN WITNESS WHEREOF, the Borrower has executed this Agreement as of the day and year first above written. BORROWER: AMFAC PROPERTY DEVELOPMENT CORP. By______________________________ Its Senior Vice President STATE OF HAWAII ) )SS. CITY AND COUNTY OF HONOLULU ) On this 18th day of December, 1996, personally appeared Peggy H. Sugimoto, to me personally known, who, being by me duly sworn or affirmed did say such person(s) executed the foregoing instrument as the free act and deed of such person(s), and if applicable, in the capacity shown, having been duly authorized to execute such instrument in such capacity. __________________________________ Notary Public, State of Hawaii My Commission Expires: Dec. 29, 1997 EXHIBIT "A" All of that certain parcel of land (all of the lands described in and covered by Royal Patent Number 592, Land Commission Award Number 60 to T. Hunt, and portions of Royal Patent Grant Number 712 to Kaholo and Land Patent Number 8408, Land Commission Award Number 5930, Apana 1 to Puhalahua) situate, lying and being at the northerly side of Waipahu Street, at Ahualii, Waikele, District of Ewa, City and County of Honolulu, State of Hawaii, being Lot D- 1, and thus bounded and described as per survey of Ronald Casuga, Licensed Professional Land Surveyor, with Community Planning, Inc., dated --, revised December 1, 1995, to-wit: Beginning at the southeast corner of this parcel of land, on the westerly side of Hans L'Orange Park, the coordinates if which referred to Government Survey Triangulation Station "Ewa Church" being 1,146.98 feet south and 9,090.13 feet west and running by azimuths measured clockwise from true South: 1. 55 52' 48" 327.79 feet along remainder of Grant 712 to Kaholo (Lot D-2); 2. 58 10' 30" 849.12 feet along remainder of Grant 712 to Kaholo (Lot D-2); 3. 58 00' 341.65 feet along remainder of Grant 712 to Kaholo (Lot D-2); 4. 117 16' 0.12 feet along remainder of Grant 712 to Kaholo, along the north side of Waipahu Street; 5. 70 50' 558.70 feet along remainder of Grant 712 to Kaholo, along the north side of Waipahu Street; 6. Thence along remainder of Grant 712 to Kaholo, on a curve to the right with a radius of 548.14 feet, the chord azimuth and distance being: 183 49' 47" 72.56 feet; 7. 187 37' 30" 121.10 feet along remainder of Grant 712 to Kaholo; 8. Thence along remainder of Grant 712 to Kaholo, on a curve to the left with a radius of 598.14 feet, the chord azimuth and distance being: 177 24' 212.36 feet; 9. 77 10' 30" 5.00 feet along remainder of Grant 712 to Kaholo; 10. Thence along remainder of Grant 712 to Kaholo and Land Patent 8408, Land Commission Award 5930, Apana 1 to Puhalahua, on a curve to the left with a radius of 593.14 feet,the chord azimuth and distance being: 156 06' 227.88 feet; 11. 145 01' 30" 97.80 feet along remainder of Land Patent 8408, Land Commission Award 5930, Apana 1 to Puhalahua; 12. 173 45' 69.20 feet along remainder of Land Patent 8408, Land Commission Award 5930, Apana 1 to Puhalahua; 13. 216 15' 134.00 feet along remainder of Land Patent 8408, Land Commission Award 5930, Apana 1 to Puhalahua; 14. 251 50' 665.00 feet along remainder of Grant 712 to Kaholo (Lot 6); 15. 254 00' 227.65 feet along remainder of Grant 712 to Kaholo (Lot 6); 16. 322 30' 30" 135.61 feet along Lot 80 of Waipahu Estates, Unit 4-A (File Plan 1577); 17. 236 52' 978.09 feet along Lots 80, 79 and 18 of Waipahu Estates, Unit 4-A (File Plan 1577); 18. 310 07' 57" 195.95 feet along remainder of Grant 712 to Kaholo (Lots A and B); 19. 220 07' 57" 150.34 feet along remainder of Grant 712 to Kaholo (Lot B); 20. Thence along remainder of Grant 712 to Kaholo (Lot B), on a curve to the right with a radius of 320.00 feet, the chord azimuth and distance being: 223 32' 29" 38.06 feet; 21. Thence along remainder of Grant 712 to Kaholo (Lot C), on a curve to the right with a radius of 42.00 feet, the chord azimuth and distance being: 274 03' 09" 61.54 feet; 22. Thence along remainder of Grant 712 to Kaholo (Lot C), on a curve to the left with a radius of 641.00 feet, the chord azimuth and distance being: 318 21' 54.5" 62.39 feet; 23. Thence along remainder of Grant 712 to Kaholo (Lot C), on a curve to the left with a radius of 330.00 feet, the chord azimuth and distance being: 310 13' 46.5" 61.49 feet; 24. Thence along remainder of Grant 712 to Kaholo (Lot C), on a curve to the left with a radius of 930.00 feet, the chord azimuth and distance being: 299 20' 21.5" 179.71 feet; 25. Thence along the southerly side of Paiwa Street, on a curve to the left with a radius of 630.00 feet, the chord azimuth and distance being: 280 33' 51" 288.38 feet; 26. 87 18' 27" 258.43 feet along Hans L'Orange Park; 27. 81 09' 15" 69.06 feet along Hans L'Orange Park; 28. 63` 27' 30" 392.50 feet along Hans L'Orange Park; 29. 20 01' 166.35 feet along Hans L'Orange Park, to the point of beginning and containing an area of 34.561 acres, more or less. Being a portion of the real property conveyed to Amfac Property Development Corp., a Hawaii corporation, by Limited Warranty Deed and Reservation of Rights dated December 16, 1996, recorded in the Bureau of Conveyances, State of Hawaii, as Document No. 96-176731. SUBJECT, HOWEVER, to the following: 1. Title to all minerals and metallic mines reserved to the State of Hawaii. 2. Lease in favor of Hawaiian Electric Company, Inc., dated September 26, 1944, recorded in the Bureau of Conveyances, State of Hawaii, in Book 1849, Page 186; leasing and demising a right and easement to build, construct, rebuild, reconstruct, repair, maintain and operate pole and wire lines, etc., for the transmission of electricity, etc., along, across and over a portion of said electricity, etc., along, across and over a portion of said parcel, besides other lands, for a period commencing with the date hereof and ending April 6, 1957, and thereafter from year to year until terminated, said easement being twelve (12) feet wide, six (6) feet on either side of the center line. 3. Lease in favor of Hawaiian Electric Company, Inc., and Hawaiian Telephone Company, dated January 20, 1956, recorded in said Bureau, in Book 3088, Page 223; leasing and demising a right and easement to build, construct, rebuild, reconstruct, repair, maintain and operate pole and wire lines, etc., for the transmission of electricity, etc., over, across, through and within a portion of said parcel, besides other lands, for a period of 60 years commencing on the date hereof, said easement being ten (10) feet wide, extending five (5) feet on either side of the center line. 4. Grant in favor of Hawaiian Electric Company, Inc., dated July 15, 1970, recorded in said Bureau, in Book 7108, Page 319; granting a perpetual right and easement to build, construct, reconstruct, rebuild, repair, maintain and operate a transformer pad, etc., for the transmission and distribution of electricity, etc., over, under, upon, across and through those certain premises as shown on the map attached thereto. 5. Grant if favor of the City and County of Honolulu, dated January 25, 1971, recorded in said Bureau, in Book 7428, Page 417; granting the right, in the nature of an easement, to construct, install, maintain, operate and repair a roadway. 6. Easement "3" for temporary access purposes, containing an area of 181,018 square feet, as granted to Amfac Nurseries, Inc., a Hawaii corporation, doing business as "Amfac Nurseries-Hawaii", in unrecorded Lease dated as of January 1, 1978, of which a Short Form is recorded in said Bureau, in Book 12817, Page 576, said easement being more particularly described therein. 7. Grant in favor of the City and County of Honolulu, dated June 17, 1980, recorded in said Bureau, in Book 15220, Page 264; granting easement for the proper operation, maintenance, repair, replacement and removal of sanitary sewer pipelines, replacement and removal of sanitary sewer pipelines, facilities and appurtenant equipment under and across a portion of said parcel, said easement being more particularly described as follows: All of that certain parcel of land (portion of the land described in and covered by Royal Patent Grant Number 712 to Kaholo) situate, lying and being at Ahualii, Waikele, District of Ewa, City and County of Honolulu, State of Hawaii, being Easement "L", ten feet wide for sanitary sewer purposes, and thus bounded and described: Beginning at the Southeast corner of this easement, the coordinates of which referred to Government Survey Triangulation Station "Ewa Church" being 1106.63 feet South and 10039.40 feet West and running by azimuths measured clockwise from true south: 1. 56 52' 19.92 feet along remainder of Grant 712 to Kaholo; 2. 146 52' 10.00 feet along remainder of Grant 712 to Kaholo; 3. 236 52' 19.16 feet along remainder of Grant 712 to Kaholo; 4. 322 30' 30" 10.03 feet along Lot 80 of Waipahu Estates Unit 4-A (File Plan 1577) to the point of beginning and containing an area of 195 square feet,more or less. 8. Grant in favor of the City and County of Honolulu, dated July 9, 1981, recorded in said Bureau, in Book 15708, Page 64; granting the right, in the nature of an easement, to be exercised and enjoyed by the Board of Water Supply, to construct, install, maintain, operate, replace and remove an underground water pipeline or pipelines together with such meters, control cable and other appurtenances, through a portion of Easement "G" for water pipeline purposes. 9. Easement "M" (10 feet wide) for drainage purposes, as shown on survey map prepared by Ronald Casuga, Licensed Professional Land Surveyor, with Community Planning, Inc., dated -, revised December 1,1995. 10. Floodway zone, as shown on survey map prepared by Ronald Casuga, Licensed Professional Land Surveyor, with Community Planning, Inc., dated ---, revised December 1, 1995. 11. A 60' roadway setback, as shown on survey map prepared by Ronald Casuga, Licensed Professional Land Surveyor, with Community Planning, Inc., dated ---, revised December 1, 1995. 12. A 60' wide roadway setback line, as shown on survey map prepared by Ronald Casuga, Licensed Professional Land Surveyor, with Community Planning, Inc., dated ---, revised December 1, 1995. 13. The terms and provisions, including the failure to comply with any covenants, conditions and reservations, contained in the Unilateral Agreement and Declaration for Conditional Zoning dated November 6, 1996, recorded in said Bureau, as Document No. 96-159180. 14. The terms and provisions, including the failure to comply with any covenants, conditions and reservations, contained in the Amended Unilateral Agreement and Declaration for Conditional Zoning dated November 12, 1996, recorded in said Bureau, as Document No. 96-160631. CONSULTANT AGREEMENT Between AMFAC PROPERTY DEVELOPMENT CORP. and BREWER ENVIRONMENTAL INDUSTRIES, INC. for PHASE III OVER-EXCAVATION AND VERIFICATION SAMPLING OAHU SUGAR MILL SITE, WAIPAHU, HAWAII EXHIBIT "B" CONSULTANT AGREEMENT THIS AGREEMENT, made this 16th day of December, 1996 and effective as of the 16th day of December, 1996, by and between BREWER ENVIRONMENTAL INDUSTRIES, INC., a Hawaii corporation, whose address is 401 Waiakamilo Road, Suite 101, Honolulu, Hawaii 96817 (hereinafter referred to as "Consultant") and AMFAC PROPERTY DEVELOPMENT CORP, a Hawaii corporation, whose address is 700 Bishop Street, 21st Floor, Honolulu, Hawaii 96813 (hereinafter referred to as "Amfac"). W I T N E S S E T H: WHEREAS, Amfac desires to retain Consultant as an independent contractor to provide certain services with respect to the matters outlined herein; and WHEREAS, Consultant desires to provide said certain services with respect to the matters outlined herein; NOW, THEREFORE, in consideration of the mutual covenants and promises herein contained, the parties hereto agree as follows: Section 1.0 Appointment and Engagement as Independent Contractor. Amfac agrees to engage Consultant as an independent contractor to provide services in connection with the matters described in Section 2.0 herein. Consultant agrees to properly perform its obligations as provided herein all in accordance with the terms, provisions, covenants and conditions set forth herein. Section 2.0 Scope of Work. Consultant shall perform a Phase III, overexcavation and verification sampling of Oahu Sugar Mill's former Cane Haul Service Station Site in Waipahu, Hawaii (the "Project"). The services to be provided by Consultant are more fully described as Option 1 only in Consultant's proposal dated November 21, 1996 (BEI Project No. 4743), attached hereto as Exhibit "A" and incorporated herein by reference (the "Work"). Section 3.0 Timing. Consultant shall complete the services to be provided by Consultant under this Agreement as expeditiously as possible, but no later than April 30, 1997. Section 4.0 Compensation, Payment and Expenses. Amfac agrees to pay Consultant a total lump sum fee in the amount of Sixteen Thousand Ninety-Eight and No/100 Dollars ($16,098.00), plus 4.166% Hawaii general excise tax, upon completion of the Work. A cost breakdown is more fully described as Option 1 costs in Exhibit "A" attached hereto and incorporated herein by reference. Consultant shall be responsible for all expenses actually incurred in performing the Work. Section 5.0 Extra Work. Work which is not covered by the services described in Exhibit "A" shall be considered extra work. Consultant shall perform such extra work as may be authorized in writing by Amfac's representative prior to such work being performed, and in the absence of such prior written authorization, Consultant shall not be entitled to payment for such extra work. All bills for extra work performed shall be submitted to Amfac not later than the first day of the month following the month in which the extra work was performed. If extra work is authorized, such work shall be considered as part of this Agreement and subject to each and all of the terms an d requirements hereof. Section 6.0 Insurance and Indemnity. A. Consultant shall carry and maintain at its own cost, with companies having a minimum rating of "A X" in the then current edition of "Best Key Insurance Rating Guide", all necessary liability insurance (which shall include as a minimum the requirements as set forth below) during the term of this Agreement, for damage caused or contributed to by Consultant, and insuring Consultant against claims which may arise out of or result from Consultant's performance or failure to perform the Work. 1. Worker's Compensation to the full extent as required by applicable law; and Employer's Liability Insurance $500,000 each accident. 2. Commercial General Liability Coverage, including Contractual Liability and Personal Liability Coverages, and naming Amfac Property Development Corp., Oahu Sugar Company, Limited, Northbrook Corporation, their partners, their parent corporations, their subsidiaries, their affiliates and their respective officers, employees and agents and other designated by Amfac and Amfac's mortgagees as Additional Insureds, in not less than the following amounts: Bodily Injury and Property Damage Liability $1,000,000 each occurrence $1,000,000 aggregate 3. Comprehensive Automobile Liability Insurance covering all owned and non-owned and hired vehicles including the loading and unloading thereof with limits of: Bodily Injury and Property Damage Liability $1,000,000 each accident All such liability insurance shall include the condition that it is primary coverage and that any such insurance maintained by Amfac and any other Additional Insured is excess and non-contributory. B. From and after the date hereof for a period of at least three (3) years following the date of substantial completion of the Project, Consultant shall maintain an errors and omissions insurance policy (the "Policy" insuring Consultant with limits of insurance of at least One Million and 00/100 Dollars ($1,000,000) per claim and in the aggregate with respect to claims made against Consultant for negligent acts, errors or omissions of or attributable to Consultant in the performance of services in connection with the Project, including prior acts, which amount shall not, however, be construed as a limitation of the liability of Consultant with respect to the Work. The Insurance herein provided may allow for a reasonable deductible amount of to a maximum deductible of Fifty Thousand and 00/100 Dollars ($50,000.00). C. Consultant waives all rights of action and subrogation against Amfac to the extent of any insurance recoveries that may be obtained by Consultant for damages to Consultant's property caused by fire or other peril covered by insurance, except such rights as Consultant may have to proceeds of insurance held by any other person as trustee or otherwise on behalf of Consultants. D. Consultant hereby agrees to protect, defend, indemnify and hold harmless Amfac Property Development Corp., Oahu Sugar Company, Limited, Northbrook Corporation, their partners, their parent corporations, their affiliates, their subsidiaries and their respective officers, employees, agents and assigns (collectively, sometimes called "Indemnitees") from and against all losses, claims, liabilities and expenses, including, but not limited to, reasonable attorneys' fees, court costs and expenses of collection which result from Consultant's negligent performance of professional services or breach of this Agreement. This indemnification shall include, but not be limited to, loss or destruction of property, including loss of use thereof, and/or because of bodily injury, personal injury, sickness or disease, or death sustained by any person. Such obligations of Consultant hereunder shall not be limited by the availability, limits, or coverage of insurance carried or required herein, or required by law to be carried. E. In the event that Consultant fails to effect or maintain the required insurance, Amfac may, but is not obligated to, procure the same or pay the premium therefor, in which case the cost shall be charged to Consultant or deducted from payments due to Consultant. F. Certificates of insurance acceptable to Amfac shall be filed with Amfac prior to commencement of the Work. The certificate shall set forth evidence of all coverages required hereunder. Consultant shall furnish to Amfac copies of any endorsements that are subsequently issued amending any coverage required hereunder. G. Each policy shall provide that it will not be canceled or materially altered except after thirty (30) days' advance written notice to Amfac mailed to the address noted herein, and the certificate(s) of insurance shall so state. Section 7.0 Amfac's Responsibilities. A. Amfac shall designate at representative authorized to act in its behalf. Amfac's present representative is John Higham. Amfac shall examine documents submitted by Consultant and render decisions pertaining thereto promptly to avoid unreasonable delay in the progress of the Work. B. Amfac shall furnish information required of it as necessary for the orderly progress of the Work. C. Amfac shall provide access to enter upon all lands owned or controlled by Amfac as reasonably required for Consultant to perform its services under this Agreement. Section 8.0 Accounting Records. Records of Consultant's services and expenses, if any, pertaining to this Agreement shall be maintained using generally accepted accounting principles and shall be available to Amfac or its authorized representative for inspection at mutually convenient times. Section 9.0 Termination of Agreement. This Agreement may be terminated at any time, for any reason, by either party to its expiration, by giving thirty (30) days prior written notice to the other party delivered in person or mailed to the last known address of the other party. Upon such termination, Consultant shall be entitled to only such fee as shall have been earned by performance of the Work as of the date of termination. Section 10.0 Relationship of Parties. The parties to this Agreement intend and hereby agree that the relationship of Amfac and Consultant created herein shall be that of principal and independent contractor. Consultant shall have control and discretion with respect to the performance of its obligations hereunder and shall have authority and control over the manner and details of all work which is to be performed (Amfac being interested in the proper and necessary results to be obtained). Consultant shall be solely responsible for the use, discipline and supervision of Consultant's employees, if any, and for providing all tools, texts, equipment or supplies generally used by Consultant in its business. Consultant shall be responsible for complying with and shall comply with all applicable federal, state and local laws regarding the Work and the operation of Consultant's business or employment of employees, including but not limited to federal, state and local taxes and general excise tax. Nothing contained herein shall be construed to create any employment, partnership, joint venture or co- ownership relationship between the parties hereto. Neither Amfac nor Consultant shall be responsible for any liabilities or obligations incurred or created by the other party except as specifically agreed to. Consultant shall have no authority to execute any document in the name or on behalf of Amfac, enter into any oral or written commitments involving Amfac, or otherwise obligate Amfac in any manner whatsoever. Section 11.0 Non-Waiver. It is expressly understood and agreed that the failure of Amfac to insist in any one or more instances upon strict performance of any of the terms and conditions of this Agreement, or to exercise any right herein conferred, shall not be deemed a waiver or relinquishment of any of Amfac's right to assert or rely upon such terms, conditions, or rights in any other instance. Section 12.0 Confidentiality. At all times during the term of this Agreement and thereafter, Consultant will hold in strictest confidence, and not disclose to any person, firm or corporation, any information, manner of doing business, techniques, process, trade secret, or any other information or confidential matter relating to the products, operations, activities and businesses of Amfac, or its divisions, subsidiaries and affiliates which Consultant presently has knowledge of, may learn while performing hereunder or which is developed hereunder for Amfac, its divisions, affiliates and subsidiaries. Section 13.0 Successors and Assigns. Amfac and Consultant each binds itself, its successors, assigns and legal representatives to the other party to this Agreement and to the partners, successors, assigns and legal representatives of such other party in respect of all covenants of this Agreement. Consultant shall not assign or otherwise transfer its interest in or obligations under this Agreement without the prior written consent of Amfac. Amfac may assign its interest in this Agreement. Section 14.0 Legal Construction of Agreement. This Agreement shall at all time be construed under the laws of the State of Hawaii. Section 15.0 Severability. The invalidity or enforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision. Section 16.0 Extent of Agreement. This Agreement, including the exhibits attached hereto, represents the entire and integrated agreement between Amfac and Consultant and supersedes all prior negotiations, representations or agreement either written or oral. This Agreement may be amended only by written instruments signed by both Amfac and Consultant. Section 17.0 Attorneys' Fees and Costs. In the event suit is brought at law or in equity to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to all costs and expenses of litigation, including reasonable attorneys' fees. IN WITNESS WHEREOF, the parties have hereunto set their hands on the day and year first above written. AMFAC PROPERTY DEVELOPMENT CORP. BREWER ENVIRONMENTAL INDUSTRIES, INC. By_________________________ By_____________________________ Its Vice President Its Vice President "Amfac" "Consultant" BREWER ENVIRONMENTAL INDUSTRIES, INC. ENVIRONMENTAL SERVICES DIVISION Mr. John Higham November 21, 1996 Amfac/JMB Hawaii, Inc. BES Project No. 4743 700 Bishop Street, 21st Floor Honolulu, Hawaii 96801 Dear Mr. Higham: Brewer Environmental Services is pleased to present this proposal to Amfac/JMB Hawaii, Inc. to conduct over-excavation and verification sampling at the former Cane Haul Fueling Station location at the Oahu Sugar Company (OSCO) sugar mill in Waipahu. 1.0 BACKGROUND During the OSCO Mill Phase II sampling activities, BES collected four soil samples from the perimeter of the former Cane Haul Fuel Station at the locations shown in Figure 1 and analyzed them for total petroleum hydrocarbons as diesel; benzene, toluene, ethylbenzene, and xylene (BTEX); and the four DOH-regulated polynuclear aromatic hydrocarbons (PAH). One sample contained a concentration of benzo(a)pyrene, a PAH, at 103 ppm. Based on this result, BES recommends overexcavation of the contaminated soil and soil sample collection to verify that the extent of the contamination has been removed. The contaminated soil can either be stored and remediated on site in a soil management unit (SMU) or transported and recycled at a thermal treatment center on Oahu. BES' proposed scope of services for the remedial investigation are outlined below. 2.0 SCOPE OF SERVICES BES will conduct over-excavation and sample activities at the OSCO Waipahu Sugar Mill's former Cane Haul Service Station. Specifically BES will: * Excavate soil in the area of the Cane Haul Service Station using a Backhoe and trained operator. * Monitor over-excavation soils with a PID and place contaminated soils in a visqueen lined temporary or long-term SMU for storage or onsite remediation, respectively. * Collect six soil samples from the excavation pit for verification that all contaminated soils have been removed, using a California State Department of Health Services-certified laboratory for the following - analytes: * Total Petroleum Hydrocarbons, as Diesel (TPH-D), EPA Method 8015M * Benzene, Toluene, Ethylbenzene, and Xylenes (BTEX), EPA Method 8020 * Four regulated Polynuclear Aromatic Hydrocarbons (PAHs), EPA Method 8100 * Document all field activities, soil lithology, sample collection methodologies and laboratory analytical results. * Evaluate soil sample analytical results and determine if all contaminated soil has been excavated or if additional over- excavation and/or sample collection is necessary * Prepare a final report documenting the field activities and methodologies and summarizing the analytical results and conclusions ADDITIONAL WORK * Provide an additional backhoe to transport excavated soil to Parcel B for stockpiling OPTION 1 * Construct the SMU with bermed soil and lined with two layers of 10 mil plastic on Parcel B property * Approximately one month after excavation activities collect, four soil samples from the SMU soil in order to determine if soil is remediated to DOH Clean up Criteria * Backfill excavation with remediated soil and compact to grade in six to nine inch lifts OPTION 2 * Construct temporary SMU lined with two layer of 10 mil plastic on Parcel B property * Collect one composite soil sample from stockpile to characterize the contamination for disposal at the thermal treatment facility * Analyze one composite soil sample for the following analytes: TPH-D by EPA Method 8015M BTEX by EPA Method 8020 PAHs by EPA Method 8100 Total Cadmium, Chromium, and Lead by EPA Method 6010 TCLP Cadmium, Chromium, and Lead by EPA Method 6010 Flammability * Approximately two weeks after excavation activities, transport and recycle soil to a local thermal treatment facility * Backfill excavation with imported material and compact to grade in six to nine inch lifts 3.0 COSTS BES is prepared to conduct this Over-Excavation and Sampling Activities on a time and materials basis plus Hawaii General Excise Tax of 4.166 percent. The cost breakdown for this fee is a follows: Mobilization Health & safety and work plans $ 750.00 Over-Excavation and Sample Collection $ 3,412.00 Backhoe and mobilization costs $ 920.00 Backhoe operator $ 1,012.00 BES geologist, equipment and Onsite monitoring $ 1,480.00 Laboratory Analysis $ 1,100.00 Data evaluation and reporting $ 2,050.00 ADDITIONAL COSTS Moving soil from Parcel A to Parcel B for soil management unit $ 2,697.00 Backhoe and mobilization costs $ 920.00 Backhoe operator $ 1,012.00 Truck to move soil $ 465.00 Plastic $ 300.00 OPTION 1 Remediate soil onsite and backfill $ 6,089.00 Remobilization of backhoe $ 920.00 Backhoe operator $ 1,012.00 One additional laborer $ 1,012.00 BES geologist onsite to monitor activities $ 1,120.00 Compaction tests $ 460.00 Laboratory analysis of soil stockpile $ 1,100.00 Truck to move soil $ 465.00 OPTION 2 Recycle soil and backfill with imported material $13,459.00 Remobilization of backhoe $ 920.00 Backhoe operator $ 1,012.00 One additional laborer $ 1,012.00 Compaction tests $ 460.00 Imported material $ 830.00 BES geologist onsite to monitor activities $ 1,120.00 Characterization analysis of soil stockpile $ 405.00 Disposal fees at treatment facility $ 5,920.00 Trucking fee to treatment facility $ 1,320.00 Compaction tests $ 460.00 TOTAL WITH OPTION 1 $16,098.00 TOTAL WITH OPTION 2 $23,468.00 4.0 ASSUMPTIONS AND LIMITATIONS The above scope of work and cost estimate is based on the following assumptions and limitations: * All work will be performed on a time and materials basis. Any costs above the estimate quoted above will not be incurred without authorization from Amfac/JMB. Any budgeted costs not incurred will not be billed. * The backhoe, operator and Laboratory are available for the scheduled period. * Excavation will require removing soil from an area approximately 15 feet x 10 feet to a depth of 10 feet * An area for construction of the SMU is available on Parcel B * A separate Phase II Investigation report will be written * There will be two mobilizations, one for excavation and the other for backfilling (for both options) * All laboratory analyses will be performed on a normal ten day turn around time * Approximately 60 cubic yards or 88 tons will be excavated from Parcel A Cane Haul Service Station * All laboratory analyses for disposal characterization is within thermal treatment facility established action levels BES warrants that its services are provided with the usual competence and thoroughness of the consulting profession, in accordance with the standard operating procedures of this time. BES provides no other guarantee or warranty. If this proposal is acceptable, please notify us at your convenience. BES understands that Amfac will prepare a project-specific contract for this work. We greatly appreciate this opportunity to assist Amfac/JMB with their development of the former OSCO Waipahu Sugar Mill and well look forward to a successful completion of the project. If you have any questions regarding this proposal, please call me at 832-7934. Sincerely, Sherrie K. Sasaki Geologist II CITI BANK Member FDIC MORTGAGE LOAN CLOSING STATEMENT NAME(S) OF BORROWER(S): AMFAC PROPERTY DEVELOPMENT CORP. Mailing Address(es): 700 Bishop Street Address of Property: Paiwa Street, Waipahu Hawaii TMK No. (1) 9-4-2-4 por. Identified as Lot D-1 Appraisal/Recertification Fee to: John Child & CO. $17,150.00 Credit Report Fee to Title Search/Insurance to Title Guaranty of Hawaii 12,500.00 Mortgage Insurance to Prepaid Interest Prepaid Escrow Impounds Condominium Processing Fee Finance Fee 0.75% of $10,000,000.00 75,000.00 Attorney's Fee to Michael H. Sakai, Esquire 1,500.00 Mortgage Trust Review and Opinion UCC Financing Statement & Security Agreement Notary Fee(s) to Mortgage Deed or Lease Recording Fee to Bureau of Conveyances Mortgage 20.00 Special Mortgage Recording Fee 10,000.00 Assignment of Mortgage Deed or Lease (Partial) Release of Mortgage Assignment of Lease Consent to Assignment UCC Financing Statement 20.00 Flood Zone Verification to Land Loan TOTAL MORTGAGE CLOSING REQUIREMENTS $116,190.00 =========== SUMMARIZATION YOUR MONTHLY INSTALLMENT SOURCE OF FUNDS PAYMENT Advance Deposit(s)$ 33,000.00 Principal and Interest Loan Funds 10,000,000.00 Impounds Final Deposit 83,190.00 Sub-total $ 10,116,190.00 TOTAL Interest Only --------------- MORTGAGE LOAN CLOSING STATEMENT - Continued LESS: APPLICATION OF FUNDS Mortgage Closing Requirements $ 116,190.00 Prepared by A. Tanouye/C. Yamato Escrow Closing Requirements Date: December 18, 1996 Construction Contract Sum Sub-total $ (116,190.00) -------------- BALANCE Refundable $10,000,000.00 =============== The Borrower acknowledges that figures presented herein above were derived in good faith at the time of preparation. Furthermore, City Bank is hereby unconditionally authorized to disburse the proceeds of loan evidence by my/our note and/or mortgage dated December 18, 1996 in the amounts and to the parties specified above. AMFAC PROPERTY DEVELOPMENT CORP. By:____________________________ Its Senior Vice President CITY BANK LOAN AUTHORIZATION Date of Mortgage: 12/18/96 Date: December 20, 1996 Class: Industrial Mortgage Branch: Borrower(s): Amfac Property Development Corp. Address: Paiwa Street, Waipahu, Hawaii Phone: Mailing Address: Amfac Tower, 21st Floor 700 Bishop Street, Honolulu REQUESTED: ENDORSER/GUARANTOR: LINE OF CREDIT: Loan Amount:$10 Million None Line Amount: Maturity: 12/1/97 Total Usage: Finance Fee: .75% ($75,000) Expiration: Annual Percentage Rate *% * .5% above City Bank's base rate, floating PURPOSE OF LOAN: The Land Loan proceeds will be sued for: 1) $6,000,000 for investments in other projects and developments on Maui and Kauai, and 2) $4,000,000 for the development of 23 lots in "Phase 1A" of the Property; and SOURCE OF REPAYMENT: From Borrower Funds. TERMS OF REPAYMENT: Interest only monthly on amounts of principal disbursed. A $4,000,000 principal reduction will be due upon the release of lot 1-A. SECURITY DESCRIPTION: ALTA insured first mortgage lien on approximately 34.5 acres of fee simple land currently zoned I-1 located on Paiwa Street in Waipahu, Hawaii. TMK: (1) 9-4-2-4 port. identified as lot D-1. Appraisal by John Child and Company dated December 1, 1996 valued property at $16,700,000. AUTHORITY TO DISBURSE INSTRUCTIONS TO NOTE DEPARTMENT a) Deposited to A/C Payments begin January 1, 1997 Loan No. 77-24-7383051523 Charge A/C Name of A/C: Amfac Property b) Cashier's Check No. Development Corp. c) Refinance CO. No. of Times Renewed and/or extended as applicable 0 d) Other Note No. 000052 Total CITY BANK LOAN AUTHORIZATION - Continued SIGNATURE OF BORROWER(S): AMFAC PROPERTY DEVELOPMENT CORP. By:___________________________ Its Senior Vice President DOCUMENTS REQUIRED (*Indicate documents required by checking the applicable line under "required") COMMERCIAL Req. On Hand: COLLATERAL Req. On Hand: Note X X Coll. Agreement Borr. Res. X X Passbook/Cert. Sec. Agreement X X Coll. Receipt Financing Stmt. X X Hypothecation Agmt. Cont. Guar. Stock Certificate Liability Ins. X X Stock Powers Loan Agreement X X Regul. "U" Stmt. Lgl Own-shp Cer. X X Insurance Policy Not. of Mort. Insurance Quest. Pledge or Purch. X X Assign. of Life Hazardous Waste Insurance Agmt. X X Other Mortgage X X Federal ID# Census Tract: Industry Code: 0801 It is hereby certified that all required documents are correct and in file. - ----------------------- Loan-to-Value Ratio: (As Applicable) 60% Signature AUTHORIZATION BY: Senior Loan Committee 10/29/96 Date Booked: 12/20/96 RECOMMENDED BY: Ann Tanouye/Melvin Tanaka Date: 10/22/96 EX-27 4
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGISTRANT'S FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS INCLUDED IN SUCH REPORT. 0000839437 AMFAC/JMB HAWAII, INC. 12-MOS DEC-31-1996 DEC-31-1996 8,736 0 8,180 0 56,808 73,274 351,640 33,856 483,605 30,791 321,298 0 0 1 (153,571) 483,605 96,943 97,406 89,267 125,096 1,222 0 26,297 (55,209) 12,043 (34,166) 0 0 0 (34,166) (34.2) (34.2)
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