1
VIA FACSIMILE
(▇▇▇) ▇▇▇-▇▇▇▇
February 27, 1997
Mr. ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇
Assistant Chief Accountant
Department of Corporation Finance
United States Securities and Exchange Commission
Washington, DC 20549
Re: Amfac/JMB Hawaii, Inc.
Dear ▇▇. ▇▇▇▇▇▇:
As requested, enclosed is a copy of the Services Agreement,
which identifies the services to be performed by JMB or its
affiliates ("JMB") and the payment of the Qualified
Allowance.
In our discussion, we agreed that the key question is "when
is the Qualified Allowance earned?" Unfortunately, the
Services Agreement doesn't explicitly state the events that
must occur for the Qualified Allowance to be earned.
However, implicit in the Services Agreement is the
following:
Section 1 identifies the services to be performed
Section 2 ties the receipt of the Qualified Allowance by
JMB to the Indenture, which requires the COLA holders to
first earn an 8% return before JMB earns its Qualified
Allowance for such year.
In light of the fact that the 8% return to the COLA holders
in a given year is based on the operating performance of
Amfac/JMB Hawaii, the Qualified Allowance is also based on
the operating performance of Amfac/JMB Hawaii.
In our discussion, you gave an example of an executive who
is paid a bonus after year-end based on the performance of
his company during the year. The executive provides his
services during the year and the company either performs
well or it does not. As you mentioned, if the company's
performance warrants a payment after year-end, an accrual
should be made as of year-end. However, if the company's
performance during the year does not warrant a bonus, an
accrual should not be made at year-end.
Letter to ▇▇. ▇▇▇▇▇▇
Dated 2/27/97
Page 2
To take the executive bonus scenario one step further,
assume that the bonus program is based on cumulative
performance over a two year period (or longer) providing
for bonus potential of $10 per year and that performance is
measured at the end of each year. If year one performance
indicates that the year one bonus has not been earned and
that attaining the cumulative goal is not probable as of
that point in time, an accrual would not be appropriate at
the end of year one. If year two performance is sufficient
for the executive to earn $20 (year one and year two
amounts combined), then it seems that there should be a $20
accrual in year two.
I believe that ▇▇▇▇▇/JMB Hawaii's situation is similar to
the "executive bonus" scenario. JMB provided its services
from 1990-1996; however, because Amfac/JMB Hawaii's
performance did not earn the COLA holders contingent
interest, the Qualified Allowance was also not earned. In
addition, we believe that it is not probable that the
criteria necessary for JMB to earn a Qualified Allowance
will be met in the future. Therefore, we believe that an
expense was not incurred and, accordingly, should not have
been accrued. Likewise, we believe it would not be
appropriate for JMB to recognize revenue equal to the
Qualified Allowance for those years, as the earnings
process has not been completed.
As discussed, we would be glad to revise the language in
our "transactions with affiliates" footnote in our
financial statements to eliminate the word "entitled" and
use more appropriate language.
If you would like to review certain sections of the COLA
Indenture or the entire document, please let me know.
Let's discuss after you have had a chance to review this
letter and the enclosure.
Very truly yours,
▇▇▇▇ ▇▇▇▇▇
Vice President
Enclosure
GS/▇▇
▇▇▇▇▇/▇▇▇▇▇▇.227
SERVICES AGREEMENT
THIS AGREEMENT entered into between AMFAC/JMB HAWAII,
INC., a Hawaii corporation (the "Company"), each of the
Company's subsidiaries listed on the signature page hereof
(the "Subsidiaries") and JMB REALTY CORPORATION, a Delaware
corporation ("JMB").
WHEREAS, the Company and its Subsidiaries expect to be
engaged in various real estate related operations,
including agriculture and the development of real estate in
the State of Hawaii;
WHEREAS, JMB and its Affiliates manage more than $20
billion in real estate and carry on extensive real estate
investment, management and development activities;
WHEREAS, as a result of its affiliation with JMB, the
Company and the Subsidiaries expect to benefit
substantially from JMB's and its Affiliates' real estate
expertise;
WHEREAS, the Company expects to issue up to
$415,000,000 in aggregate principal amount of Certificate
of Land Appreciation Notes due 2008 pursuant to an
Indenture (the "Indenture") among the Company, its
Subsidiaries and Continental Bank, National Association;
WHEREAS, the Indenture permits a Qualified Allowance
(as defined in the Indenture) to be paid to JMB or its
Affiliates; and
WHEREAS, the Company and JMB desire to set forth their
agreement as to the payment of the Qualified Allowance and
other reimbursements.
NOW THEREFORE, the Company and JMB agree as follows:
1. Services to be Performed. JMB agrees to perform,
or cause one or more Affiliates to perform (any entity
performing such services being referred to herein as the
"Adviser"), the following services for the Company and the
Subsidiaries (any of which is referred to herein as the
"Developer") for the term of this Agreement, to the extent
the Company requests and the Adviser reasonably believes
such services are related to the Developer's business as
conducted from time to time:
(a) recommending construction and development of real
property developments, whether commercial, residential or
a combination thereof;
(b) recommending land use and zoning changes;
(c) recommending when sales of particular properties
should be made and the pricing parameters for such sales;
(d) recommending when financing should be obtained
and, if so, the type and amount of financing which
should be incurred; and
(e) making recommendations with respect to the
agricultural business, including with respect to potential
diversification; and
(f) recommending uses, whether agricultural,
residential, recreational or commercial, for the land of
the Developer.
All services to be provided to the Developer under
this paragraph 1 shall be based upon the information
provided to the Adviser by the Developer. The Developer
agrees to obtain and provide any data or information the
Adviser reasonably believes is necessary to the performance
of the services described in this paragraph 1.
2. Payment of Qualified Allowance. In consideration
of the services described in paragraph 1 above, the Company
agrees to pay JMB (or any Affiliate of JMB designated by
JMB for the performance of such services) the Qualified
Allowance to the extent permitted by the Indenture. Such
Qualified Allowance shall be payable from time to time as
soon as such payment is permitted by the Indenture upon
request therefor by JMB.
3. Payment or Reimbursement for Additional Services.
The Company and the Subsidiaries shall, and shall cause the
Joint Ventures and future subsidiaries of the Company to,
pay JMB and its affiliates for services provided from time
to time in addition to those described in paragraph 1 above
at market rates and terms; provided, however, except for
payments pursuant to paragraphs 2 and 4, that the Company
and the Subsidiaries, future subsidiaries and Joint
Ventures may not enter into transactions, agreements or
payments involving JMB or an Affiliate of JMB on terms less
favorable to the Company (or such Subsidiary, future
subsidiary or Joint Venture) than those available to the
Company in similar dealings with unaffiliated third
parties; provided, further, that the foregoing prohibition
shall not apply to transactions between wholly owned
subsidiaries or between the Company and a wholly owned
subsidiary. Without limiting the types of services which
JMB and Affiliates of JMB may perform for the Company, the
Subsidiaries, future subsidiaries and the Joint Ventures,
it is expressly understood that JMB and Affiliates of JMB
may (i) maintain or enter into arrangements or agreements
to provide services to the Company, the Subsidiaries,
future subsidiaries and the Joint Ventures in respect of
real estate development, real estate management, real
estate brokerage, self-insurance, insurance, reinsurance,
claims administration and insurance brokerage, mortgage
brokerage and mortgage financing and (ii) make loans to the
Company, any Subsidiary, future subsidiary or Joint Venture
(which may constitute Senior Indebtedness). The Company
and the Subsidiaries, future subsidiaries and Joint
Ventures may reimburse JMB and its Affiliates for direct
expenses incurred on behalf of the Company and the
Subsidiaries, future subsidiaries and Joint Ventures,
including salaries and salary related expenses incurred in
connection with the management of the Company's or the
Subsidiaries', future subsidiaries' or Joint Ventures'
operations and for expenses, including salary and salary-
related expenses, in respect of services which could be
performed directly for the Company or a Subsidiary, future
subsidiary or Joint Venture by independent parties, such as
legal, accounting, data processing, duplicating and other
services (including costs incurred in connection with the
issuance of the Securities), provided that the amounts
charged to the Company or a Subsidiary, future subsidiary
or Joint Venture for such services do not exceed the amount
the Company or a Subsidiary, future subsidiary or Joint
Venture would be required to pay to independent parties for
comparable services and provided further, except as
provided in paragraph 4 below, that no reimbursement may be
made to JMB and its Affiliates for general or
administrative overhead expenses, such as rent and
utilities incurred in performing services for the Company
or a Subsidiary, future subsidiary or Joint Venture. No
payment may be made pursuant to this paragraph 3 if a
violation of Section 5.11 of the Indenture would result.
4. Payment of Non-accountable Reimbursements. In
addition to all other amounts which may be payable by the
Company from time to time to JMB or its Affiliates
(including, without limitation, pursuant to paragraphs 2
and 3 above) the Company agrees to pay to JMB (or any
Affiliate of JMB designated by JMB) an aggregate non-
accountable reimbursement of $30,000 per month, beginning
January 1, 1989, in respect of general overhead expenses.
5. Qualified Allowance and Non-accountable
Reimbursements Exclusive of other Payments. The Company
and JMB understand and agree that the payment of the
Qualified Allowance and the non-accountable reimbursements
described in paragraph 4 above shall be exclusive of and in
addition to the payment of any other amounts payable by the
Company to JMB or its Affiliates as permitted by the
Indenture and paragraph 3 hereof.
6. Term; Termination of Agreement. This Agreement
shall continue in force for a period of thirty (30) years
from the date hereof. This Agreement may not be terminated
without the written agreement of the Company and JMB. No
Subsidiary may enforce this Agreement from and after such
time as the Company's direct or indirect interest in such
Subsidiary is less than 50%.
7. Assignment. This Agreement is not assignable
without the written consent of the non-assigning party,
except by JMB and its successors and assigns hereunder (or
any Affiliate designated by JMB) to a direct or indirect
parent of the Company or to an Affiliate of JMB or to a
successor to JMB. Any such assignee or successor entity
shall be bound hereunder and by the terms of said
assignment in the same manner as the assignor or
predecessor entity is bound hereunder and all references
herein to JMB shall be deemed to be to any assignee or
successor entity of JMB.
8. No Partnership. By virtue of this Agreement, the
Company and the Subsidiaries, on the one hand, and JMB and
its Affiliates, on the other hand, are not partners or
joint ventures with each other and nothing contained herein
shall be construed so as to make them such partners or
joint venturers in respect of this Agreement or to impose
any liability as such on any of them.
9. Indemnification; Liability. The Company and the
Subsidiaries shall indemnify, and shall cause each future
subsidiary to indemnify, each Adviser and each Adviser's
directors, partners, officers and employees (collectively,
the "Indemnified Parties"), respectively, for any liability
(including reasonable attorneys' fees) suffered by them
arising out of the performance or nonperformance of
services pursuant to this Agreement, except for fraud,
willful misconduct or gross negligence by any such
Indemnified Party.
No Adviser assumes any responsibility under this
Agreement other than to render the services called for
hereunder in good faith and shall not be responsible for
any action or inaction of any Developer in following or
declining to follow any advice or recommendations of such
Adviser. Each Adviser and its directors, partners,
officers and employees, respectively, will not be liable to
any Developer, except by reason of acts constituting fraud,
willful misconduct or gross negligence, and will not be
liable to any third persons under any circumstances for any
breach or alleged breach of this Agreement.
10. Miscellaneous
A. This Agreement shall not be changed,
modified, terminated or discharged in whole or in part
except by an instrument in writing signed by the
Company and JMB, or their respective permitted
successors or assigns, or as otherwise provided
herein.
B. The paragraph headings hereof have been
inserted for convenience of reference only and shall
not be construed to affect the meaning, construction
or effect of this Agreement.
C. This Agreement shall bind any successors or
assigns of the parties hereto as herein provided.
D. The provisions of this Agreement shall be
construed and interpreted in accordance with, and be
governed by, the internal laws of the State of
Illinois.
E. It is agreed and understood that no person
other than the Company, the Subsidiaries, JMB (and
Affiliates of JMB designated by JMB under paragraph 2
and 7 above) and any successors or assigns permitted
under the terms of this Agreement will be entitled to
rely upon or enforce any of the provisions hereof.
F. Capitalized terms used herein, unless
otherwise defined, have the meanings given to them in
the Indenture.
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed by their officers thereunto
duly authorized as of this 18th day of November, 1988.
AMFAC/JMB HAWAII, INC.
By:___________________
Name: ▇▇▇▇ ▇▇▇▇▇▇▇
Title: Vice President
AMFAC PROPERTY DEVELOPMENT CORP.
AMFAC PROPERTY INVESTMENT CORP.
AMFAC SUGAR AND AGRIBUSINESS, INC.
KAANAPALI WATER CORPORATION
AMFAC AGRIBUSINESS, INC.
KEKAHA SUGAR COMPANY, LIMITED
THE LIHUE PLANTATION COMPANY, LIMITED
OAHU SUGAR COMPANY, LIMITED
PIONEER MILL COMPANY, LIMITED
PUNA SUGAR COMPANY, LIMITED
▇. ▇▇▇▇▇▇▇▇ & CO., LTD.
WAIAHOLE IRRIGATION COMPANY, LIMITED
By: ___________________________
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Vice President
JMB REALTY CORPORATION
By: ___________________________
Name: ▇. ▇▇▇▇▇ ▇▇▇▇▇▇
Title: Exec. Vice President