Exhibit 99  Kapalua
Bay Holdings, LLC and Subsidiary (A Delaware Limited Liability
Company)  Consolidated Financial
Statements as of December 31, 2008 and 2007, and for the Years Ended December 31,
2008, 2007, and 2006, and Independent Auditors Report


INDEPENDENT AUDITORS REPORT  To the
Members of
Kapalua Bay Holdings, LLC:  We
have audited the accompanying consolidated balance sheets of Kapalua Bay
Holdings, LLC and subsidiary (a Delaware limited liability company) (the Company)
as of December 31, 2008 and 2007, and the related consolidated statements
of operations, members capital, and cash flows for the years ended December 31,
2008, 2007, and 2006. These consolidated financial statements are the
responsibility of the Companys management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.  We
conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes consideration
of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the Companys internal control
over financial reporting. Accordingly, we express no such opinion. An audit
also includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.  In our
opinion, such consolidated financial statements present fairly, in all material
respects, the financial position of Kapalua Bay Holdings, LLC and
subsidiary as of December 31, 2008 and 2007, and the results of its
operations and its cash flows for the years ended December 31, 2008, 2007,
and 2006, in conformity with accounting principles generally accepted in the
United States of America.  As
discussed in Note 2 to the consolidated financial statements, the Company
adopted the provisions of the Emerging Issues Task Force of the Financial
Accounting Standards Board Issue No. 06-8, Applicability of the Assessment of a Buyers Continuing Investment
under FASB Statement No. 66 for Sales of Condominiums, on January 1,
2008.  /s/ DELOITTE
& TOUCHE LLP  Honolulu,
Hawaii March 30,
2009


KAPALUA BAY HOLDINGS, LLC AND SUBSIDIARY (A Delaware Limited Liability Company)  CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2008 AND 2007  2008
  
  2007ASSETSCASH AND CASH EQUIVALENTS
  
  $
  500,518
  
  $
  1,719,440RESTRICTED CASH
  
  8,687,745
  
  8,861,321CONTRACT RECEIVABLES  Net of deposits
  
  156,846,187
  
  75,259,974OTHER ASSETS
  
  1,193,579
  
  544,688PROPERTY  Net:Buildings, other improvements, and
  equipment
  
  4,081,373
  
  2,995,463Less accumulated depreciation and
  amortization
  
  (1,347,889
  )
  (310,510
  )Property  net
  
  2,733,484
  
  2,684,953PROJECT DEVELOPMENT COSTS
  
  358,413,395
  
  201,097,564TOTAL
  
  $
  528,374,908
  
  $
  290,167,940LIABILITIES AND MEMBERS CAPITALLIABILITIES:Accounts payable, accrued expenses, and
  other liabilities
  
  $
  40,549,704
  
  $
  36,680,761Contract retainage payable
  
  21,941,292
  
  13,668,090Insurance premium obligations
  
  
  
  1,714,872Construction loan and notes payable
  
  279,317,788
  
  85,000,000Total liabilities
  
  341,808,784
  
  137,063,723COMMITMENTS AND CONTINGENCIES (Note 10)MEMBERS CAPITAL
  
  186,566,124
  
  153,104,217TOTAL
  
  $
  528,374,908
  
  $
  290,167,940  See notes to consolidated financial statements.  2


KAPALUA BAY HOLDINGS, LLC AND SUBSIDIARY (A Delaware Limited Liability Company)  CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2008, 2007, AND 2006  2008
  
  2007
  
  2006REVENUES:Real estate
  
  $
  115,507,171
  
  $
  120,196,959
  
  $
  Other income
  
  6,711,132
  
  1,032,467
  
  61,578Total revenues
  
  122,218,303
  
  121,229,426
  
  61,578COSTS AND EXPENSES:Real estate cost of revenues
  
  73,714,805
  
  79,242,798
  
  Sales and marketing
  
  15,588,636
  
  14,552,178
  
  9,658,812General and administrative
  
  1,689,698
  
  864,487
  
  665,509Total costs and expenses
  
  90,993,139
  
  94,659,463
  
  10,324,321INCOME (LOSS) FROM CONTINUING OPERATIONS
  
  31,225,164
  
  26,569,963
  
  (10,262,743
  )LOSS FROM DISCONTINUED OPERATIONS
  
  
  
  
  
  (221,142
  )NET INCOME (LOSS)
  
  $
  31,225,164
  
  $
  26,569,963
  
  $
  (10,483,885
  )  See notes to consolidated financial statements.  3


KAPALUA BAY HOLDINGS, LLC AND SUBSIDIARY (A Delaware Limited Liability Company)  CONSOLIDATED STATEMENTS OF MEMBERS CAPITAL FOR THE YEARS ENDED DECEMBER 31, 2008, 2007, AND 2006  ER KapaluaMLP KB
  
  MH Kapalua
  
  InvestorsPartner, LLC
  
  Venture, LLC
  
  Fund, LLC
  
  TotalBALANCE  January 1, 2006
  
  $
  24,491,821
  
  $
  16,277,881
  
  $
  7,137,299
  
  $
  47,907,001Capital contributions:Cash
  
  11,734,763
  
  7,823,177
  
  3,451,401
  
  23,009,341In-kind
  
  225,000
  
  100,000
  
  
  
  325,000Total capital contributions
  
  11,959,763
  
  7,923,177
  
  3,451,401
  
  23,334,3412006 net loss
  
  (5,346,781
  )
  (3,564,521
  )
  (1,572,583
  )
  (10,483,885
  )BALANCE  December 31, 2006
  
  31,104,803
  
  20,636,537
  
  9,016,117
  
  60,757,457Capital contributions:Cash
  
  33,217,997
  
  22,688,800
  
  9,770,000
  
  65,676,797In-kind
  
  
  
  100,000
  
  
  
  100,000Total capital contributions
  
  33,217,997
  
  22,788,800
  
  9,770,000
  
  65,776,7972007 net income
  
  13,550,681
  
  9,033,787
  
  3,985,495
  
  26,569,963BALANCE  December 31, 2007
  
  77,873,481
  
  52,459,124
  
  22,771,612
  
  153,104,217Cumulative impact of adoption of EITF Issue
  No. 06-8 (Note 2)
  
  (6,389,131
  )
  (4,259,421
  )
  (1,879,157
  )
  (12,527,709
  )Capital contributions:Cash
  
  7,756,040
  
  4,627,224
  
  2,281,188
  
  14,664,452In-kind
  
  
  
  100,000
  
  
  
  100,000Total capital contributions
  
  7,756,040
  
  4,727,224
  
  2,281,188
  
  14,764,4522008 net income
  
  15,924,833
  
  10,616,556
  
  4,683,775
  
  31,225,164BALANCE  December 31, 2008
  
  $
  95,165,223
  
  $
  63,543,483
  
  $
  27,857,418
  
  $
  186,566,124  See notes to consolidated financial statements.  4


KAPALUA BAY HOLDINGS, LLC AND SUBSIDIARY (A Delaware Limited Liability Company)  CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2008, 2007, AND 2006  2008
  
  2007
  
  2006OPERATING ACTIVITIES:Net income (loss)
  
  $
  31,225,164
  
  $
  26,569,963
  
  $
  (10,483,885
  )Adjustments to reconcile net income (loss)
  to net cash used in operating activities:Depreciation and amortization
  
  1,037,379
  
  310,510
  
  548,944Changes in operating assets and
  liabilities:Accounts receivable  net
  
  
  
  
  
  1,298,631Other assets
  
  (648,891
  )
  (531,522
  )
  454,061Restricted cash
  
  173,576
  
  21,355,325
  
  (25,266,646
  )Project development costs
  
  (125,520,274
  )
  (67,456,187
  )
  (53,365,251
  )Customer deposits
  
  
  
  
  
  (714,056
  )Contract retainage payable
  
  8,273,202
  
  11,494,070
  
  2,174,020Accounts payable, accrued expenses, and
  other liabilities
  
  3,850,051
  
  8,950,966
  
  20,853,225Contract receivables (net of deposits)
  
  (115,647,404
  )
  (75,259,974
  )
  Deferred revenue
  
  
  
  (25,266,646
  )
  25,266,646Net cash used in operating activities
  
  (197,257,197
  )
  (99,833,495
  )
  (39,234,311
  )INVESTING ACTIVITIES:Purchases of property
  
  (246,491
  )
  (2,995,463
  )
  Funding of insurance collateral account
  
  
  
  (3,712,500
  )
  (618,750
  )Net cash used in investing activities
  
  (246,491
  )
  (6,707,963
  )
  (618,750
  )FINANCING ACTIVITIES:Proceeds from construction loan and notes
  payable
  
  187,362,570
  
  43,410,921
  
  47,016,104Payments on construction loan and notes
  payable
  
  (4,027,384
  )
  
  
  (34,920,124
  )Members capital contributions
  
  14,664,452
  
  65,676,797
  
  23,009,341Proceeds from insurance premium obligations
  
  
  
  2,719,036
  
  4,682,094Payments on insurance premium obligations
  
  (1,714,872
  )
  (4,135,264
  )
  Net cash provided by financing activities
  
  196,284,766
  
  107,671,490
  
  39,787,415NET INCREASE (DECREASE) IN CASH AND CASH
  EQUIVALENTS
  
  (1,218,922
  )
  1,130,032
  
  (65,646
  )CASH AND CASH EQUIVALENTS:Beginning of year
  
  1,719,440
  
  589,408
  
  655,054End of year
  
  $
  500,518
  
  $
  1,719,440
  
  $
  589,408(Continued
  )  5


KAPALUA BAY HOLDINGS, LLC AND SUBSIDIARY (A Delaware Limited Liability Company)  CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2008, 2007, AND 2006  2008
  
  2007
  
  2006SUPPLEMENTAL DISCLOSURE OF CASH FLOW
  INFORMATION  
  Cash paid for interest capitalized
  
  $
  
  
  $
  5,563,394
  
  $
  3,249,199SUPPLEMENTAL DISCLOSURES OF NONCASH
  INVESTING AND FINANCING ACTIVITIES:Capitalized interest added into
  construction loan and notes payable
  
  $
  10,982,602
  
  $
  
  
  $
  Members capital contributions for services
  
  $
  100,000
  
  $
  100,000
  
  $
  325,000Payments on insurance premium obligations
  by an affiliate
  
  $
  
  
  $
  844,478
  
  $
  706,516Reclassification of land to project
  development costs
  
  $
  
  
  $
  24,590,000
  
  $
  Payments to fund collateral account paid by
  an affiliate
  
  $
  
  
  $
  
  
  $
  618,750See notes to consolidated financial
  statements.
  
  
  
  
  
  (Concluded
  )  6


KAPALUA
BAY HOLDINGS, LLC AND SUBSIDIARY (A Delaware Limited
Liability Company)  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AS
OF DECEMBER 31, 2008 AND 2007, AND FOR THE YEARS ENDED 
DECEMBER 31, 2008, 2007, AND 2006  1.ORGANIZATION
AND PURCHASE TRANSACTION  Kapalua Bay Holdings, LLC (Bay Holdings) was formed on August 31,
2004, as a Delaware limited liability company whose members are MLP KB
Partner, LLC, an affiliate of Maui Land & Pineapple Company, Inc.
(MLP); MH Kapalua Venture, LLC, an affiliate of Marriott International (Marriott);
and ER Kapalua Investors Fund, LLC, an affiliate of Exclusive Resorts (Exclusive
Resorts). Bay Holdings formed a wholly owned limited liability company,
Kapalua Bay LLC (Kapalua Bay).  On August 31, 2004, Kapalua Bay completed the purchase of the
leasehold interest in the land (ground lease) and hotel improvements of the
Kapalua Bay Hotel (KBH) from YCP Kapalua L.P. and YCP Kapalua
Operator Inc. (collectively, YCP) for $48.3 million. The KBH was
located in Lahaina, Maui, and had 196 oceanfront rooms. MLP was the lessor
under the ground lease with YCP. Bay Holdings operated the hotel and adjacent
retail shops (Shops) for approximately 19 months and were closed for
business in April 2006 (see Note 11). During this 19-month period,
Bay Holdings prepared the development plans, obtained the required governmental
approvals, and prepared marketing and sales plans. During 2006, the hotel and
shops were demolished, and, in April 2006, Bay Holdings began to redevelop
the site and started to construct 146 whole and fractional ownership
residential units for sale to the public (the Project).  The purchase price of $48,300,000 was allocated as follows: $2,635,000
to the hotel improvements (including furniture and equipment) and $45,665,000
to development rights (project development costs on the balance sheet). The
fair value of the hotel improvements (and the Shops improvements discussed
below) considered Bay Holdings plan to demolish the improvements within two
years. The fair value was based on the present value of the hotels net
operating income (cash flows). The development rights represent the costs to
secure the Project site and enable Bay Holdings development of the luxury
residential units. The fair values of the hotel improvements and development
rights were based on an independent appraisal.  In connection with the formation of Bay Holdings and Kapalua Bay, MLP
contributed $500,000 of cash to Bay Holdings and contributed to Kapalua Bay (1) its
lessors interest under the ground lease, (2) its fee interest in
the 21-acre land parcel underlying the KBH (ground lease concurrently
canceled), and (3) its rights and interests as landlord of the Shops,
including the retail leases. The Shops is a retail complex located adjacent to
the KBH, and has approximately 22,000 square feet of gross leasable area.
In 2006, the Shops improvements were demolished, and Bay Holdings began
construction of an ocean-side spa and beach club on the site. MLP will purchase
the spa and beach club at Bay Holdings actual construction costs. The members
(owners) valued these nonmonetary contributions at $25 million through
arms-length negotiations, of which $24.59 million was allocated to the
land and $410,000 was allocated to the Shops based on an independent appraisal.
In exchange for its $25.5 million contribution to Bay Holdings and Kapalua
Bay, MLP received 51% of the outstanding membership interests of Bay
Holdings. Marriott contributed $17 million of cash to Bay Holdings for 34%
of the outstanding membership interests in Bay Holdings, and Exclusive Resorts
contributed $7.5 million of cash to Bay Holdings for 15% of the
outstanding membership interests in Bay Holdings.  7


In connection with the
transaction, Kapalua Bay secured a $45 million credit agreement with two
lenders. The credit agreement had an initial term of two years and was secured
by a mortgage on the hotel and other improvements. Kapalua Bay drew down
$26 million under the credit agreement and, with the cash contributions
made by the members, concluded the purchase of the hotel and other
improvements. In July 2006, Bay Holdings entered into a construction loan
agreement with Lehman Brothers Holdings Inc. (Lehman). Upon closing of
the loan, the lender disbursed an initial advance of $40.1 million, which
was used to repay the original credit agreement. In September 2008, Lehman
filed for bankruptcy and ceased funding under the construction loan agreement.
In order to provide the continuing construction financing as required under the
construction loan agreement, the Syndicate Lenders and Swedbank continued to
provide funding (see Note 6). In addition, two of Bay Holdings members,
MLP and Marriott, agreed to advance funds to Bay Holdings at an interest rate
of 16%. In February 2009, Bay Holdings, Lehman, the Syndicate
Lenders, Swedbank, and Marriott entered into an Amended and Restated
Construction Loan Agreement (Amended Loan Agreement). Under the terms of the
Amended Loan Agreement, the maximum amount that Bay Holdings may borrow,
including amounts previously funded under the original Construction Loan
Agreement is $354.5 million (see Note 6).  2.SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES  Basis of Accounting Bay Holdings policy is to prepare its
financial statements using the accrual basis of accounting.  Principles of Consolidation The accompanying consolidated
financial statements include the accounts of Bay Holdings and its wholly owned
subsidiary. All significant intercompany balances and transactions have been
eliminated in consolidation.  Statement of Cash FlowsExpenditures
relating to the development and construction of whole and fractional ownership
residential units for sale to the public are reflected as operating
activities.  Use of Estimates The preparation of financial statements in
conformity with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions that affect
the reported amount of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Future actual
amounts could differ from those estimates.  Cash and Cash Equivalents Cash and cash equivalents include
cash and liquid investments with an original maturity of three months or less
from the date acquired. The majority of cash and cash equivalents are held at
major commercial banks.  Restricted Cash Restricted cash principally includes customer
sales deposits and cash held at an intermediary that serves as collateral for a
Bay Holdings insurance policy.  Contract Receivables Contract receivables represent amounts
recognized as revenues to date less deposits received, which is due and
collectible upon closing of the whole and fractional units.  Concentration of Credit RiskThe
financial instruments that potentially expose Bay Holdings to concentrations of
credit risk consist primarily of cash deposits. Bay Holdings maintains portions
of its cash in bank deposit accounts which, at times, may exceed federally
insured limits. Management believes that Bay Holdings is not exposed to any
significant credit risk related to cash.  8


PropertyThe
contributed land and Shops improvements, and the acquired hotel improvements,
were stated at their fair values (acquisition costs) at the date of acquisition
(see Note 1). Subsequent additions of property and equipment, consisting
primarily of a sales office, are recorded at acquisition costs. Major renewals
and betterments are capitalized, while expenditures for maintenance and repairs
are charged to operations. Depreciation is computed using the straight-line method
over the sales offices estimated useful life of approximately three years.  Long-Lived Assets Long-lived assets held and used by Bay
Holdings include the sales office building, improvements, and equipment, and
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 assets net book value exceeds its fair
value.  Project Development CostsProject
development costs relate to the planned Project. Costs include the acquisition
of the development rights for the Project site, planning and design costs,
interest and real property taxes, and development and construction costs incurred
to develop the Project.  Project development costs 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. Bay Holdings has evaluated its project
development costs for impairment; however, no impairment charges were recorded
as a result of this process. 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,
Bay Holdings financial condition or its future operating results could be
materially impacted.  Deferred Financing CostsLoan fees and
other costs are being capitalized as part of project development costs.  Revenue Recognition Sales of units (less estimated cancellations)
are recognized as real estate revenues in the period in which sufficient cash
has been received, collection of the balance is reasonably assured,
construction is beyond a preliminary stage and aggregated sales proceeds and
costs can be reasonably estimated, and when sufficient units have been sold to
assure that the entire property will not revert to rental property. Beginning
in 2007, the Project had progressed beyond the preliminary stage and Bay
Holdings met the criteria to begin recognizing sales using the
percentage-of-completion method.  Real estate revenues are reduced by estimated contract cancellations
which represent Bay Holdings best estimate of future defaults on sales
contracts that have been entered into. Deposits received on canceled contracts
are recognized as other income in the consolidated statements of operations.  Interest Capitalization Interest costs are capitalized
during the development period of the Project.  9


Sales and
Marketing
Sales and marketing activities are expensed as incurred. Costs incurred to sell
the units are capitalized if they are expected to be recovered from the sale of
the units and are incurred for tangible assets that are used directly
throughout the selling period to aid in the sale of the Project. Other costs
incurred to sell the units are also capitalized if they are directly associated
with, and their recovery is reasonably expected from, sales that will be
accounted for using the percentage-of-completion method.  Income Taxes Bay Holdings is not subject to federal and
state income taxes. The distributive shares of income or loss and other tax
attributes from Bay Holdings are reportable by the individual members in their
separate tax returns; accordingly, Bay Holdings financial statements do not
include a provision for income taxes.  The Company files federal and state income tax returns in jurisdictions
with varying statutes of limitations. The 2005 through 2008 tax years remain
subject to examination by federal and state authorities.  Recently Issued Accounting Pronouncements As of January 1, 2008, the
Bay Holdings adopted the provisions of the Emerging Issues Task Force (EITF) of
the Financial Accounting Standards Board (FASB) Issue No. 06-8, Applicability of the Assessment of a Buyers
Continuing Investment under FASB Statement No. 66  for Sales of Condominiums. EITF Issue No. 06-8
requires condominium sales to meet the continuing investment criterion in FASB
Statement No.66, Accounting for Sales of Real Estate,
in order for profit to be recognized under the percentage-of-completion method.
For sales through 2007 that do not meet the continuing investment criteria in
FASB Statement No. 66, EITF Issue No. 06-8 requires that such
transactions be accounted for using the deposit method with profits being
deferred until the sales qualify for percentage-of-completion, or full accrual
accounting in later periods. The cumulative effect for the Bay Holdings of
applying EITF Issue No. 06-8 was $12,527,709 and is reported as a
reduction to members capital, a reduction to contract receivables of
$34,061,191, and an increase to project development costs of $21,533,482 as of January 1,
2008. As of December 31, 2008, these sales qualified for
percentage-of-completion and are no longer deferred.  In September 2006, the FASB issued FASB Statement No. 157, Fair Value Measurements, which defines fair value,
establishes guidelines for measuring fair value, and expands disclosures
regarding fair value measurements. FASB Statement No. 157 does not require
any new fair value measurements, but rather eliminates inconsistencies in
guidance found in various prior accounting pronouncements. FASB Statement No. 157
is effective for Bay Holdings financial assets and liabilities on January 1,
2008, and its nonfinancial assets and liabilities on January 1, 2009. FASB
Statement No. 157 is not expected to significantly impact the manner in
which Bay Holdings determines the fair value of its assets and liabilities, but
may require certain additional disclosures.  In February 2007, the FASB issued FASB Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities 
Including an amendment of FASB Statement No. 115. FASB
Statement No. 159 permits entities to measure many financial instruments
and certain other assets and liabilities at fair value on an
instrument-by-instrument basis. Bay Holdings did not elect the fair value
option for any of its existing eligible financial instruments upon adoption of
FASB Statement No. 159, and has not determined whether it will elect this
option for any new financial instruments acquired in the future.  In July 2006, the FASB released FASB Interpretation (FIN) No. 48,
Accounting for Uncertainty in Income Taxes  an
interpretation of FASB Statement 109. FIN No. 48 provides
guidance for how uncertain tax positions should be recognized, measured,
presented, and disclosed in the financial statements. FIN 48 requires the
evaluation of tax positions taken in the course of preparing Bay  10


Holdings tax returns to determine whether tax positions are more-likely-than-not
of being sustained by the applicable tax authority. Tax benefits of positions
not deemed to meet the more-likely-than-not threshold would be recorded as a
tax expense in the current year. Bay Holdings adopted FIN 48 effective January 1,
2007, and it was applied to all open tax years as of the effective date. The
adoption of FIN 48 resulted in additional disclosures, but had no impact on Bay
Holdings consolidated financial statements.  Reclassification Certain liabilities related to payable to
affiliates included in the consolidated balance sheet as of December 31,
2007, were reclassified to accounts payable, accrued expenses, and other
liabilities to conform to the presentation in the consolidated balance sheet as
of December 31, 2008.  3.ALLOCATION
OF NET INCOME (LOSS) AND CASH DISTRIBUTIONS  Net losses are allocated to the members based on their
membership interests: MLP  51%, Marriott  34%, and Exclusive
Resorts  15%. Net income (loss) is allocated based on the estimated
distributions of Net Cash Flow (as defined in the agreement) to the members.
The cash distributions are based on each members Priority Contribution
Account (PCA), as defined in the agreement, and MLPs Subordinated
Contribution Account (SCA), as defined in the agreement. Under the agreement,
only 50% of MLPs $25 million nonmonetary capital contribution was
considered PCA. The initial PCA and SCA balances are as follows:  PCA
  
  SCAMLP
  
  $
  13,000,000
  
  $
  12,500,000Marriott
  
  17,000,000
  
  Exclusive Resorts
  
  7,500,000
  
  $
  37,500,000
  
  $
  12,500,000  The distributions of net cash flow to the members shall be made in the
following priorities:  ·A specified percentage return on PCA balances ·Reduce PCA balances to zero ·A specified percentage return on SCA balances ·Reduce SCA balance to zero ·Pro rata in proportion to membership interests  4.MANAGEMENT
AGREEMENTS  Bay Holdings has a Development Management Agreement with Marriott (the Development
Manager) over the term of the Project. Under the agreement, the Development Manager
is conducting activities to support the planning, designing, construction,
furnishing, and equipping of the Project until its completion. As part of the
Development Management Agreement, the Development Manager makes payments
directly to vendors and charges amounts back to Bay Holdings on a monthly
basis. Accordingly,amounts due to the Development Manager related
to this agreement are included in accounts payable, accrued expenses, and other
liabilities in the consolidated balance sheets and amounted to $3,061,000 and
$24,868,000 at December 31, 2008 and 2007, respectively.Bay Holdings pays to the Development
Manager a fee in the amount of $2,700,000 in equal installments of $54,000 per
month. The development management fee was $648,000 in 2008, 2007, and 2006.
Upon successful completion of the Project, the Development Manager is entitled
to a one-time incentive fee of $300,000 and a performance fee equal to 15% of
the cost savings of the Project, as defined in the agreement.  11


MLP is the managing
member of Bay Holdings and is responsible for managing its business affairs.
Under the Limited Liability Company (LLC) agreement, ordinary major
decisions (as defined in the agreement) require the approval of at least 75%
of the membership interests, and extraordinary major decisions (as defined in
the agreement) require the approval of 100% of the membership interests.
The LLC agreement also contains provisions to deal with deadlock
situations.  Kapalua Bay (Owner) had a Hotel Management Agreement with KB Hotel
Operator Inc. (Operator), an affiliate of Marriott. The initial term of
the agreement was three years, and Operator was responsible for the operation
and management of the hotel. Hotel personnel were employees of Operator, and
Owner was responsible for all hotel costs and expenses. Operator received a
base management fee equal to 3% of gross revenues (as defined in the
agreement), and an incentive management fee based on operating profit (as defined
in the agreement). The base management fee for 2006 was $217,000, and there was
an incentive management fee of $31,000 in 2006. Operator also billed Owner
$25,000 in 2006 for chain services (e.g., reservations and advertising) and
other services. Owner was also required to establish a cash reserve fund equal
to 1% of gross revenues for the replacement of furniture, fixtures, and
equipment. In 2006, Owner exercised its right to terminate the agreement in
conjunction with the closure of the hotel to commence construction of the
Project.  Kapalua Land Company, Ltd. (KLC), a subsidiary of MLP, had an
agreement to manage the Shops for an initial term of four years. Owner
reimbursed KLC $26,000 in 2006 for KLCs cost incurred to manage the Shops. In
2006, Owner exercised its right to terminate the agreement in conjunction with
the closure of the Shops to commence construction of the Project.  5.OTHER
AGREEMENTS WITH MEMBERS  In 2006, Bay Holdings entered into an agreement to sell a portion of
the whole ownership residential units to Exclusive Resorts. The agreement was
amended in February 2009 to reduce the number of units sold to Exclusive
Resorts and the total contract price to $57,973,000. Exclusive Resorts provided
deposits of $20,844,000 to Bay Holdings under the original agreement. These
deposits will be applied to the purchase of the new units and the balance is
due in cash upon closing in 2009.  In 2006, Bay Holdings entered into
agreements with MLP and Marriott for the marketing and sale of whole and
fractional ownership residential units in the Project (excluding units to be
sold to Exclusive Resorts). MLP and Marriott receive commission fees and
additional fees based on percentages of the gross sales price of each whole
ownership residential unit sold through MLP and Marriotts marketing and sales
efforts. Bay Holdings paid $173,000, $98,000, and $341,000 to MLP in 2008,
2007, and 2006, respectively, and $356,000, $1,663,000, and $1,679,000 to
Marriott in 2008, 2007, and 2006, respectively, under the whole ownership
marketing and sales agreements. In 2008 and 2007, Bay Holdings incurred
marketing and sales fees of $3,392,000 and $2,318,000, respectively, under the
fractional ownership residential unit marketing and sales agreement with
Marriott. Because the fees will not be paid until the units close in 2009, such
amounts due to affiliates are included in accounts payable, accrued expenses,
and other liabilities in the consolidated balance sheets and amounted to
$7,613,000 and $6,109,000 at December 31, 2008 and 2007, respectively.  In 2006, Bay Holdings entered into agreements with MLP to sell the spa,
beach club improvements, and the sundry store to MLP upon completion of
construction at Bay Holdings actual construction cost.  12


Bay Holdings had an agreement with MLP for entitlement services
relating to the receipt of governmental permits and authorizations required for
the Project. In 2006, Bay Holdings received entitlement services from MLP with
an agreed-upon value of $225,000, which was recorded as project development
costs and a corresponding credit (in lieu of cash payment) to the members
capital account of MLP KB Partner, LLC.  Bay Holdings has a technical services
agreement with Marriott for design and construction services relating to the
whole and fractional ownership residential units and ancillary improvements. In
2008, 2007, and 2006, Bay Holdings received services from Marriott with an
agreed-upon value of $100,000 each year, which was recorded as project
development costs and a corresponding credit (in lieu of cash payment) to the
members capital account of MH Kapalua Venture, LLC.  6.FINANCING ARRANGEMENTS  Construction loan and notes payable at December 31,
2008 and 2007, consisted for the following (interest rates represent the rates
at December 31):  2008
  
  2007Construction loan payable  3.6%12.85%and 6.925%16.175%
  
  $
  229,162,889
  
  $
  85,000,000MLP member note payable  16%
  
  3,749,226
  
  Marriott member note payable  16%
  
  2,499,484
  
  Marriott bridge loan payable  16%
  
  43,906,189
  
  Total
  
  $
  279,317,788
  
  $
  85,000,000  Bay Holdings had a $45 million bank credit agreement, which was
secured by a mortgage on the hotel and other improvements. The maximum loan
commitment was adjusted to $42.3 million during 2005, and the outstanding
loan balance was $29.5 million at December 31, 2005.  Bay Holdings refinanced the loan agreement in July 2006 with
Lehman, a third-party lender, prior to the end of the term of the loan. The
construction loan agreement (the Construction Loan Agreement) was for the
lesser of $370 million or 61.6% of the total projected cost of the Project
(the Loan). Upon closing of the Loan, the lender disbursed an initial advance
of $40.1 million to Bay Holdings. In January 2007, Lehman and Bay
Holdings entered into a Note Splitter and Reaffirmation Agreement wherein the
original construction loan agreement was split into six separate promissory
notes: (1) Note A-1 for $30 million, (2) Note A-2 for
$25 million, (3) Note A-3 for $25 million, (4) Note A-4
for $15 million, (5) Note A-5 for $255 million, and (6) Note B
for $20 million. Notes A-1, A-2, and A-3 were assigned to three
different banks (the Syndicate Lenders), Notes A-4 and A-5 were retained
by Lehman, and Note B was assigned to a different bank (Swedbank) as
part of a repurchase agreement. During 2007, Bay Holdings borrowed an
additional $43.4 million for a total advance of $85 million
outstanding as of December 31, 2007. Interest was accruing on the Loan at
a floating rate equal to the one-month LIBOR, plus 2.2%. All principal and
interest due on the Loan was due and payable in full on August 1, 2009.  In September 2008, Lehman filed for bankruptcy and ceased funding
under the construction loan agreement (at which point Swedbank retained all
rights and obligatons under Note B). In order to provide the continuing
construction financing as required under the construction loan agreement, the
Syndicate Lenders and Swedbank continued to provide funding. In addition, two
of Bay Holdings members, MLP and Marriott, agreed to advance funds to Bay
Holdings at an interest rate of 16% under notes payable and a bridge loan
payable.  13


On February 11, 2009, Bay Holdings, Lehman, the Syndicate Lenders,
Swedbank, and Marriott entered into an Amended and Restated Construction Loan
Agreement. Under the terms of the Amended Loan Agreement, the maximum amount
that Bay Holdings may borrow, including amounts previously funded under the
original construction loan agreement is $354.5 million.  Under the terms of the Amended Loan Agreement, the original loan was
modified by creating the following tranches of notes: (1) a new facility A
in the amount of $120.1 million consisting of $35 million to be
funded by Lehman, $20.1 million to be funded by the Syndicate Lenders
pursuant to existing obligations under the original Construction Loan
Agreement, $55 million to be funded by the Syndicate Lenders pursuant to
new obligations, and $10 million to be funded by Marriott; (2) a new
facility B-1 in the amount of $28 million consisting of $16.2 million
of advances from the Syndicate Lenders following Lehmans bankruptcy filing,
$10 million of loans previously advanced by Bay Holdings members
following Lehmans bankruptcy filing, and $1.8 million of interest
advances by Lehman following Lehmans bankruptcy filing; (3) a new
facility B-2 in the amount of $4.1 million consisting of advances made by
Swedbank under Note B following Lehmans bankruptcy filing; (4) a new
facility C-1 in the amount of $191.4 million consisting of the amounts
outstanding under Notes A-1 through A-5 prior to Lehmans bankruptcy
filing; and (5) a new facility C-2 in the amount of $10.9 million
consisting of the balance of Note B prior to Lehmans bankruptcy filing.  Interest accrues on the note facilities as follows: (1) facility A
at a floating rate equal to the one-month LIBOR, plus 5%; (2) facilities
B-1, B-2, and C-1 at a floating rate equal to the one-month LIBOR, plus 1.7%;
and (3) facility C-2 at a floating rate equal to the one-month LIBOR, plus
10.95%.  The maturity dates of the facilities are as follows: (1) facility
A  February 11, 2010, and (2) facilities B-1, B-2, C-1, and C-2  August 11,
2011. Bay Holdings may prepay the loans upon payment of certain costs and fees,
as set forth in the Amended Loan Agreement.  The Amended Loan Agreement is collateralized by the Projects assets,
including the fee simple interest in the land owned by Bay Holdings, the
adjacent spa parcel owned by MLP, and all of the sales contracts.  MLP, Marriott, and ER Kapalua Investors Fund, LLC have guaranteed
to the lender 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 Construction Loan Agreement.
The members guarantee to the lender does not include payment in full of the
Loan.  Interest costs incurred during 2008, 2007, and 2006 were $10,983,000,
$5,563,000, and $2,763,000, respectively, and were capitalized as project
development costs. The Construction Loan Agreement contains covenants that,
among other matters, restrict (or require prior approval by the lenders of)
additional borrowings, guarantees, liens, transfers, changes in the provisions
of existing agreements, and leases.  In 2006, Bay Holdings entered into an agreement to finance premiums for
its owner-controlled insurance policy. In 2007 and 2006, premiums of $2,719,000
and $4,682,000, respectively, included in project development costs were
financed through a third-party lender and recorded as insurance premium
obligations. Future minimum payments under the agreements were paid through
2008 and accrued interest at 6.363%.  14


7.LEASES  Lessor Bay Holdings leased space to retail tenants in the
hotel and Shops, and also had a lease agreement with a concessionaire at the
hotel. These operating leases provided for minimum rents and percentage rents
based on revenues. For 2006, minimum rents were $244,000, and percentage rents
were $268,000. Rental income received from MLP totaled $112,000 in 2006. The
hotel and Shops were demolished in 2006 in conjunction with the construction of
the Project. In January 2006, Bay Holdings terminated an existing lease
with a tenant in the hotel, which required termination payments to the tenant
of approximately $87,000 in 2006. At December 31, 2008 and 2007, there
were no outstanding operating lease agreements.  LesseeBay Holdings
leased equipment under operating lease agreements. Rent expense for 2006 was
$52,000 and, at December 31, 2008 and 2007, there were no outstanding
operating lease agreements.  8.EMPLOYEE
BENEFIT PLANS  Hotel employees were participants of a multiemployer defined benefit
pension plan. The expense for 2006 relating to contributions to this plan was
$16,000. There were no contributions made in 2008 and 2007.  Certain Bay Holdings employees are participants of a Marriott defined
contribution plan. Matching employer contributions to the plan totaled $9,000
in 2006. There were no contributions made in 2008 and 2007.  9.DISCLOSURE
ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS  The construction loan payable has adjustable interest rates based on
LIBOR or base rates and, accordingly, the carrying value approximates fair
value at December 31, 2008 and 2007. The carrying value of Bay Holdings
member notes payable and bridge loan payable approximates fair value at December 31,
2008.  10.COMMITMENTS AND
CONTINGENCIES  Bay Holdings had commitments under signed sales contracts totaling
approximately $314 million at December 31, 2008, which primarily
relate to sales of the residential units.  In December 2006, construction was temporarily halted in two areas
of the Project due to the discovery of ancient human remains. The authorities
were notified and Bay Holdings worked with those agencies to determine the
extent of the burials and the proper course of action. Construction continued
on the unaffected areas, but was delayed in the affected areas. In 2007, Bay
Holdings completed the excavation and reburial of the remains and continued
with the Project as planned.  15


11.DISCONTINUED OPERATIONS  KBH was closed in April 2006 (see Note 1) and the results of
operations of KBH have been presented as discontinued operations in the
consolidated statements of operations. The results of the discontinued
operations were as follows:  Operating revenues
  
  $
  6,803,014Operating expenses
  
  (7,024,156
  )Loss from discontinued operations
  
  $
  (221,142
  )  * * * * * *  16