We did not repurchase any shares of common stock during the fiscal year ended December 31, 2009.

        On January 11, 2010, we received notification from the NYSE that we are no longer in compliance with the NYSE's continued listing standards because our average market capitalization was less than $50 million over a 30 trading-day period and our most recently reported shareholders' equity was less than $50 million. Under applicable NYSE procedures, we had 45 days from receipt of the notification to submit a plan to the NYSE to demonstrate our ability to achieve compliance with the continued listing standards within 18 months. We submitted such a plan to the NYSE on February 22, 2010 and the NYSE has until April 11, 2010 to accept or reject the plan. If the NYSE accepts our plan, we will still be subject to quarterly monitoring for compliance with the plan. During this time, our common stock will continue to be listed on the NYSE, subject to compliance with other NYSE continued listing requirements. If the NYSE rejects our plan, we will be subject to delisting from the NYSE.

Securities Authorized For Issuance Under Equity Compensation Plans

        The following table provides summary information as of December 31, 2009, for our equity compensation plans:

Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        The following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes to those statements contained elsewhere in this annual report.

Overview of the Company

        We operate as a landholding and operating parent company for our principal subsidiaries, including Maui Pineapple Company, Ltd. and Kapalua Land Company, Ltd. Our reportable segments are Resort and Community Development. Our Agriculture segment was discontinued, and was reported as discontinued operations for the year ended December 31, 2009.

Agriculture

        On November 2, 2009, our Board of Directors approved the cessation of our pineapple agriculture operations by December 31, 2009. The Agriculture segment primarily included growing, packing, and marketing of fresh pineapple. Our pineapple was sold under the brand names Maui Gold® and Hawaiian Gold^TM. We also grew and marketed fresh organic pineapple. A portion of our business included processing (canning) pineapple; however, we ceased substantially all canning and processing of solid-pack product in June 2007. In December 2009, we entered into agreements with an unrelated, closely held company that began to grow and market Maui Gold® pineapple as of January 1, 2010.

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Resort

        The Resort segment includes our ongoing operations at the Kapalua Resort. These operations currently include two championship golf courses, a tennis facility, and several retail outlets. Prior to mid-December 2009, the Resort operations also included a vacation rental program (The Kapalua Villas), Kapalua Adventures, which is comprised of zip-lines stretching over scenic ravines in the West Maui Mountains, a high ropes challenge course, a climbing wall and other activities. In December 2009, we entered into agreements to transfer the operations of The Kapalua Villas and the Kapalua Adventures to third parties. In March 2009, we sold The Plantation Golf Course for $50 million and entered into an agreement to lease back the golf course for a two year period (Note 8 to consolidated financial statements).

Community Development

        The Community Development segment includes our real estate entitlement, development, construction, sales and leasing activities. This segment also includes the operations of Kapalua Realty Company, a general brokerage real estate company, and Public Utilities Commission-regulated water and sewage transmission operations located within the Kapalua Resort. Beginning August 31, 2004, the Community Development segment includes our investment in Bay Holdings (Note 4 to consolidated financial statements).

        Global economic conditions have caused consumers, tourists and real estate investors to postpone or reduce spending in response to tighter credit, higher energy costs, negative financial news and/or declines in income or asset values, which has negatively affected the demand for our products and services. Increases in fuel and other energy costs, conditions in the residential real estate and mortgage markets, interest rates, labor costs, access to credit, consumer confidence, and other macroeconomic factors have also affected consumer spending behavior. These and other economic factors could continue to have a material adverse effect on demand for our products and services and on our financial condition and operating results.

        As a result of the impact of economic conditions and other factors we considered, we have evaluated our investment in Bay Holdings for impairment in 2008 and 2009 and have recorded other-than-temporary impairment losses of $21.3 million and $37.8 million, in 2009 and 2008, respectively. Also in 2009 and 2008, we recorded charges of $14.2 million and $10.6 million, respectively, for the write off of development plans and other project costs that have been abandoned or are not otherwise expected to be recoverable because of the delay of the start of construction of new development projects in the fourth quarter of 2008 caused by, among other things, the economic recession, a worsening credit market, reduced demand for real estate, and declining consumer confidence

        Subsequent to the issuance of our 2008 consolidated financial statements, we concluded that cash flows from the sale of undeveloped land should have been reflected within the operating activities section of the cash flow statement rather than within the investing activities section because the sale of undeveloped land is considered a principal business activity of the Community Development segment. See Note 17 to our consolidated financial statements for a summary of the impact of the restatement on our cash flows.

Current Developments

2009 Business Developments

        In 2009, we incurred a net loss of $123.3 million and had negative cash flows from operations of $15.9 million. Efforts to increase liquidity and to stabilize the Company for future opportunities consumed much of our management time in 2009.

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        The following is a summary of other material business developments in 2009. For more discussion about business developments in 2009, see Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," in this annual report on Form 10-K.

        Plantation Golf Course.    In March, we completed the $50 million sale and leaseback transaction of the Plantation Golf Course and applied $45 million of the sales proceeds to partially repay outstanding borrowings that were partially collateralized by the golf course. Note 8 to consolidated financial statements.

        Management Changes.    In May, our Board of Directors appointed Warren H. Haruki to serve as Interim Chief Executive Officer in addition to his position as Executive Chairman after Robert I. Webber resigned from his positions as our President and Chief Executive Officer. In April, John P. Durkin was hired to serve as Chief Financial Officer. In February 2010, our Board of Directors appointed Ryan L. Churchill to serve as our President and Chief Operating Officer.

        Kapalua Bay Holdings, LLC.    In June, construction of the Residences at Kapalua Bay project was substantially completed and Bay Holdings closed escrow on 20 whole-ownership units and 88 fractional-ownership units in 2009. In September, Bay Holdings recorded a $208.8 million charge representing an impairment of the value of the Residences at Kapalua Bay project. We recorded losses from this joint venture of $47.2 million in 2009 and stopped recording our share of Bay Holdings' losses after our investment balance and other amounts advanced to Bay Holdings were reduced to zero, and the estimated remaining obligations to the joint venture were accrued. Construction work has been completed as of the end of 2009. Note 4 to consolidated financial statements.

        Real Estate Sales.    In September, we sold 125 acres that comprised a portion of our Kapalua Mauka project for $10.0 million. We also sold another property in 2009 totaling approximately 13 acres and our final lot in the Honolua Ridge Phase II subdivision that resulted in cash proceeds of approximately $1.9 million. In addition, we sold two other non-inventory real properties in 2009 that resulted in cash proceeds of approximately $2.8 million.

        Revolving Credit Agreements.    In October, our revolving credit agreement with Wells Fargo Bank was increased from $45 million to $50 million and the maturity date for this facility and our $25 million revolving credit were extended from March 2010 to March 2011. Note 5 to consolidated financial statements.

        Agriculture Segment.    In November, our Board of Directors approved the immediate cessation of pineapple planting and the closure of all agriculture operations by year-end. On December 31, 2009, we entered into agreements with Haliimaile Pineapple Company, Limited (HPC), a closely held corporation. The agreements provided for HPC to harvest the fruit in the ground and to begin growing and marketing Maui Gold® pineapple. HPC hired 66 of the 206 MPC employees whose employment with us ceased as of year-end 2009. Note 7 to consolidated financial statements.

        Resort Operations.    In December, we entered into agreements with third parties to operate and manage The Kapalua Villas and the Kapalua Adventures operations. The agreements principally license the operators to use our trade names and trademarks for the respective operations, and lease the operating assets of the operations and commercial space within the Kapalua Resort to the new operators.

        Employee Reductions.    In March, in an effort to reduce costs, we eliminated approximately 100 employees from our workforce. Further workforce reductions as a result of outsourcing certain resort operations and elimination of the Agriculture segment in December, resulted in a total reduction in our work force of approximately 540 employees. Most of the employees from our Kapalua Villas and Kapalua Adventures operations were hired by the new third party operators, and, as mentioned above, 66 of the employees from our Agriculture segment were hired by HPC.

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RESULTS OF OPERATIONS

Comparison of Years Ended December 31, 2009 and 2008

CONSOLIDATED

        We reported a net loss of $123.3 million for 2009 compared to a net loss of $79.4 million for 2008. For 2009 and 2008, the net loss per common share was $(15.33) and $(9.98), respectively. At the end of 2009, we ceased all of our Agriculture segment operations and we are reporting that segment as discontinued operations. Our loss from continuing operations was $88.4 million for 2009 and $53.6 million for 2008. Losses from our equity investment in Bay Holdings of $47.2 million in 2009 and $18.8 million in 2008, impairment charges related to obsolete development plans, employee severance charges incurred as we downsized our operations, and operating losses from our Resort operations caused by low visitor counts, were largely responsible for the losses in 2009 and 2008. Consolidated revenues were $50.4 million and $51.1 million for 2009 and 2008, respectively.

General and Administrative

        In 2009, general and administrative expenses decreased by 31% to $20.2 million compared to $29.3 million for 2008. The major components of the difference in general and administrative expenses were as follows:

        General and administrative salaries and wages and employee incentives and stock compensation were lower in 2009 compared to 2008 due to a reduction in size of our workforce in 2009 by approximately 540 employees. Approximately 100 positions were eliminated in the Resort and Community Development segments and in corporate services in March 2009 in an effort to reduce costs; and most of the other 2009 headcount reductions took place in December with the cessation of our Agriculture segment operations, and transfer of The Kapalua Villas, Kapalua Adventures, and Kapalua security and shuttle operations to third party operators. In addition, a 10% wage reduction was implemented in March 2009 that affected nearly all employees and in the second half of 2008, there were also significant workforce reductions in the Agriculture segment and in corporate services.

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        The increase in pension and other postretirement benefits expense reflects the decrease in value of assets in our defined benefit pension plans combined with a reduction in the discount rate as of January 1, 2009 compared to January 1, 2008.

        The decrease in professional services and other services primarily reflects a reduction in use of outside consultants, in particular legal and a reduction in the cost of compliance with the Sarbanes-Oxley Act of 2002, Section 404.

        Loss on asset disposal for 2009 includes $1.9 million for the settlement payment and forfeiture of a deposit under which we were obligated to purchase certain real estate at the Kapalua Resort. The 2008 loss on asset disposals reflects the write off of excess equipment used it the Resort operations.

        Employee severance expense decreased in 2009 despite the significant increase in headcount reduction because the severance plan covering non-bargaining unit salaried personnel was amended in 2009 to reduce severance benefits. Also, 28% of the employees that we severed in December 2009 were hired by the companies assuming our Agriculture and Resort operations and were therefore not eligible for severance benefits.

        General and administrative expenses are incurred at the corporate level and at the operating segment level. All general and administrative expenses incurred at the corporate level are allocated to the operating segments. Such allocations are consistent with our management's evaluation of services provided to the operating segments.

Interest Expense

        Interest expense was $10,452,000 for 2009 compared to $2,436,000 for 2008. In 2009 and 2008, $18,000 and $343,000, respectively, of interest was capitalized to construction projects. Interest expense for 2009 and 2008 include a (credit) charge of $(1,097,000) and $1,160,000, respectively, representing the change in the estimated fair value of the swap agreements entered into in January 2008 (Note 6 to consolidated financial statements). Interest expense for 2009 and 2008 also include credits of $2,200,000 and $7,381,000, respectively, representing the change in the estimated fair value of the derivative liability that was bifurcated from our $40 million convertible notes, and charges for interest accretion of $3,162,000 and $1,230,000, respectively for 2009 and 2008, on the carrying value of the convertible note (Notes 5 and 6 to consolidated financial statements). Our effective interest rate on borrowings was 6.0% for 2009 compared to 4.7% for 2008 and average borrowings were about $12 million less in 2009 compared to 2008. The increase in interest expense was due primarily to the difference in the net fair value credit adjustments and accretion charges for the convertible notes and swap agreements of $100,000 for 2009 compared to $5 million for 2008.

RESORT

        The Resort segment reported an operating loss of $16.1 million for 2009 compared to an operating loss of $19.7 million for 2008. Resort segment revenues were $29.8 million for 2009 or 20% lower than 2008. The reduced operating loss for 2009 was primarily due to staffing reductions and other cost cutting measures taken in 2009.

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        In 2009, financial results for the Resort segment were negatively affected as Maui continued to experience a soft tourism market as visitor days deceased by 7% from 2008 and the number of occupied rooms at the Kapalua Resort decreased by 2% in 2009 compared to 2008 and per person expenditures declined by 7% compared to 2008. Results for 2008 were sharply affected by the decline in visitor counts due to the economic recession in the United States and elsewhere that resulted in inability or hesitation to travel and reduced airline passenger capacity to Hawaii because of airline closures.

Golf, Retail and Villas

        Revenues from golf operations decreased by 16% and paid rounds of golf decreased by approximately 7% for 2009 compared to 2008. Average green and cart fees decreased by approximately 12% in 2009 compared to 2008. Resort retail sales for 2009 were approximately 13% lower than sales for 2008, reflecting the lower number of occupied rooms and reduced daily expenditures per person.

        Revenues from the Kapalua Villas were approximately 45% lower in 2009 compared to 2008, reflecting a 28% decrease in occupied rooms and a 24% lower average room rate. There were approximately 22% fewer rooms available in 2009, partially reflecting units under renovation under our Kapalua Gold program to upgrade and standardize the units in our rental program. As of December 16, 2009, the operations of the Kapalua Villas and Kapalua Adventures were licensed to a third party and we are now receiving license fees for the use of our trademarks and trade names, rental income for use of administrative and housekeeping space at the Kapalua Resort, and Resort fees per occupied night for access to certain recreational facilities at the Kapalua Resort. Minimum annual rents and license fees are approximately $300,000 and will be accounted for in the Community Development operating segment in 2010.

COMMUNITY DEVELOPMENT

        The Community Development segment reported an operating loss of $62.6 million for 2009 compared to an operating loss of $40.0 million for 2008. Revenues from this operating segment were $19.9 million for 2009 compared to $11.4 million for 2008. Increased revenues in 2009 were primarily from the sale of real estate inventories. The operating loss from this segment in 2009 and 2008 largely reflects losses from our investment in Bay Holdings. Also in 2009 and 2008, we recorded charges of $14.2 million and $10.6 million, respectively, for the write off of development plans and other project costs that have been abandoned or are not otherwise expected to be recoverable because of the delay of the start of construction of new development projects in the fourth quarter of 2008 caused by, among other things, the economic recession, a worsening credit market, reduced demand for real estate, and declining consumer confidence (Note 3 to consolidated financial statements).

        Our equity in the losses of Bay Holdings was $47.2 million in 2009 compared to $18.8 million for 2008 which included a charge for $37.8 million representing what we believed to be an other than temporary impairment of our investment in Bay Holdings at the end of 2008. In September 2009, Bay Holdings recorded a $208.8 million charge representing an impairment of the value of the Residences at Kapalua Bay project. We recorded losses from this joint venture of $47.2 million in 2009 and

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stopped recording our share of Bay Holdings' losses after our investment balance and other amounts advanced to Bay Holdings were reduced to zero, and the estimated remaining obligations to the joint venture were accrued. In June 2009, construction of the Residences at Kapalua Bay project was substantially completed and Bay Holdings closed escrow on 20 whole-ownership units and 88 fractional-ownership units; and construction work was complete by the end of 2009. (Note 4 to consolidated financial statements).

Real Estate Sales

        Real estate inventory sales in 2009 produced revenues of $12.0 million and pre-tax income of $6.8 million. The 2009 real estate sales included the sale of the last lot in Honolua Ridge Phase II and the sale of 138 acres in two land sale transactions. Our Honolua Ridge Phase II subdivision consisted of 25 agricultural-zoned lots, which began selling in August 2005.

        In 2008, we sold approximately 111 acres of Upcountry Maui property in three land sales transactions and recognized revenues of $4.4 million and pretax income of approximately $4.1 million.

        Real estate development and sales are cyclical and depend on a number of factors (see the risk factor entitled "Real estate investments are subject to numerous risks and we are negatively impacted by the downturn in the real estate market" under Risk Factors in Item 1A above). Results for one period are therefore not necessarily indicative of future performance trends for this segment.

AGRICULTURE

        On November 2, 2009, our Board of Directors authorized the cessation of all pineapple operations by December 31, 2009. Our Agriculture segment operating results and the loss on sale of the assets are reported as discontinued operations and prior period amounts are restated for comparability. The loss from discontinued operations for 2009 includes net charges of $22.8 million related to the sale or other disposition of the Agriculture segment assets, employee severance and cancellation of contracts.

LIQUIDITY AND CAPITAL RESOURCES

Debt Position

        At December 31, 2009, our total debt, including capital leases, was $97.0 million, a decrease of $40.0 million from December 31, 2008. At December 31, 2009, we had $1.9 million in cash and $13.5 million in available lines of credit. The decrease in outstanding borrowings in 2009 was due to proceeds of $45 million from the March 2009 sale of the PGC being applied to partially repay our revolving line of credit with Wells Fargo and certain other lenders (Note 8 to consolidated financial statements).

        Our cash outlook for the next twelve months and ability to continue to meet our financial covenants is highly dependent on selling certain real estate assets in a difficult market and raising new equity capital. If we are unable to meet our financial covenants resulting in the borrowings becoming immediately due, we would not have sufficient liquidity to repay such outstanding borrowings. In addition, we currently have a commitment to purchase the spa, beach club improvements and the sundry store (the "Amenities") from Bay Holdings at actual construction costs of approximately

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$35 million. We are in discussions with the other members of Bay Holdings to negotiate the terms of the purchase and sale agreement including the purchase price and payment terms, and are discussing whether we will even be required to purchase the Amenities. The other members of Bay Holdings are generally open to revisions to the purchase terms or relieving us from our commitment to purchase the Amenities in return for our best efforts to continue to operate the Amenities; however, final terms of the purchase of the Amenities remain to be resolved with the other members and lenders of Bay Holdings. In June 2009, we announced that due to a lack of a title sponsor, we were unable to hold the 2009 Ladies Professional Golf Association (LPGA) event that was scheduled for October. This has resulted in a dispute with the LPGA, which can be resolved by mediation and if necessary by binding arbitration. By agreement between the parties, mediation has been suspended through October 2010 and we expect to pay $700,000 of which 50% will be applied towards sponsorship of an event if the parties are able to structure a future event. In addition, in September 2009, M. Yamamura and Sons, Inc. ("Yamamura") filed a lawsuit against us alleging that we materially breached the Maui Gold Pineapple Planting and Fruit Purchase Agreement by not providing a planting schedule for 2009 and by asking Yamamura to cease planting pineapple for us, and that we unilaterally restricted and impaired the value of Yamamura's benefits under the agreement. We are also subject to other commitments and contingencies that could negatively impact our future cash flows, as described in Note 16 to our consolidated financial statements. These circumstances raise substantial doubt about our ability to continue as a going concern. There can be no assurance that we will be able to successfully achieve our initiatives discussed below in order to continue as a going concern. Our consolidated financial statements do not include any adjustments that might result should we be unable to continue as a going concern.

        In response to these circumstances, we are undertaking several financial and strategic initiatives to reduce cash commitments and generate cash flow from a variety of sources, including the sale of several real estate assets. In December 2009, we entered into agreements with third parties to assume the operation and management of The Kapalua Villas, the Kapalua Adventures activities and the security and shuttle operations for the Kapalua Resort. We also discontinued operations of our Agriculture segment as of December 31, 2009 and consummated agreements with an unrelated closely held company to continue growing and marketing our Maui Gold® pineapple. Further, we have renegotiated real estate purchase and other agreements to eliminate approximately $6 million of 2009 cash commitments (net of cancellation fees) into 2010 and later. We have taken several other actions to reduce cash outflows including reducing our total number of employees from approximately 800 at December 31, 2008 to 260 at the end of 2009, as well as other measures to reduce operating expenses. We are also actively in the process of attempting to sell several selected real estate assets to provide additional liquidity and to further reduce debt. In December 2009, we filed a registration statement to initiate an equity financing transaction.

Revolving Line of Credit with American AgCredit, FLCA

        We have a $25 million revolving loan that is secured by certain parcels of our real property on Maui that matures in March 2011 (as amended). Commitment fees of 0.40% are payable on the unused portion of the revolving facility. The financial covenants include a minimum liquidity (as defined in the agreement) of $8 million, maximum total liabilities of $240 million, and limitations on capital expenditures. As amended, the agreement provides that interest on loan draws accrue interest based on the LIBOR market index or applicable LIBOR rate, plus 4.25%, subject to a minimum interest rate of 5.5%. At December 31, 2009, $25 million was outstanding under our revolving loan agreement with AgCredit.

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Revolving Line of Credit with Wells Fargo and Certain Other Lenders

        In November 2007, we entered into a $90 million revolving line of credit secured by approximately 1,437 acres of our West Maui land. All outstanding principal and accrued interest was scheduled to be due on November 13, 2009. In March 2009, we sold the PGC for $50 million (Note 8 to consolidated financial statements), which was included in the collateral securing the line of credit agreement. In consideration for release of the PGC from the collateral, $45 million of the sales proceeds were applied to partially repay outstanding borrowings and the credit limit under this facility was reduced to $45 million. In conjunction with the PGC sale, we amended the line of credit agreement to extend the maturity date to March 13, 2010 and, accordingly, classified the remaining outstanding principal of $32.8 million as a noncurrent liability at December 31, 2008 in the consolidated balance sheet.

        In October 2009, the line of credit agreement was amended and restated. The agreement principally increases the secured revolving line of credit from $45 million to $50 million, extends the maturity date of the credit agreement from March 2010 to March 2011, and re-sets financial covenants. As amended, the agreement provides that interest on loan draws accrue interest based on the LIBOR market index or applicable LIBOR rate, plus 4.25%, subject to a minimum interest rate of 5.5%. The financial covenants include a minimum liquidity (as defined in the agreement) of $8 million and maximum total liabilities of $240 million. There are no commitment fees on the unused portion of the revolving facility and interest is due monthly. The line of credit agreement contains various representations, warranties, affirmative, negative and financial covenants and events of default. At December 31, 2009, we had irrevocable letters of credit totaling $1.6 million that were secured by this loan facility, $34.9 million outstanding and $13.5 million available for borrowing.

Fixed Rate Swap Agreement

        In January 2008, we entered into a fixed interest rate swap agreement with Wells Fargo Bank, the effect of which was to convert variable-rate interest expense, which was previously tied to 1-, 2-, 3- and 6-month LIBOR terms, to fixed-rate interest expense based on a 2-year fixed LIBOR rate. The interest rate swap enabled us to lock-in an average interest rate of 2.9% before applicable spreads for approximately two years on $55.0 million of outstanding variable rate revolving balances (Note 6 to consolidated financial statements). Our fixed rate swap agreement terminated in January 2010.

Private Placement of Convertible Notes

        On July 28, 2008, we issued $40 million in aggregate principal amount of convertible notes, bearing 5.875% interest per annum payable quarterly in cash in arrears beginning October 15, 2008. The financing resulted in net proceeds to us of approximately $38.4 million, after deducting the placement agent fee and approximately $300,000 in legal and accounting expenses relating to the financing. The net proceeds from this financing were used to re-pay $28.0 million of debt under our revolving lines of credit with interest rates that floated with the prime rate and a $9.7 million 6.93% fixed rate term loan that matures in 2026 (see Note 5 to our consolidated financial statements). The remaining net proceeds of approximately $800,000 were used to fund our working capital.

        The convertible notes are convertible, at any time following their issuance, into shares of our common stock at an initial conversion price of $33.50 per share, which is equal to an initial conversion rate of 29.8507 shares per $1,000 principal amount of the convertible notes. On July 28, 2008, the date the financing closed, the closing sales price for a share of our common stock was $28.62. The conversion price is subject to (i) standard weighted-average anti-dilution protection, and (ii) to an automatic reset 18 months following the closing of the financing at the lower of the then current conversion price and 115% of the closing bid price of our common stock as reported on the NYSE on the adjustment date, provided, that, with respect to the reset adjustment, in no event shall the conversion price be reset below $30.00 per share. The convertible notes are not convertible to the

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extent that their conversion would cause the holder to be the beneficial owner of more than 4.99% of our common stock immediately after giving effect to such conversion.

        Further, if an adjustment to the conversion price would result in any investor owning in excess of (i) such investor's FIRPTA Cap (as defined in the convertible notes) on an as converted basis (without regard for any limitations of conversion set forth in the convertible notes) or (ii) the Exchange Cap Allocation (as defined in the convertible notes), then in lieu of the full anti-dilution adjustment, the conversion price will be reduced to the conversion price that would result in such note being convertible into such number of shares of common stock equal to the lower of the investor's FIRPTA Cap or Exchange Cap Allocation, as applicable (without regard to any limitations on conversion set forth in the convertible note), and, in addition, no later than five business days following the date of conversion of the convertible note, such investor shall receive a cash payment from us equal to the product of (x) the closing bid price of our common stock on such conversion date and (y) the number of shares of common stock in excess of such FIRPTA Cap or Exchange Cap Allocation, as applicable, that would have otherwise been issuable without regard to such limitation and any other limitations on conversion set forth in the convertible note.

        The convertible notes mature on July 15, 2013. However, at any time after the second anniversary of the closing, we have the right, but not the obligation, to require the investors to convert their convertible notes into shares of our common stock at the then applicable conversion price if the average of the daily volume weighted average price of our common stock is 175% of the conversion price then in effect for 20 out of 30 consecutive trading days.

        On the third anniversary of the closing, each investor has the right to require us to redeem all or any portion of such investor's convertible note at a redemption price equal to 100% of the principal amount of the convertible note being redeemed, plus accrued and unpaid interest thereon. Upon the occurrence of a change of control of the Company, each investor will have the right to require us to repurchase all or any portion of such investor's convertible note at a repurchase price equal to 100% of the principal amount of the convertible note being redeemed, plus accrued and unpaid interest thereon. If an investor elects to convert its convertible note in connection with a change of control, we will pay a make-whole premium to such investor, unless (i) at least 90% of the consideration, excluding cash payments for fractional shares, in such change of control consists of shares of capital stock of the surviving or resulting entity that are listed on, or immediately after the transaction or event will be listed on, a national securities exchange and as a result of such transaction or transactions the convertible notes become convertible into or exchangeable or exercisable for such capital stock of the surviving or resulting entity and such entity has assumed the obligations under this convertible note or (ii) we continue to be the successor entity and our common stock continues to be listed on a national securities exchange. The make-whole premium table included in the convertible notes sets forth the number of additional shares to be paid depending upon the effective date of the change of control triggering the make-whole premium payment and the price paid per share of common stock in the change of control.

        Additionally, the convertible notes may become immediately due and payable upon an "event of default," as defined in the convertible notes.

        If a convertible note is redeemed in connection with an event of default, we may be required to pay a redemption premium, in which case the redemption amount would equal 115% multiplied by (i) the principal and accrued and unpaid interest under the convertible note, or (ii) the highest closing sale price of our common stock during the period between the event of default and delivery of redemption notice multiplied by the number of shares of our common stock into which a convertible note is then convertible.

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        The convertible notes are secured by a security interest in the form of and with respect to the following property, referred to as the "Real Property Collateral":

•

a first priority lien on our Kahului property, with up to 30% of all proceeds realized from any sale of the headquarters being placed in a collateral account for the repayment of the convertible notes;



•

a first priority lien on what is known as the "Central Resort" property, provided that the security interest granted in the Central Resort will be subordinated to any future construction or other project financing;



•

a first priority lien on all or a portion of what is known as the "Upcountry Hali'imaile" property, with up to 35% of all proceeds realized from any sale of such property being placed in the collateral account; and



•

a first priority lien on all or a portion of what is known as the "Merriman's" property, with up to 35% of all proceeds realized from any sale of such property being placed in the collateral account.

        We have also agreed to deposit into the collateral account up to 10% of any proceeds or distributions realized from our equity interest in Bay Holdings, and up to 50% of any proceeds or distributions realized from our equity interest in W2005 Kapalua/Gengate Hotel Holdings L.L.C. All liens placed on the Real Property Collateral will be released by the investors at such time as at least 80% of the outstanding principal and accrued interest owing under the convertible notes has been deposited into the collateral account. In addition, all cash deposited into the collateral account shall be released back to us if and when the convertible notes are converted into shares of our common stock.

        Our ability to continue to meet our financial covenants through 2010 as required by the debt agreements discussed above is highly dependent on selling certain real estate assets in a difficult market and raising new equity capital.

Amended Construction Loan Agreement Following Lehman Bankruptcy

        In July 2006, Kapalua Bay entered into a construction loan agreement with Lehman Brothers Holdings Inc. in connection with constructing the Residences at Kapalua Bay project. Bay Holdings, in which we own a 51% equity interest, is the sole member of Kapalua Bay. Pursuant to the terms of the construction loan agreement, Lehman initially agreed to loan to Kapalua Bay the lesser of $370 million or 61.6% of the total projected cost of the project.

        On October 3, 2008, we disclosed that Lehman ceased funding under the construction loan agreement following Lehman's bankruptcy filing on September 15, 2008. As a result of Lehman's failure to provide continued construction financing as required under the construction loan agreement, we and other members of Bay Holdings agreed to advance funds to Kapalua Bay in order to continue construction of the project. Since Lehman's bankruptcy, the Syndicate Lenders and Swedbank continued to provide funding.

        On February 11, 2009, Kapalua Bay, Lehman, other lenders under the loan agreement, Swedbank and MH Kapalua Venture, LLC, an affiliate of Marriott, entered into an Amended and Restated Construction Loan Agreement (the "Amended Loan Agreement"). Pursuant to the Amended Loan Agreement, the aggregate amount that Kapalua Bay may borrow, including amounts previously funded under the loan agreement is approximately $354.5 million. In December 2009, Bay Holdings amended the Amended Loan Agreement to extend the maturity date of the principal payment of $45.7 million that was previously due in February 2010 to December 2010. Bay Holdings is currently in negotiations with the lenders to restructure the terms of the Amended Loan Agreement to provide available funding until the Project is completely sold out. (Note 4 to consolidated financial statements).

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        The full amount advanced under the Amended Loan Agreement will continue to be secured by a mortgage on the project assets, including the land owned by Kapalua Bay upon which the project is being constructed. The amounts which may be borrowed under the Amended Loan Agreement are not revolving in nature and amounts repaid may not be subsequently advanced.

        We and the other members of the joint venture continue to guarantee to the lenders completion of the project and each member's pro rata share of costs and losses incurred by the lender as a result of the occurrence of specified triggering events during the term of the Amended Loan Agreement. The members' guarantee to the lender does not include payment in full of the loan. We have recognized a liability representing the estimated fair value of our obligation under these provisions.

Operating Cash Flows

        Net cash used in operating activities for 2009 and 2008 was $15.9 million and $45.1 million, respectively. Net cash used in operating activities for 2009 was principally due to operating cash used by our Agriculture (discontinued in 2009) and Resort segments offset by cash provided by real estate inventory sales in our Community Development segment. The decrease in net cash used in operating activities is primarily due to staff reductions and other cost-cutting measures implemented in 2009, and cash from sales of real estate inventories which was approximately $11.8 million in 2009 compared with $7 million in 2008.

        Taxes and interest paid in 2009 and 2008 was $3.2 million and $0.2 million, respectively. These amounts are net of tax refunds received in 2009 and 2008 of $5.2 million and $4.2 million, respectively.

Investing and Financing Cash Flows

        Cash provided by investing and financing activities in 2009 included the following significant transactions:

•

Sale of the PGC produced cash proceeds of $48.1 million.



•

Sale of miscellaneous equipment that had been used in our operations produced cash of $634,000.



•

Sale of two properties that were used in operations produced cash proceeds of $2.8 million.

        Cash used in investing and financing activities in 2009 included the following significant transactions:

•

Net payments of long-term debt were $42.9 million as $45 million of proceeds from sale of the PGC were applied to pay down outstanding borrowings.



•

Cash outflow, primarily for replacement of equipment and facilities in our Resort and Community Development segments totaled $1.2 million.

        Cash provided by investing and financing activities in 2008 included the following significant transactions:

•

Issuance of senior secured convertible notes provided net cash proceeds of $38.4 million.



•

Sale leaseback transactions of some of our autos, trucks and golf equipment provided cash proceeds of approximately $2 million.

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        Cash used in investing and financing activities in 2008 included the following significant transactions:

•

Cash contributions of $7.8 million were made to Bay Holdings pursuant to cash calls; and a member loan of $3.6 million was made to supplement other funds to continue construction in October 2008 after the default by the primary lender on the project.



•

Cash outflow for the completion of major capital projects included in fixed assets was $13.9 million.



•

We repaid a $9.7 million term loan that was due through 2026 with proceeds from the senior secured convertible notes issued in July 2008; and we repaid $6.5 million of equipment loans due through 2013 with proceeds from our revolving credit facilities.

Future Cash Inflows and Outflows

        Our plans for 2010 include the possible sale of certain operating and non-operating real estate assets that could result in net cash proceeds of approximately $38 million, which may be used to repay outstanding indebtedness and for general working capital. In addition, we may seek to raise capital by conducting an equity financing, which may be used to repay outstanding indebtedness and to provide general working capital. There can be no assurance that we will be able to sell any of our real estate assets or consummate an equity financing on acceptable terms, or at all.

        Contributions to our defined benefit pension plans are expected to be approximately $2.4 million in 2010.

        In 2010, we expect to incur about $4.2 million for completion of the PGC irrigation system as per our agreement with the owner of the golf course (Note 8 to consolidated financial statements). Other capital expenditures are expected to be incurred only as critically necessary.

Contractual Obligations

        The following summarizes our contractual obligations as of December 31, 2009 (in thousands):

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CRITICAL ACCOUNTING POLICIES

        Our accounting policies are described in Summary of Significant Accounting Policies, Note 1 to our consolidated financial statements (included in Item 8). The preparation of financial statements in conformity with generally accepted accounting principles requires the use of accounting estimates. Some of these estimates and assumptions involve a high level of subjectivity and judgment and therefore the impact of a change in these estimates and assumptions could materially affect the amounts reported in our financial statements. The accounting policies and estimates that we have identified as critical to the consolidated financial statements are as follows:

•

Our investment in Bay Holdings was written down to zero at December 31, 2009 to recognize an other-than-temporary impairment and to record losses incurred by Bay Holdings in the third quarter of 2009. In 2008 and 2009, we recorded impairment charges totaling $59.1 million, and in 2009 we recorded equity in losses of Bay Holdings of $25.9 million. The equity in losses that we recorded was limited to the remaining carrying value of the investment on our consolidated balance sheet and our estimated share of completion and recourse guarantees. Bay Holdings recorded losses of $246 million in 2009 which included a $208.8 million charge to reflect an impairment of the carrying value of its real estate inventories (whole and fractional condominium units) held for sale. The impairment loss reflects higher estimated default rates on actual whole and fractional unit closings than was previously anticipated, and also reflects a change in forecasted sales revenue on the unsold whole and fractional units that substantially reduced the expected margins on the unsold units. In determining the fair value of this investment and assessing whether any identified impairment was other-than-temporary, significant estimates and considerable judgment were involved. These estimates and judgments

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were based, in part, on our current and future evaluation of economic conditions in general, as well as Bay Holdings' current and future plans. These impairment calculations contain additional uncertainties because they also require management to make assumptions and apply judgments to, among others, estimates of future cash flows, probabilities related to various cash flow scenarios, and appropriate discount rates. The impairment losses recorded by Bay Holdings required Bay Holdings' management to estimate total sales revenues that will be received by the project, as well as estimating the number of buyers of units from which nonrefundable deposits have been received that will not close on the purchase of their units. Changes in these and other assumptions could affect the projected operational results of Bay Holdings and, accordingly, may require valuation adjustments to our investment in Bay Holdings that could materially impact our financial condition or our future operating results.

•

Our long-lived assets are reviewed for impairment if events or circumstances indicate that the carrying amount of the long-lived asset may not be recoverable. Management has evaluated certain long-lived assets for impairment, and has recognized impairment charges related to deferred development costs of $14.2 in 2009 and $10.6 million in 2008 for costs that are not expected to be recovered due to the delay of the start of construction of new development projects and by the decision to not proceed with certain projects in 2009 and 2008 caused by, among other things, the economic recession, a worsening credit market, reduced demand for real estate, and declining consumer confidence. These asset impairment loss analyses contain uncertainties because they require management to make assumptions and apply considerable judgments to, among others, estimates of the timing and amount of future cash flows, expected useful lives of the assets, uncertainty about future events, including changes in economic conditions, changes in operating performance, changes in the use of the assets, and ongoing costs of maintenance and improvements of the assets, and thus, the accounting estimates may change from period to period. If management uses different assumptions or if different conditions occur in future periods, our financial condition or future operating results could be materially impacted.



•

We have a derivative liability related to $40 million of senior secured notes that are convertible into shares of our common stock that is recorded at fair value and interest rate swap agreements that were designed to reduce future cash flow variability that is also recorded at fair value. The fair values are calculated using "level 2" inputs as defined in ASC Topic 820. While management believes that the inputs are reasonable and consistent, the fair values recorded can vary significantly depending on the assumptions made.



•

Deferred development costs, principally predevelopment costs and offsite development costs related to various projects in the planning stages by our Community Development segment, totaled $7.6 million at year-end 2009. Based on our future development plans for the Kapalua Resort and other properties such as Kapalua Mauka, The Village at Kapalua, Pulelehua, and Hali`imaile Town, and the estimated value of these future projects, management has concluded that these deferred costs will be recoverable from future development projects. The volatility of this assumption arises because of the long-term nature of our development plans and the uncertainty of when or if certain parcels will be developed.



•

Pension expense for our two defined benefit pension plans utilize actuarial estimates of employees' expected service period, age at retirement, and compensation levels, as well as estimates as to employee turnover, the long term rate of return on investments and other factors. Other post retirement benefits for life insurance and health care utilize actuarial estimates as to the retirees' life span, the cost of future health insurance premiums and utilization of health benefits by the employees. In addition, both pension and other post retirement expenses are sensitive to the discount rate utilized. This rate should be commensurate to the interest rate yield of a high quality corporate fixed income investment portfolio. These

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assumptions are subject to the risk of change as they require significant judgment and have inherent uncertainties that management or its consulting actuaries may not control or anticipate. As of December 31, 2009, the fair value of the assets of our defined benefit plans totaled approximately $38.6 million, compared with $31.7 million as of December 31, 2008. The recorded net pension liability was approximately $21.4 million as of December 31, 2009, compared to a net pension liability of $28.0 million as of December 31, 2008.

•

Stock-based compensation expense is calculated based on assumptions as to the expected life of the options, price volatility, risk-free interest rate and expected forfeitures. While management believes that the assumptions made are appropriate, compensation expense recorded currently and future compensation expense would vary based on the assumptions used.



•

Management calculates the income tax provision, current and deferred income taxes along with the valuation allowance based upon various complex estimates and interpretations of income tax laws and regulations. Deferred tax assets are reduced by a valuation allowance to the extent that it is more likely than not that they will not be realized. To the extent we begin to generate taxable income in future years and it is determined the valuation allowance is no longer required, the tax benefit for the remaining deferred tax assets will be recognized at such time. As of December 31, 2009, valuation allowances of $71 million have been established primarily for tax credits, net operating loss carryforwards, and accrued retirement benefits to reduce future tax benefits expected to be realized.



•

Our results of operations could be affected by significant litigation or contingencies adverse to the Company, including, but not limited to, liability claims, environmental matters, and contract terminations. We record accruals for legal matters when the information available indicates that it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. We make adjustments to these accruals to reflect the impact and status of negotiations, settlements, rulings, advice of counsel and other information and events that may pertain to a particular matter. Predicting the outcome of claims and lawsuits and estimating related costs and exposure involves substantial uncertainties that could cause actual costs to vary materially from those estimates. In making determinations of likely outcomes of litigation matters, we consider many factors. These factors include, but are not limited to, the nature of specific claims including unasserted claims, our experience with similar types of claims, the jurisdiction in which the matter is filed, input from outside legal counsel, the likelihood of resolving the matter through alternative dispute resolution mechanisms and the matter's current status. A detailed discussion of significant litigation matters and contingencies is contained in Note 16 to our consolidated financial statements.



•

See Note 1 to consolidated financial statements for a full description of the impact of recently issued accounting standards including the expected dates of adoption and estimated effects on our results of operations and financial condition.

IMPACT OF INFLATION AND CHANGING PRICES

        Most of the land owned by us was acquired from 1911 to 1932 and is carried at cost. A small portion of "Real Estate" represents land cost. At Kapalua, some of the fixed assets were constructed and placed in service in the mid-to-late 1970s. Depreciation expense would be considerably higher if fixed assets were stated at current cost.

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Item 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Maui Land & Pineapple Company, Inc.
Kahului, Hawaii

        We have audited the accompanying consolidated balance sheets of Maui Land & Pineapple Company, Inc. and subsidiaries (the "Company") as of December 31, 2009 and 2008, and the related consolidated statements of operations and comprehensive loss, stockholders' equity (deficiency), and cash flows for the years then ended. Our audits also included the financial statement schedule listed in the Index at Item 15. We also have audited the Company's internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these financial statements and financial statement schedule and an opinion on the Company's internal control over financial reporting based on our audits.

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

        A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

        Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the

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risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

        In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Maui Land & Pineapple Company, Inc. and subsidiaries as of December 31, 2009 and 2008, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

        As discussed in Note 4 to the consolidated financial statements, the Company adopted new accounting guidance impacting its revenue recognition on sales of condominiums effective on January 1, 2008.

        The accompanying consolidated financial statements for the year ended December 31, 2009 have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company's recurring losses and negative cash flows from operations and deficiency in stockholders' equity at December 31, 2009 raise substantial doubt about the Company's ability to continue as a going concern. Management's plans with regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ DELOITTE & TOUCHE LLP

Honolulu, Hawaii
March 26, 2010

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MAUI LAND & PINEAPPLE COMPANY, INC. & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS

See Notes to Consolidated Financial Statements

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MAUI LAND & PINEAPPLE COMPANY, INC. & SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

See Notes to Consolidated Financial Statements

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MAUI LAND & PINEAPPLE COMPANY, INC. & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)

For the Two Years Ended December 31, 2009

(in thousands)

See Notes to Consolidated Financial Statements

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MAUI LAND & PINEAPPLE COMPANY, INC. & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:

•

Property acquired under capital leases was $698,000 and $1,532,000 in 2009 and 2008, respectively.



•

Amounts included in trade accounts payable for additions to property and other investments totaled $1,331,000 and $1,209,000, at December 31, 2009 and 2008, respectively.

See Notes to Consolidated Financial Statements

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MAUI LAND & PINEAPPLE COMPANY, INC. & SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CONSOLIDATION

        The consolidated financial statements include the accounts of Maui Land & Pineapple Company, Inc. and its subsidiaries, primarily Maui Pineapple Company, Ltd. (MPC) and Kapalua Land Company, Ltd. The Company's principal operations include resort operations and real estate development and sales. Significant intercompany balances and transactions have been eliminated. The production and sale of pineapple products was terminated at December 31, 2009 and is reported as discontinued operations in 2009 (see Note 7).

LIQUIDITY

        The Company incurred a loss from continuing operations of $88.4 million and negative cash flow from operations of $15.9 million for the year ended December 31, 2009. Loss from continuing operations included impairment charges totaling $39.2 million related to investment in affiliates, deferred development, and real estate inventories. At December 31, 2009, the Company had borrowings of $96.6 million outstanding; and approximately $13.5 million available under existing lines of credit, $1.9 million in cash and cash equivalents; and a deficiency in stockholders' equity (total liabilities exceeded total assets) of $76.9 million.

        In March 2011, $75 million of the Company's available credit matures, of which $59.9 million was outstanding at December 31, 2009. This credit is comprised of two revolving credit facilities, both of which have financial covenants requiring a minimum of $8 million in liquidity and limitations on new indebtedness. Failure to satisfy any of the covenants or to otherwise default under either of the credit agreements would result in the outstanding borrowings becoming immediately due and would also cause a default under the other credit agreement and the $40 million senior secured convertible notes issued in July 2008. If the Company defaults under the senior secured convertible notes, the holders of such notes may require the Company to redeem the notes, in which case the Company would also be required to pay a redemption premium equal to 115% multiplied by (i) the principal and accrued and unpaid interest under the note, or (ii) the highest closing sale price of the Company's common stock during the period between the event of default and delivery of redemption notice multiplied by the number of shares of the Company's common stock into which a note is then convertible.

        The Company's cash outlook for the next twelve months and ability to continue to meet its financial covenants is highly dependent on selling certain real estate assets in a difficult market and raising new equity capital. If the Company is unable to meet its financial covenants resulting in the borrowings becoming immediately due, the Company would not have sufficient liquidity to repay such outstanding borrowings. In addition, the Company currently has a commitment to purchase the spa, beach club improvements and the sundry store (the "Amenities") from Kapalua Bay Holdings, LLC ("Bay Holdings") at actual construction costs of approximately $35 million. The Company is in discussions with the other members of Bay Holdings to negotiate the terms of the purchase and sale agreement including the purchase price and payment terms, and are discussing whether the Company will even be required to purchase the Amenities. The other members of Bay Holdings are generally open to revisions to the purchase terms or relieving the Company from its commitment to purchase the Amenities in return for the Company's best efforts to continue to operate the Amenities; however, final terms of the purchase of the Amenities remain to be resolved with the other members and lenders of Bay Holdings. In June 2009, we announced that due to a lack of a title sponsor, we were unable to hold the 2009 Ladies Professional Golf Association (LPGA) event that was scheduled for October. This

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has resulted in a dispute with the LPGA, which can be resolved by mediation and if necessary by binding arbitration. By agreement between the parties, mediation has been suspended through October 2010 and we expect to pay $700,000 of which 50% will be applied towards sponsorship of an event if the parties are able to structure a future event. In addition, in September 2009, M. Yamamura and Sons, Inc. ("Yamamura") filed a lawsuit against the Company which alleges that the Company materially breached the Maui Gold Pineapple Planting and Fruit Purchase Agreement (the "Planting Agreement") by not providing a planting schedule for 2009 and by asking Yamamura to cease planting pineapple for the Company, and that the Company unilaterally restricted and impaired the value of Yamamura's benefits under the Planting Agreement (see Note 16). The Company is also subject to other commitments and contingencies that could negatively impact its future cash flows as described in Note 16. These circumstances raise substantial doubt about the Company's ability to continue as a going concern. There can be no assurance that the Company will be able to successfully achieve its initiatives discussed below in order to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might result should the Company be unable to continue as a going concern.

        In response to these circumstances, the Company is undertaking several financial and strategic initiatives to reduce cash commitments and generate cash flow from a variety of sources, including the sale of several real estate assets. In March 2009, the Company sold the Plantation Golf Course (PGC) for $50 million in cash and repaid $45 million of debt. In 2009, the Company concluded the sale of five other real properties that resulted in total cash proceeds (net of selling costs) of $14.5 million, and in October 2009, the Company entered into revised revolving credit agreements. The Company's $45 million line of credit was increased to $50 million, the maturity extended from March 2010 to March 2011, and the minimum liquidity requirement was reduced from $10 million to $8 million. The maturity and liquidity covenant of the Company's $25 million line of credit was similarly amended. In December 2009, the Company entered into agreements with third parties to assume the operation and management of The Kapalua Villas, the Kapalua Adventures activities and the security and shuttle operations for the Kapalua Resort. The Company's Agriculture segment operations were discontinued as of December 31, 2009 and agreements were consummated with an unrelated closely held company to continue growing and marketing the Company's Maui Gold® pineapple (Note 7). The Company has renegotiated agreements to eliminate approximately $6 million of 2009 cash commitments (net of cancellation fees) into 2010 and later. In addition, the Company has taken several other actions to reduce cash outflows including reducing its total number of employees from approximately 800 at December 31, 2008 to 260 at the end of 2009, as well as other measures to reduce operating expenses. The Company is actively in the process of attempting to sell several selected real estate assets to provide additional liquidity and to further reduce debt. In December 2009, the Company filed a registration statement to initiate an equity financing transaction.

COMPREHENSIVE INCOME

        Comprehensive income includes all changes in Stockholders' Equity (Deficiency), except those resulting from capital stock transactions. Comprehensive income includes the pension benefit adjustment (see Note 10).

CASH AND CASH EQUIVALENTS

        Cash and cash equivalents include cash on hand, deposits in banks and commercial paper with original maturities of three months or less at the time of purchase.

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ALLOWANCE FOR DOUBTFUL ACCOUNTS

        Receivables are recorded net of an allowance for doubtful accounts. The Company estimates future write-offs based on delinquencies, credit ratings, aging trends, and historical experience. The Company believes the allowance for doubtful accounts is adequate to cover anticipated losses; however, significant deterioration in any of the aforementioned factors or in general economic conditions could change these expectations, and accordingly, the Company's financial condition and/or its future operating results could be materially impacted. Credit is extended after evaluating creditworthiness and no collateral generally is required from customers, except for notes receivable taken on real estate sales.

INVENTORIES

        Real estate inventories are stated at the lower of cost or fair value less cost to sell. Real estate inventories include properties developed specifically for sale as well as undeveloped land parcels that the Company has determined will not be developed or used in operations. Merchandise, materials and supplies are stated at cost, not in excess of fair value, using an average cost method. Merchandise inventories are retail inventories held for sale at the Kapalua Resort. Materials and supply inventories include amounts for the Resort segment and at December 31, 2008, the Agriculture segment.

ASSETS HELD FOR SALE

        Assets are reported as held for sale when the assets are being actively marketed and available for immediate sale in their present condition, and the sale is probable and the transfer of the asset is expected to qualify for recognition as a completed sale within one year. Assets held for sale are stated at the lower of net book value or estimated fair value less cost to sell.

INVESTMENT IN AFFILIATES

        Investments in affiliates, partnerships, and limited liability companies, over which the Company exercises significant influence, but not control, are accounted for using the equity method.

        Investments in unconsolidated affiliates are reviewed for impairment whenever there is evidence of a loss in value below the carrying amount. An investment is written down to fair value if the impairment is considered to be other-than-temporary. In evaluating the fair value of an investment, the Company reviews the discounted projected cash flows associated with the investment and other relevant information. In evaluating whether an impairment is other-than-temporary, the Company considers all available information, including the length of time and extent of the impairment, the financial condition and near-term prospects of the affiliate, the Company's ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery in fair value, and projected industry and economic trends, among others. In 2009 and 2008, the Company evaluated its investment in Bay Holdings for impairment. As a result of this process, the Company recorded other-than-temporary impairment losses of $21.3 million and $37.8 million, in 2009 and 2008, respectively. In determining the fair value of an investment and assessing whether any identified impairment is other-than-temporary, significant estimates and considerable judgments are involved. These estimates and judgments are based, in part, on the Company's current and future evaluation of economic conditions in general, as well as Bay Holdings' current and future plans.

OTHER ASSETS

        Deferred costs are primarily real estate development costs related to various projects at the Kapalua Resort that will be allocated to future development projects.

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PROPERTY AND DEPRECIATION

        Property is stated at cost. Major replacements, renewals and betterments are capitalized while maintenance and repairs that do not improve or extend the life of an asset are charged to expense as incurred. When property is retired or otherwise disposed of, the cost of the property and the related accumulated depreciation are written off and the resulting gains or losses are included in income. Depreciation is provided over the estimated useful lives of the respective assets using the straight-line method generally over three to 25 years. Depreciation expense was $23,494,000 for 2009 and $12,762,000 for 2008.

LONG-LIVED ASSETS

        Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When such events or changes occur, an estimate of the future cash flows expected to result from the use of the assets and their eventual disposition is made. If the sum of such expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss is recognized in an amount by which the assets' net book values exceed their fair value. The Company has evaluated certain long-lived assets for impairment; however, no impairment charges were recorded as a result of this process, other than impairment charges recorded for deferred development costs (see Note 3). These asset impairment loss analyses require management to make assumptions and apply considerable judgments to, among others, estimates of the timing and amount of future cash flows, expected useful lives of the assets, uncertainty about future events, including changes in economic conditions, changes in operating performance, changes in the use of the assets, and ongoing cost of maintenance and improvements of the assets, and thus, the accounting estimates may change from period to period. If management uses different assumptions or if different conditions occur in future periods, the Company's financial condition or its future operating results could be materially impacted.

DERIVATIVE FINANCIAL INSTRUMENTS

        The Company accounts for all derivative financial instruments, such as interest rate swap agreements and the derivative liability related to its convertible debt, by recognizing the derivative on the balance sheet at fair value, regardless of the purpose or intent of holding them. Changes in the fair value are recognized in interest expense.

EMPLOYEE BENEFIT PLANS

        The Company's policy is to fund pension cost at a level at least equal to the minimum amount required under federal law, but not more than the maximum amount deductible for federal income tax purposes.

        The over-funded or under-funded status of the Company's defined benefit postretirement plans are recorded as an asset or liability in its balance sheet and changes in the funded status of the plans are recorded in the year in which the changes occur though comprehensive income. The pension asset or liability is the difference between the plan assets at fair value and the projected benefit obligation as of year end.

        Deferred compensation plans for certain management employees provide for specified payments after retirement. The present value of estimated payments to be made is accrued over the period of active employment. In 1998, future benefits under these plans were terminated (see Note 10).

        The estimated cost of providing postretirement health care and life insurance benefits is accrued over the period employees render the necessary services.

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REVENUE RECOGNITION

        Product revenues primarily include the sales of retail merchandise at the Kapalua Resort and sales of real estate inventories. Service revenues primarily include revenues from golf course operations, revenues from the Kapalua Villas rental program, lease revenues and real estate commission income.

        Sales of real estate are recognized as revenues in the period in which sufficient cash has been received, collection of the balance is reasonably assured and risks of ownership have passed to the buyer. The Company uses the percentage-of-completion method to recognize revenues and profits from the sale of residential land parcels where the Company is obligated to construct improvements (roads, sidewalks, drainage, and utilities) after the closing of the sale. Under this method, revenues are recognized over the construction improvement period on the basis of costs incurred as a percentage of expected total costs to be incurred. Bay Holdings also used the percentage-of-completion method for its sales of condominiums (see Note 4), until construction was substantially completed in June 2009.

        Rental income is recognized on a straight-line basis over the terms of the leases. Also included in rental income are certain percentage rents determined in accordance with the terms of the leases. Rental income arising from tenant rents that are contingent upon the sales of the tenant exceeding a defined threshold are recognized only after the contingency has been resolved (e.g., sales thresholds have been achieved).

        Revenues from other activities are recognized when delivery has occurred or services have been rendered, the sales price is fixed or determinable, and collectibility is reasonably assured.

INTEREST CAPITALIZATION

        Interest costs are capitalized during the construction period of major capital projects. Interest costs incurred in 2009 and 2008 were $10,470,000 and $2,779,000, respectively, of which $18,000 and $343,000, respectively, were capitalized.

ADVERTISING

        The costs of advertising activities are expensed as incurred. Advertising costs are included in shipping and marketing costs in the consolidated statements of operations. Advertising expense totaled $1,443,000 in 2009 and $3,765,000 in 2008.

LEASES

        Leases that transfer substantially all of the benefits and risks of ownership of the property are accounted for as capital leases. Amortization of property under capital leases is included in depreciation expense. Other leases are accounted for as operating leases. Rentals under operating leases are recognized on a straight-line basis over the life of the lease.

INCOME TAXES

        The Company accounts for uncertain tax positions in accordance with the provisions of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 740 (formerly FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes). This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return (see Note 13).

        The Company's provision for income taxes is calculated using the liability method. Deferred income taxes are provided for all temporary differences between the financial statement and income tax bases of assets and liabilities using tax rates enacted by law or regulation. A valuation allowance is

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established for deferred income tax assets if management believes that it is more likely than not that some portion or all of the asset will not be realized through future taxable income.

SHARE-BASED COMPENSATION PLANS

        The Company accounts for share-based compensation, including grants of employee stock options, as compensation expense over the service period (generally the vesting period) in the consolidated financial statements based on their fair values. The impact of forfeitures that may occur prior to vesting is estimated and considered in the amount recognized.

USE OF ESTIMATES

        The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Future actual amounts could differ from these estimates.

RISKS AND UNCERTAINTIES

        Factors that could adversely impact the Company's future operations or financial results include, but are not limited to, the following: continued unfavorable economic conditions in Hawaii and the mainland United States that result in a further decline in the market demand for the Company's products and services; numerous risks related to the Company's investments in real property which could be impacted by unfavorable economic conditions, interest rates, and availability of financing; untimely completion of land development projects within forecasted timing and budget; inability to obtain land use entitlements at a reasonable cost; unfavorable legislative decisions by the County of Maui; the cyclical market demand for luxury real estate on Maui; increased competition from other luxury real estate developers on Maui; the Company's limited guarantees to complete development of the Residences at Kapalua Bay project; failure of joint venture partners to perform; environmental regulations; adverse weather conditions and natural disasters; inability to find a title sponsor for the Company's LPGA or other events; availability of reliable and low-cost transportation to serve customers; being located apart from the United States mainland makes the Company more sensitive to economic factors; failure to comply with restrictive financial covenants in the Company's credit arrangements; an inability to achieve the Company's short and long-term goals and cash flow requirements; future impairment charges of long-lived assets or investments; and inadequate internal controls.

NEW ACCOUNTING PRONOUNCEMENTS

        In June 2009, the FASB issued FASB Statement No. 167, Amendments to FASB Interpretation No. 46R (not yet incorporated into the ASC). FASB Statement No. 167 amends the consolidation guidance applicable to variable interest entities and requires enhanced disclosures about an enterprise's involvement in a variable interest entity. FASB Statement No. 167 also requires ongoing assessments of whether an enterprise is the primary beneficiary of a variable interest entity. FASB Statement No. 167 is effective beginning January 1, 2010. The Company is currently reviewing the effect of FASB Statement No. 167 will have on its consolidated financial statements.

LOSS PER COMMON SHARE

        Basic loss per share is computed by dividing net income or loss by the weighted-average number of common shares outstanding. Diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares from share-based compensation arrangements had been issued.

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        Potentially dilutive shares arise from non-qualified stock options to purchase common stock, non-vested restricted stock and common stock issuable upon assumed conversion of convertible debt (see Note 5). The treasury stock method is applied to determine the number of potentially dilutive shares for nonvested restricted stock and stock options assuming that the shares of nonvested restricted stock are issued for an amount based on the grant date market price of the shares and that the outstanding stock options are exercised. Convertible debt is assumed to be converted by applying the if-converted method. These amounts were excluded because the options' effect would be anti-dilutive.

RECLASSIFICATIONS

        Deferred revenues included in the consolidated balance sheet at December 31, 2008, were reclassified to other noncurrent liabilities to conform to the presentation in the consolidated balance sheet at December 31, 2009. Stock option exercises included in the consolidated statement of cash flows for the year ended December 31, 2008, were reclassified to Debt issuance cost and other to conform to the presentation in the consolidated statement of cash flows for the year ended December 31, 2009.

2.     ASSETS HELD FOR SALE

        At December 31, 2009 and 2008, assets held for sale included the Company's property in Kahului, Maui (27 acres). These assets include the site of the current administrative offices, the former corporate office, and the former agriculture facilities. In 2009, these parcels were written down to their estimated fair value less cost to sell, resulting in impairment charges of $3.7 million (Note 6). At December 31, 2009, assets held for sale also included equipment formerly used in the Company's Agriculture operations that met the criteria of held for sale.

3.     OTHER ASSETS

        Other Assets at December 31, 2009 and 2008 consisted of the following:

        In the fourth quarter of 2008, due to uncertainty in the real estate markets and to cash flow constraints, the Company delayed the start of construction of new development projects until internal and external conditions improve. Deferred development costs and construction in progress totaling $10.6 million were written off in the fourth quarter of 2008. Costs written off consisted of development plans that were abandoned and other pre-development work that is not expected to benefit existing projects and is not recoverable. In 2009, additional deferred development costs totaling $14.2 million

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were written off as changing market conditions resulted in several development plans being considered by management as unfeasible as designed.

        In 2009, the Company's note receivable from Bay Holdings of $3.6 million was written down to zero as the Company does not expect to recover any amounts from Bay Holdings. See Note 4.

        The Company maintained a non-qualified deferred compensation plan whereby management could make pre-tax deferrals of their salary and any cash bonus. Effective December 31, 2008, the plan ceased operations and all of the funds in the plan were distributed to the participants in February 2009.

4.     INVESTMENT IN AFFILIATES

        The Company's investment in affiliates consists of the following as of December 31, 2009 and 2008:

        The Company has a 51% ownership interest in Bay Holdings, which is the sole member of Kapalua Bay LLC, ("Kapalua Bay"). The other members of Bay Holdings through wholly owned affiliates are Marriott International Inc. ("Marriott"), 34%, and Exclusive Resorts LLC (ER), 15%. A 41% shareholder and director (as of December 31, 2009) of the Company through related companies is the majority owner of ER. Bay Holdings is not a variable interest entity, as defined in GAAP. The Company accounts for its investment in Bay Holdings using the equity method of accounting because, although it has the ability to exercise significant influence over operating and financial policies, it does not control Bay Holdings through a majority voting interest or other means. Under the LLC agreement, major decisions require the approval of either 75% or 100% of the membership interests. The Company has been designated as the managing member of Bay Holdings and as such manages the day-to-day affairs of the entity. Profits and losses of Bay Holdings are allocated in proportion to the members' ownership interests, which approximate the estimated cash distributions to the members.

        Upon formation of Kapalua Bay in 2004, the Company's non-monetary contributions to Bay Holdings, including a 21-acre land parcel, were valued at $25 million by the members through arms-length negotiations. The land contribution was recorded by the Company in its investment in Bay Holdings at historical cost, which was nominal because it was acquired in the early 1900s, and Bay Holdings recorded the contribution at its fair value of $25 million. The Company recorded its non-monetary capital contributions to Bay Holdings at the carrying values (carryover historical cost basis) of the assets contributed because the contributions are not the culmination of an earnings process. Through December 31, 2009, the Company has made cash contributions to Bay Holdings of $53.2 million and an unsecured loan of $3.6 million, which incurred interest at 16%. These amounts are not expected to be recovered and have been written off (see below).

        Bay Holdings constructed a residential development on land that it owns at the site of the former Kapalua Bay Hotel, and a spa on an adjacent parcel of land that is owned by the Company and leased to Bay Holdings. The Kapalua Bay Hotel closed in April 2006 to prepare for the commencement of sales and marketing efforts for the whole and fractional condominium units that comprise the Residences at Kapalua Bay project. In 2007, Bay Holdings began to recognize profit from binding sales contracts on the whole and fractional ownership condominiums on the percentage-of-completion method and in June 2009, the six residential buildings comprised of 146 residences were substantially completed. In 2009, 20 (84 total) whole-ownership and 88 (total 744) fractional units closed escrow; and as of year-end 2009, the construction work was completed.

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        In September 2009, Bay Holdings recorded an impairment loss totaling $208.8 million to reflect an impairment of the carrying value of its real estate inventories (whole and fractional condominium units) held for sale. The impairment loss reflects higher default rates on actual whole and fractional unit closings than was anticipated once construction was completed in June 2009, and also reflects a change in forecasted sales revenue on the unsold whole and fractional units that substantially reduces expected margins for those remaining units. The Company's equity in the losses of Bay Holdings for 2009 and 2008 was $47.2 million (including an impairment charge of $21.3 million recorded by the Company in June 2009) and $18.8 million (including an impairment charge of $37.8 million recorded by the Company in December 2008), respectively. The equity in the losses of Bay Holdings recorded by the Company in 2009 was limited to the remaining investment carrying value on the Company's consolidated balance sheet including its unsecured loan to Bay Holdings of $3.6 million and the Company's estimated share of its completion and recourse guarantees which resulted in the Company recording a liability for its potential estimated liability. The construction work was complete by year-end 2009, however, the completion guaranty will remain in place until the cost for all construction work has been settled and paid. The Company has no funding commitments relating to Bay Holdings beyond this amount. As a result, the Company's carrying value of its investment in Bay Holdings and its $3.6 million loan due from Bay Holdings were written down to zero and, accordingly, the Company does not expect to recover any amounts from its investment in Bay Holdings. The Company will not recognize any additional equity in the earnings (losses) of Bay Holdings until the recognized income attributable to Bay Holdings exceeds the accumulated losses.

        As of January 1, 2008, Bay Holdings adopted ASC Topic 360-20-40-50 through 55, which changed the manner in which Bay Holdings recognized revenues from its sales of condominium units. The cumulative effect of adopting this guidance of $12.5 million was recorded as a reduction to Bay Holdings' January 1, 2008 retained earnings, and the Company recorded its proportionate share of this adjustment of $4,622,000 (net of income tax effect) to its opening retained earnings for 2008.

        In July 2006, Bay Holdings entered into a syndicated construction loan agreement with Lehman Brothers Holdings Inc. ("Lehman") for the lesser of $370 million or 61.6% of the total projected cost of the project. Lehman's commitment under the loan agreement was approximately 78% of the total. The loan was collateralized by the project assets, including the fee simple interest in the land owned by Bay Holdings, the adjacent spa parcel owned by the Company, and all of the condominium unit sales contracts.

        On September 15, 2008, Lehman filed a petition under Chapter 11 of the U.S. Bankruptcy Code with the United States Bankruptcy Court for the Southern District of New York. As a result of Lehman's failure to comply with the loan agreement, the members of Bay Holdings advanced funds to the joint venture, which, when combined with funding received from lenders other than Lehman under the loan agreement, were sufficient to pay minimum progress payments due to the general contractor.

        On February 11, 2009, Kapalua Bay, Lehman, other lenders under the loan agreement, Swedbank and MH Kapalua Venture, LLC, an affiliate of Marriott, entered into an Amended and Restated Construction Loan Agreement (the "Amended Loan Agreement"). Pursuant to the Amended Loan Agreement, the aggregate amount that Kapalua Bay may borrow, including amounts previously funded under the loan agreement is approximately $354.5 million. In December 2009, Bay Holdings amended the Amended Loan Agreement to extend the maturity date of the principal payment of $45.7 million that was previously due in February 2010 to December 2010. Bay Holdings' failure to repay amounts when due could result in all of its outstanding borrowings under the Amended Loan Agreement becoming immediately due and payable. Bay Holdings' ability to make the December 2010 debt payment as scheduled is dependent on its ability to generate sufficient cash flows from fractional and whole unit closings. Bay Holdings is currently in negotiations with the lenders to restructure the terms of the Amended Loan Agreement to provide available funding until the Project is completely sold out.

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        Summarized balance sheet and operating information for Bay Holdings as of December 31, 2009 and 2008 and for the years then ended are as follows:

 

        Due to the current economic environment, Bay Holdings significantly increased the allowance for default reserves in 2009, which more than offset revenues, resulting in negative revenues in 2009. Costs and expense include an impairment charge of $208.8 million for the year ended December 31, 2009.

5.     FINANCING ARRANGEMENTS

        During 2009 and 2008, the Company had average borrowings outstanding of $99.6 million and $111.5 million, respectively, at average interest rates of 5.4% and 5.0%, respectively. At December 31, 2009, the Company had unused long-term credit lines of $13.5 million.

        Long-term debt at December 31, 2009 and 2008 consisted of the following (interest rates represent the rates at December 31):

        In November 2007, the Company entered into a $90 million revolving line of credit secured by approximately 1,437 acres of the Company's West Maui land. All outstanding principal and accrued interest was scheduled to be due on November 13, 2009. In March 2009, the Company sold the Plantation Golf Course (PGC) for $50 million (see Note 8), which was included in the collateral securing the line of credit agreement. In consideration for release of the PGC from the collateral, $45 million of the sales proceeds were applied to partially repay outstanding borrowings and the credit limit under this facility was reduced to $45 million. In conjunction with the PGC sale, the Company

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amended the line of credit agreement to extend the maturity date to March 13, 2010 and, accordingly, classified the remaining outstanding principal of $32.8 million as a noncurrent liability at December 31, 2008 in the consolidated balance sheet.

        In October 2009, the line of credit agreement was amended and restated. The agreement principally increases the secured revolving line of credit from $45 million to $50 million, extends the maturity date of the credit agreement from March 2010 to March 2011, and re-sets financial covenants. As amended, the agreement provides that interest on loan draws accrue interest based on the LIBOR market index or applicable LIBOR rate, plus 4.25%, subject to a minimum interest rate of 5.5%. The financial covenants include a minimum liquidity (as defined in the agreement) of $8 million and maximum total liabilities of $240 million. There are no commitment fees on the unused portion of the revolving facility and interest is due monthly. The line of credit agreement contains various representations, warranties, affirmative, negative and financial covenants and events of default customary for financings of this type. At December 31, 2009, the Company had irrevocable letters of credit totaling $1.6 million that were secured by this loan facility.

        The Company has a $25 million revolving loan that is secured by certain parcels of the Company's real property on Maui that matures in March 2011 (as amended). Commitment fees of 0.40% are payable on the unused portion of the revolving facility. The financial covenants include a minimum liquidity (as defined in the agreement) of $8 million, maximum total liabilities of $240 million, and limitations on capital expenditures. As amended, the agreement provides that interest on loan draws accrue interest based on the LIBOR market index or applicable LIBOR rate, plus 4.25%, subject to a minimum interest rate of 5.5%.

        On July 28, 2008, the Company concluded a securities purchase agreement with certain institutional accredited investors and issued an aggregate of $40 million in principal amount of senior secured convertible notes (the "convertible notes"), bearing 5.875% interest per annum payable quarterly in cash in arrears beginning October 15, 2008, resulting in proceeds of $38,365,000 (net of issuance costs of $1,635,000).

        The convertible notes are convertible, at any time following their issuance, into shares of common stock of the Company at an initial conversion price of $33.50 per share, which is equal to an initial conversion rate of 29.8507 shares per $1,000 principal amount of the convertible notes. The conversion price is subject to (i) standard weighted-average anti-dilution protection, and (ii) to an automatic reset 18 months following the closing of the financing at the lower of the then current conversion price and 115% of the closing bid price of the common stock as reported on the NYSE on the adjustment date; provided, that, with respect to the reset adjustment, in no event shall the conversion price be reset below $30.00 per share. The convertible notes are not convertible to the extent that their conversion would cause the holder to be the beneficial owner of more than 4.99% of the Company's common stock immediately after giving effect to such conversion. The convertible notes are secured by specified assets of the Company.

        Further, if an adjustment to the conversion price would result in any investor owning in excess of (i) such investor's FIRPTA Cap (as defined in the convertible notes) on an as-converted basis (without regard for any limitations of conversion set forth in the convertible notes) or (ii) the Exchange Cap Allocation (as defined in the convertible notes), then in lieu of the full anti-dilution adjustment, the conversion price will be reduced to the conversion price that would result in such note being convertible into such number of shares of common stock equal to the lower of the investor's FIRPTA Cap or Exchange Cap Allocation, as applicable (without regard to any limitations on conversion set forth in the convertible note), and, in addition, no later than five business days following the date of conversion of the convertible note, such investor shall receive a cash payment from the Company equal to the product of (x) the closing bid price of our common stock on such conversion date and (y) the number of shares of common stock in excess of such FIRPTA Cap or Exchange Cap Allocation, as

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applicable, that would have otherwise been issuable without regard to such limitation and any other limitations on conversion set forth in the convertible note.

        The convertible notes mature on July 15, 2013. However, at any time after the second anniversary of the closing, the Company has the right, but not the obligation, to require the investors to convert their convertible notes into shares of its common stock at the then applicable conversion price if the average of the daily volume weighted-average price of the Company's common stock is 175% of the conversion price then in effect for 20 out of 30 consecutive trading days.

        On the third anniversary of the closing, each holder of the convertible notes has the right to require the Company to redeem all or any portion of such convertible note at a redemption price equal to 100% of the principal amount of the convertible note being redeemed, plus accrued and unpaid interest thereon. Upon the occurrence of a change of control of the Company, each convertible note holder will have the right to require the Company to repurchase all or any portion of such convertible note at a repurchase price equal to 100% of the principal amount of the convertible note being redeemed, plus accrued and unpaid interest thereon. If a convertible note holder elects to convert its convertible note in connection with a change of control, the Company will pay a make-whole premium to such convertible note holder, unless (i) at least 90% of the consideration, excluding cash payments for fractional shares, in such change of control consists of shares of capital stock of the surviving or resulting entity that are listed on, or immediately after the transaction or event will be listed on, a national securities exchange and as a result of such transaction or transactions the convertible notes become convertible into or exchangeable or exercisable for such capital stock of the surviving or resulting entity and such entity has assumed the obligations under the convertible note or (ii) the Company continues to be the successor entity and the common stock continues to be listed on a national securities exchange. The make-whole premium table included in the convertible notes sets forth the number of additional shares to be paid depending upon the effective date of the change of control triggering the make-whole premium payment and the price paid per share of common stock in the change of control.

        Additionally, the convertible notes may become immediately due and payable upon an "event of default," as defined in the convertible notes, such as the suspension from trading on the NYSE for more than 10 days in any 365-day period, failure to pay convertible notes timely or to pay amounts due under the agreement, or bankruptcy. If a convertible note is redeemed in connection with an event of default, the Company may be required to pay a redemption premium, in which case the redemption amount would equal 115% multiplied by (i) the principal and accrued and unpaid interest under the convertible note, or (ii) the highest closing sale price of the Company's common stock during the period between the event of default and delivery of redemption notice multiplied by the number of shares of the Company's common stock into which a convertible note is then convertible.

        The conversion features of the convertible notes including the make-whole premium ("conversion features") gave rise to an embedded derivative instrument that is required to be accounted for separately. Accordingly, the Company bifurcated the fair value of the conversion features of the convertible notes which was determined to be $10.1 million on July 28, 2008, and was recorded as a derivative liability carried at fair value, with changes in fair value being recorded in earnings. At December 31, 2009 and 2008, the fair value of the derivative liability was approximately $489,000 and $2.7 million, respectively, and the $2.2 million and $7.4 million reduction in fair value for 2009 and 2008, respectively, was recorded as credits to interest expense. As a result of the bifurcation, the carrying value of the convertible notes at inception was $29.9 million which is being accreted to interest expense using the effective interest method to the stated value of the convertible notes of $40 million over the three-year term of the Notes. For 2009 and 2008, such accretion was $3.2 million and $1.2 million, respectively, and is recorded as interest expense.

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        A $9.7 million term loan and $6.5 million of equipment loans were repaid in 2008 with proceeds from the convertible debt and the revolving loans.

        Maturities of long-term debt are as follows: $59,900,000 in 2011 and $34,324,000 in 2013.

6.     FAIR VALUE

        The Company adopted ASC Topic 820-10 (formerly, FASB Statement No. 157, Fair Value Measurements), on January 1, 2008 for its financial assets and liabilities, and on January 1, 2009 for its nonfinancial assets and liabilities, and there was no material impact to the consolidated financial statements. ASC Topic 820-10 applies to all assets and liabilities that are being measured and reported on a fair value basis. ASC Topic 820-10 requires new disclosure that establishes a framework for measuring fair value in GAAP, and expands disclosure about fair value measurements. This statement is intended to enable the reader of the financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. The statement requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.

Level 3: Unobservable inputs that are not corroborated by market data.

        In July 2008, the Company issued $40 million in senior secured notes that are convertible into the Company's common stock (see Note 5). The conversion features related to the notes that gave rise to a derivative liability is recorded at fair value as of December 31, 2009 and 2008.

        In January 2008, the Company entered into interest rate swap agreements to reduce future cash flow variability for approximately two years on $55 million of variable rate debt. The effect of the agreements is to convert variable-rate interest, which was previously tied to 1-, 2-, 3- and 6-month LIBOR terms, to fixed-rate interest of approximately 4.4% based on a 2-year fixed LIBOR rate. The transactions were not designated as hedges, and accordingly, the gains and losses resulting from the change in fair value from these interest rate swaps are recognized currently in interest expense. The interest rate swap agreements expired in January 2010.

        Information regarding assets and liabilities measured at fair value on a recurring basis is as follows:

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        In 2009, assets held for sale, with a carrying value of $14,753,000 were written down to the lower of net book value or estimated fair value less costs to sell of $11,098,000 (based on Level 3 inputs), resulting in a loss of $3,655,000, which was recorded as an impairment loss (see Note 2). The fair value was estimated based on the fair values of similar assets and recent offers received for the property as well as other market information. In 2009, Agriculture segment fixed assets with a net book value of approximately $10.9 million were depreciated down to estimated fair value of $1.5 million through accelerated depreciation charges after the decision by the Board of Directors to cease all Agriculture operations by year-end, resulting in a loss of $9.4 million. The fair values were estimated based on the fair values of similar assets and other market information on used equipment and vehicles (Level 3 inputs).

        The Company's investment in Bay Holdings, with a carrying amount of $38.4 million, was written down to its estimated fair value of $17.1 million, resulting in an other-than-temporary impairment loss of $21.3 million which was recorded in June 2009 (see Note 4). The fair value was estimated using present value techniques used to discount future cash flows expected to be realized by the Company from future cash distributions of Bay Holdings. In estimating the fair value of this investment, management used inputs it believes would be used by market participants (Level 3 inputs). In September 2009, Bay Holdings recorded an impairment charge of $208.8 million, which reduced the Company's carrying value of its investment in Bay Holdings to zero.

7.     DISCONTINUED OPERATIONS

        In November 2009, the Board of Directors of the Company approved the cessation of all pineapple agriculture operations by December 31, 2009. On December 31, 2009, the Company entered into agreements with Haliimaile Pineapple Company, Limited (HPC), a closely held corporation. The significant terms of these agreements include:

•

The sale to HPC of pineapple operating equipment, materials, supplies, and customer lists with a net book value of approximately $3 million for $680,000, to be paid over five years.



•

The grant to HPC for a term of 60 years, of the exclusive, non-transferable, world-wide right to use MPC trademarks, trade names, symbols and logos for the sale, marketing and distribution of fresh pineapple grown on Maui. HPC will pay a license fee to the Company based on sales volume that is estimated to be approximately $20,000 to $30,000 annually.



•

A lease to HPC of approximately 950 acres and 59,000 square feet of office and warehouse space at market rents totaling approximately $420,000 per year for 20 years with provisions for annual rent increases beginning on January 1, 2014 and an option exercisable through December 31, 2010 to expand the numbers of acres subject to the lease by up to 570 acres.



•

An agreement for the Company to provide water to HPC from private water sources to which the Company has contractual rights for the collection, transmission and delivery of non-potable agriculture and irrigation water at actual direct cost to the Company.



•

An agreement for HPC to pay MPC a license fee (based on tons harvested) to harvest the existing pineapple crop through June 30, 2011 and fruit grown under an agreement between MPC and a private grower until December 31, 2010.

        The Company's Agriculture segment operating results and the loss on sale of the assets are reported as discontinued operations and prior period operating results have been reclassified for comparability. The loss from discontinued operations for 2009 includes charges of $22.8 million related to the sale or other disposition of the Agriculture segment assets, employee severance and cancellation of contracts. The Company recorded an accrual for the severance liability in the amount of $2.5 million

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which will be paid out through 2011. The revenues and loss before income tax benefit for the discontinued operations were as follows:

8.     REAL ESTATE SALES

        On March 27, 2009, the Company sold the land, improvements, structures and fixtures comprising the PGC for $50 million in cash. Concurrent with the closing of the sale, the Company entered into an agreement (the "Ground Lease") to leaseback the PGC for an initial period of two years for an annual net rental payment of $4 million, payable monthly in advance. The Company also entered into an agreement to leaseback the portion of the Plantation Clubhouse comprising the retail shop for a period of five years, which will commence when the Ground Lease expires or is otherwise terminated. The Ground Lease requires the Company to replace the irrigation system at the PGC at its own cost and expense, subject to a cap of $5 million. Because of the Company's continuing involvement associated with the obligation to replace the irrigation system, the sale and leaseback of the PGC has been accounted for as a financing transaction and, accordingly, the net proceeds received have been recorded as a non-current liability on the consolidated balance sheet and no gain will be recognized until the irrigation system replacement project has been completed. Expected date of completion is December 2010.

        In addition to the PGC, the Company sold two other non-inventory real properties in 2009 and recognized a loss of $784,000 that is included in general and administrative expense and a gain of $399,000 that is included in discontinued operations for the Agriculture segment.

        In 2009, the Company sold real estate inventory which was comprised of three properties including the last lot in Honolua Ridge Phase II, and the Company recognized revenues of $12.0 million and pre-tax profit of $6.8 million.

        In 2008, the Company sold three real estate inventory properties and recognized revenues of $4.4 million and pre-tax gains of $4.1 million.

9.     LEASING ARRANGEMENTS

LESSEE

        The Company has capital leases on equipment which expire at various dates through 2014. At December 31, 2009 and 2008, property included capital leases of $1,469,000 and $3,384,000 (before accumulated amortization of $829,000 and $1,665,000, respectively). Future minimum rental payments under capital leases aggregate $2,712,000 (including $296,000 representing interest) and are payable for the next four years (2010 to 2013) as follows: $2,083,000, $532,000, $84,000 and $13,000.

        The Company has various operating leases which expire at various dates through 2017. Total rental expense under operating leases was $1,277,000 in 2009 and $1,342,000 in 2008. Future minimum rental payments under operating leases aggregate to $1,585,000 and are payable during the next five years (2010 to 2014) as follows: $761,000, $463,000, $247,000, $105,000 and $9,000, respectively, and $0 thereafter.

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LESSOR

        The Company leases space in buildings, primarily to retail tenants. These operating leases generally provide for minimum rents and, in most cases, percentage rentals based on tenant revenues. In addition, the leases generally provide for reimbursement of common area maintenance and other expenses. Total rental income under these operating leases was as follows:

        Property at December 31, 2009 and 2008 includes leased property of $17,231,000 and $18,679,000, respectively (before accumulated depreciation of $5,630,000 and $4,874,000, respectively).

        Future minimum rental income aggregates $15,312,000 and is receivable during the next five years (2010 to 2014) as follows: $1,412,000, $1,444,000, $1,325,000, $1,336,000 and $1,325,000, respectively, and $8,470,000 thereafter.

        In December 2009, the Company concluded agreements with third parties to operate and manage The Kapalua Villas and the Kapalua Adventures operations. The café and retail portion of the Kapalua Adventures was closed. The lease and license agreements for The Kapalua Villas and the Kapalua Adventures are for ten years and five years, respectively, and both provide for minimum rents and fees based on volume. In December 2009, Company also concluded lease agreements with HPC (Note 7).

10.   EMPLOYEE BENEFIT PLANS

        The Company had defined benefit pension plans covering substantially all full-time, part-time and intermittent employees. Effective as of January 1, 2010, the defined benefit pension plan covering non-bargaining salaried employees was frozen and no further pension benefits will accrue to the affected employees. Effective October 31, 2008, the pension plan covering the Company's non-bargaining salaried employees was amended such that employees hired after that date were not eligible to participate in the plan. Pension benefits were based primarily on years of service and compensation levels. The Company had defined benefit postretirement health and life insurance plans that cover primarily non-bargaining salaried employees and certain bargaining unit employees. Postretirement health and life insurance benefits were principally based on the employee's job classification at the time of retirement and on years of service.

        Effective February 1, 2010, the postretirement life insurance benefits for all current employees and retirees was terminated; and effective as of February 28, 2010, postretirement health insurance benefits for all current non-bargaining employees and non-bargaining unit retirees was terminated. The information that follows assumes that the benefit plans continue indefinitely as the termination of these benefits was communicated to the affected participants in January and February 2010.

        The measurement date for the Company's benefit plan disclosures is December 31^st of each year. The changes in benefit obligations and plan assets for 2009 and 2008, and the funded status of the

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plans, and assumptions used to determine benefit information at December 31, 2009 and 2008 were as follows:

        Curtailments in 2009 were due to the termination of approximately 60% of the active employees covered by the benefit plans. Curtailments in 2008 relate primarily to the termination of approximately 11% of the non-bargaining unit benefit plan participants. Special termination benefits and curtailments in 2009 primarily relate to the termination of Agriculture segment employees in connection with the Company's exit from pineapple operations.

        The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for pension plans with accumulated benefits in excess of plan assets were $60,015,000, $60,015,000 and $38,628,000, respectively as of December 31, 2009 and $59,737,000, $56,243,000 and $31,723,000, respectively as of December 31, 2008.

        The accumulated postretirement benefit obligation for health care as of December 31, 2009 was determined using a health care cost trend rate of 7% and decreasing by 0.5% each year through 2013, and 5% thereafter for medical insurance plans covering retirees prior to age 65; and a health care cost trend rate of 12% and decreasing by 1% each year through 2016, and 5% thereafter for plans covering Medicare eligible participants. The effect of a 1% annual increase in these assumed cost trend rates would increase the accrued postretirement benefit obligation by approximately $355,000 as of December 31, 2009, and the aggregate of the service and interest cost for 2009 by approximately $116,000. A 1% annual decrease would reduce the accrued postretirement benefit obligation by approximately $301,000 as of December 31, 2009, and the aggregate of the service and interest cost for 2009 by approximately $94,000.

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        The amounts recognized on the Company's consolidated balance sheets as of December 31, 2009 and 2008 were as follows:

        Amounts recognized in accumulated other comprehensive loss (before income tax effect of $0) at December 31, 2009 and 2008 are as follows:

        Amounts in accumulated other comprehensive loss at December 31, 2009 that are expected to be recognized as components of net periodic benefit cost in 2010 are as follows:

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