Teruya Brothers, Ltd. & Subsidiaries - Page 6

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               At some point, TGE transferred Kupuohi II to Teruya.  As of            
          the date the petition was filed, Teruya still owned Kupuohi II.             
               B.  Royal Towers Transaction                                           
               In 1994, Teruya owned a fee simple interest in the Royal               
          Towers Apartment building (Royal Towers) in Honolulu, Hawaii.  On           
          or about December 12, 1994, Teruya and Savio Development Co.                
          (Savio) entered into a $13.5 million contract for the sale of               
          Royal Towers.  The contract stated that the sale was subject to             
          the “Seller [Teruya] being able to consummate [a section 1031]              
          exchange.”  Teruya and Savio later agreed to decrease the price             
          for Royal Towers from $13.5 million to $11,932,000.  In April               
          1995, Teruya’s board of directors approved the sale of Royal                
          Towers to Savio.                                                            
               In anticipation of Teruya’s sale of Royal Towers, Teruya and           
          Times previously had agreed that Teruya would purchase Times’s              
          interests in two parcels of real property in Waipahu and Aiea,              
          Hawaii (respectively, Kupuohi I and Kaahumanu).  One of the                 
          purchase terms stated:                                                      
               The purchase will be subject to a [section] 1031 four                  
               party exchange.                                                        
                         *    *    *    *    *    *    *                              

          numerical stipulations.  To avoid these inconsistencies, we have            
          found Times’s adjusted basis in Kupuohi II to be $1,475,361,                
          which is the number reflected on Times’s 1995 corporate income              
          tax return.                                                                 

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