As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 9/24/07  Royal Hawaiian Orchards, L.P.     PREM14A                1:3.5M                                   Merrill Corp-MD/FA

Document/Exhibit                   Description                      Pages   Size 

 1: PREM14A     Preliminary Proxy Solicitation Material -- Merger   HTML   2.15M 
                          or Acquisition                                         

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.              )

 

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ML MACADAMIA ORCHARDS, L.P.
26-238 Hawaii Belt Drive
Hilo, Hawaii 96820

October       , 2007

Dear Unitholder:

You are cordially invited to attend a Special Meeting of Unitholders of ML Macadamia Orchards, L.P. (the “Partnership”) to be held at 10:00 A.M., Hawaii Standard Time (“HST”), December     , 2007, at the offices of Carlsmith Ball, ASB Tower, Suite 2200, 1001 Bishop Street, Honolulu, Hawaii 96813. The purposes of the Unitholders Meeting are (1) to approve an amendment to the Partnership’s Agreement of Limited Partnership to expand the purpose of the Partnership, which will enable the Partnership to acquire the operating assets of Mac Farms of Hawaii, LLC (“Mac Farms”), to lease a processing plant from Mac Farms, and to lease land and macadamia nut orchards from Kapua Orchard Estates, LLC (“Kapua”) (the “Acquisition Proposal”), and (2) to consider and vote upon a proposal to amend the Partnership’s Agreement of Limited Partnership (the “Amendment Proposal”).

The Acquisition Proposal

The Partnership has signed a definitive Acquisition Agreement to purchase substantially all of the assets of Mac Farms. The Partnership intends to acquire the farming, processing and marketing assets of Mac Farms and to lease the approximately 15 acre property on which a processing plant is located. In addition, the Partnership, in the same definitive agreement, has agreed to lease approximately 3,998 acres of land and macadamia nut orchards thereon from Kapua. The foregoing transactions are referred to as the “Acquisition.” The consideration for the Acquisition will require the issuance of 650,000 limited partner Class A Units for the long term assets and a payment of cash in the amount of the net current assets of the business of Mac Farms determined as of the closing.

The primary purpose of the Acquisition is to enable the Partnership to vertically integrate by acquiring and operating a processing and marketing arm, thereby giving it more ability to positively impact pricing for its nuts, as well as to expand its operations and profitability. Historically, macadamia nut prices have been extremely volatile and, currently, nut prices being paid to farmers are quite low. Management believes that the acquisition of processing and marketing capabilities will help to insulate the Partnership from price volatility and provide higher margins when farm prices are low.

The acquisition of the processing facilities will ensure that the Partnership is able to process its crop into macadamia kernel once its current nut purchase contracts expire. The lease of additional orchards is expected to improve the Partnership’s farming cost structure and economies of scale. Finally, the acquisition of Mac Farms’ brands and distribution will allow the Partnership to market premium Hawaiian macadamia nuts under its own Hawaiian brand names, which should improve margins and build brand equity. Management believes that this is the best opportunity to grow revenues and profits within its existing industry and core competence, with the intent of providing significant operational synergies and reducing dependence on the marketing efforts of others.

The Partnership believes that unless it takes an active role in processing and marketing high-quality Hawaii-grown macadamia nuts, Hawaii nuts will end up being treated as a commodity, competing solely on price with foreign nuts, to the detriment of the Partnership as a grower, as well as all other growers of macadamia nuts in Hawaii. The Acquisition will give the Partnership greater control of its own destiny for the benefit of its Unitholders.

The Partnership Agreement must be amended before the acquisition can be completed. The purpose of the Partnership, which now is restricted to the growing of macadamia nuts, must be expanded to include the processing and marketing of macadamia nuts.

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The Board of Directors of the Partnership’s General Partner has approved unanimously the Acquisition Proposal to be presented at the Unitholders meeting and recommends that Unitholders vote for the Acquisition Proposal.

The Amendment Proposal

The Board of Directors also recommends that the Partnership Agreement be amended to provide procedures for the election of Directors of the General Partner by the Unitholders and certain other matters.

Approval of the Acquisition Proposal and the Amendment Proposal will require the affirmative vote of a majority of all outstanding Class A Units held by the limited partners. An abstention or failure to vote will have the same effect as a vote against these Proposals. It is therefore important that your shares be represented at the Unitholders Meeting, whether or not you currently plan to attend the Unitholders Meeting in person.

Please complete, date, sign and promptly return your proxy card in the enclosed envelope. Returning your proxy card now will not prevent you from voting in person at the Unitholders Meeting, but will assure that your vote is counted if you are unable to attend.

Please vote today.

 

IMPORTANT: VOTING CAPABILITY IS AVAILABLE AT OUR WEBSITE AT MLMACADAMIA.COM. IF YOUR CLASS A UNITS ARE HELD IN THE NAME OF A BROKERAGE FIRM OR NOMINEE, ONLY IT CAN VOTE YOUR UNITS. TO ENSURE THAT YOUR UNITS ARE VOTED, FOLLOW THE VOTING INSTRUCTIONS PROVIDED TO YOU BY SUCH FIRM OR NOMINEE WITH THIS PROXY STATEMENT OR TELEPHONE THE PERSON RESPONSIBLE FOR YOUR ACCOUNT TODAY TO OBTAIN INSTRUCTIONS ON HOW TO DIRECT HIM OR HER TO EXECUTE A PROXY ON YOUR BEHALF. IF YOU HAVE ANY QUESTIONS OR NEED HELP IN VOTING YOUR SHARES, PLEASE TELEPHONE MIKE HAWKINS, DIRECTOR OF REGULATORY COMPLIANCE, AT 808-969-8032 OR SEND HIM AN EMAIL AT MHAWKINS@MLNUT.COM

ML MACADAMIA ORCHARDS, L.P.

NOTICE OF SPECIAL MEETING OF UNITHOLDERS

To be Held On December    , 2007

October    , 2007

To the Unitholders of ML Macadamia Orchards, L.P.:

Notice is hereby given that a Special Meeting of the Unitholders of ML Macadamia Orchards, L.P., a Delaware limited partnership (the “Partnership”), will be held at the offices of Carlsmith Ball, ASB Tower, Suite 2200, 1001 Bishop Street, Honolulu, Hawaii, at 10:00 a.m., HST, on December     , 2007, to consider and vote upon proposals to amend the Partnership’s Agreement of Limited Partnership. Proposal (1), the “Acquisition Proposal,” would permit the Partnership to engage in the business of processing and marketing macadamia nuts. Proposal (2), the “Amendment Proposal,” would provide procedures for the election of the directors of the General Partner directly by the Unitholders, and certain other matters.

The “Acquisition Proposal” must be adopted in order to permit the Partnership to consummate a proposed transaction to acquire the operating assets of Mac Farms of Hawaii, LLC (“Mac Farms”), to lease land and a processing plant from Mac Farms, and to lease land and macadamia nut  orchards from Kapua Orchard Estates, LLC (“Kapua”). Mac Farms  is currently the second largest processor of macadamia nuts in Hawaii and Kapua is currently the second largest grower of macadamia nuts in Hawaii.

The Special Meeting has been called by the general partner of the Partnership for the purpose of submitting the Acquisition Proposal and Amendment Proposal to the Unitholders for their approval. The affirmative vote of more than 50% of the Class A Units issued to limited partners and outstanding on the Record Date for the Special Meeting is required to approve each of the Acquisition Proposal and the Amendment Proposal. More detailed information concerning the Acquisition Proposal, the Amendment Proposal, and the Special Meeting of Unitholders is included in the attached Proxy Statement.

The general partner has fixed the close of business on September     , 2007 as the record date (the “Record Date”) for determination of the limited partners of the Partnership holding Class A Units (the “Unitholders”) entitled to notice of, and to vote at, the Special Meeting and any adjournments thereof.

Unitholders are cordially invited to attend the Special Meeting in person. Whether or not you expect to attend, please sign, date and mail promptly the enclosed proxy in the prepaid return envelope to assure representation of your Class A Units, and the presence of a quorum, at the Special Meeting.

Unitholders are urged to read the attached Proxy Statement carefully for more detailed information concerning the Acquisition Proposal and the Amendment Proposal.

 

PLEASE EXECUTE AND RETURN THE ENCLOSED PROXY CARD PROMPTLY, WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE SPECIAL MEETING. VOTING CAPABILITY IS ALSO AVAILABLE AT OUR WEBSITE AT MLMACADAMIA.COM. IF YOUR CLASS A UNITS ARE HELD IN THE NAME OF A BROKERAGE FIRM OR NOMINEE, ONLY IT CAN VOTE YOUR UNITS. TO ENSURE THAT YOUR UNITS ARE VOTED, FOLLOW THE

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VOTING INSTRUCTIONS PROVIDED TO YOU BY SUCH FIRM OR NOMINEE WITH THIS PROXY STATEMENT OR TELEPHONE THE PERSON RESPONSIBLE FOR YOUR ACCOUNT TODAY TO OBTAIN INSTRUCTIONS ON HOW TO DIRECT HIM OR HER TO EXECUTE A PROXY ON YOUR BEHALF. IF YOU HAVE ANY QUESTIONS OR NEED HELP IN VOTING YOUR UNITS, PLEASE TELEPHONE MIKE HAWKINS, DIRECTOR OF REGULATORY COMPLIANCE, AT 808-969-8032 OR SEND HIM AN EMAIL AT MHAWKINS@MLNUT.COM

ML MACADAMIA ORCHARDS, L.P.
PROXY STATEMENT

This Proxy Statement is being furnished to the Unitholders of ML Macadamia Orchards, L.P., a Delaware limited partnership (the “Partnership”), in connection with the solicitation by the Board of Directors of ML Resources, Inc., the general partner of the Partnership, of proxies to be used at a special meeting of the Unitholders of the Partnership (“Unitholders Meeting”).

At the Unitholders Meeting, holders of Class A Units on the record date will be asked to approve the amendment of the Limited Partnership Agreement of the Partnership to (1) permit the Partnership to engage in the processing and marketing of macadamia nuts and (2) provide procedures for the election of directors of the General Partner directly by the Unitholders (collectively the “Amendments”) Proposal (1) is referred to as the Acquisition Proposal and must be approved in order to permit the Partnership to consummate a proposed transaction (the “Acquisition”) to acquire substantially all of the operating assets of Mac Farms of Hawaii LLC (“Mac Farms”), the leasing of land and the improvements thereon from Mac Farms and the leasing of land and macadamia orchards from Kapua Orchard Estates, LLC (“Kapua”). Proposal (2) is referred to as the Amendment Proposal and does not need to be approved in order to consummate the Acquisition. For a description of these and other actions to be taken at the Special Meetings, see “THE UNITHOLDERS MEETING.”

This Proxy Statement is being mailed to the Unitholders of the Partnership on or about October     , 2007.

THE DATE OF THIS PROXY STATEMENT IS October     , 2007

Table of Contents

		Page
SUMMARY		1
The Parties		1
The Partnership		1
Mac Farms		1
Kapua		1
The Acquisition		1
The Strategy		2
The Amendments to the Partnership Agreement		2
Recommendation of the General Partner		2
Conditions to the Acquisition		2
Termination of the Acquisition Agreement		3
Regulatory Matters		3
Accounting Treatment		3
The Meeting		3
Votes Required; Record Date		3
Management of the Partnership Following the Amendments and the Acquisition		4
Effective Time		4
Certain Federal Income Tax Considerations		4
INTRODUCTION		5
SUMMARY OF THE ACQUISITION		5
The Importance and Advantages of the Acquisition		5
Mac Farms and Kapua		6
Assets to be Acquired		7
Consideration for the Acquisition		7
Financing		7
The Processing Plant Lease		7
The Orchard Lease		8
Recommendation of the General Partner		8
The Acquisition Agreement		8
THE UNITHOLDERS MEETING		12
Date, Time and Place		12
Purpose		12
Record Date; Voting Rights		13
Proxies and Revocability of Proxies		13
Cost of Solicitation of Proxies		13
Vote Required		13

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Quorum; Adjournment		13
Other Matters		14
BENEFICIAL OWNERSHIP OF PRINCIPAL UNITHOLDERS AND MANAGEMENT—THE PARTNERSHIP		14
FORWARD-LOOKING STATEMENTS		15
UNAUDITED PRO FORMA FINANCIAL INFORMATION		16
Pro Forma Balance Sheet		16
Financial Forecast		17
SUMMARY OF THE AMENDMENTS		19
OTHER BUSINESS		20
INFORMATION ABOUT THE PARTNERSHIP		20
General Description of the Business		20
Risks Involved in Operating Macadamia Orchards		24
Properties		27
Legal Proceedings		28
MARKET FOR REGISTRANT’S CLASS A UNITS AND RELATED UNITHOLDER MATTERS		29
Restrictions on Cash Distributions		29
SELECTED FINANCIAL DATA OF THE PARTNERSHIP		30
Supplemental Financial Information		31
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		32
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		44
CHANGES IN REGISTRANT’S CERTIFYING ACCOUNTANT		44
INFORMATION ABOUT MAC FARMS		44
RELATIONSHIP WITH MAC FARMS		51
PROPOSALS OF UNITHOLDERS		51
DISSENTER RIGHTS		51
DESCRIPTION OF PARTNERSHIP UNITS		51
INDEPENDENT ACCOUNTANTS		52
WHERE YOU CAN FIND MORE INFORMATION		52
INDEX TO FINANCIAL STATEMENTS		F-1
APPENDIX A. ACQUISITION AGREEMENT AND AMENDMENT
APPENDIX B. PARTNERSHIP AGREEMENT AMENDMENTS

 

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SUMMARY

Unitholders are urged to review the entire Proxy Statement and Appendices carefully for the matters to be considered at the Unitholders Meeting.

The Parties

The Partnership

The Partnership is a publicly traded limited partnership, organized under the laws of the State of Delaware, and engaged in the business of growing macadamia nuts in Hawaii for sale to various processors on the island of Hawaii. Its principal executive offices are at 26-238 Hawaii Belt Drive, Hilo, Hawaii 96720. Its telephone number is (808) 969-8057. Its general partner is ML Resources, Inc. (“Resources” or the “General Partner”), which is wholly owned by the Partnership. Farming operations are conducted by the Partnership on lands which it owns or leases, and it also performs farming operations for other owners of macadamia nut orchards.

Mac Farms

Mac Farms is a privately held limited liability company organized under the laws of the State of Delaware which is engaged in the business of processing and marketing macadamia nuts. It owns an approximately 15 acre parcel of land in South Kona, Island of Hawaii, on which is located various buildings, equipment and storage facilities constituting a macadamia nut processing plant. Its address is 775 Ridge Lake Boulevard, Suite 450, Memphis, Tennessee 38120 and its telephone number is (901) 766-4412.

Kapua

Kapua is a privately held limited liability company organized under the laws of the State of Delaware. It owns approximately 3,998 acres of fee simple land in South Kona, Island of Hawaii and macadamia orchards thereon. Kapua is in the business of growing and selling macadamia nuts. Its address and its telephone number are the same as Mac Farms.

The Acquisition

The Partnership has entered into an Acquisition Agreement dated as of May 24, 2007, as amended, (the “Acquisition Agreement”) with Mac Farms and Kapua which obligates the parties to proceed with the Acquisition, subject to the satisfaction of the conditions set forth therein. The Partnership will acquire substantially all of the tangible personal property of Mac Farms, including factory equipment, farming equipment and rolling stock. It will also acquire the brands, trademarks, distribution contracts, customer list and most of the other intangible property of Mac Farms. It will purchase the current assets of Mac Farms as of the closing date but not including accounts receivable or cash. It will assume the current liabilities of Mac Farms including accounts payable and certain accrued liabilities. The Partnership will issue 650,000 Class A Units to Mac Farms and will pay an amount of cash equal to the net amount of current assets less current liabilities as defined in the Acquisition Agreement of Mac Farms (the “Working Capital”) as of the closing date. Based upon the balance sheet of Mac Farms dated June 30, 2007 it is estimated if the transaction had closed as of that date the amount of cash would be approximately $10,575,000. In addition, on the closing date Mac Farms will lease the land on which the processing plant is located to the Partnership for 20 years and Kapua will lease to the Partnership 3,998 acres of land together with the improvements and macadamia nut orchards thereon for a period of 5 years.

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The Strategy

Through the Acquisition, the Partnership will obtain a processing facility for its nuts, as well as a lease of additional macadamia orchards. The Partnership believes that this vertical integration will reduce its risk relating to the volatility of macadamia nut prices, permit it to expand its operations and provide the potential for greater profitability and future growth.

The Amendments to the Partnership Agreement

The proposed Amendments to the Partnership Agreement (“Amendments”) are the following:

Proposal (1)   Authorization to Process and Market Macadamia Nuts.   To expand the permitted business of the Partnership to permit it to engage in the business of processing and marketing macadamia nuts. This proposed amendment must be adopted before the Acquisition can be consummated.

Proposal (2)   Creation of Procedures for Election of Board of Directors of General Partner by Unitholders.   To provide a mechanism whereby the Unitholders may elect the Board of Directors of the General Partner at an annual meeting of the Partnership.

Proposal (1) must be approved by the Unitholders to permit the Partnership to consummate the Acquisition. Approval of Proposal (2) is not a condition precedent to consummation of the Acquisition but has been recommended by the General Partner to modernize the Partnership Agreement. Although the Partnership does not require and is not seeking a vote on approval of the Acquisition, it intends to proceed with the Acquisition if Proposal (1) is approved and the other conditions in the Acquisition Agreement are met.

IF THE UNITHOLDERS DO NOT APPROVE PROPOSAL (1), THE ACQUISITION PROPOSAL, THE PARTNERSHIP CANNOT PROCEED WITH THE ACQUISITION.

Recommendation of the General Partner

The General Partner has determined that the terms of the Amendments are advisable and in the best interest of the Partnership and its Unitholders and has approved and signed the Acquisition Agreement (see Appendix A attached hereto) and has approved the Amendments. Accordingly, the board of directors of the General Partner recommends unanimously that the Unitholders vote “For” adoption of each of the Amendments at the Unitholders Special Meeting.

Conditions to the Acquisition

The Partnership, Mac Farms and Kapua are not obligated to complete the Acquisition unless a number of conditions are satisfied or waived by them. These include:

·       Approval of the Acquisition Proposal by the Unitholders;

·       The continuing accuracy of the parties representations and warranties in the Acquisition Agreement;

·       Receipt of a title insurance commitment relating to the Processing Plant Lease and the Orchard Lease by the Partnership; and

·       Certain other conditions.

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Termination of the Acquisition Agreement

Mac Farms and Kapua on the one hand or the Partnership on the other hand may terminate the Acquisition Agreement:

·       By mutual consent at any time;

·       By either party if the Acquisition has not been consummated by December 31, 2007;

·       By either party if the other party fails to comply in a material respect with any covenants or agreements contained in the Acquisition Agreement;

·       By Mac Farms or Kapua in the event the average spot price of macadamia nuts immediately prior to approval by the Unitholders of the Acquisition Proposal is less than $3.25 per pound, subject to the Partnership’s right to avoid termination by paying an adjustment to the purchase price; and

·       By Mac Farms or Kapua in the event the average market price for the Units or the NYSE for the ten days preceding the approval by Unitholders of the Acquisition Proposal is less than $4.72 per Unit, subject to the Partnership’s right to avoid termination by paying an adjustment to the purchase price.

Regulatory Matters

No regulatory approvals are required as a condition to the closing of the Acquisition. The parties have each agreed to use their commercially reasonable efforts to do all things necessary to consummate the Acquisition including making all necessary reports and filings.

Accounting Treatment

The Partnership will account for the Acquisition as a purchase under generally accepted accounting principles in the United States.

The Meeting

The Unitholders Meeting will be held at 10:00 A.M., Hawaii Standard Time, on December     , 2007, at the offices of Carlsmith Ball LLP, located at ASB Tower, Suite 2200, 1001 Bishop Street, Honolulu, HI 96813. The purpose of the Unitholders Meeting is to consider and vote upon (i) the Acquisition Proposal, (ii) the Amendment Proposal and (iii) such other matters as may be properly brought before the meeting.

Votes Required; Record Date

The Partnership.   Only Unitholders of record at the close of business on September     , 2007 (the “Record Date”) will be entitled to vote at the Unitholders Meeting. The affirmative vote of a majority of the Class A Units held by limited partners and outstanding on such date are required to approve each of the Acquisition Proposal and the Amendment Proposal. As of August 31, 2007, there were 7,500,000 Class A Units outstanding and entitled to vote, beneficially held by approximately 8,000 Unitholders. See “THE UNITHOLDERS MEETING.”

As of August 31, 2007, directors and executive officers of the General Partner beneficially owned 3,720 Class A Units or approximately 0.05% of the outstanding Class A Units.

If votes sufficient to approve the Acquisition Proposal and the Amendment Proposal are not received prior to the Unitholders Meeting, Unitholders may be asked to vote to adjourn the Unitholders Meeting to a future date in order to permit further solicitation of proxies. Approval of adjournment requires the

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affirmative vote of the holders of the majority of the Class A Units present at the Unitholders Meeting and entitled to vote thereon. The granting of a proxy also includes the authority to vote to adjourn the meeting.

Management of the Partnership Following the Amendments and the Acquisition

After approval of the Amendments and consummation of the Acquisition, the current members of the Board of Directors will continue to be directors of the General Partner. If Proposal (2) is approved, directors will be elected by the Unitholders at the next annual meeting of the Partnership.

Following approval of the Amendments and consummation of the Acquisition, the officers and employees of the General Partner will continue to supervise and monitor all operations of the Partnership. There will be no changes in the officers and employees of the General Partner as a result of the Unitholders Meeting unless a new Board of Directors makes such changes. None are contemplated at this time.

Effective Time

The Amendments will become effective upon approval by Unitholders holding more than 50% of the 7,500,000 Class A Units held by them at the Unitholders Meeting (the “Effective Time”).

Certain Federal Income Tax Considerations

In the opinion of counsel for the Partnership, the actions to be taken at the Unitholders Meeting as set forth above will not change the manner in which the Partnership or its Unitholders will be taxed although upon consummation of the Acquisition a new subsidiary of the Partnership will be a subchapter C corporation, subject to corporate income tax. For further information see “Summary of the Acquisition—Proposed Subsidiaries.”

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INTRODUCTION

General

This Proxy Statement is being furnished to the limited partners holding Class A Units of the Partnership (the “Unitholders”) in connection with the solicitation of proxies the General Partner of the Partnership, for use at the special meeting of Unitholders to be held at 10:00 A.M., HST, on December     , 2007, at the offices of Carlsmith Ball LLP, ASB Tower, Suite 2200, 1001 Bishop Street, Honolulu, Hawaii 96813, and at any adjournments or postponements thereof ( the “Unitholders’ Meeting”).

At the Unitholders Meeting, Unitholders on the record date will be asked to approve the amendment of the Limited Partnership Agreement of the Partnership to (1) permit the Partnership to engage in the processing and marketing of macadamia nuts and (2) provide procedures for the election of directors of the General Partner directly by the Unitholders (collectively the “Amendments”). Proposal (1), the Acquisition Proposal, must be approved in order to permit the Partnership to consummate the Acquisition. Proposal (2), the Amendment Proposal, is being proposed by the Board of Directors of the General Partner but does not need to be approved in order to consummate the Acquisition. For a description of these and other actions to be taken at the Special Meetings, see “THE UNITHOLDERS MEETING.”

SUMMARY OF THE ACQUISITION

The Importance and Advantages of the Acquisition

Global macadamia prices have historically been quite volatile due to poorly managed swings in both supply and demand. Prices for macadamia kernel hit record highs in 2004, exceeding $6.25 per pound for kernel, equating to between 90 cents and $1.00 per pound on an in-shell basis. Macadamia consumption was increasing at a double digit pace, fueled by a strong economy, good marketing momentum and the inclusion of macadamia nuts in the Atkins diet. With its nut purchase contracts with Mauna Loa scheduled to expire on December 31, 2006, the Partnership was well positioned to take advantage of the high demand and prices. New contracts were signed with all of the major processors in 2004 and 2005, some with attractive fixed pricing and others with market-based pricing mechanisms.

In the past 36 months, macadamia demand has slowed considerably and both kernel and nut-in-shell prices have declined by approximately 50%. Retail consumption has declined and many ingredient nut users dropped out of the market when prices rose too high. As a result, many processors and marketers now have excess inventory and are no longer willing or able to purchase nuts from independent farmers.

Management believes that the Acquisition will:

Enable the Partnership to vertically integrate, which will ensure that the Partnership’s crop will be processed into high quality macadamia kernel once its present nut contracts expire.

Allow the Partnership to grow within its industry and core competence by processing and marketing premium Hawaiian Macadamia nuts on a global basis. This will help to protect and promote the Hawaiian origin, which should benefit all Hawaii growers.

Insulate the Partnership from the risk of price volatility on macadamia nuts which it is now subject to in its present role as the grower of a commodity. Adding processing and marketing capability should provide more attractive retail margins when grower prices are low.

Improve economies of scale and operational synergies by farming additional orchards leased from Kapua.

Increase shareholder value by providing an avenue to grow revenues, profits and cash flow as a marketer of premium consumer products.

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For these reasons the General Partner has recommended that the Partnership enter the processing and marketing segments of the business. This decision was intended not only to protect the value of the Partnership’s orchards and production, but also to increase the value to all growers of nuts in Hawaii. Many wholesale buyers of macadamia nuts would prefer to see Hawaii macadamia nuts aggregated as an agricultural commodity with nuts produced in other countries since that would allow them to interchange nuts from various countries in products they produce and take advantage of worldwide supply, pricing and market volatility. The Partnership’s objective is to market Hawaii’s high quality macadamia nuts to consumers as the premier macadamia nut product in the world. The Partnership will seek to differentiate Hawaii macadamia nuts from macadamia nuts grown in other countries and position them as a premium product in order to attempt to achieve premium prices from their sale.

The Acquisition allows the Partnership to acquire the processing and marketing assets of Mac Farms and it allows Kapua to retain ownership of the land while leasing its orchards to the Partnership. In this way the Partnership will have the opportunity to preserve and strengthen the processing and marketing arm of Mac Farms without having to commit capital to acquire the underlying real property.

The Partnership intends to strengthen the marketing capabilities it acquires from Mac Farms and capitalize on the quality, reputation and romantic imagery of the Hawaii grown macadamia nut in the consumer’s mind. The acquisition of a processing plant will enable the Partnership to grow and improve its profits potential. Management is also concerned that acceptance of the status quo will likely result in flat or even declining future revenues and profitability or the possibility that no buyer or processor will purchase its crop after expiration of its current nut purchase contracts.

Mac Farms and Kapua

Mac Farms owns an approximately 15 acre parcel of land adjoining a government road in South Kona, Island of Hawaii. An assortment of buildings, equipment and storage facilities on this parcel form a processing plant. This plant husks nuts which arrive-in husk, thereby removing an outer husk. The nuts are then dried. Next, cracking machines crack the very hard shells to produce nuts which are called kernels. The majority of these kernels are further processed to “value-added” products. These include cans, jars, or pouches of dry-roasted pristine nuts, which are the primary value-added products. These nuts are generally sold under the “MacFarms” label. Other nuts are processed into chocolate covered macadamia nut candy, also sold primarily under the “MacFarms” label. Some nuts and candy are sold to large customers under other brand names, including the “Kona Select” label. Commercial grade kernels or those which exceed the demand for the value-added market are sold on the commodities market as “kernels”. The buyers of these kernels further process the nuts into value-added products under their own labels. Broken nuts and pieces are sold as commodities to processors which use them as ingredients in cookies, cake, ice cream, etc. The processing plant parcel also houses the administrative offices for the entire operation.

Kapua is a sister company of Mac Farms. Both companies are owned by the same parties. It owns approximately 3,998 acres of fee simple land in the region of Kapua, South Kona, Island of Hawaii upon which it cultivates macadamia orchards.

The Kapua orchards were developed during the years 1961-1971 and are, for the most part, mature orchards. The orchards have produced an annual average of about 8,000,000 pounds of wet-in-shell macadamia nuts at 20% moisture over the past ten years. Production was at 12,000,000 pounds during the year 2006, which is higher than normal because of higher than historical rainfall. Kapua leases all of its orchards to Mac Farms.

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Assets to be Acquired

The Partnership will purchase substantially all of the tangible personal property of Mac Farms, including factory equipment, farming equipment and rolling stock. The Partnership will purchase substantially all of the current assets of Mac Farms as of the closing date other than accounts receivable and cash. By far the largest portion of the current assets is inventory, which will be valued at the lower of cost or market value. The Partnership will assume liability for substantially all of the current liabilities of Mac Farms, including accounts payable and certain accrued current liabilities. The Partnership will purchase the brands (including the brands “MacFarms” and “Kona Select”), other trademarks, distribution contracts, customer lists, and substantially all of the other intangible property of Mac Farms. The Partnership intends to hire substantially all current employees of Mac Farms at similar compensation and benefit levels after the closing.

Consideration for the Acquisition

The Partnership will issue 650,000 Class A Units to Mac Farms in a private placement. The Partnership is required to file a Registration Statement with the Commission after the closing to register such units under the Securities Act of 1933. The difference between the book value of the current assets acquired and the current liabilities assumed, as defined in the Acquisition Agreement (the “Working Capital”), will be paid in cash on the closing by the Partnership to Mac Farms. If the transaction had closed on June 30, 2007 such payment would have been approximately $10,575,000. The actual amount of Working Capital will be determined as of the closing date and is subject to verification by the Partnership’s independent accountants.

Financing

The Partnership has secured a Loan Commitment from American Ag Credit in the amount of $17,500,000. This loan (the “Financing”) will enable the Partnership to pay off all of its currently existing long-term debt and Mac Farms’ accrued payables at Closing, as well as provide working capital for the future. The Loan is in two segments. The first segment is a term loan in the amount of $7,500,000. It will be used to pay off the Partnership’s current term loan in the amount of $1,200,000 and to pay for all or a portion of the net current assets being acquired. Principal payments under the term loan will be required in the amounts of $400,000 in year one, $600,000 in year two, $750,000 in years 3 through 8, and $1,000,000 in years 9 and 10. The interest rate will be the then current LIBOR rate plus an amount ranging from 1.375% - 2.375% depending on the current financial position of the Partnership. The loan will mature in ten years. The second segment is a Line of Credit in the amount of $10,000,000. This Line of Credit will be used both to provide additional funds for the acquisition of Mac Farms’ Working Capital, if necessary, as well as to provide working capital for current operations. The interest rate will be LIBOR plus an amount ranging from 1.25% - 2.25% depending on the current financial position of the Partnership. The loan will mature in five years. Although the closing of the Acquisition is not conditioned upon the funding of this loan, management believes the loan will be available to the Partnership.

The Processing Plant Lease

On the Closing, Mac Farms will lease to the Partnership the approximately 15 acre processing plant parcel, the nut storage facilities, the husking plant, and all other buildings thereon owned by Mac Farms for a term of twenty years (the “Processing Plant Lease”). There will be no lease rent for the first year. The base lease rent for the second through the tenth years will be $111,111.11 , plus general excise tax, per year on a triple net basis. The base rent will be $200,000 per year for the final ten years. At the end of the fifteenth year of the Processing Plant Lease, Mac Farms must notify the Partnership as to whether the Partnership must vacate the property at the end of twenty years or whether it is willing to extend the Processing Plant Lease for five additional years on the same terms and conditions, except rent, which is to be determined as set forth in the Processing Plant Lease.

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Upon two years notice to the Partnership after the fourth year of the Processing Plant Lease, the Partnership will be required, at Mac Farms option, either to (1) relocate or shut down the husking facility (a portion of the processing plant), or (2) take measures to reduce the noise and dust at the husking facility to levels reasonably acceptable to Mac Farms given the use of the surrounding property. The Partnership believes other husking facilities and alternatives should be available if this were to occur.

By the end of both the fifth and sixth years of the Processing Plant Lease, the Partnership must spend at least $250,000 each year for beautification of the commercially zoned land within the leased parcel or the highway frontage within the leased parcel, as will be recommended by Mac Farms. Such beautification must be reasonably satisfactory to both parties.

The Orchard Lease

On the Closing, Kapua will lease to the Partnership 3,998 acres of land, together with all improvements and all of its macadamia nut orchards on the land. The lease (the “Orchard Lease”) will be a triple net lease for a period of five years on a triple net basis where all direct costs of the land, including property taxes, insurance and maintenance are the responsibility of the Partnership. There will be no lease rent for the first year. The rent for the ensuing four years will be $78.135 per acre per year. Kapua has the right to withdraw up to 400 acres per year from the Orchard Lease, provided that Kapua at its own expense secures and pays for all required government approvals. Lease rent will be reduced ratably for withdrawn acreage. Unless lands are withdrawn from the Orchard Lease, annual lease rent for the second through fifth years of the Orchard Lease will be $312,343.75, plus general excise tax, on a triple net basis.

Recommendation of the General Partner

For the reasons stated above, the General Partner and its board of directors unanimously recommend that the Unitholders approve the Acquisition Proposal to permit the Acquisition to proceed and approve the Amendment Proposal to amend the Partnership Agreement.

The Acquisition Agreement

General.   Subject to the terms and conditions of the Acquisition Agreement, the Partnership will acquire substantially all of the operating assets of Mac Farms including tangible and intangible personal property, intellectual property, goodwill and other rights and the Partnership will assume current liabilities of Mac Farms. The Acquisition Agreement was executed as of May 24, 2007 and was amended by the First Amendment thereto as of July 19, 2007. References in this Proxy Statement to the Acquisition Agreement are to the Acquisition Agreement, as amended. The Partnership will also lease land on which the processing plant of Mac Farms is located and lease macadamia orchards from Kapua. The foregoing transactions are referred to as the Acquisition.

The following summary of the material provisions of the Acquisition Agreement is qualified by a reference to the complete text of the Acquisition Agreement, a copy of which is attached as Appendix A to this proxy statement. All Unitholders are encouraged to read the Acquisition Agreement in its entirety for a more complete description of the terms and conditions of the Acquisition.

Structure of the Acquisition.   On the closing of the Acquisition, the Partnership will acquire substantially all of the tangible and intangible personal property of Mac Farms, including but not limited to inventory, equipment, contract rights, tools, vehicles, customer lists, goodwill, trademarks, trade names, books, files and records and other property. The real property owned by Mac Farms upon which the processing plant is located will be leased to the Partnership for twenty (20) years under the Processing Plant Lease. See “Summary of the Acquisition—The Processing Plant Lease”. As of the closing date, the Partnership will assume liabilities of Mac Farms relating to ordinary course trade payables and with respect to capital leases and installment purchase and other liabilities that constitute current liabilities of

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Mac Farms under GAAP as well as liabilities with respect to the assets being leased. The Partnership will also execute a five (5) year lease with Kapua to lease 3998 acres of macadamia orchards. See “Summary of the Acquisition—The Orchard Lease”.

Mac Farms is required to form two new subsidiaries (the “Subsidiaries”) prior to the closing date and the Partnership has a right to designate which of the assets being purchased shall be contributed to each of the Subsidiaries. On the closing date, the Partnership will acquire ownership of the Subsidiaries and thereby indirectly ownership of the assets being purchased from Mac Farms. The purchase does not include cash, accounts receivable or real property of Mac Farms. The assets being contributed to the Subsidiaries are required to be contributed free and clear of any and all liens, claims or encumbrances including any existing financing or debt obligations of Mac Farms.

Purchase Price.   The Partnership will issue 650,000 Class A Units of the Partnership to Mac Farms in a private placement. In addition, the Partnership will pay to Mac Farms the net book value of Mac Farms current assets less current liabilities as of the closing date, but excluding Mac Farms’ revolving credit line, short term debt, loans made by affiliates, debt payable, employee benefits and inter-company balances as otherwise set forth in the Acquisition Agreement. Ninety-five percent (95%) of this amount is required to be paid on the closing with five percent (5%) of this amount being retained by an escrow agent pending the outcome of a true-up by the Partnership and Mac Farms of the final balances as of the closing date. If a dispute arises with respect to the true-up, it will be resolved by alternative dispute resolution. The amount of the true-up is required to be paid forty-five (45) days after the closing date. The cash payment is subject to potential adjustments, at the discretion of the Partnership, as discussed below.

Potential Adjustments to Purchase Price.   In the event that the average closing price per Unit of the Partnership on the New York Stock Exchange for the ten trading days immediately preceding the date upon which approval of the Acquisition Proposal by the Unitholders is obtained is less than $4.72 per Unit, Mac Farms or Kapua may terminate the Acquisition Agreement. The Partnership has a right to avoid such termination by agreeing to pay a purchase price adjustment in cash on the closing date equal to the difference between the average closing price as aforesaid and $4.72 per Unit times 650,000. Thus, in the event that the average closing price is $4.70 and Mac Farms elects to terminate the transaction, then the Partnership has the option, but not the obligation, to avoid the termination and pay an additional $13,000 in cash to Mac Farms [$4.72 less $4.70 = $.02 per Unit x 650,000] on the closing date.

If on the day immediately preceding the date on which the Partnership obtains approval of the Acquisition Proposal by the Unitholders, the average of the spot price per pound for bulk premium (Hawaiian and Australian) style II raw macadamia nuts (FOB West Coast) (averaging together container loads and pallet loads) is less than $3.25 per pound, then Mac Farms or Kapua shall have a right to terminate the Acquisition Agreement. In the event Mac Farms or Kapua terminates the Acquisition Agreement for such reason, then the Partnership has an option, but not the obligation, to avoid termination by agreeing to pay to Mac Farms a spot price adjustment. The spot price adjustment shall be determined as of the closing date during the true-up process and shall be paid on the date when payments are otherwise required as part of the true-up. The spot price adjustment will be equal to the difference between the average spot price calculated as set forth above on the closing date and $3.25 times the number of pounds of marketable bulk premium (Hawaiian and Australian) Style II raw or roasted macadamia nuts in Mac Farms inventory on the closing date. As of August 31, 2007, the Partnership estimates that the average spot price was $3.25 per pound.

Representations and Warranties.   The Acquisition Agreement contains a number of representations and warranties that each of the Partnership, Mac Farms and Kapua have made to one another. These representations and warranties include those related to due organization and qualification; authority, execution and delivery and enforceability of the Acquisition Agreement, existence of conflicts or violations under organizational documents or applicable laws; material contracts and organizational documents;

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absence of litigation; absence of certain changes or events since stated dates; possession of, effectiveness of and compliance with required governmental licenses or other qualifications; tax matters, identification of real property contracts permits, intellectual property and assets used, customers and sales; insurance; litigation; environmental matters; and disclosure.

Interim Covenants Relating to Conduct of Business.   Under the Acquisition Agreement, each of Mac Farms and Kapua must not engage in any activity relating to the macadamia nut business which is outside the ordinary course of business and there are also specific limitations on their ability to enter into certain contracts and take certain actions without the consent of the Partnership.

Exclusivity.   Under the Acquisition Agreement, Mac Farms and Kapua are not permitted to solicit, entertain or encourage submission of any proposals related to the acquisition of their membership interests, their assets or business operations relating to the macadamia nut business other than the sale of inventory in the ordinary course of business, except for certain third party sales which would include a (i) sale of all of their land and (ii) assets not subject to the Acquisition Agreement.

Access to Information.   During the period prior to the closing of the Acquisition, Mac Farms and Kapua have agreed to give the Partnership, its counsel, accountants and other representatives full access at reasonable times to their headquarters, properties and books and records relating to the macadamia nut business.

Employees.   Mac Farms has agreed to terminate the employment of all employees effective immediately before the closing and the Partnership has a right, but not an obligation, to hire such employees on terms that are mutually agreed between the Partnership and such employees. The Partnership will have no obligation or responsibilities in connection with post-closing employment of any employees of Mac Farms. The Partnership currently intends to seek to employ substantially all of the employees of Mac Farms after the closing.

Conditions To The Completion Of The Acquisition.   The obligations of the parties to consummate the Acquisition are subject to the satisfaction or waiver of specified conditions, including the following:

Conditions To Each Party’s Obligation.

·       Respective representations and warranties of Mac Farms, Kapua and the Partnership are true and correct in all material respects on the closing date and each party shall have performed and complied with each of its covenants under the Acquisition Agreement in all material respects through the closing date;

·       The parties shall have procured any required consents or governmental authorizations to consummate the transaction including the approval of the Acquisition Proposal by the Unitholders of the Partnership. The Acquisition has been approved by the members of Mac Farms and Kapua;

·       There must be no legal requirement, judgment, order, or proceeding which delays, enjoins, restrains, makes illegal, or prohibits consummation of the transactions contemplated by the Acquisition Agreement and no proceeding pending or threatened seeking would have an effect of any of the foregoing; and

·       All the documents to be signed or delivered on or prior to the date of the closing of the Acquisition shall have been signed and delivered.

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Conditions To The Partnership’s Obligations.

The Partnership’s obligation to consummate the transactions contemplated by the Acquisition Agreement is conditioned upon the following conditions in addition to those set forth above:

·       Delivery of the Orchard Lease and the Processing Plant Lease as well as all other documents and materials set forth in the Acquisition Agreement;

·       There should be no material adverse effect shall have occurred with respect to Mac Farms and/or Kapua since December 31, 2005;

·       The Partnership and its lenders shall have received an irrevocable commitment for a leasehold title insurance policy in the amount of Five Million Dollars ($5,000,000) insuring that the Partnership on the closing will be the owner of a leasehold interest under the Processing Plant Lease and the Orchard Lease;

·       The Partnership shall have received assurances from certain specified employees of Mac Farms that they intend to enter into the employment of the Partnership immediately after the closing; and

·       The Partnership must have received approval of the Unitholders to the Acquisition Proposal.

Conditions To Mac Farms and Kapua’s Obligations.

The obligations of Mac Farms and Kapua to consummate the transactions contemplated by the Acquisition Agreement are conditioned upon approvals of all members of Mac Farms and Kapua, which condition has been satisfied, no material adverse effect shall have occurred with respect to the Partnership since March 31, 2007 and the performance by the Partnership of its obligations under the Acquisition Agreement including:

·       Delivering to Mac Farms 650,000 Class A Units; and

·       Delivery of the cash required at the closing.

Closing.   The closing of the transactions contemplated by the Acquisition Agreement is scheduled to take place ten (10) business days after the Partnership receives approval of the Unitholders of the Acquisition Proposal or at such other date or place as the parties may mutually determine. The closing date may be postponed by either party provided that the closing date shall not be later than December 31, 2007, without the mutual consent of both parties. The closing is subject to the satisfaction or waiver by the parties of certain conditions, including the approval by the Unitholders of the Acquisition Proposal. See “Conditions to Completion of the Acquisition.”

Registration Rights of Mac Farms.   On the closing, the Partnership is required to execute a registration agreement under which the Partnership is required no later than ninety (90) calendar days after the closing date at its expense to file with the Commission and use reasonable best efforts to cause to be declared effective as promptly as practicable a shelf registration statement under the Securities Act of 1933 relating to the offer and sale of Units by Mac Farms. The Partnership is required to keep such registration in effect for a period of up to two years after its effective date.

Termination.   The transactions contemplated by the Acquisition Agreement may be terminated and/or abandoned at any time prior to the closing of the Acquisition:

·       By the mutual consent of Mac Farms, Kapua and the Partnership;

·       By the other party in the event of a breach of any representation, warranty, or covenant by a party which has not been cured within fifteen (15) calendar days after receipt of notice thereof;

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·       By either party if a condition of closing of the terminating party is impossible to satisfy for causes other than a breach of an obligation by such party;

·       By the Partnership, Mac Farms or Kapua if the closing does not occur by December 31, 2007;

·       By Mac Farms or Kapua in the event the average spot price of macadamia nuts is less than $3.25 per pound on the day preceding the date the Partnership received Unitholder approval of the Acquisition Proposal, subject to Partnership’s rights to avoid such termination as discussed above; or

·       By Mac Farms or Kapua in the event the average closing price of the Partnership Units on the New York Stock Exchange for the ten trading days prior to the approval of the Acquisition Proposal by the Unitholders is less than $4.72 per Unit, subject to the right of the Partnership to avoid such termination, as discussed above.

Proposed Subsidiaries.   One of the Subsidiaries that Mac Farms will form will be a Subchapter C corporation, which will be subject to corporate income tax at a state and federal level. The Partnership will instruct Mac Farms to transfer into this corporation all assets related to the processing and marketing of macadamia nuts. These assets will include equipment used in the processing plant operation, all working capital and intellectual property attributable to the processing and marketing operations that are to be transferred to the Partnership.

One of the Subsidiaries that Mac Farms will form will be a limited liability company. The Partnership will instruct Mac Farms to transfer into this company all assets related to the farming operations. These assets primarily will include farming equipment.

At the closing, Mac Farms will transfer to the Partnership ownership of the Subchapter C corporation and the limited liability company. Therefore, at the completion of the closing, the Partnership will own 100% of the stock of the Subchapter C corporation which will engage in the business of processing and marketing macadamia nuts. It will also be the only member of the limited liability company which will lease the orchards from Kapua and engage in the business of farming macadamia nuts. The creation of the Subchapter C corporation was required to comply with tax laws relating to master limited partnerships.

Other Terms.    The Acquisition Agreement and the rights and obligations of the parties thereunder may not be assigned, transferred or encumbered without the prior written consent of the other parties, except as otherwise set forth in the Acquisition Agreement. The Acquisition Agreement is governed by and construed under the laws of the State of Hawaii. Except as otherwise provided in the Acquisition Agreement, each party is required to bear its own costs and expenses (including legal fees and disbursements) incurred in connection with the Acquisition Agreement or any related agreement and the transactions contemplated thereby.

THE UNITHOLDERS MEETING

Date, Time and Place

The Unitholders Meeting will be held at 10:00 A.M., Hawaii Standard Time, on December     , 2007, at the offices of Carlsmith Ball LLP, ASB Tower, Suite 2200, 1001 Bishop Street, Honolulu, Hawaii 96813.

Purpose

The purpose of the Unitholders Meeting is to consider and vote to upon the Acquisition Proposal and the Amendment Proposal and to consider and vote upon any other matters that may be properly brought before the meeting

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Record Date; Voting Rights

The close of business on September   , 2007, has been fixed by the Board of Directors of the General Partner as the record date (the “Record Date”) for the determination of the Unitholders entitled to notice of, and to vote at, the Unitholders Meeting and any adjournment thereof. As of August 31, 2007, there were 7,500,000 Class A Units issued and outstanding and entitled to vote, beneficially held by approximately 8,000 Unitholders. The Class A Units held by limited partners are entitled to one vote per Class A Unit on the respective matters upon which such holders are entitled to vote.

Proxies and Revocability of Proxies

All Class A Units represented at the Unitholders Meeting by valid proxies will be voted in accordance with the instructions contained in such proxies. If a proxy is signed and returned without indication as to how the Unitholder desires his Class A Units to be voted, such Class A Units will be voted in favor of the Acquisition Proposal and the Amendment Proposal. The General Partner does not intend to bring any matters before the Unitholders Meeting other than approval of the Acquisition Proposal and the Amendment Proposal, and does not know of any other matters sought to be brought before the Unitholders Meeting by others. If any business other than the Acquisition Proposal and the Amendment Proposal is properly brought before the Unitholders Meeting, the Class A Units represented by proxies will be voted in accordance with the judgment of the persons voting them.

The execution of a proxy will not affect a Unitholder’s right to attend the Unitholders Meeting and vote in person. A Unitholder who has given a proxy may revoke it at any time before it is exercised at the Unitholders Meeting. A proxy may be revoked by delivery of a written notice to the Depositary stating that the proxy is revoked, by execution of a proxy bearing a later date, or by attendance at the Unitholders Meeting and voting in person.

Cost of Solicitation of Proxies

The Partnership will bear all costs relating to the solicitation of proxies and will reimburse brokers or other persons holding Class A Units in their names or in the names of their nominees for their reasonable expenses in forwarding proxy material to beneficial owners of Class A Units. In addition to such solicitation and the solicitation made hereby, certain officers, directors, regular employees, and authorized agents of the General Partner may solicit proxies by mail, e-mail, telephone, and personal interview.

Vote Required

The affirmative vote of more than 50% of the 7,500,000 Class A Units held by limited partners on the Record Date for the Unitholders Meeting is required to approve the Acquisition Proposal and the Amendment Proposal.

The Partnership Agreement provides that voting rights of the Unitholders shall not be exercised unless the General Partner obtains an opinion of counsel stating that the exercise of such rights would not cause the loss of limited liability of the Unitholders or the treatment of the Partnership as an association taxable as a corporation for federal income tax purposes. Such opinion will be rendered by Carlsmith Ball LLP, counsel for the Partnership

Quorum; Adjournment

The presence at the Unitholders Meeting either in person or by proxy of Unitholders who are limited partners and who are record holders of more than 50% of the Class A Units entitled to notice of, and to vote at, the Unitholders Meeting is necessary to constitute a quorum. In the absence of a quorum, the Unitholders Meeting may be adjourned from time to time by the vote of a majority of the Class A Units held by limited partners represented either in person at the meeting or by proxy.

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When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting and a new record date need not be fixed if the time and place of the adjourned meeting is announced at the meeting at which the adjournment is taken, unless such adjournment is for more than 45 days. At an adjourned meeting, the Partnership may transact any business which may have been transacted at the original meeting.

Other Matters

Neither the Partnership (or any affiliate thereof) nor any other person (including the General Partner) has authorized any person to give any information or make any representation in connection with the solicitation of proxies other than those contained herein and, if given or made, such information or representation must not be relied upon as having been authorized. The delivery of this Proxy Statement shall not, in any circumstances, create any implication that the information herein is still correct after the date of this Proxy Statement.

BENEFICIAL OWNERSHIP OF PRINCIPAL UNITHOLDERS
AND MANAGEMENT—THE PARTNERSHIP

As of August 31, 2007, the persons (including any “group” as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934) known by the Partnership or the General Partner to be the beneficial owner of more than 5% of the Class A Units are set forth below.

 

As of August 31, 2007, the General Partner owned 75,757 Class A Units. These units will not be voted at the Meeting. No director or officer of the General Partner owned more than 1% of the Class A Units.

The table below sets forth certain information as to the Class A Units beneficially owned by all directors of the General Partner, and all directors and officers of the General Partner as a group, as of August 31, 2007.

*                    Less than 0.1%

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FORWARD-LOOKING STATEMENTS

Some of the information in this proxy statement constitutes forward-looking statements. You can identify these statements by forward-looking words such as “may,” “expect,” “anticipate,” “contemplate,” “believe,” “estimate,” “intend,” and “continue” or similar words. You should read statements that contain these words carefully because they:

·       discuss future expectations;

·       contain projections of future results of operations or financial condition; or

·       state other “forward-looking” information.

The Partnership believes it is important to communicate its expectations to its Unitholders. However, there may be events in the future that the Partnership is not able to accurately predict or over which the Partnership has no control. The cautionary language discussed in this proxy statement provide examples of risks, uncertainties and events that may cause actual results to differ materially from the expectations described by the partnership in its forward-looking statements, including among other things:

·       the number and percentage of Unitholders voting against the Acquisition Proposal;

·       changing interpretations of generally accepted accounting principles;

·       outcomes of litigation, claims, inquiries or investigations;

·       world market conditions relating to macadamia nuts;

·       the weather and local conditions in Hawaii affecting macadamia nut production;

·       legislation or regulatory environments, requirements or changes adversely affecting the businesses in which the Partnership is engaged;

·       statements about industry trends;

·       general economic conditions; and

·       geopolitical events and regulatory changes.

You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this proxy statement.

All forward-looking statements included herein attributable to the Partnership or any person acting on either party’s behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Except to the extent required by applicable laws and regulations, the Partnership undertakes no obligation to update these forward-looking statements to reflect events or circumstances after the date of this proxy statement or to reflect the occurrence of unanticipated events.

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UNAUDITED PRO FORMA FINANCIAL INFORMATION

Pro Forma Balance Sheet

The following table shows the unaudited balance sheet of the Partnership as of June 30, 2007, the unaudited balance sheet of Mac Farms as of June 30, 2007 and a pro forma combined balance sheet which has been prepared based upon the assumption that the Acquisition and the Financing had taken place on June 30, 2007.

Pro Forma Balance Sheet
ML Macadamia Orchard, L.P. (“MLMO”) and Mac Farms of Hawaii, LLC (“MFH”)
June 30, 2007
(in thousands)

A—eliminates intercompany receivables and payables.

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The pro forma set forth above is based upon selected historical financial information from the financial information provided to the Partnership by Mac Farms. This pro forma eliminates items which will not continue after the closing of the Acquisition.

Financial Forecast

The final forecast set forth below has been prepared based upon the assumption that the Acquisition and Financing will occur on December 31, 2007 and shows the forecasted results of the Partnership for the twelve months ended December 31, 2008. Our independent accounting firm has neither examined nor compiled this forecast and, accordingly, does not express an opinion or any other form of assurance with respect thereto.

The forecast below is a forward looking statement that is subject to risk and uncertainties that could cause actual results to differ materially from those shown below and should be read with caution. See “Forward-Looking Statements” beginning on Page 15 of this proxy statement. The forecast is subject in many respects and thus susceptible to interpretations and periodic revisions based on actual experience and developments which may occur in the future. Although presented with numerical specificity, the forecast is based upon a variety of estimates and hypothetical assumptions made by management some of which are set forth below. Some or all of these assumptions may not be realized, and they are inherently subject to significant business, economic and competitive uncertainties and contingencies, all of which are difficult to predict and many of which are beyond the Partnership’s control. Such uncertainties and contingencies can generally be expected to increase with the passage of time from the date of preparation of the forecast. Accordingly, the assumptions made in preparing the forecast might not prove accurate, and actual results might differ materially. Certain of the assumptions are set forth in the notes below the forecast.

For these reasons, the inclusion of the forecast in this proxy statement should not be regarded as an indication that the forecast will be an accurate prediction of future events, and it should not be relied on as such. No one has made, or makes, any representation concerning the information contained in the forecast and we do not intend to update or otherwise revise the forecast to reflect circumstances existing after the date when made or to reflect the occurrences of future events. Although this is provided for general information, you are cautioned not to rely on this information in making a decision whether to vote in favor of adoption of the Acquisition Proposal, the approval of which is a condition precedent to the consummation of the Acquisition.

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Forecast Income Statement

ML Macadamia Orchard, L.P. (“MLMO”) and Mac Farms of Hawaii, LLC (“MFH”)
For the Year Ended December 31, 2008
(in thousands)

A—Eliminates intercompany sales and related cost of goods

Assumptions Used in Forecast Income Statement for the Year Ended December 31, 2008

Set forth below are certain assumptions which have been utilized by the Partnership to prepare the forecast income statement set forth above. Although these assumptions are believed to be reasonable by the Partnership, there is no assurance that these assumptions will be accurate and, accordingly, actual results may differ materially. See “Forward Looking Statements” and “Unaudited Pro Forma Financial Information—Financial Forecast” for further cautions concerning these assumptions.

            1) Production of macadamia nuts in the orchards currently owned or leased by the Partnership will be consistent with historical averages of 20-21 million field pounds.

            2) Macadamia nut prices and demand will be soft through the first half of 2008 but will improve during the second half of 2008.

            3) Nut contract prices with Mauna Loa, Mac Farms and Island Princess will be consistent with prevailing prices during the last six months of 2007. One-half (approximately 3 million pounds) of the nuts processed by HMNC will be sold at breakeven prices with the remaining one-half in inventory at the end of 2008.

            4) Contract farming revenue and expenses remain consistent with prior years and operational expenses will be consistent with historical percentages. Interest expenses are estimated based upon assumed

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borrowing for the acquisition and inventory receivable carrying costs averaging approximately $10 million.

            5) Net cash flow per unit for the Partnership prior to adjustment is based on 7.5 million Units outstanding. Combined cash flow per Unit assumes an additional 650,000 Units have been issued to Mac Farms in the Acquisition.

            6) Mac Farms sales (which include sale of production from Kapua’s orchards which will be under lease to the Partnership) are projected at $20 million, an increase of 6.6% over the estimate for 2007, although below 2005 and 2006 sales.

            7) Mac Farms gross margin is forecasted at 25% based upon a sales mix of higher retail sales and lower ingredient sales. This reflects lower material costs based upon assumed macadamia nut prices and reflects and additional cost saving resulting from a new co-pack arrangement.

            8) Mac Farms selling, general and administrative expenses are based on historical cost percentages after elimination of lease rent ($500,000), management fees ($400,000) and outside services expenses ($400,000) offset by additional costs of management ($350,000).

            9) At the end of 2007, higher than normal inventory levels will exist given the current status of the macadamia nut market.

     10) Income taxes of the new Subsidiaries are forecast at a blended rate of 35% of pretax income.

     11) Adjustments include adjustments to eliminate macadamia nut sales on an intercompany basis.

SUMMARY OF THE AMENDMENTS

Set forth below is a summary of the Amendments to be voted upon by Unitholders at the Unitholders Meeting. The Amendments must be approved by a vote of a majority of the 7,500,000 Class A Units held by limited partners. PROPOSAL (1) MUST BE APPROVED BY THE UNITHOLDERS IN ORDER FOR THE PARTNERSHIP TO COMPLETE THE ACQUISITION.

Proposal (1) Authorization to Process and Market Macadamia Nuts.   Section 2.3 of the Partnership Agreement permits the Partnership to engage in the ownership, acquisition, management, operation, development, leasing and disposition of macadamia nut orchard properties and businesses and acts relating to or arising therefrom. Proposal (1) expands the permitted business of the Partnership to provide that the Partnership may also engage in the processing and marketing of macadamia nuts, together with related operations. Appended to this Proxy Statement as Appendix B is the full text of the existing Section 2.3 and Section 2.3 as amended by Proposal (1).

Proposal (2) Creation of Procedures for Election of Board of Directors of the General Partner.   At the time the Partnership was formed in 1986 the general partner was a wholly-owned subsidiary of C. Brewer and Company, Limited (“CBCL”) which elected its directors. In January, 2005, the Partnership bought 100% of the stock of Resources from the successor to CBCL. At this time, the Board of Directors of the General Partner must elect successors to any vacancy created by the death, resignation, retirement, or inability to act of any director. In addition there is no requirement that the Partnership hold annual meetings. Proposal (2) would add new Sections 6.14 and 6.15 to the Partnership Agreement. Section 6.14 would require annual meetings of the Unitholders commencing in 2008 at which the Board of Directors of the General Partner would be elected by the Unitholders. Section 6.15 provides constraints and procedures to facilitate the election of the Board of Directors of the General Partner by the Unitholders, requires the General Partner to cause the individuals elected by the Unitholders to be appointed to the Board of Directors of the General Partner and includes provisions relating to the number of directors, bylaws of the General Partner, removal of directors, nominations, and other relevant matters. Please refer to Sections 6.14 and 6.15 set forth on Appendix B for the exact language of the proposed amendment.

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Adoption of Proposal (2) is not required before the Partnership can close the Acquisition, but is desirable for long-term management of the Partnership.

OTHER BUSINESS

The Partnership does not know of any business other than that described in this Proxy Statement which will be presented for consideration at the Unitholders Meeting. If any other business properly comes before the Unitholders Meeting or at any and all adjournments or postponements thereof, the Proxy holders named in the accompanying Proxies will vote their respective shares represented by such Proxies in accordance with their best judgment and, as applicable, in accordance with said Proxies.

It is important that all outstanding Class A Units be represented at the Unitholders Meeting. Because the vote of a majority of all the votes that are eligible to be cast by the Unitholders at the Unitholders Meeting is required to approve each of the Amendments, abstentions and broker non-votes will in effect be votes against the Amendments. YOU ARE THEREFORE URGED TO COMPLETE, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY CARD IN THE ENVELOPE WHICH IS ENCLOSED FOR YOUR CONVENIENCE. Unitholders who are present at the Unitholders meeting may revoke their proxies and vote in person or, if they prefer, may abstain from voting in person and allow their proxies to be voted.

INFORMATION ABOUT THE PARTNERSHIP

General Description of the Business

The Partnership is a publicly traded partnership, organized under the laws of the State of Delaware, and engaged in the business of growing and farming macadamia nuts in Hawaii. The Partnership believes that it is one of the world’s largest growers of macadamia nuts. The Partnership owns or leases approximately 4,190 tree acres of macadamia nut orchards in three locations within a 50-mile radius on the island of Hawaii. (“Tree acres” are acres of the Partnership’s owned or leased lands utilized for macadamia nut orchards. “Gross acres” includes areas not utilized for orchards.) The Partnership previously sold all of its macadamia nut production to Mauna Loa Macadamia Nut Corporation (“Mauna Loa”) under four nut purchase contracts. Three of the nut purchase contracts with Mauna Loa, totaling approximately 16 million pounds, expired December 31, 2006 and the other contract totaling approximately 6.3 million pounds expires December 31, 2011.

The Partnership has executed nut purchase agreements with Hamakua Macadamia Nut Company, Inc. (“Hamakua”), Mac Farms and Purdyco International, Ltd. dba Island Princess (“Island Princess”) beginning January 1, 2007. The contracts call for Hamakua to purchase about 6 million field pounds, Mac Farms to purchase about 4.5 to 5.5 million pounds at 20% moisture, 30% SK/DIS recovery, and Island Princess to purchase about 2.2 million pounds at 20% moisture, 30% SK/DIS recovery. Additional information can be found in section (c) under the heading Nut Purchase Contracts.

The Partnership farms its own orchards and approximately 2,008 additional acres of macadamia orchards for other orchard owners. The Partnership is managed by its general partner, ML Resources, Inc. (“MLR” or the “General Partner”). On August 1, 2001, all of the stock of the General Partner was purchased by D. Buyers Enterprises, LLC (“DBE”) from CBCL. On January 6, 2005, the stock of ML Resources, Inc. was purchased from DBE by the Partnership for $750,000.

Ownership of Class A Units confers no direct or indirect interest in CBCL, DBE or any of their affiliated entities, or in Mauna Loa, or Hamakua, Mac Farms, or Island Princess.

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The Partnership commenced operations in June 1986, following its acquisition of interests in approximately 2,423 tree acres of macadamia nut orchards from subsidiaries of CBCL. In December 1986 and October 1989, respectively, the Partnership acquired from subsidiaries of CBCL interests in approximately 266 and 1,260 additional tree acres of macadamia orchards. In September 1991 the Partnership acquired approximately 78 tree acres of producing macadamia orchards. In April 2006 the Partnership acquired approximately 21 tree acres of producing macadamia orchards.

On May 1, 2000, the Partnership purchased 142 acres of macadamia orchards and the macadamia farming operations from subsidiaries of CBCL. The farming operations consist of farming contracts, farming equipment, vehicles, a husking plant, irrigation well, office buildings, garages and warehouses, office furniture and equipment and material inventories related to macadamia farming. All the assets and operations are located on the island of Hawaii.

As reported on Form 8-K filed May 31, 2007, the Partnership signed an Acquisition Agreement to purchase substantially all of the assets of Mac Farms and lease the macadamia orchards owned by Kapua. For further information see “SUMMARY OF THE ACQUISITION.”

Mac Farms owns the second largest macadamia nut processing facility in Hawaii and markets macadamia nuts both industrially and under the brand names MacFarms®, Kona Select® and Hula Princess®. Kapua owns the largest contiguous macadamia orchard in the world.

Financial Information about Industry Segments

Information relating to Industry Segments is contained in Note 4 of the Notes to the Audited Annual Financial Statements of the Partnership.

Narrative Description of the Business

Owned-orchard Segment

The Partnership sold all of the macadamia nuts from its orchards to Mauna Loa under four nut purchase contracts in 2006. Mauna Loa processes and markets the nuts under the Mauna Loa® brand name and is believed to be one of the largest processors and marketers of macadamia nuts in the world. The Partnership was Mauna Loa’s largest single supplier of macadamia nuts in 2006. Mauna Loa was a subsidiary of CBCL until its sale in September 2000 to The Shansby Group. In December 2004 Mauna Loa was purchased from the Shansby Group by The Hershey Company (NYSE: HSY). On May 1, 2000, the Partnership began farming its own macadamia orchards. Prior to that date, subsidiaries of CBCL performed the farming activities for the Partnership under long-term farming contracts.

Nut Purchase Contracts.   The Partnership is a party to a nut purchase contract signed June 1, 2006, with an effective date of January 1, 2006, with Mauna Loa. The contract is for approximately 6.3 million pounds annually and expires December 31, 2011. It had a nut purchase price of $0.74 per pound WIS at 20% moisture and 30% SK/DIS. The purchase price increases by $0.01 each year except 2008 until it reaches $0.78 per pound in 2011.

On December 16, 2004, a new nut purchase contract was signed with Hamakua for the annual delivery of six million WIS pounds, starting January 1, 2007. The contract provides for a minimum price of $0.75 per pound and a maximum price of $0.95 per pound WIS at 20% moisture and 30% SK/DIS. The pricing formula includes a fixed component of $0.85 and a second component based on Hamakua’s average selling price for bulk kernel. In February 2007, the Partnership negotiated an amendment to the contract which provides the Partnership an option to have the nut-in-shell processed into kernel for a fee in lieu of selling the nuts to Hamakua.

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On January 5, 2006, a new nut purchase contract was signed with Island Princess for the annual delivery of approximately two million WIS pounds, effective January 1, 2007. The nut price will be determined every six months by mutual agreement based on prevailing market price for kernel from Hawaii and Australia. The effective price for January – June 2007 was $0.608 and for July – December 2007 is $0.494 each at 20% moisture and 30% SK/DIS recovery.

On January 6, 2006, a new nut purchase contract was signed with Mac Farms for the annual delivery of between four and one-half million and five and one-half million WIS pounds, effective January 1, 2007. The nut price will be determined every six months by mutual agreement based on prevailing market price for kernel from Hawaii and Australia. The effective price for January – June 2007 was $0.608 and from July through December 2007 is $0.494 each at 20% moisture and 30% SK/DIS recovery.

Competition.   In addition to the State of Hawaii, mature macadamia nut orchards are located in Australia, Africa, and Central America. For the 2006 crop, Hawaii was expected to supply 22% of the world crop, and Australia, the world’s largest producer, was expected to supply 39%. A general decline in macadamia nut prices could also adversely affect the Partnership’s revenues.

Macadamia Farming Segment

Since the May 2000 purchase of the macadamia farming operations, the Partnership farms its own 4,190 acres of macadamia orchards and approximately 2,008 additional acres of macadamia orchards owned by other growers. Three of the farming contracts comprising approximately 465 acres terminated December 31, 2005 reducing the total acres covered by farming contracts for 2006 to 2,029 acres. In April of 2006 the Partnership purchased a 21-acre macadamia orchard that was previously farmed under contract by the Partnership, thereby reducing the total acres covered by farming contracts to about 2,008 acres.

All the orchards are located in three separate regions on the island of Hawaii (“Keaau”, “Ka’u” and “Mauna Kea”). Because each region has different terrain and weather conditions, farming methods vary somewhat among the three locations.

Farming Contracts.   The Partnership currently services approximately seventeen farming contracts which were assigned to the Partnership with the May 2000 acquisition. Services under these contracts include cultivation, weed and pest control, fertilization, pruning and hedging, replanting, harvesting, and husking. These contracts also provide a management fee to the Partnership, which is based as either a fixed fee per acre farmed, or as a percent of reimbursed costs, ranging from 5% to 20%. Approximately 150 acres are year-to-year contracts, approximately 635 acres expire March 31, 2009, approximately 70 acres expire June 30, 2013, approximately 410 acres expire July 31, 2029, approximately 280 acres expire June 30, 2033 and approximately 470 acres expire September 30, 2080.

Orchard Maintenance.   Maintenance of an orchard is essential to macadamia nut farming. Pruning and hedging of trees is necessary to allow space for mechanical harvesting and cultivating equipment to operate safely and efficiently and to remove dead branches. Where mechanical equipment is used, the orchard floor must be maintained in a condition that will permit its operation. Soil and gravel are used to repair mud holes and other surface irregularities caused by soil erosion from heavy rain and by farming equipment. Pruning and surface maintenance are usually performed between harvest seasons.

Orchard management also requires the proper selection and application of fertilizers, pesticides (to control rodents, insects and fungi) and herbicides (to control weeds). Insects, rodents and fungi, as well as wild pigs, if not controlled, can cause losses to nut production.

Harvesting.   The harvest period begins in the late summer and runs through the following spring. Mature nuts fall from the trees and are harvested using mechanized harvest equipment when the orchard floor is level enough to permit its use. Nuts are harvested by hand when the orchard floor is too uneven to

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permit mechanical harvesting, when the nut drop is very light and when nuts remain after harvesting. At Keaau, Ka’u and Mauna Kea, seasonal labor for hand harvesting and other operations is generally available from nearby Hilo, adjacent communities and foreign labor sources.

Mechanical harvesting is less costly than hand harvesting, but mechanical harvesting is possible only where the orchard floor is relatively flat. Approximately 70% of the orchards in Ka’u, 59% in Keaau and 94% in Mauna Kea are currently mechanically harvested. The remaining acres are too uneven for mechanical harvesting and must be harvested by hand.

During the harvest season, the nuts are collected every six to ten weeks. Nuts suffer loss in quality if they remain on the ground too long. The harvested nuts are then transported to the husking facilities, which are located in Ka’u and Keaau. The Keaau husking facility is owned and operated by Mauna Loa, and the Ka’u husking facility is owned and operated by the Partnership. Nuts harvested in the Mauna Kea region are transported to the husking facility in Keaau. At the husking facility, the outer husk is removed and the nuts, still in their shell, are weighed and sampled to determine moisture content. Kernel quality is determined from samples taken. Title to the nuts husked in Keaau passes to buyer after weighing. Title to the nuts husked at Ka’u pass to buyer after delivery to the buyer’s processing plant. The nuts are then moved to a drying facility.

Processing.   The nuts purchased by Mauna Loa from the Partnership and from the other orchards farmed by the Partnership are primarily processed at Mauna Loa’s processing plant located adjacent to the orchards located in the Keaau area. The plant was built in 1966 and is presently capable of handling approximately 210,000 pounds of dry-in-shell (commonly abbreviated “DIS”) nuts per day. Processing at the plant includes drying, cracking, roasting, inspecting and limited packaging. The plant also includes separate warehouses, a machine shop, storage facilities, husking facilities, nut drying facilities, a generator and a 10,000 square foot chocolate processing plant. None of these processing facilities are owned by the Partnership.

At Mauna Loa’s plant in Keaau, the harvested nuts pass by conveyors over metal screens, blowers and rock separators that remove extraneous material from the in-husk nuts. The husks are then split and removed by pressing the nuts between steel roller bars and a rubber pad. At this stage, the nut kernels are still encased in their hard round shells and roughly 20% of their weight is attributable to moisture content. At this point, the nuts are referred to as wet-in-shell (commonly abbreviated “WIS”). The WIS weight of the nuts is used to determine payments to be made by Mauna Loa under the Nut Purchase Contracts. Approximately 20% of the WIS weight of the nuts will become dry salable kernels when all further processing is completed.

After the nuts are weighed, the moisture content of the nuts is reduced by blowing warm air over them, which produces dry-in-shell (“DIS”) nuts. Metal rollers are used to crack the nuts and remove the shell. Mechanical and optical equipment, as well as hand sorting, are used to separate the salable kernels from unusable nuts and pieces of broken shell.

The dry nut kernels are roasted and then sorted into retail and commercial grades. At this stage, some of the nuts are bulk-packed and sent to various co-packers on the U.S. mainland for packaging. At Mauna Loa’s plant in Keaau the nuts may be salted, or covered with chocolate or one of several coatings, and finally packaged, labeled and readied for shipment.

Stabilization Payments

In December 1986, the Partnership acquired a 266-acre orchard that was several years younger than other orchards of the Partnership. Because of the relative immaturity of the newer orchard, its productivity (and therefore its cash flow) was expected to be correspondingly lower for the first several years than for the other older orchards.

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Accordingly, the seller of this orchard Ka’u Agribusiness Company, Inc. (“KACI”) agreed to make cash stabilization payments to the Partnership for each year through 1993 in which the cash flow (as defined) from this orchard fell short of the target cash flow level, which equaled $507,000. Stabilization payments for any given year were limited to the lesser of the amount of the shortfall or a maximum payment amount. For the years from 1987 through 1993, inclusive, the Partnership received a total of $1,628,000 (including a 4% Hawaii general excise tax) in stabilization payments under this agreement.

The Partnership accounted for stabilization payments (net of the 4% Hawaii general excise tax) as a reduction in the cost basis of the orchard. As such, these payments are being reflected in the Partnership’s net income ratably through 2019 as a reduction to the depreciation expense reported for this orchard.

In return, the Partnership is obligated to pay the seller (the Olson Trust who purchased KACI’s interest) 100% of any year’s cash flow from this orchard in excess of the target cash flow as additional percentage rent until the aggregate amount of the additional percentage rent paid equals 150% of the total amount of stabilization payments previously received. Thereafter, the Partnership is obligated to pay the seller 50% of this orchard’s cash flow in excess of the target cash flow as additional incentive rent. Additional rent of $62,000 was paid in 2006. No additional rent was due in 2004 or 2005.

Risks Involved in Operating Macadamia Orchards

Before deciding to purchase, hold or sell our units, you should carefully consider the risks described below in addition to the other cautionary statements and risks described elsewhere, and the other information contained, in this proxy statement. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business. If any of these known or unknown risks or uncertainties actually occurs with material adverse effects on the Partnership, our business, financial condition and results of operations could be seriously harmed.

Macadamia nut trees are subject to damage or destruction from diseases, pests, floods, droughts, windstorms, hurricanes, volcanic activity and other natural causes. Partnership tree replacements for all orchards from all causes were 0.6% in 2004, 0.2% in 2005, and 0.5% in 2006. Both crop and tree insurance are in place to protect the Partnership against material losses.

Diseases and Pests.   The Partnership’s Keaau orchards experienced tree replacements of 1.4% in 2004, 0.6% in 2005, and 1.0% in 2006. Other macadamia growers in the vicinity have also experienced losses due to a problem known as “Macadamia Quick Decline” (“MQD”). Based upon research by the University of Hawaii and other experts, it is believed that the situation is due to fungi associated with high moisture conditions and poor drainage conditions. It is also believed that a particular variety of macadamia nut tree (cv. HAES 333) is most susceptible to MQD. Approximately 9% of the trees in the Partnership’s orchards have the variety HAES 333 with most of these trees located at the drier Ka’u region where the incidence of MQD is benign. Another tree variety (cv. HAES 344) has also been identified as being somewhat more susceptible to MQD than other commercial varieties and this cultivar represents approximately 45% of the trees in the Partnership’s orchards. Both the Keaau and Mauna Kea orchards are areas with high moisture conditions, and may be more susceptible to the MQD problem. Afflicted trees in these regions are replaced with cultivars that are tolerant to MQD.

There are also two types of fungal diseases, which can affect nut production but are not fatal to the trees themselves. One of these is Phytophthora, which affects the macadamia flowers and developing nuts, and the other, Botrytis cinerea, causes senescence of the macadamia blossom before pollination is completed. These types of fungal disease are generally controllable with fungicides. Historically, these fungi have attacked the orchards located in Keaau during periods of persistent inclement weather. A light infestation of Phytophthora occurred in late January-early February 2001 and a light-moderate infestation occurred in March 2006.

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Rainstorms and Floods.   The Partnership’s orchards are located in areas on the island of Hawaii that are susceptible to heavy rainstorms. In November 2000 the Ka’u region was affected by flooding. This flooding resulted in expected 2000 harvesting being done in 2001. Since the flood in 2000 heavy rain in the Ka’u region has not produced flooding of any consequence.

Windstorms.   Some of the Partnership’s orchards are located in areas on the island of Hawaii that are susceptible to windstorms. Twenty-five major windstorms have occurred on the island of Hawaii since 1961, and four of those caused material losses to Partnership orchards. Most of the Partnership’s orchards are surrounded by windbreak trees, which provide limited protection. Younger trees that have not developed extensive root systems are particularly vulnerable to windstorms.

Insurance.   The Partnership secures tree insurance each year under a federally subsidized program. The tree insurance for 2007 provides coverage up to a maximum of approximately $19.8 million against loss of trees due to wind, fire or volcanic activity. Crop insurance was purchased for the 2006-2007 crop year and provides coverage up to a maximum of approximately $11.0 million against loss of nuts due to wind, fire, volcanic activity, earthquake, adverse weather, wildlife damage and failure of irrigation water supplies.

Volcanoes.   The orchards are located on the island of Hawaii, where there are two active volcanoes. To date, no lava flows from either volcano have affected or threatened the orchards.

Rainfall.   The productivity of orchards depends in large part on moisture conditions. Inadequate rainfall can reduce nut yields significantly, while excessive rain without adequate drainage can foster disease and hamper harvesting operations. While rainfall at the orchards located in the Keaau and Mauna Kea areas has generally been adequate, the orchards located in the Ka’u area generally receive less rainfall and, as a result, a portion of the Ka’u orchards is presently irrigated. Irrigation can mitigate the effects of a drought, but it cannot completely protect a macadamia nut crop from the effect of a drought. Recorded rainfall at each of the three locations of the Partnership’s orchards for the past five years is shown below:

 

During 2006 the Ka’u, Keaau and Mauna Kea areas recorded 156%, 102% and 120% of the normal average annual rainfall in their area of the island, respectively.

Water Supply for Irrigation

With the May 2000 acquisition, the Partnership acquired an irrigation well (the “Sisal Well”), which supplies water to the Partnership’s orchards in Ka’u which were purchased in June 1986 and 1989. The Sisal Well is situated on land owned by Mauna Kea Agribusiness Company, Inc. (“MKACI”). On May 1, 2000 the Partnership entered into a license agreement with MKACI, which allows the Partnership necessary access to maintain and operate the Sisal Well, as well as the use of roads to access, maintain and operate the Partnership’s macadamia orchards. Annual rent for the license agreement is One Dollar. The license agreement terminates on the earlier of the termination of the May 1, 2000 lease between Partnership and KACI, or June 30, 2045.

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Prior to the May 2000 acquisition, the Partnership and KACI were parties to a water agreement to which KACI agreed to supply water to those portions of the June 1986 Orchards and October 1986 Orchards located at Ka’u and which had been irrigated historically.

If the amount of water provided by the Sisal Well becomes insufficient to irrigate the above named orchards, the Partnership may consider increasing the capacity of the Sisal Well, drilling an alternative well into the historical source which provides water to the Sisal Well or obtaining water from other sources.

On a historical basis, the quantity of water available from the Sisal Well has been generally sufficient to irrigate these orchards in accordance with prudent farming practices. The irrigated portion of the Ka’u II Orchards is expected to need greater quantities of water as the orchards mature. The Partnership anticipates that the amount of water available from the Sisal well will be generally sufficient, assuming average levels of rainfall, to irrigate the irrigated orchards in accordance with prudent farming practices for the next several years. If no irrigation water is available to the Irrigated Orchards, then, based on historical average rainfall levels, diminished yields of macadamia nut production can be expected.

Market and customers.   A general decline in world macadamia nut prices would adversely affect the price paid under the nut purchase contracts with Mac Farms and Island Princess, as the contract price is determined based upon the prevailing world market price of macadamia nut kernel for each six-month period January through June and July to December throughout the contract term. Even though the Partnership will increase its customers from one to four in 2007 there are a limited number of customers available to purchase the Partnership’s nut production. If our customers’ were to be unable to perform under their contracts or if their purchase of product should change from Hawaii-based to foreign sourced kernel, it would have a material adverse impact on our business as there are virtually no replacement customers for the Partnership’s production.

Nut Purchase Agreements.   The Partnership has four contracts at January 1, 2007. The terms of the contracts vary from two to six years, fixed prices and market determined prices and 30 day payment terms. The Partnership relies upon the financial ability of the buyers of the Partnership’s nuts to abide by the payment terms of the nut purchase agreements. If any or all of the buyers were unable to pay for the macadamia nuts delivered by the Partnership to them it could result in the Partnership’s available cash resources being depleted. If any or all buyers were late in payment the Partnership would stop the delivery of macadamia nuts to the buyer. The Partnership would need to negotiate a nut purchase agreement with another buyer which might not be at the same terms or price. It is also possible that the Partnership might not be able to find a buyer for the nuts. There are a significant number of Hawaii macadamia growers that were unable to find a processor to purchase and process their crop in 2006 due to the currently depressed market.

Employees

As of December 31, 2006, the Partnership employed 215 people, of which 136 were seasonal employees. Of the total, 20 are in farming supervision and management, 182 in production, maintenance and agricultural operations, and 13 in accounting and administration.

With the May 2000 acquisition, the Partnership agreed to the assumption of three bargaining agreements with the ILWU Local 142. These agreements cover all production, maintenance and agricultural employees of the Ka’u Orchard Division, of the Keaau Orchard Division and of the Mauna Kea Orchard Division. These labor contracts became effective May 1, 1997 and expired on April 30, 2002, but were extended until April 30, 2005. The parties have agreed to a three-year contract, which will expire on April 30, 2008. The Partnership believes that relations with its employees and the ILWU are generally very good.

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The Partnership employs foreign contract labor to supplement hand harvesters during the peak harvesting season. If the Partnership was unable to employ contract laborers it might have to lengthen the time between harvest rounds which could result in a lower quality of nuts produced and a lower effective price.

Certain key personnel are critical to our business. Our future operating results depend substantially upon the continued service of our key personnel who are not bound by employment or non-competition agreements. Our future operating results also depend in significant part upon our ability to attract and retain qualified management, technical and support personnel. We cannot ensure success in attracting or retaining qualified personnel. There may be only a limited number of persons with the requisite skills and relevant industry experience to serve in those positions and it may become increasingly difficult for us to hire personnel over time. Our business, financial condition and results of operations could be materially adversely affected by the loss of any of our key employees, by the failure of any key employee to perform in his or her current position, or by our inability to attract and retain skilled employees.

Unresolved staff comments.   There are no unresolved staff comments.

Available Information.   The Partnership files annual, quarterly and current reports and other information with the Commission. These filings are available free of charge through the Partnership’s Internet website at www.mlmacadamia.com as soon as reasonably practicable after the Partnership electronically files such material with, or furnishes it to, the Commission. Any unit holder, who so requests, may obtain a printed copy of these documents from the Partnership, by contacting the Partnership at 808-969-8057, or in writing at 26-238 Hawaii Belt Road, Hilo, Hawaii 96720.

Properties

Location.   The Partnership owns or leases approximately 4,190 tree acres of macadamia orchards on the island of Hawaii. The orchards are located in three areas: Ka’u, Keaau and Mauna Kea. The Ka’u area is located in the south part of the island about fifty miles from Hilo. The Keaau area is located six miles south of Hilo on the east side of the island, and the Mauna Kea area is located three miles north of Hilo on the east side of the island.

The majority of macadamia nut trees grown in the State of Hawaii are grown on the island of Hawaii in volcanic soil that permits drainage during heavy rainfall. While the orchards are located approximately within a 50-mile radius, the climate and other conditions that affect the growing of macadamia nuts are different. These differences are the result of prevailing wind patterns and island topography, which produce a variety of microclimates throughout the island.

Age and Density.   The productivity of macadamia nut orchards depends on several factors including, among others, the age of the trees, the number of trees planted per acre, soil condition, climate, rainfall and/or irrigation. Assuming adequate moisture, the most significant characteristic affecting yields is maturity. The trees in a macadamia nut orchard generally begin to produce nuts at a commercially acceptable level at around nine years of age. Thereafter, nut yields increase gradually until the trees reach maturity at approximately 15 years of age, after which the nut yield remains relatively constant except for variances produced by rainfall, cultivation practices, pest infestation and disease.

Macadamia orchards normally reach peak production after fifteen to eighteen years of age. All of the 4,190 tree acres of macadamia orchards owned or leased by the Partnership are over twenty years of age. About 2% of trees are lost to various causes each year and are replaced.

Rainfall.   Macadamia trees grow best in climates with substantial and evenly distributed rainfall (or equivalent irrigation) and in soil that provides good drainage. Inadequate rainfall can significantly reduce nut yields, while excessive rain without adequate drainage can impede healthy tree growth, promote the growth of harmful fungal diseases and produce mud holes that require repair of the orchard floor. At

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Keaau, normal rainfall is adequate without irrigation, and the volcanic soil provides good drainage. However, short droughts and occasional flooding have occurred. At Mauna Kea, normal rainfall is adequate without irrigation and the volcanic soil provides adequate drainage. In the event of a very long drought, production at Keaau and Mauna Kea might be affected. At Ka’u, located on the drier side of the island, the rainfall averages are substantially less than at Keaau, particularly at the lower elevations. Approximately 652 acres at the lower elevations of Ka’u are irrigated to provide for additional water when required. Under extremely dry conditions at Ka’u, such as a prolonged drought, irrigation is not sufficient, and production will be adversely affected.

Orchards.   The following table lists each of the orchards, the year acquired, tree acres, tenure, and lease rents:

(1)          Lease of land only; trees may be removed at termination of lease.

(2)          Lease of land only; lessor may purchase trees from lessee at any time after June 30, 2019.

(3)          Lease of land; trees revert to lessor upon termination of lease.

In addition to the minimum annual lease payment amount, all the leases require the Partnership to pay various expenses with respect to the leased premises as well as an additional rental payment based on the USDA farm price per pound of macadamia nuts sold in Hawaii.

With respect to the Ka’u Green Shoe I Orchard, the lease requires the Partnership to pay the Olson Trust, the seller and lessor, additional rent equal to 100% of any year’s cash flow generated by such orchard in excess of a target level of $507,000 until the aggregate amount paid equals 150% of the aggregate amount of the stabilization payments previously received by the Partnership. Thereafter, the Partnership is required, with respect to any year prior to the expiration of the lease, to pay as additional rent, 50% of the cash flow generated by such orchard for such year in excess of a target level of $507,000 of cash flow. For additional information, see “Stabilization Payments” on page 23.

Legal Proceedings

Neither the Partnership nor its projects are subject to any material pending legal proceedings.

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MARKET FOR REGISTRANT’S CLASS A UNITS AND RELATED UNITHOLDER MATTERS

The Partnership’s Class A Depositary Units are listed for trading on the New York Stock Exchange (symbol = NUT). There were 1,010 registered holders of Class A Depositary Units on December 31, 2006.

Distributions declared and high and low sales prices of the Class A Depositary Units, based on New York Stock Exchange daily composite transactions, are shown in the table below:

 

Restrictions on Cash Distributions

In connection with the Partnership’s Credit Agreement with American AgCredit Capital Markets, cash distributions to partners are restricted unless the Partnership is in compliance with specified terms and conditions of the Credit Agreement, including restrictions on further indebtedness, sales of assets, and maintenance of certain financial ratios. In connection with the Partnership’s Credit Agreement with American AgCredit Capital Markets, cash distributions to partners are restricted unless the Partnership is in compliance with specified terms and conditions of the Credit Agreement, including restrictions on further indebtedness, sales of assets, and maintenance of certain financial ratios. The credit agreements with American AgCredit, PCA, contain various financial covenants. The Partnership was in compliance with all debt covenants at December 31, 2005. At December 31, 2006 the Partnership was in compliance with all debt covenants except for minimum tangible net worth. The Partnership was less than 0.4% below the required amount. The lender has provided a waiver to the loan covenant for the year ended December 31, 2006. In July 2007, this Credit Agreement was modified to reduce this covenant so that the Partnership will be in compliance for 2007 at currently anticipated levels of tangible net worth. Had the lender not waived and modified this requirement the Partnership would have been restricted in its ability to pay distributions to the limited partners.

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