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

 3/30/06  Royal Hawaiian Orchards, L.P.     PRE 14A     6/12/06    1:2.2M                                   Merrill Corp-MD/FA

Document/Exhibit                   Description                      Pages   Size 

 1: PRE 14A     Preliminary Proxy Not Related to A Contested        HTML   1.51M 
                          Matter or Merger/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.    )
Filed by the Registrant  ý
Filed by a Party other than the Registrant  o
Check the appropriate box:
ý	Preliminary Proxy Statement
o	Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
o	Definitive Proxy Statement
o	Definitive Additional Materials
o	Soliciting Material Pursuant to §240.14a-12
ML MACADAMIA ORCHARDS, L.P.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
ý	No fee required.
o	Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
	(1)		Title of each class of securities to which transaction applies:
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o	Fee paid previously with preliminary materials.
o	Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
	(1)	Amount Previously Paid:
	(2)	Form, Schedule or Registration Statement No.:
	(3)	Filing Party:
	(4)	Date Filed:
		Persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number.

 

ML MACADAMIA ORCHARDS, L.P.

26-238 Hawaii Belt Drive
Hilo, Hawaii 96820

 

April 14, 2006

 

Dear Unitholder:

 

You are cordially invited to attend a Special Meeting of Unitholders of ML Macadamia Orchards, L.P. to be held at 10:00 A.M., Hawaii Standard Time (“HST”), June 12, 2006, at ASB Tower, Suite 2200, 1001 Bishop Street, Honolulu, Hawaii 96813. The purposes of the Unitholders Meeting are (1) to consider and vote upon a proposal to amend the Partnership’s Agreement of Limited Partnership (the “Amendment Proposal”), and (2) to elect the directors of ML Resources, Inc. the general partner of the Partnership (“Resources” or “General Partner”).

 

THE BOARD OF DIRECTORS OF THE PARTNERSHIP’S GENERAL PARTNER HAS APPROVED UNANIMOUSLY THE AMENDMENT PROPOSAL TO BE PRESENTED AT THE UNITHOLDERS MEETING AND RECOMMENDS THAT YOU VOTE FOR  THE AMENDMENT PROPOSAL. THE GENERAL PARTNER HAS ACQUIRED 100% OF THE STOCK OF ML RESOURCES, INC., THE GENERAL PARTNER. AMENDMENTS TO THE PARTNERSHIP AGREEMENT PROVIDE FOR ANNUAL MEETINGS OF THE UNITHOLDERS AND PERMIT THE UNITHOLDERS TO ELECT THE DIRECTORS OF THE GENERAL PARTNER FOR THE FIRST TIME. THE PARTNERSHIP AGREEMENT HAS NOT BEEN HAS NOT BEEN REVISED SINCE 1986 AND THE EXISTING AGREEMENT IS IN MANY RESPECTS OBSOLETE AND CONTAINS MANY PROVISIONS WHICH ARE NOW IRRELEVANT. FINALLY, CERTAIN AMENDMENTS PROVIDE MORE FLEXIBILITY AND AUTHORITY TO THE GENERAL PARTNER. SPECIFICALLY, IT PERMITS THE GENERAL PARTNER TO ISSUE ADDITIONAL PARTNERSHIP UNITS IF THE BOARD BELIEVES SUCH ISSUANCE IS IN THE BEST INTEREST OF THE PARTNERSHIP. THE CURRENT AGREEMENT REQUIRES ESSENTIALLY THAT ALL CASH FLOW BE DISTRIBUTED TO THE UNITHOLDERS. THIS PROVISION MAKES IT DIFFICULT FOR THE BOARD TO GROW THE COMPANY. ONE SERIES OF AMENDMENTS PROVIDES THAT THE BOARD MAY USE ITS DISCRETION IN DECIDING HOW MUCH OF THE CASH FLOW SHOULD BE DISTRIBUTED AND HOW MUCH MIGHT BE USED FOR EXPANDING THE BUSINESS OF THE PARTNERSHIP.

 

THE NOMINATING COMMITTEE OF THE BOARD OF DIRECTORS OF THE GENERAL PARTNER HAS NOMINATED THE SLATE OF DIRECTORS SET FORTH BELOW FOR ELECTION TO THE BOARD OF DIRECTORS OF THE GENERAL PARTNER AND RECOMMENDS THAT YOU VOTE FOR THOSE PERSONS WHO HAVE BEEN NOMINATED.

 

Approval of the Amendment Proposal and election of the directors will require the affirmative vote of a majority of all outstanding Class A Units. An abstention or failure to vote will have the same effect as a vote against the Proposal. 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.

 

	By order of the General Partner
	Dennis J. Simonis
	President of ML Resources, Inc.

 

 

IMPORTANT:  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 WAYNE ROUMAGOUX, SECRETARY OF THE GENERAL PARTNER, AT 808-969-8164.

 

 

The Board of Directors of ML Resources Inc. has fixed the close of business on April 14, 2006 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 Unitholders Meeting and any adjournments thereof.

 

Unitholders are cordially invited to attend the Unitholders 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 carefully the attached Proxy Statement for more detailed information concerning the Amendment Proposal and provisions relating to the election of directors to be considered at the Unitholders Meeting.

 

	By order of the Managing General Partner
	Dennis J. Simonis
	President of ML Resources, Inc.

 

PLEASE EXECUTE AND RETURN THE ENCLOSED PROXY CARD PROMPTLY,
WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE SPECIAL MEETING.

 

 

SUMMARY

 

The following summary is not intended to be a complete description of all material facts regarding the Partnership  or the matters to be considered at the Unitholders Meeting. It is qualified in all respects by the information appearing elsewhere in this Proxy Statement and the Appendices hereto and the documents referred to herein. Unitholders  are urged to review carefully the entire Proxy Statement and Appendices hereto.

 

The Parties

 

History of the Partnership. Prior to formation of the Partnership in 1986, C. Brewer and Company, Limited (“CBCL”) owned macadamia orchards located at Keaau, Kau, and along the Hilo Coast (which area is customarily called “Mauna Kea”). Kau Agribusiness Co., Inc. (“KACI”) farmed the orchards at Keaau (owned by Mauna Loa Macadamia Nut Corporation (“Mauna Loa”)) and the orchards at Kau (owned by KACI). Mauna Kea Agribusiness Co., Inc.(“MKACI”) owned and farmed orchards along the Hilo Coast. KACI also farmed orchards owned by other owners at various locations.

 

In 1986 CBCL decided to form a master limited partnership to be called Mauna Loa Macadamia Partners, L.P. The general partner was called Mauna Loa Resources, Inc., a subsidiary of CBCL. Mauna Loa and  KACI either deeded or assigned lands, together with the orchards on those lands,  to the new limited partnership in exchange for Class A units of the new partnership. These Class A units were then sold to the public through a registered public offering.

 

CBCL and its affiliates executed farming contracts between the affiliates and the new partnership. In addition, Mauna Loa entered into nut purchase contracts with the new partnership providing that the new partnership would sell the entire production from the orchards to Mauna Loa at prices provided for the contracts.                    Since there were to be many relations between CBCL and its affiliates and the new partnership, Mauna Loa Resource, Inc. appointed a Conflicts Committee of outside directors to deal with such conflicts.

 

Tax laws at that time dictated that one of the general partners should be an entity with strong financial resources. Mauna Loa was a strong entity, but Mauna Loa Resources, Inc. was not. Therefore, Class B units were issued to Mauna Loa to fulfill that requirement and Mauna Loa became a general partner with a minor ownership interest. Subsequently tax laws changed, and Mauna Loa transferred its Class B units to Mauna Loa Resources, Inc. The Class B units were canceled.

 

At the time the partnership was formed in 1986, the general partner was called Mauna Loa Resources, Inc. It was owned 100% by CBCL, which also owned 100% of  Mauna Loa Macadamia Nut Corporation (“Mauna Loa”). Therefore, CBCL elected the directors of Mauna Loa Resources, Inc. The name of the managing partner was changed to ML Resources, Inc. Subsequently, CBCL sold Mauna Loa to The Shansby Group. Later, CBCL sold 100% of the stock of ML Resources, Inc. to DBuyers Enterprises LLC (“DBE”), a limited liability company controlled by Mr. John W. A. Buyers, who was at the time the Chairman of the Board of Directors of CBCL. Thereafter, of course,  DBE elected the directors of ML Resources, Inc. In January, 2005, the Partnership bought 100% of the stock of ML Resources, Inc.

 

The Partnership. The Partnership is a limited partnership organized under the laws of the State of Delaware with its principal executive offices 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. The Partnership is a publicly traded limited partnership engaged in the business of growing macadamia nuts in Hawaii for sale to various

 

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Votes Required; Record Date

 

The Partnership. Only Unitholders of record at the close of business on April 14, 2006 (the “Record Date”) will be entitled to vote at the Unitholders Meeting. The affirmative vote of a majority of the Class A Units outstanding on such date are required to approve the Amendment Proposal and to elect the directors of the Managing Partner. As of December 31, 2005, there were 7,500,000 Class A Units outstanding, held by 1,096 holders of record. See “THE UNITHOLDERS MEETING—[Voting Rights; Vote Required].”

 

Directors and executive officers of the Managing Partner beneficially owned, as of December 31, 2005, 9,216 Class A Units or approximately 0.1% of the outstanding Class A Units.

 

If votes sufficient to approve the Amendment Proposal or elect the directors 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 affirmative vote of the holders of the majority of Class A Units present at the Unitholders Meeting and entitled to vote thereon.

 

Reasons for the Amendment Proposal; Recommendations of Management

 

The Board of Directors believes that the partnership agreement should be amended to reflect the changes which have occurred since 1986. In addition, it believes it could manage the partnership better if it had more flexibility with respect to management. Therefore, the Partnership’s General Partner, acting pursuant to unanimous approval of its Board of Directors, has determined that the Amendment Proposal is in the best interests of the Partnership and its Unitholders, and therefore recommends that Unitholders vote FOR approval of that Proposal. See “THE AMENDMENT—Background and Reasons for the Amendment and Recommendations of the Partnership’s Management”

 

Reasons for Election of Directors; Recommendations of the Nominating Committee

 

Because the Partnership now owns 100% of the stock of the General Partner, the Board of Directors has recommended that the Unitholders should elect the directors. The Nominating Committee of the Board of Directors of the Managing Partner has nominated the slate of directors listed further in this Proxy Statement and recommends that they be elected by the Unitholders as directors of the Managing Partner. Unitholders may submit additional nominations to the Nominating Committee before the meeting or nominate additional persons at the meeting.

 

Management of the Partnership Following the Amendment and Election of Directors

 

After the Effective Time of the Amendment and the election of directors at the Unitholders Meeting, the Board of Directors of the General Partner will be those persons elected by the Unitholders at  the Unitholders Meeting.

 

Following the Amendment, 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 the new Board of Directors makes such changes. None are contemplated at this time. The General Partner’s officers currently are:

 

Name		Office
Dennis J. Simonis		President
Randolph H. Cabral		Senior Vice President
Wayne W. Roumagoux		Secretary, Treasurer

 

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Effective Time

 

The Amendment will become effective upon approval by more than 50% of the Unitholders at the Unitholders Meeting (the “Effective Time”).

 

Certain Federal Income Tax Considerations

 

In the opinion of counsel for the Company, the actions to be taken at the Unitholders Meeting will not change the manner in which the Partnership or its Unitholders will be taxed.

 

FINANCIAL INFORMATION

 

Financial information concerning the Partnership is contained in the Form 10-K filed by the Partnership with the SEC on March 17, 2006, a copy of which is appended as Appendix B and is incorporated herein by reference..

 

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THE UNITHOLDERS MEETING

 

Date, Time and Place

 

The Unitholders Meeting will be held at 10:00 a.m., Hawaii Standard Time, on June 12, 2006, 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 (i) consider and vote upon the Amendment Proposal (the “Amendment Proposal”), (ii) elect directors of ML Resources, Inc., general partner of the Partnership, and (iii) consider and vote upon any other matters that may be properly brought before the meeting

 

Record Date; Voting Rights

 

The close of business on April 14, 2006 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 December 31, 2005, there were 7,500,000 Class A Units issued and outstanding, held by 1,096 holders of record. The holders of Class A Units 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 Amendment Proposal. The General Partner does not intend to bring any matters before the Unitholders Meeting other than approval of the Amendment Proposal and election of directors, and does not know of any other matters sought to be brought before the Unitholders Meeting by others. If any business other than the Amendment Proposal and election of directors 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 and regular employees of the Managing Partner may solicit proxies by mail, E-mail, telephone, and personal interview.

 

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BENEFICIAL OWNERSHIP OF PRINCIPAL UNITHOLDERS
AND MANAGEMENT—THE PARTNERSHIP

 

As of March 31, 2005, only one  person (including any “group” as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934) is known by the Partnership or the Managing Partner to be the beneficial owner of more than 5% of the Class A Units. That person was the Ebrahimi Family Group, which owned 670,500 units, or 9% of the outstanding units as of March 31, 2006.

 

As of March 31, 2006, the General Partner did not own any Class A units, and 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  March 31, 2006.

 

Beneficial Owner		Class A Units Owned		Percent of Class A Units
James H. Case (1)		13,000		0.2	%
John K. Kai		100			*
Jeffrey M. Kissel		2,016			*
All directors		15,116		0.1	%
All directors and officers as a group; (10 persons)		15,216		0.1	%

 

(1) Eight Thousand (8,000) of these units were owned by Mr. Case pursuant to a self-directed retirement plan sponsored by Carlsmith Ball LLP, a law firm in which Mr. Case is of counsel, and administered by Bank of Hawaii. Mr. Case was the record holder for the remaining 5,000 units.

 

* Less than 0.1%

 

SUMMARY OF THE PARTNERSHIP AGREEMENT AND PROPOSED AMENDMENTS

 

Introduction; Required Vote by Unitholders

 

History of the Partnership. At the time the Partnership was formed in 1986 the general partner was called Mauna Loa Resources, Inc. (“Resources”)  It was a wholly-owned subsidiary of C. Brewer and Company, Limited (“CBCL”), which also owned Mauna Loa Macadamia Nut Corporation (“Mauna Loa”). Therefore, CBCL elected the directors of Resources. The name of the managing partner was changed to ML Resources, Inc. in about the year 2000. CBCL sold Mauna Loa to The Shansby Group in 2001. Subsequently, CBCL sold 100% of the stock of ML Resources, Inc. to DBuyers Enterprises LLC (“DBE”), a limited liability company controlled by Mr. John W. A. Buyers. Thereafter, DBE elected the directors of ML Resources, Inc. In January, 2005, the Partnership bought 100% of the stock of Resources from DBE.

 

Set forth below is a summary of the proposed amendments to be voted upon by Unitholders at the Unitholders Meeting and a description of the Partnership Agreement after giving effect to such amendments (the “Amended and Restated Partnership Agreement”). The following discussion of the amendments and the resulting Amended and Restated Partnership Agreement is qualified in its entirety by reference to Appendix A, which sets forth the full text of the Amended and Restated Partnership Agreement.

 

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Many of the proposed amendments delete provisions which were relevant when the partnership was organized in 1986, but no longer have any useful purpose. One important set of amendments provides procedures for election of the directors of the General Partner by the Unitholders. A third group of amendments provide greater flexibility to the Board of Directors of the General Partner in managing the Partnership.

 

Approval of the Amendment Proposal requires the affirmative vote of a majority of Class A Units outstanding on the Partnership Record Date. Submission of such amendments for approval by the Unitholders will not preclude the Managing Partner from subsequently exercising its amendment authority set forth in Section 6.11 of the existing partnership agreement with respect to such matters set forth in said Section 6.11 if the Amendment Proposal is not approved.

 

Summary of Proposed Amendments

 

General. The proposed amendments will, among other things: (i) replace provisions concerning mandatory distributions of cash flow with provisions that confer on the Managing Partner discretion to determine the amount and timing of all distributions; (ii) modify fees payable to the Managing Partner such that the Managing Partner’s management fee will equal two percent of net income rather than two percent of the Partnership’s operating cash flow, eliminate provisions concerning the Managing Partner’s incentive fee; and provide that no management fee need be paid if the Partnership owns 100% of the stock of the General Partner; (iii) remove provisions concerning the Partnership’s special general partner (which in December 1997 transferred all of its interests as a general partner to the Managing Partner, and withdrew as a special general partner); (iv) eliminate all provisions concerning Class B Units in the Partnership (inasmuch as all outstanding Class B Units have been cancelled); (v) eliminate requirements that, in connection with issuance of additional Class A Units, general partners make capital contributions sufficient to cause their capital contributions to equal one percent of total capital contributions made to the Partnership (which change will not affect the Managing Partner’s existing interest in profits, losses and distributions); (vi) expand the types of business in which the Partnership may engage; (vii) add various provisions concerning mergers involving the Partnership; (viii) eliminate various provisions dealing with rights or obligations that have been performed, expired, or otherwise are no longer pertinent to the Partnership’s affairs; (ix) add provisions authorizing the General Partner to issue additional Series A units in exchange for cash or property if the Board of Directors deems  such issuance to be in the best interest of the Partnership; (x) add provisions authorizing the Board of Directors to create additional series of units (such as a Series B of units ) with provisions different from those of Class A units if the Board of Directors deems such issuance to be in the best interest of the Partnership.

 

Change in Purpose. Section 2.3 of the existing Partnership Agreement essentially provides that the Partnership’s business shall be limited to the ownership, operation, development, and disposition of macadamia nut orchard properties and activities incidental thereto. Section 2.3 of the Amended Partnership Agreement permits the Partnership to engage in any activity permissible for a Delaware limited partnership, specifically including the macadamia nut operations authorized by the present Partnership Agreement, the ownership of interests in other entities engaged in any permitted activity, and anything incidental to the foregoing. However, the amendments to Section 2.3 limit this broad grant of authority by prohibiting the Partnership, without approval of owners of more than 50% of the percentage interests owned by Unitholders entitled to vote (including a general partner to the extent it owns Class A Units) (“a “Majority Interest”) from entering into any activity that would disqualify the Partnership from qualifying as an Electing 1987 Partnership under Section 7704(g) of the Code. The purpose of the latter provision is to preclude the Partnership from undertaking business that would disqualify it from receiving partnership tax treatment, unless that change has been approved by a Majority Interest. (A related amendment to Section 8.3 prohibits the General Partner from revoking the Partnership’s Section 7704(g) election without approval of a Majority Interest.)  In the opinion of counsel the formation or acquisition of a subsidiary which paid corporate taxes would not disqualify the Partnership from its present tax treatment.

 

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Distribution Provisions. The Amended and Restated Partnership Agreement eliminates present requirements that all of the Partnership’s net cash flow (as defined in the present Partnership Agreement) be distributed quarterly, and grants the General Partner discretion to determine the amount of all distributions. Section 9.1 of the existing Partnership Agreement provides that an amount equal to the Partnership’s Net Cash Flow for each quarter, less any Incentive Fee, be distributed to partners and assignees. Net Cash Flow was defined to mean Operating Cash Flow less the sum of farming and management fees. Operating Cash Flow meant Gross Revenues less Gross Expenses, plus payments under a 1989 cash flow warranty agreement or any similar cash flow, warranty or stabilization payments. Gross Revenues generally constituted all receipts of the Partnership other than loan proceeds, certain insurance recoveries, other receipts representing recoveries for lost or destroyed assets, proceeds of certain capital transactions and capital contributions to the Partnership. Gross Expenses generally included all Partnership expenditures, other than principal payments on short-term debt, certain capital expenditures, expenditures made in connection with certain capital transactions, certain depreciation or amortization, Farming Fees, Management Fees, Incentive Fees, reserves established by the General Partner for potential expenditures or to effect a leveling of Partnership distributions, and certain other expenditures.

 

Section 9.1 of the Amended Agreement grants the General Partner discretion to determine the amount, if any, to be distributed to partners and assignees for each quarter, after taking into account the anticipated cash needs and financial condition of the partnership, estimated tax liabilities of partners and assignees with respect to their shares of partnership income, the maintenance of such reserves as the General Partner deems appropriate for potential expenditures and partnership obligations or to effect a leveling of partnership distributions, and the possible investment in new opportunities. Although Section 9.1 requires the General Partner to take into account estimated tax liabilities of Unitholders with respect to Partnership income, it does not require that distributions be made in amounts sufficient to equal all or any part of such estimated tax liabilities. As a result, it is possible that following adoption of the Amendments, the General Partner would not authorize distributions sufficient to cover tax liabilities incurred by partners or assignees as the result of their ownership of Units.

 

The Amended and Restated Partnership Agreement eliminates definitions of Net Cash Flow and related terms since computation of those amounts would no longer be required under Section 9.1 or by other provisions of the Amended Partnership Agreement.

 

Management and Incentive Fees. The Amended and Restated Partnership Agreement eliminates the Incentive Fee and changes the basis for calculating Management Fees. The Amended and Restated Partnership Agreement deletes Section 4.2 of the existing Partnership Agreement, which provided that the Managing Partner was to receive an annual Incentive Fee equal to one-half of one percent of the aggregate fair market value of all Depositary Units for the preceding calendar year, provided that the Partnership’s net cash flow for the preceding year exceeded specified amounts.

 

The existing Partnership Agreement provides that the General Partner is to receive an annual Management Fee equal to two percent (2%) of Operating Cash Flow for the immediately preceding year. The existing Partnership Agreement defines Operating Cash Flow as described above under “Distribution Provisions”. The Amended and Restated Partnership Agreement provides for a Management Fee equal to two percent (2%) of the Partnership’s Net Income, which is defined in the Amended and Restated Partnership Agreement to mean the net income of the Partnership from all sources as determined in accordance with generally accepted accounting principles (“GAAP”). Use of GAAP net income rather

 

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than the cash flow definitions in the present Partnership Agreement is a fundamentally different approach than that previously used. For example, the net income of the Partnership would include net proceeds of any asset sales reflected in the Partnership’s income statement, would be reduced by depreciation and amortization expenses, and would not be affected by principal payments on indebtedness.

 

Provisions related to management fees are essentially irrelevant at this time because the amendments provide that there shall be no management fee as long as the Partnership owns 100% of the general partner.

 

Capital Contributions by General Partners. Section 7.2 of the existing Partnership Agreement requires, in connection with issuance of additional Class A Units, that whenever additional capital contributions are made to the Partnership, the general partners contribute sufficient additional capital so that their aggregate contributions will continue to equal one percent of total capital contributions. Section 7.2 of the Amended Partnership Agreement eliminates this requirement, and states specifically that no such additional contributions will be required. It also states that the allocable share of a general partner will not be reduced in connection with capital contributions received from other persons. As a result of these changes, the Managing Partner will not be required to make additional capital contributions in connection with the Merger or in connection with any other partnership transaction involving the issuance of Units. Following any new issuance of Class A Units, the general partners’ capital contributions would be less than one percent of total contributions, but the general partners’ aggregate share in profits and losses would remain at one percent.

 

Since the Partnership owns 100% of the General Partner, this provision is irrelevant at this time in any event.

 

Elimination of Provisions Concerning Special General Partner. The existing Partnership Agreement required that Mauna Loa remain a special general partner until 1996. It further provided that a successor general partner need not be appointed if the Partnership received a legal opinion that failure to select a successor would not result in the Partnership being treated as an association taxable as a corporation for federal income tax purposes. Effective December 31, 1997, Mauna Loa withdrew as a special general partner, and transferred its general partner’s interest to Resources. No successor was appointed. In connection therewith, the Partnership obtained the requisite legal opinion, which reflected the fact that the Partnership would not be taxable as a corporation even though the special general partner was eliminated.

 

Since the Partnership no longer has a special general partner, the Amended Partnership Agreement eliminates all provisions pertaining thereto. Although the Amended Partnership Agreement permits election of general partners in addition to the General Partner, there is no expectation that any such additional general partner will be appointed.

 

Elimination of Provisions Concerning Class B Units. Under the existing Partnership Agreement, Class B Units were issued to Mauna Loa and one of its affiliates in connection with transfer to the Partnership of certain orchard properties. The Class B Units were contingent obligations, which were convertible into Class A Units when certain cumulative distribution amounts were achieved. The existing Partnership Agreement also permitted Class B Units to share in Partnership profits, losses and distributions arising from certain extraordinary dispositions of assets (referred to in the existing Partnership Agreement as “Capital Transactions”). In 1997 the Partnership and the holders of the Class B Units agreed to cancel all such Units. As a result, the Amended Partnership Agreement eliminates all provisions concerning Class B Units and conversion thereof, related provisions concerning conversion of Class B Units or allocations and distributions to Class B Units, and provisions concerning Capital Transactions.

 

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One of the amendments permits the General Partner to create new Class B units for issuance in exchange for cash or property if the issuance is deemed in the best interest of the Partnership by the Board of Directors. For example, if the General Partner wanted to acquire an existing orchard, the General partner might deem it advisable to pay for the orchard with Class A or B units rather than with cash.

 

Additional Provisions Concerning Mergers. The existing Partnership Agreement required approval of a Majority Interest in connection with any merger or consolidation involving the Partnership, but did not otherwise address mergers or consolidation. Revised Section 2.7 of the Amended Partnership Agreement addresses mergers and consolidations generally. Section 2.7(A) of the Amended Partnership Agreement refers expressly to Section 17-211 of the Delaware RULPA, which authorizes a limited partnership to merge or consolidate with other entities. It also refers to Section 17-211(g) of the Delaware RULPA, which provides that if such section is referred to expressly in a partnership agreement, an agreement of merger or consolidation may effect amendments to the partnership agreement of a constituent partnership or effect the adoption of a new partnership agreement that will be the surviving limited partnership in a merger or consolidation, and permits such amendments or adoption of a new partnership agreement to be made effective at the effective time of the merger or consolidation. Section 2.7(A) further provides that the Managing Partner may amend or terminate an agreement of merger or consolidation pursuant to provisions for such termination contained in the merger or consolidation agreement. The section also states that approval by a Majority Interest of a merger or consolidation will confer on the Managing Partner authority to take all actions necessary to consummate that transaction, including the issuance of Partnership Units or other consideration to be delivered by the Partnership in accordance with the merger or consolidation agreement. Section 2.7(A) provides that if Class A Units are issued in any such merger or consolidation to the holders of securities of other entities, unless otherwise provided in the agreement of merger or consolidation:  the assets of other constituent parties vested in the Partnership upon consummation of the transaction will constitute contributed property; the capital account of each person to whom Partnership Units are issued as a result thereof is to reflect the proportionate amount of such contributed property’s agreed value; and the persons to whom such Units are issued will be deemed admitted to the Partnership as additional limited partners as of the effective time of the merger or consolidation (subject to completion of certificate exchange procedures). Section 2.7(A) provides that in any such transaction, persons to whom units are issued will be bound by the provisions of the Amended Partnership Agreement, and that such persons will be deemed to have granted the Managing Partner the authority (including the power of attorney) set forth in Article 16. Section 2.7(A) further states that in any merger or consolidation in which Partnership securities are issued, the Amended Partnership Agreement may, but need not, be amended to set forth more fully the terms on which such securities would be issued and on which the holders thereof would be admitted to the Partnership.

 

Summary of the Amended and Re-stated Partnership Agreement

 

All holders of Class A Units will be bound by the provisions of the Partnership’s Agreement of Limited Partnership, as it may be amended from time to time, and a holder of Class A Units will have no rights under the Partnership Agreement unless such holder becomes the record holder of such units. The following paragraphs discuss certain provisions of the Partnership Agreement, as proposed to be amended, which is set forth as Appendix A hereto. Such discussion does not purport to be complete and is qualified in its entirety by reference to all of the provisions of such proposed Amended Partnership Agreement.

 

Organization. The Partnership was organized in 1986 as a Delaware limited partnership. Resources has been the managing general partner since inception of the Partnership. Mauna Loa served as a special general partner until December 1997, when it transferred to Resources its .01% general partner’s interest and withdrew as a general partner. As a result, Resources is presently the sole general

 

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partner of the Partnership, and holds a 1% general partners’ interest. The Unitholders, in the aggregate, hold a 99% interest in the Partnership. The General Partner does not own any Class A Units. The Partnership now owns 100% of the stock of the General Partner.

 

Purposes, Business and Management. The purposes and business of the Partnership are to carry on any business permissible for a Delaware limited partnership (specifically including ownership and operation of macadamia nut orchards and the ownership, development and sale of real property). However, the Partnership is precluded, without approval of a majority of Class A Units, from entering into any activity that would prevent the Partnership from qualifying as an “Electing 1987 Partnership” under Section 7704(g) of the Code (which would result in loss of the partnership tax classification).

 

The General Partner is authorized, in general, to perform all acts necessary to carry out the purposes and to conduct the business of the Partnership. The General Partner’s authority includes the authority to cause the Partnership to issue additional Class A Units without Unitholder consent. See “Sale of Additional Securities.”  Unitholders have no preemptive rights and may not, in their capacity as Unitholders, take part in the operation, management or control of the Partnership.

 

The authority of the Managing Partner is limited in certain respects. The Managing Partner is prohibited, without the approval of owners of more than 50% of the percentage interests owned by Unitholders entitled to vote (including a general partner to the extent it owns Class A Units) (a “Majority Interest”), from, among other things: selling or otherwise disposing of all or substantially all of the Partnership’s assets; dissolving the Partnership or electing to continue the Partnership in certain instances; merging, consolidating or combining the business operations of the Partnership with those of any other entity; amending the Partnership Agreement (except for certain amendments described in “Amendment of Partnership Agreement” below); electing a new general partner of the Partnership; approving employee compensation plans providing for issuance of Class A Units or other securities of the Partnership; revoking the Partnership’s election to be an Electing 1987 Partnership or undertaking business activity that would make such election unavailable. The exercise of Unitholders’ voting rights and the amendment of the Agreement are each generally subject to receipt of an opinion of counsel for the Partnership that the action would not result in the loss of the limited liability of the Unitholders, would not cause the Partnership to be treated as an association taxable as a corporation for federal income tax purposes and is permitted under the state statutes governing the rights, duties and liabilities of the Partnership and its partners.

 

The general partners and related persons are permitted to conduct business with the Partnership. The Governance Committee of the General Partner’s Board of Directors, on an annual basis, or more frequently as such committee may deem appropriate, reviews the General Partner’s management of the Partnership and any conflicts of interest that may arise as a result of the relationship between the General Partner and/or its officers, and other entities or persons with which it does business. The Governance Committee is composed of directors of the General Partner who are not employees of the General Partner or the Partnership, stockholders of the General Partner, or officers, directors, employees, or stockholders of any affiliate of a general partner. However, ownership of Class A Units does not preclude an individual from serving on the committees of the General Partner.

 

The Partnership Agreement provides for a complete defense to any claim of invalidity or for damages or other relief under any agreement or transaction between the Partnership and a general partner or related person based upon an alleged conflict of interest, and the agreement or transaction shall be deemed to be fair and reasonable and in the best interest of the Partnership if, after full disclosure of the material facts as to the agreement or transaction and the interest of the general partner or related person, the agreement or transaction is authorized, approved or ratified by a majority of the Governance Committee or a disinterested majority of the Board of Directors of the General Partner, or is authorized,

 

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approved or ratified by Unitholders holding over 50% of the Class A Units other than those held by the general partner or related person. In addition, a general partner may assert a complete defense to any challenge to such an agreement or transaction based upon a conflict of interest if the agreement or transaction was fair and reasonable to the Partnership at the time it was authorized, approved or ratified by the General Partner. Approval may be prior to, at the time of or subsequent to the agreement or transaction. The failure of the Partnership to submit any agreement or transaction for approval pursuant to such procedures shall not create any presumption that the agreement or transaction was not fair and reasonable or in the best interests of the Partnership.

 

Withdrawal or Removal of a General Partner. The General Partner may withdraw as a general partner upon 120 days’ written notice. The General Partner may only be removed by a vote of 66% in interest of the owners of Class A Units. Such removal is also subject to the selection of a successor and receipt of an opinion of counsel that such removal and the selection of a successor managing general partner would not result in the loss of the limited liability of Unitholders or cause the Partnership to be treated as an association taxable as a corporation for federal income tax purposes.

 

There is no assurance that the Partnership will be able to find a successor general partner if the General Partner withdraws. If the General Partner withdraws and the Partnership is unable to find a new general partner, it may prove impossible or difficult to conduct the business of the Partnership and the Partnership may be forced to liquidate its assets and wind up its affairs. In addition, if it were necessary to find a new general partner, such partner might insist on different or additional compensation from that provided for in the Partnership Agreement.

 

In the event of such withdrawal or removal, the successor general partner will have the option to acquire that portion of the departing general partner’s interest in the Partnership held as a general partner for a cash payment equal to the value (based on an agreement with the successor general partner) of its general partner’s interest in the Partnership. If the option is not exercised, the general partner’s interest of the departing general partner will be converted into Class A Units on a basis agreed by the Partnership and the departing general partner. In such event, the Partnership will also be obligated to pay all amounts then due, if any, to the departing general partner (including the Management Fee and prorated to the date of removal or withdrawal) within 60 days after the date of departure. In addition, the successor to the departing general partner will be required to assume all obligations theretofore incurred by the departing general partner as a general partner, except for liabilities which the departing general partner has incurred as a result of its own negligence or misconduct.

 

A general partner will also cease to serve as a general partner upon dissolution or termination, death or legal incapacity (in the case of an individual), or 120 days after notice is given to the Unitholders of the general partner’s bankruptcy, insolvency, reorganization, or similar proceeding.

 

The above provisions have no practical application as long as the Partnership continues to own 100% of the stock of Resources.

 

Compensation of the General Partners; Expenses. The General Partner is entitled to receive from the Partnership on or about February 15 of each year a Management Fee equal to 2% of the Partnership’s net income for the immediately preceding calendar year. The fee will be prorated and paid to the General Partner to the extent it serves as General Partner for less than the Partnership’s full fiscal year. The General Partner is also entitled to receive reimbursement of all its direct costs and allocable indirect costs in managing the Partnership (including Hawaii general excise tax imposed on the General Partner with respect to the Management Fee).

 

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Note, however, that this provision is not applicable if the Partnership owns 100% of the stock of the General Partner.

 

Allocation of Profits and Losses; Distributions. In general, the Unitholders have a 99% share and the General Partner (or, if  there are multiple general partners, all such partners in the aggregate) have a 1% share of the profits and losses of the Partnership. Each owner of a Class A Unit participates in the profits and losses of the Partnership pro rata with other owners of Class A Units. The General Partner is authorized, without the consent of the Unitholders, to cause the Partnership to issue additional Class A Units or other classes or series of securities to raise additional capital, to acquire additional properties, or for other Partnership purposes. If additional Class A Units are issued, the percentage interest represented by the previously outstanding Class A Units will be diluted to the extent of such additional issuance. Items of income, gains, losses, deductions and credits are allocated for federal income tax purposes among the Unitholders in the same manner as the underlying revenues and costs of the Partnership have been credited or charged to such Unitholders. Current Distributions to Unitholders are made in accordance with their respective participations in profits and losses.

 

Cash Distributions. The General Partner has the sole discretion to determine the amount of distributions to be made to holders of Class A Units, taking into account the anticipated cash needs and financial condition of the Partnership, the estimated tax liabilities of Unitholders with respect to their share of Partnership income, the maintenance of such reserves as the Managing Partner deems appropriate for potential Partnership expenditures, to effect a leveling of Partnership distributions, or to provide funds for expansion of the Partnership’s business. All distributions are made 1% to the General Partner (or to all general partners in the aggregate), and 99% to Unitholders in proportion to the number of Units held. Although the General Partner makes distribution decisions, and is required to consider tax liabilities of Unitholders arising from Partnership income, the Partnership Agreement does not compel the General Partner to authorize distributions sufficient to satisfy such liabilities in whole or in part. As a result, ownership of Units could cause Unitholders to incur tax liabilities that exceed distributions received from the Partnership. The Partnership’s ability to make cash distributions to the Unitholders will depend primarily upon its operating performance.

 

Sale of Additional Securities. In order to acquire additional properties or for any other Partnership purpose, the General Partner is authorized to cause to be issued additional Class A Units from time to time. In general, the General Partner has sole and complete discretion in determining the consideration and terms and conditions with respect to any future issuance of Class A Units. However, the General Partner cannot (i) issue additional Class A Units to the General Partner or any of its affiliates for a consideration with a value less than the Unit Price of the Class A Units (i.e., their trading price or fair market value) without the approval of a Majority Interest, except as provided under certain limited situations, and (ii) shall not issue Units in connection with a merger or consolidation or employee plans unless the merger, consolidation or plan has been approved by a Majority Interest (and if such approval is given, the limitations set forth in clauses (A) and (B) above are inapplicable).Note that the provision set forth in subsection (i) above is not relevant as long as the Partnership owns 100% of the stock of Resources.

 

The Managing Partner is required to do all things necessary to comply with the Delaware Revised Uniform Limited Partnership Act (the “Delaware RULPA”), the Code or any other applicable law, statute, rule, regulation or guideline of any federal, state or other governmental agency or any stock exchange on which the Class A Units or other securities of the Partnership are listed for trading, and is authorized and directed to do all things it deems necessary or advisable in connection with any such future issuance.

 

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Transferability; Status as Limited Partners or Assignees. The existing Class A Units are fully paid, and Unitholders will not be required to make additional contributions to the Partnership.

 

Ownership of Class A Units is evidenced by Certificates, which are not transferable except by operation of law. However, upon deposit of Certificates with the Depositary, the Depositary will issue a transferable Depositary Receipt.

 

Although Depositary Receipts are transferable, no transfer of Depositary Receipts will be recorded or otherwise recognized by the Partnership unless and until the transferee has delivered a properly executed Transfer Application to the Depositary. By executing a Transfer Application and accepting a Depositary Receipt, transferees automatically request admission as substituted limited partners in the Partnership, agree among other things to be bound by the terms and conditions of the Partnership Agreement and the Depositary Agreement and appoint the Managing Partner as their attorney-in-fact. The record holder of a Depositary Receipt, pending admission as a substituted limited partner in the Partnership, has the rights of an assignee. An assignee is entitled to an interest in the Partnership equivalent to that of a limited partner with respect to the right to share in distributions from the Partnership, including liquidating distributions, but without the right to vote directly on partnership matters and is otherwise subject to the limitations under the Delaware RULPA on the rights of an assignee who has not become a substituted limited partner. The General Partner will vote and exercise other powers attributable to Class A Units owned by assignees who have not become substituted limited partners at the direction of such assignees. A transferee will become a substituted limited partner only if the General Partner of the Partnership consents thereto. Unless the Depositary is notified to the contrary, the General Partner will be deemed to have given its consent to the admission of a transferee as a substituted limited partner and such admission shall be effective at and from the close of business on the last business day of the month in which a transferee’s Transfer Application was received. Transferees who are not admitted as substituted limited partners will remain assignees. Transferees who do not execute a Transfer Application will be treated neither as assignees nor as record holders of Depositary Receipts and will not receive cash distributions, federal income tax allocations or reports furnished to Unitholders. Only a limited partner may surrender a Depositary Receipt and receive a Certificate representing Class A Units. Any such Certificate for Class A Units withdrawn from the Depositary is not transferable, except by operation of law. Certificates may be redeposited with the Depositary in exchange for transferable Depositary Receipts which will be executed and delivered in the manner described in the Depositary Agreement.

 

Amendment of Partnership Agreement. Proposed amendments (other than those described below) approved by the General Partner and at least a Majority Interest will be adopted. The General Partner and 95% of all Unitholders must consent to any amendment which, in the opinion of counsel to the Partnership, would result in the loss of limited liability to any Unitholder who does not consent thereto or cause the Partnership to be treated as an association taxable as a corporation for federal income tax purposes. Except with the approval of 95% of all Unitholders, no amendment may in certain instances reduce the percentage of votes required of Unitholders or change the form of the Partnership to a general partnership. For purposes of the 95% vote requirements, Unitholders are only those for whom the Partnership has valid addresses.

 

The consent of the General Partner (and any other general partner) would be required if the effect of any amendment would be to change the percentage interest of such partner or to increase the duties and liabilities of such partner in the Partnership.

 

The General Partner may amend the Partnership Agreement without the consent of the Unitholders if the amendment is to change the name of the Partnership; if the amendment is to elect to be bound by any successor limited partnership statute, and, if in the General Partner’s opinion, the

 

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amendment does not have a material adverse effect upon the limited partners and assignees (other than those who consent to the amendment); if the amendment would conform the Partnership Agreement to changes in the Delaware RULPA or interpretations thereof which, in the sole discretion of the General Partner, it believes appropriate or desirable, provided that in its opinion the amendment does not have a materially adverse effect upon the Unitholders or the Partnership; subject to the approval of each general partner, if the amendment would change the allocation among the general partners of any amounts allocated to any of them; if the amendment is necessary, in the opinion of counsel to the Partnership, to prevent the Partnership or a general partner or the directors or officers of a general partner from being in any manner subject to the provisions of the Investment Company Act of 1940, as amended, the Investment Advisers Act of 1940, as amended, or plan asset regulations adopted under ERISA, whether or not substantially similar to plan asset regulations currently applied or proposed by the Department of Labor, provided the amendment does not have a materially adverse effect on the Unitholders or the Partnership; if the amendment would reflect the exercise of any power granted to the Managing Partner under the Partnership Agreement; if the amendment would make any change which, in the sole discretion of the General Partner, is advisable to qualify or to continue the qualification of the Partnership as a limited partnership or a partnership in which the limited partners have limited liability under the laws of any state or that is necessary or advisable in the sole discretion of the General Partner to ensure that the Partnership will not be treated as an association taxable as a corporation for federal income tax purposes; if the amendment would make any change that is necessary or advisable, in the sole discretion of the General Partner, to satisfy any legal requirements, conditions or guidelines, that is necessary or desirable in order to implement certain provisions relating to tax allocations or that is necessary or desirable to facilitate the trading of the Depositary Receipts evidencing Class A Units; if the amendment corrects a clerical or technical error or omission; subject to the right of Unitholders to approve the issuance of securities senior to the Class A Units, if the amendment reflects the respective allocations, distributions, voting, liquidation and other rights, privileges, and preferences with respect to new securities issued by the Partnership; or if the amendment is similar to those listed above and does not have a material adverse effect on the Unitholders. Adoption of any of these amendments by the General Partner is subject to receipt of an opinion of counsel for the Partnership that the action would not result in the loss of the limited liability of the Unitholders, would not cause the Partnership to be treated as an association taxable as a corporation for federal income tax purposes and is permitted under the Delaware RULPA.

 

Meetings; Voting. Each Unitholder is entitled to one vote for each of his Class A Units. Any action that is required or permitted to be taken by the Unitholders may be taken either at a meeting of the Unitholders or without a meeting if consents in writing setting forth the action so taken are signed by Unitholders owning not less than the minimum percentage interests that would be necessary to authorize or take such action at a meeting of the Unitholders. The Partnership shall conduct annual meetings of Unitholders. Meetings of Unitholders may be called by a general partner or by Unitholders owning at least 10% of the outstanding Class A Units. Unitholders may vote either in person or by proxy at meetings. Class A Units evidenced by Depositary Receipts held in nominee or street name accounts will be voted by the broker (or other nominee) pursuant to the instruction of the Unitholder. A Majority Interest represented in person or by proxy will constitute a quorum at a meeting of Unitholders. Except for the special amendments referred to under “Amendment of Partnership Agreement” above and except as otherwise required by law, substantially all matters submitted to Unitholders are determined by the written consent or affirmative vote, in person or by proxy, of a Majority Interest. For matters on which Unitholders may vote, see “Purposes, Business and Management” to the extent permitted by law, “Amendment of Partnership Agreement” and “Conflicts of Interest” above.

 

Indemnification. The Partnership indemnifies each general partner and its directors, officers and employees as well as officers and employees of the Partnership, from and against any and all losses, claims, damages, liabilities, joint and several, expenses (including legal fees and expenses), judgments, fines, settlements and other amounts arising from any and all threatened, pending or completed claims,

 

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cost, demands, actions, suits or proceedings, civil, criminal, administrative or investigative, in which such person may be a party, or threatened to be made a party, by reason of its or his status as a general partner or as a director, officer or employee or its or his management of the affairs of the Partnership, or which relate to the Partnership, its property, business or affairs, whether or not such person continues to be a general partner or a director, officer or employee of a general partner or an officer or employee of the Partnership at the time any such liability or expense is paid or incurred. Indemnification is required to be made if (i) such person acted in good faith and in a manner it or he reasonably believed to be in, or not opposed to, the best interest of the Partnership, and, with respect to any criminal proceeding, had no reasonable cause to believe and did not believe its or his conduct was unlawful and (ii) such person’s conduct did not constitute gross negligence or willful or wanton misconduct. The termination of a legal proceeding adverse to the indemnified person does not create a presumption that the indemnified person failed to meet this standard of conduct. Any indemnification under these provisions will be limited to the assets of the Partnership. The Partnership will also pay expenses (including legal fees) incurred by an indemnified party in defending any proceeding in advance of final disposition of such proceeding, provided the indemnified party agrees to repay the amount advanced if a court ultimately determines that the indemnified party is not entitled to indemnification from the Partnership.

 

The Partnership is authorized to purchase insurance against liabilities asserted against and expenses incurred by such persons in connection with Partnership activities, whether or not the Partnership would have the power to indemnify the person against such liabilities under the provisions described above. The Partnership has purchased such insurance with respect to the officers and directors of the general partners, and will purchase such insurance with respect to officers and employees of the Partnership.

 

The indemnity provided in the Partnership Agreement is in addition to indemnification rights which a person may have under applicable law, contract or any other source.

 

Limited Liability. Assuming that a limited partner does not take part in the control of the business of the Partnership, within the meaning of the Delaware RULPA, and that he otherwise acts in conformity with the provisions of the Partnership Agreement, his liability under the Delaware RULPA will be limited, subject to certain possible exceptions, generally to the amount of any unperformed agreement to make contributions to the Partnership in respect of his Units, plus his share of any undistributed profits and assets of the Partnership. The Delaware RULPA specifies an extensive list of actions which do not constitute participation in control, including being a contractor, agent or employee of the Partnership or a general partner, consulting with or advising a general partner with respect to the business of the Partnership and voting on matters as to which Unitholders have voting rights. Even if a limited partner does participate in the control of the business, such limited partner will be liable only to persons who transact business with the Partnership reasonably believing, based upon the limited partner’s conduct, that the limited partner is a general partner of the Partnership. The Delaware RULPA precludes limited partnerships from making distributions if after giving effect thereto the liabilities of the partnership (other than liabilities to partners on account of their partnership interests and liabilities for which creditors’ recourse is limited to specific property) would exceed the fair value of the partnership’s assets (except that the fair value of property subject to limited recourse liability may be included in the partnership’s assets only to the extent such property’s value exceeds that liability). A limited partner who receives a distribution knowing that it violates such restriction is liable to the partnership for the amount of that distribution.

 

Power of Attorney. Each person who becomes a limited partner (including a person who becomes a limited partner in connection with a merger) grants an irrevocable power of attorney to the General Partner and its authorized officers to sign any certificates of limited partnership, the Partnership Agreement, the Depositary Agreement and other documents and instruments, including amendments of any of the foregoing, to form, reform or qualify the Partnership or to comply with any requirements relating to the business or proposed business of the Partnership.

 

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Dissolution and Liquidation. The Partnership will continue until December 31, 2086, or until terminated pursuant to the Partnership Agreement or by operation of law. The Partnership will be dissolved upon the happening of any one of the following events: a general partner ceases to be a general partner (other than by removal) unless (i) at the time there is at least one other general partner or (ii) a Majority Interest agree in writing to continue the business of the Partnership and to admit one or more general partners; the bankruptcy or insolvency of the Partnership; the sale of all or substantially all of the assets of the Partnership and distribution of any proceeds therefrom; the election of the General Partner to dissolve the Partnership together with the affirmative vote of a Majority Interest to dissolve; or any other event which makes it unlawful for the Partnership to be continued. No voluntary action may be taken to dissolve or liquidate the Partnership, however, unless such action is first proposed by the General Partner.

 

If the business of the Partnership is not to be continued by a successor general partner, general partners or, in the event of all general partners’ bankruptcy or removal, such person as a court or a Majority Interest may designate, shall have authority to complete the winding up and liquidation of the Partnership. In connection with the winding up of the Partnership, the assets will be liquidated and the proceeds distributed first to creditors of the Partnership in order of priority provided by law, for any reserves deemed appropriate (whether by payment or the making of reasonable provision for payment) and then to partners and assignees in proportion to, and to the extent of the positive balances in, their respective capital accounts. If the liquidator determines that an immediate sale of part or all of the Partnership assets would be impractical or would cause undue loss to the partners, the liquidator may, in its absolute discretion, distribute to some or all partners, in lieu of cash, as tenants in common, undivided interests in such assets as the liquidator deems unsuitable for liquidation. The liquidator may defer liquidation or distribution of assets to the partners in kind if it determines that a sale or distribution would be impractical or would cause undue loss to the partners.

 

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DESCRIPTION OF CLASS A UNITS

 

Description of Class A Units

 

For discussion of the rights of limited partners under the Amended Partnership Agreement, see “SUMMARY OF THE PARTNERSHIP AGREEMENT AND PROPOSED AMENDMENTS”. The following paragraphs discuss certain provisions of the Depositary Agreement between the Partnership and Mellon Investor Services, LLC as Depositary (the “Depositary Agreement”) and are qualified in their entirety by reference thereto. The Depositary Agreement is incorporated by reference as an exhibit to the Registration Statement of which this Proxy Statements a part.

 

General. The Partnership currently has outstanding 7,500,000 Class A Units. Holders of Class A Units have no preemptive rights and may not take part in the operation, management, or control of the Partnership.

 

Among other attributes, ownership of Class A Units evidences entitlement to participate in a percentage of the Partnership’s profits, losses, and e “Description of the Amended Partnership Agreement - Allocation of Profits and Losses; Distributions.”  The percentage interest in the Partnership represented by outstanding Class A Units will be subject to dilution in the event that the Partnership issues more Class A Units or other classes or series of securities. See “Description of the Amended and Restated  Partnership Agreement - Sale of Additional Securities”.

 

The Class A Units are registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Partnership is subject to the reporting and proxy solicitation requirements of the Exchange Act and the rules and regulations thereunder. The Partnership is required to file periodic reports containing financial and other information with the SEC. See “Additional Information.”

 

The Class A Units currently outstanding are listed on the New York Stock Exchange under the symbol “NUT”.

 

Transfer of Class A Units. Class A Units evidenced by Depositary Receipts are securities and are freely transferable except as restricted by federal or state securities laws. A transferee who executes a Transfer Application thereby seeks admission as a substituted limited partner in the Partnership in respect of the transferred ownership of Class A Units and grants a power of attorney in favor of the Managing Partner. A record holder of a Depositary Receipt has the right to negotiate the Depositary Receipt and the Class A Units evidenced thereby to a subsequent purchaser or transferee.

 

The transfer of Depositary Receipts and the Class A Units evidenced thereby are only recorded on the books of the Partnership upon execution and delivery to the Depositary of a Transfer Application. If a transferee fails to execute and deliver a Transfer Application, the transfer will not be recorded, and the transferor will continue to be the record holder. As a result, the transferor will continue to be mailed tax information and any cash distributions made by the Partnership, even though the transferor has done everything necessary on his, her or its part to effect the transfer. The purpose of requiring a Transfer Application to recognize a transfer is to ensure that the transferee becomes a limited partner and the transferor ceases to be a limited partner with respect to the transferred Class A Unit.

 

Whether or not a transferee executes the Transfer Application, a transferee, by acceptance of a Depositary Receipt, agrees to be bound by and hold the Depositary Receipt subject to the terms and conditions of the Partnership Agreement and the Depositary Agreement. A transferor has the duty to provide the transferee with all requisite information which may be necessary to effect the transfer of the Depositary Receipt.

 

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A limited partner may withdraw the Class A Units evidenced by his Depositary Receipt or Receipts by surrendering the Depositary Receipts for a Certificate representing the same number of Class A Units evidenced by the surrendered Depositary Receipt. Class A Unit Certificates are not transferable except by bequest, inheritance or operation of law. To transfer such Certificates, a holder must redeposit the Certificate and request a Depositary Receipt, which may then be transferred. Any such redeposit requires at least 60 days’ advance written notice to the Depositary.

 

Lost, stolen or destroyed Certificates or Depositary Receipts will be replaced upon the furnishing of a bond or other adequate security to the Partnership.

 

Resignation and Removal of Depositary. Subject to certain notice provisions, the Depositary may at any time resign or be removed by the Partnership, in which case a qualified successor will be appointed by the Partnership.

 

Amendment. Any provision of the Depositary Agreement, including the form of Certificate, Depositary Receipt or Transfer Application, may at any time and from time to time be amended by agreement between the Partnership and the Depositary in any respect deemed necessary or desirable by the Partnership, without any affirmative approval by the Unitholders. No amendment to the Depositary Agreement, however, may impair the right of a Unitholder to surrender a Depositary Receipt and withdraw any of the deposited Class A Units evidenced thereby, and no amendment to the Depositary Agreement may be made without the approval of the Managing Partner. The Depositary will furnish notice to each record holder of a Depositary Receipt, and to each securities exchange on which Depositary Receipts are listed for trading, of any material amendment made to the Depositary Agreement. Each record holder of a Depositary Receipt at the time any amendment of the Depositary Agreement becomes effective will be deemed, by continuing to hold such Depositary Receipt, to consent and agree to the amendment and to be bound by the Depositary Agreement as so amended.

 

Upon request by the Partnership, the Depositary will give notice of any material change in the fees or charges payable by holders of Depositary Receipts or Certificates or transferees of Depositary Receipt to any securities exchange on which such Depositary Receipts are listed for trading. Any change in such fees or charges will not be effective until the expiration of 90 days after the date of such notice.

 

Termination. The Depositary will terminate the Depositary Agreement, whenever directed to do so by the Partnership, by mailing notice of termination to the record holders of all Depositary Receipts and Certificates then outstanding at least 30 days before the date fixed for the termination in such notice.

 

Duties and Status of Depositary. The Depositary’s only duties as depositary are the essentially ministerial ones set forth in the Depositary Agreement. In addition to acting as depositary for the Class A Units, the Depositary acts as a registrar and transfer agent for the Class A Units. The Depositary is compensated by the Partnership for serving in such capacities. All fees charged by the Depositary for transfers of Depositary Receipts and withdrawals of Certificates for Class A Units are borne by the Partnership and not by the holders of Depositary Receipts or Certificates (except that fees similar to those customarily paid by stockholders for surety bond premiums to replace lost or stolen certificates, tax or other governmental charges, special charges for services requested by holders of Depositary Receipts or Certificates, including redeposit of withdrawn Certificates, and other similar fees or charges, will be borne by the affected holder of a Depositary Receipt or Certificate, as the case may be). There is not charge to holders of Depositary Receipts or Certificates for disbursements of the Partnership’s cash distributions.

 

The Depositary’s principal executive office is located at Mellon Investor Services LLC, 525 Market St., 35th Floor, San Francisco, CA 94105.

 

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CURRENT DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

 

The Partnership presently has no officers or directors. Instead, the officers and directors of the General Partner perform all management functions for the Partnership. Each director of the General Partner is appointed for a term of one year and until his successor is duly appointed and qualified. Each officer of the General Partner is elected by the Board of Directors of the General Partner and is subject to removal by that board at any time.

 

Directors of the General Partner receive a quarterly retainer of $3,750 and a meeting fee of $1000 per meeting. The Chairman of the Audit Committee receives an additional retainer of $4,000 per year. There are no other agreements or arrangements between the General Partner and its directors.

 

Election of Directors of  General Partner

 

A major amendment provides procedures permitting the Unitholders to elect the directors of the General Partner. This amendment will provide Unitholders with a right that is common in American industry. It is the intention of the Board of Directors to hold annual meetings of the Partnership for the purpose of electing directors each year. If a director dies, resigns, retires, or is otherwise unable to act between annual meetings, the Board of Directors will appoint an interim director until the next annual meeting.

 

The Nominating Committee of the Board of Directors of the Managing Partner recommends that the current directors be elected to serve for the ensuing year until any successor is duly appointed or elected.

 

Identification of Current Directors of General Partner

 

James H. Case. 85 years old; director of General Partner since 1986; Chairman of the Conflicts Committee from 1986 until 2004; at which time the name of the Conflicts Committee was changed to the Audit Committee; Chairman of the Audit Committee until March 2005; Chairman of Nominating, Compensation and Governance Committees since 2004.; of counsel to the law firm of Carlsmith Ball; not an employee, officer, or director of any CBCL or DBE affiliate.

 

John K. Kai. 40 years old; director of the General Partner since June 2004; member of the Audit, Nominating, Compensation and Governance Committees since March 2005; President of the Pinnacle Media Group; branch manager and investment representative of Linsco/Private Ledger; not an employee, officer, or director of any CBCL or DBE affiliate.

 

James S. Kendrick. 58 years old; director of General Partner since June 2005; Executive at Mauna Loa Macadamia Nut Corporation from 1991 to 1998; Consultant specializing in food processing facilities.

 

E. Alan Kennett. 62 years old; director of General Partner since June 2005; President and CEO of Gay and Robinson Sugar Company, Inc.

 

Jeffrey M. Kissel. 56 years old; director of General Partner since June 2005; member of the Audit Committee since June 2005; member of the Compensation, Nominating, and Governance Committees since December, 2005; Chairman of the Audit Committee since April 1, 2006; Vice Chairman and Chief Strategy Office for Primoris Corporation Inc.; not an employee, officer, or director of any CBCL or DBE affiliate.

 

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David McClain. 59 years old; director of General Partner since September 2000; member of the Audit Committee since 2,000, Member of the Nominating, Compensation and Governance Committees  since 2004; Chairman of Audit Committee from March, 2005,  to March, 2006;  not an employee, officer, or director of any CBCL or DBE affiliate. President of the University of Hawaii.

 

Dennis J. Simonis. 49 years old; director of General Partner since August 2002; President and Chief Operating Officer of General Partner from August 2001 until December 2004, Chief Financial Officer from June 2001 to August 2001, and Chief Executive Officer since December 2004. Chief Financial Officer of DBE from August 2001, and President of DBE from October, 2005; stockholder in CBCL.

 

B. Identification of Executive Officers of the General Partner

 

Dennis J. Simonis. 49 years old; President of General Partner since August 2001; and Chief Executive Officer since December 2004; President of the Partnership since March 2, 2006; President of D. Buyers Enterprises, LLC; not otherwise an employee, officer, or director of any CBCL affiliate. Formerly Executive Vice President and Chief Operating Officer of Mauna Loa.

 

Randolph H. Cabral. 53 years old; Senior Vice President and orchard manager of General Partner since May 2000; Senior Vice-President of the Partnership since March 2, 2006; not otherwise an employee, officer, or director of any CBCL affiliate. Formerly Senior Vice President and orchard Manager of Kau Agribusiness Company, Inc., a subsidiary of CBCL

 

Wayne W. Roumagoux. 59 years old; Chief Financial Officer of General Partner since August 2001; Secretary and Treasurer of General Partner since December 8, 2005; Controller of DBE; not otherwise an employee, officer, or director of any CBCL affiliate.

 

E. Business Experience of Current Directors and Executive Officers

 

Current Directors of the General Partner.

 

James H. Case. Mr. Case is of counsel to the Hawaii law firm of Carlsmith Ball LLP. Mr. Case graduated with an A.B. from Williams College and received a J.D. from Harvard Law School. He became associated with the Carlsmith law firm in 1951 and became a partner in 1959. He has served on the boards of directors of Hamakua Sugar Company, Inc., InterIsland Resorts, Ltd., Pacific Club, Central Union Church, Hanahauoli School, and Arcadia Retirement Residence. He resides in Honolulu, Hawaii.

 

John K. Kai. Mr. Kai has served as a director since June 2004. Mr. Kai is president of Pinnacle Investment Group, LLC and Pinnacle Media Group, LLC, and branch manager and investment representative of Linsco / Private Ledger. Mr. Kai was the resident manager of the Hilo office of Paine Webber, Inc. and was formerly with Merrill Lynch. Mr. Kai is a graduate of Sacramento City College and attended the University of the Pacific from 1983 to 1985. He has served on several nonprofit boards in Hawaii. He resides in Hilo, Hawaii.

 

James S. Kendrick. Mr. Kendrick has over 36 years of experience in the food processing industry and is currently a consultant to various food companies. Mr. Kendrick held executive positions at Mauna Loa Macadamia Nut Corporation from 1991 to 1998, including Executive Vice President of Operations and President. Between 1978 and 1983, he was the Manager of the Dole Pineapple cannery in Honolulu. Mr. Kendrick worked for Kraft Foods as an engineer. He is a graduate of Northern Illinois University and Cornell’s Executive Development Program. He has been active in the Hawaii Macadamia Nut Association and currently resides in Naples, Florida.

 

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E. Alan Kennett. Mr. Kennett has worked in various executive capacities in the agriculture sector for over 40 years and currently is the President and Chief Executive Officer of Gay and Robinson Sugar Company, Inc. on Kauai, Hawaii. He held various positions in the Hawaii sugar industry with C. Brewer and Co., Ltd. Between 1976 and 1994. Prior to 1976, Mr. Kennett managed sugar operations in Africa, the United Kingdom and the West Indies. He is a graduate of Walton Technical College and the Liverpool College of Technology and Completed Cornell’s Executive Development Program. Mr. Kennett has been active in numerous Hawaii non-profit organizations and written several technical papers. He currently resides in Kaumakani, Kauai, Hawaii.

 

Jeffrey M. Kissel. Mr. Kissel is the Vice Chairman and Chief Strategy Officer of Primoris Corporation, a $350 million specialty contractor. He was the Chief Financial Officer for Earth Tech, Inc. from 2003 to 2005, a $1.5 billion global engineering and construction company specializing in water treatment, and has held various financial executive positions in publicly traded companies since 1974. From 1997 to 2003, Mr. Kissel was employed by URS Corporation as a vice president of planning and budgeting, and served as Chief Financial Officer for several URS Corporation divisions. Mr. Kissel was President and principal shareholder of Hawaiian Communications between 1992 and 1997. Prior to 1992 he worked with Tesoro, AON and Challenger Petroleum in the energy industry. He has a B.B.A. and M.B.A. from the University of Hawaii and currently resides in California and Hawaii.

 

David McClain. Dr. McClain was appointed President of the 10-campus University of Hawai’i System in March, 2006, having  served as the Interim President since 2004 and as Vice President for Academic Affairs of the UH System from July 1, 2003. From 2000 until 2003 he was the Dean of the College of Business Administration at the University of Hawaii at Manoa, as well as First Hawaiian Bank Distinguished Professor of Leadership and Management; he was also Interim Vice President for Research of the University of Hawaii System from February to September 2003. Dr. McClain joined the University of Hawaii at Manoa in 1991 as the Henry A. Walker, Jr. Distinguished Professor of Business Enterprise and Professor of Financial Economics and Institutions. Dr. McClain is a director of First Insurance Company, and serves as a member of several nonprofit boards in Hawaii. He earned a Ph.D. in Economics from the Massachusetts Institute of Technology in 1974 and a BA in Economics and Mathematics from the University of Kansas in 1968. Dr. McClain has taught at Massachusetts Institute of Technology’s Sloan School of Management and at Boston University, where he chaired the Department of Finance and Economics. He also served as Senior Staff Economist, Council of Economic Advisors to President Jimmy Carter, and headed international economic information services for Data Resources, Inc. He resides in Honolulu, Hawaii.

 

Dennis J. Simonis. Mr. Simonis has served as a director since August 2002, president of the Managing Partner since August 2001, chief executive officer since December 2004, and was formerly the executive vice president and chief financial officer. From 1993 to 2001, Mr. Simonis served in various capacities at Mauna Loa, including executive vice president and chief operating officer. He serves as an officer of the Hawaii Macadamia Nut Association and has served on several nonprofit boards in Hawaii. He served from 1985-1993 as a vice president of Theo H. Davies & Co., Ltd. and worked as a senior auditor for Price Waterhouse between 1979 and 1985. Mr. Simonis graduated magna cum laude with a B.S. in Accounting from Carroll College in Waukesha, Wisconsin and earned his C.P.A. certificate in 1983. He resides in Hilo, Hawaii.

 

New Director.

 

Mr. James H. Case will have completed twenty years of service as a director on June 12, 2006, and will not be standing for reelection. The Nominating Committee has nominated Mr. Russell L. Case to replace Mr. James H. Case as a director. The business experience of Mr. Russell L. Case is summarized below.

 

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Russell L. Case. Mr. Case graduated from Cornell Law School in 1986 and commenced practicing law as an associate with the Atlanta law firm of Kilpatrick & Cody, specializing in international mergers, acquisitions, joint ventures, and dispositions. Thereafter he worked for Bell South as Associate General Counsel, performing the same type of work. Next he worked as Senior Vice President at Concert, a joint venture of AT&T and British Telecom, where he was responsible for international acquisitions, joint ventures, and dispositions. He returned to Hawaii in 2003 as Of Counsel to the law firm of Carlsmith Ball, where he has continued practicing corporate law. He has spent a considerable portion of his time performing legal services for the Partnership. Mr. Case was born in Hawaii in 1957 and graduated from Williams College in 1981.

 

Committees of the Board of Directors of the General Partner

 

At the inception of the Partnership in 1986 the Board of Directors was composed of seven members. CBCL owned 100% of the stock of the General Partner. Four of these members were insiders (executives at CBCL) and three were independent outside directors. The outside directors were appointed to a Conflicts Committee, whose primary responsibility was to review any conflicts of interest between CBCL and the Partnership. Mr. Case was appointed Chairman of the Conflicts Committee at the inception of the Partnership.

 

After new regulations by the Securities and Exchange Commission and the New York Stock Exchange following passage of the Sarbanes-Oxley Act, and following sale of the stock of Resources by CBCL to DBuyers Enterprises, the Conflicts Committee was reconstituted as the Audit Committee, and the three members of the Conflicts Committee became members of the Audit Committee. Mr. Case was appointed Chairman of the Committee. The Audit Committee took over all functions previously carried on by the Conflicts Committee. In addition, the Audit Committee assumed the additional responsibilities normally performed by Nominating, Governance, and Compensation Committees. Members were Chairman James H. Case, Dr. David S. McClain, and Dr. Ralph Hook.

 

In March, 2005, Mr. Case resigned as Chairman and a member of the Audit Committee, and was replaced by Mr. Kai. Dr. McClain became Chairman. In June, 2005, Mr. Kissel was appointed a member to replace Mr. Hook, who retired. In April, 2006, Mr. Kissel became Chairman and Dr. McClain continued as a member.

 

In March, 2005, three new committees were formed; namely, the Nominating, Compensation, and Governance Committees. Mr. Case became Chairman of those committees. Messrs. McClain and Kai became members. In December, 2005, Mr. Kissel was added as a member of those committees.

 

Audit Committee. Effective March 7, 2005, James Case resigned from the Audit Committee. At the March 9, 2005 Board of Directors meeting Dr. David McClain was appointed chairman and John Kai was appointed a member of the Audit Committee. At the June 5, 2005 Board of Directors meeting, Dr. Ralph retired as a director and as a member of the Audit Committee. Mr. Jeffrey Kissel was appointed to the Audit Committee to replace Dr. Hook. At the Board of Directors meeting on March 2, 2006, Dr. McClain resigned as Chairman of the Audit Committee effective on March 31, 2006, retaining his position as a member of the committee. The Board of Directors elected Mr. Jeffrey Kissel to replace Dr. McClain as Chairman. Therefore the present composition of the Audit Committee of ML Resources, Inc. is currently comprised of three members, Chairman Jeffrey Kissel, Dr. David McClain, and John Kai. The Board of Directors has determined that each member of the Audit Committee is independent in accordance with SEC Rule 10-A-3 and the New York Stock Exchange independence standards; that each member is financially literate, and that Mr. Kissel qualifies as a financial expert. The Audit Committee met four times in 2005 to review and approve accounting, internal control and reporting issues, related party transactions and other matters that could involve a conflict of interest. All members were in attendance at each quarterly meeting.

 

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Audit Committee Charter. The Audit Committee Charter is available from the Company by request or may be reviewed on the Partnership’s website at www.mlmacadamia.com .

 

Audit Committee Pre-Approval Policy. The Audit Committee Pre-Approval Policy is available from the Company by request or may be reviewed on the Partnership’s website at www.mlmacadamia.com .

 

Code of Ethics. The “Code of Business Conduct and Ethics” is available from the Company by request or may be reviewed on the Partnership’s website at www.mlmacadamia.com .

 

Nominating Committee. The members of the Nominating Committee are Chairman James H. Case, Dr. David McClain, John Kai, and Jeffrey M. Kissel. The Nominating Committee Charter is available from the Company by request or may be reviewed at the Partnership’s website at www.mlmacadamia.com. It meets as necessary to consider appointments to the Board of Directors and senior executive positions.

 

Compensation Committee. The General Partner has a Compensation Committee, which recommends proposed compensation of the executives to the Board of Directors for consideration and approval. The Compensation Committee also recommends any proposed bonus payments to the Board of Directors for its consideration and approval. Bonuses are based on the overall performance of the Partnership (as evidenced by its net income and cash flow for the year) and on general and administrative cost control performance. Performance in both categories is measured relative to the original Partnership operating budget approved by the General Partner’s Board of Directors at the beginning of each year.

 

The members of the Compensation Committee are Chairman James H. Case, Dr. David McClain, John Kai, and Jeffrey M. Kissel. The Compensation Committee Charter is available from the Company by request or may be reviewed on the Company’s website at www.mlmacadamia.com. The Committee meets as often as necessary to consider compensation for directors and senior management.

 

Governance Committee. The members of the Governance Committee are Chairman James H. Case, Dr. David McClain, John Kai, and Jeffrey M. Kissel. The Board of Directors has adopted a Charter for this committee. It is available from the Company by request or may be reviewed on the Company’s website at www.mlmacadamia.com. It meets at least once a year to review governance of the Partnership and to review the charter of the Governance Committee.

 

All members of all committees were present at all meetings of the committees in 2005.

 

F.              Section 16 Disclosure

 

Under Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), each director and certain officers of ML Resources, Inc., the General Partner, (a “Reporting Person”), are required to report their ownership and changes in ownership of Class A Depositary Units to the Securities and Exchange commission, the New York Stock Exchange and the Partnership..

 

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THE PARTNERSHIP’S MANAGEMENT

 

Executive Officers

 

Name		Office
Dennis J. Simonis		President
Randolph H. Cabral		Senior Vice President
Wayne W. Roumagoux		Secretary, Treasurer

 

Business Experience

 

Executive Officers Who Do Not Serve as Directors.

 

Randolph H. Cabral. Mr. Cabral has served as senior vice president and orchard manager of the Managing Partner since May 2000. Mr. Cabral was previously employed at Kay’s Agribusiness Company, Inc., from 1989 until the Partnership’s acquisition of Kay’s Agribusiness’ macadamia farming business in 2000. He served as senior vice president from 1998 to 2000, as vice president from 1996 to 1998, and as orchard manager from 1989. From 1983 to 1989, Mr. Cabral served as orchard manager with Mauna Loa Macadamia Nut Corporation. Mr. Cabral has an AS in General Agriculture from the University of Hawaii. He resides in Hilo, Hawaii.

 

Wayne W. Roumagoux. Mr. Roumagoux has served as chief financial officer of the General Partner since August 2001. Mr. Roumagoux has been controller of the Partnership since May 2001. From 1989 to 2001 Mr. Roumagoux was controller for Inlet Fisheries, Inc. He was controller for NIB, Inc’s Alaska operation and for Sheffield Hotels, Inc. during the late 1970’s and 1980’s. Mr. Roumagoux worked as a senior auditor for KPMG between 1976 and 1978. He has a M.S. in accounting from Eastern Washington State University in Cheney, Washington. He resides in Volcano, Hawaii.

 

Executive Compensation

 

Summary Compensation Table. The Partnership is managed by the General Partner. Compensation paid to the General Partner’s CEO and its other officers is reimbursed by the Partnership, as provided in Section 4.5 of the Partnership Agreement. The following table reflects the aggregate compensation for services in all capacities paid by the General Partner to the three most highly paid executives for the years ended December 31, 2005, 2004, and 2003. In addition, there were no long- term compensation awards or payouts during those years.

 

Name and Principal Position		Annual Compensation
		Year		Salary		Bonus		Other
Dennis J. Simonis		2005		225,000		134,800		19,000
President		2004		171,000		—		15,750
and Chief Executive Officer		2003		164,000		91,400		15,000
Randolph H. Cabral		2005		125,000		53,500		—
Senior vice president		2004		111,000		—		—
		2003		106,250		42,300		—
Wayne W. Roumagoux		2005		110,000		37,700		—
Chief Financial Officer		2004		92,000		—		—
		2003		82,000		26,100		—

 

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No Option, SAR, Long-term Incentive or Pension Plans. The General Partner does not presently have an option plan,  SAR plan, or long-term incentive plan. The officers of the General Partner and Partnership are included in the pension plan and other benefits plans of the Partnership. As such, the General Partner is not responsible for making any payments on the retirement of any of its officers.

 

Employment Contracts and Termination Agreements. The General Partner has severance agreements with Mr. Dennis J. Simonis which provides that Mr. Simonis will receive one year’s severance pay if he is terminated without just cause.

 

CERTAIN FEDERAL TAX CONSIDERATIONS

 

In the opinion of counsel for the Partnership, the adoption of the Amendment Proposals will not result in any taxable event for either the Partnership or the holders of the Class A units or the General Partner.

 

LEGAL MATTERS

 

Certain legal matters in connection with the preparation of this Proxy Statement will be passed upon for the Partnership by Carlsmith Ball LLP, Honolulu, Hawaii.

 

OTHER MATTERS

 

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. The existing Partnership Agreement does not require annual meetings; thus, all meetings are special meetings. Under Delaware law matters to be taken up at special meetings must be enumerated in the Notice of Meeting. Therefore, it is the opinion of legal counsel that there are probably no other matters which may properly come before the meeting.

 

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 the Amendment Proposal, abstentions and broker non-votes will in effect be votes against the Amendment Proposal. 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 their respective meetings 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.

 

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“Unrealized Loss” attributable to a Partnership Property means, as of any date of determination, the excess, if any, of the Carrying Value of such property as of such date of determination (prior to any adjustment to be made pursuant to Section 7.10(D) or 7.10(E) as of such date) over the fair market value of such property (as determined under Section 7.10(D)(4) or 7.10(E)) as of such date of determination.

 

ARTICLE II.
THE LIMITED PARTNERSHIP

 

2.1                                 Formation of the Partnership. The Partnership was formed as a limited partnership organized under the Delaware Act, which Act, as amended and in effect from time to time, and any successor statutes thereto made applicable at the election of the General Partner pursuant to Section 3.11 hereof, and this Agreement shall govern the rights and liabilities of the parties and their successors in interest.

 

2.2                                 Partnership Name. The name of the Partnership is “ML Macadamia Orchards, L.P.”  The Partnership may conduct business under such other name or names as the Managing General Partner may from time to time deem necessary, appropriate or advisable, including the name of the Managing General Partner. The Managing General Partner in its sole discretion may change the name of the Partnership at any time and from time to time. The General Partners and the Limited Partners (through the Managing General Partner as their attorney-in-fact) shall promptly execute, and the Managing General Partner shall file and record with proper offices in each jurisdiction in which the Partnership does, or elects to do, business, and publish such certificates or other statements or instruments as are required by the limited partnership statute, fictitious name statute, assumed name statute or any other similar statute in effect in such jurisdiction in order to conduct the Partnership business therein as a partnership in which the limited partners have limited liability.

 

2.3                                 Business and Purpose of the Partnership. The business and purpose of the Partnership shall be the carrying on of any business and the doing of any act that a limited partnership organized under the Delaware Act may carry on, including the ownership of stock or other interests in any corporation, limited liability company, trust or other entity, or the entering into any partnership, joint venture or other similar arrangement, including, without limitation, (i) the acquisition, ownership, management, operation, development, improvement, leasing, sale and disposition of macadamia nut orchard properties and the sale or other disposition of macadamia nuts grown on such properties; (ii) the acquisition, ownership, management, development, improvement, leasing, sale and disposition of real property and the improvements, fixtures and ancillary personal property thereon, including the development, sale and leasing of homes and commercial and industrial buildings; and (iii) anything incidental to the foregoing; provided that the Partnership shall not, without approval of a Majority Interest, engage in any activity that in the opinion of counsel or other tax advisor engaged by the Partnership would likely disqualify the Partnership as an “Electing 1987 Partnership” under Section 7704(g) of the Code.

 

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2.4                                 Principal Place of Business. The principal place of business of the Partnership shall be at 828 Fort Street, Honolulu, Hawaii, 96813, but the Managing General Partner may substitute or establish such other place or places of business for the Partnership (within or without the State of Hawaii) as it may, from time to time, deem necessary or appropriate; provided, however, that the Managing General Partner shall give the Limited Partners notice in writing of any change of address of the principal place of business of the Partnership and, in connection therewith, shall amend the Certificate of Limited Partnership in accordance with applicable requirements of law. The Managing General Partner shall select one or more Persons to act as the registered agent for service of process on the Partnership and shall designate a registered office where such agent may be found. The initial agent for service of process is The Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware 19801.

 

2.5                                 Term of the Partnership. The Partnership commenced on April 14, 1986, the date that the Certificate of Limited Partnership was filed in accordance with the provisions of the Delaware Act, and shall continue until December 31, 2086, or until the earlier termination of the Partnership in accordance with Article 15.

 

2.6                                 Execution of Documents. The Managing General Partner, on its own behalf and as attorney-in-fact for the other Partners of the Partnership pursuant to the power of attorney granted in Article 16, shall execute, acknowledge and file or deliver all certificates of limited partnership, amended or restated certificates, instruments or other documents and counterparts thereof and make all filings and recordings and perform all other acts as shall be necessary to comply with the laws of the State of Delaware for the formation, continuation or reformation of the Partnership, thereafter for the continued good standing of the Partnership, and, when appropriate, for the termination of the Partnership. The Managing General Partner shall also execute such certificates, amended or restated certificates and other documents conforming hereto and do such filing, recording, publishing and other acts as may be appropriate to comply with the requirements of law for the formation, continuation, reformation, qualification and/or operation of a limited partnership (or as a partnership in which the limited partners have limited liability) in all jurisdictions where the Partnership may wish to do business, which shall be accomplished prior to doing business in any such jurisdiction if deemed necessary by the Managing General Partner for the maintenance of such limited liability2.7       Merger and Consolidation. So long as permitted by the Delaware Act, and laws and regulations applicable to each other party thereto, the Partnership may, pursuant to an agreement of merger or consolidation, and subject to the approval requirements set forth in Section 6.9(A)(3) hereof, merge or consolidate with one or more limited partnerships or other entities and, in conjunction therewith, amend this Agreement or adopt a new partnership agreement of the surviving or resulting limited partnership effective at the effective time of the merger or consolidation. Notwithstanding prior approval given pursuant to Section 6.9(A)3) hereof or otherwise, an agreement of merger or consolidation may be terminated or amended by the Managing General Partner pursuant to any provision for such termination or amendment contained in the agreement of merger or consolidation. Approval of an agreement of merger or consolidation by the requisite vote of Unitholders shall confer

 

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on the Managing General Partner authority to take all such actions for and on behalf of the Partnership as the Managing General Partner deems necessary, convenient or appropriate to effectuate the merger or consolidation, including without limitation the issuance by the Partnership of Units or other Partnership securities, or the providing of any other consideration, including, without limitation, cash, to be delivered by the Partnership in accordance with the agreement of merger or consolidation. If Units are to be issued in any such merger or consolidation to the holders of securities of any other entity that is a party to the merger or consolidation, then unless otherwise provided in the agreement of merger or consolidation:  the properties, rights, privileges, powers and franchises of any other constituent party to the merger or consolidation that are vested in the Partnership upon consummation of the merger or consolidation shall constitute Contributed Property; the Capital Account associated with each Unit issued with respect to the securities of such other entity shall reflect a proportionate amount of the Contributed Property’s Net Agreed Value; each Person to whom such Units are to be issued shall with respect to such Units be an Assignee automatically as of the effective time of the merger or consolidation and upon compliance by such Person with such procedures as may be set forth in the agreement of merger or consolidation (including the submission of a property completed and executed Transfer Application) or as may be reasonably established by the Managing General Partner, shall be admitted to the Partnership as a Limited Partner automatically as of the date of such submission without further action of any Person. Each Person by submitting a Transfer Application in accordance with the preceding sentence shall be deemed to (i) have authorized the Managing General Partner to execute this Agreement on its behalf, (ii) have agreed to be bound by the provisions of this Agreement and (iii) have granted the Managing General Partner the authority (including the power of attorney) set forth in Article 16. Subject to the requirements of the Code and Treasury Regulations, the Managing General Partner shall have the authority to determine the federal income tax treatment of any merger or consolidation.

 

ARTICLE III.
THE GENERAL PARTNER

 

3.1                                 Management Power. Subject to Sections 6.9 and 6.12, the Managing General Partner shall have full, exclusive and complete discretion, power and authority in the management and control of the business of the Partnership, shall make all decisions affecting the business of the Partnership, and may do or cause to be done any and all acts it deems necessary or appropriate to accomplish the purposes of the Partnership, including without limitation the hiring and discharge of all Partnership employees. Any Person dealing with the Managing General Partner shall not be required to determine or inquire into the authority and power of the Managing General Partner to bind the Partnership and to execute, acknowledge, deliver and perform obligations under any and all documents. The expression of any power or right of the Managing General Partner in this Agreement shall not limit or exclude any other power or right which is not specifically or expressly set forth in this Agreement or the Delaware Act. Except as expressly provided to the contrary in this Agreement, ML Resources, Inc., and its successors as Managing General Partner shall manage all of the affairs of the Partnership without the need for the concurrence of any other Person that may then be a General Partner, notwithstanding any reference in this Agreement to General Partners.

 

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3.2                                 Board of Directors of Managing General Partner. So long as the Partnership owns all or any portion of the issued and outstanding capital stock of the Managing General Partner:

 

(A)                              The Managing General Partner shall be a corporation organized and existing under the laws of the State of Hawaii.

 

(B)                                Unless otherwise approved by a Majority Interest, the Managing General Partner shall have only one class of capital stock issued and outstanding at any time and only one class of directors.

 

(C)                                The management and operations of the Managing General Partner shall be under the direction and supervision of its Board of Directors, the size of which shall be determined in accordance with the By-Laws of the Managing General Partner; provided however that such board shall have a minimum of three directors.

 

(D)                               The Board of Directors shall be entitled to delegate, to the full extent permitted by the laws of the State of Hawaii applicable to corporations organized and existing under such laws, management and operations to officers and employees of the Managing General Partner.

 

(E)                                 The Board of Directors shall be composed of individuals specified by the Partnership to the extent provided in this Section 3.2(e), and the Managing General Partner will cause such specified individuals to be elected to the Board of Directors:

 

(1)                                  So long as all of the issued and outstanding capital stock of the Managing General Partner is owned by the Partnership, the entirety of the Board of Directors shall be composed of individuals specified by the Partnership in the manner contemplated by this Section 3.2(e).

 

(2)                                  If less than all, but a minimum of fifty percent of the issued and outstanding capital stock of the Managing General Partner is owned by the Partnership, at least a majority of the Board of Directors shall be composed of individuals specified by the Partnership (the exact number of directors which the Partnership shall be entitled to specify shall be determined by multiplying the Partnership’s percentage ownership of the issued and outstanding capital stock by the number of members of the Board of Directors, and then rounding up to the next whole number), and the balance of the members of the Board of Directors will be elected by the majority vote of the issued and outstanding capital stock not owned by the Partnership.

 

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(3)                                  If less than fifty percent of the issued and outstanding capital stock is owned by the Partnership, the Managing General Partner shall not be obligated to compose all or any portion of the Board of Directors with individuals specified by the Partnership (except to the extent elected as such by vote of the holders of the issued and outstanding shares of capital stock of the Managing General Partner).

 

(4)                                  Individuals specified by the Partnership in accordance with this Section 3.2(e) may only be removed if specified for removal by vote of a Majority Interest and simultaneous replacements are specified by the Partnership at the time of such vote.

 

(5)                                  Individuals specified by the Partnership shall be determined by a Majority Interest at a meeting of Unitholders called for the purpose of specifying individuals as Directors, which meeting the Partnership shall hold, and the Managing General Partner shall cause the Partnership to hold, on at least an annual basis within the time frame that would otherwise apply if the Partnership was subject to the provisions of the Exchange Act and the rules and regulations of the applicable National Securities Exchange applicable to the election of directors.

 

(6)                                  The slate of individuals to be considered by the Unitholders at a meeting of Unitholders for the purpose of specification to the Managing General Partner shall be determined by a nominating committee of the Board of Directors of the Managing General Partner, which slate must be approved by a vote of the majority of Directors that were previously specified by the Partnership pursuant to this Section 3.2.

 

(7)                                  The Managing General Partner shall cause the Partnership to collect information from the individuals identified on such slate, shall communicate to all Unitholders information regarding such individuals, their identification as individuals to be considered by the Unitholders and the meeting at which such individuals are to be considered for specification, and shall solicit, or engage a proxy solicitation firm to solicit, votes in connection with such consideration for specification, all in accordance with the provisions of the Exchange Act and the rules and regulations of the National Securities Exchange that would otherwise be applicable in connection with such activates by an entity subject to such provisions, rules and regulations and in the process of electing a board of directors.

 

(8)                                  In connection with any meeting of Unitholders for the purpose of specification of individuals as Directors, Unitholders shall have the right to propose alternative names for consideration by Unitholders and to solicit proxies in connection therewith, provided that such Unit holders proposing alternative names or soliciting proxies in connection therewith shall comply with the provisions of the Exchange Act and the rules and regulations of the appropriate National Securities Exchange that would otherwise be applicable in connection with such activities by an entity subject to such provisions, rules and regulations and in the process of electing a board of directors.

 

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(F)                                 The Articles of Incorporation and By-Laws of the Managing General Partner shall provide that decisions of the Board of Directors shall be determined by a majority of a quorum of directors and that decisions of its shareholders shall be determined by majority vote of all of the issued and outstanding capital stock of the corporation (and not by a majority of a quorum of shares).

 

(G)                                Any failure by the Managing General Partner to comply fully with the terms and provisions of this Section 3.2 shall be grounds for termination of the Managing General Partner as managing general partner of the Partnership.

 

3.3                                 Compensation Plans. The Managing General Partner and the Partnership may pay pensions, and establish and carry out pension, profit-sharing, bonus, purchase, option, savings, thrift and other retirement, incentive and benefit plans, trusts and provisions for officers, directors and employees of the Managing General Partner or the Partnership, and any officers, directors and employees of the Managing General Partner, except that any such plans, trusts and provisions which provide for the issuance of Units or any other securities of the Partnership must be approved by the affirmative vote of a Majority Interest in the Partnership. The Managing General Partner and the Partnership may, to the fullest extent permitted by law, indemnify and purchase and maintain insurance on behalf of any fiduciary of such plans, trusts or provisions, including without limitation health insurance, medical and dental reimbursement, life insurance, accident insurance and disability insurance and, as provided in Section 3.7, liability insurance.

 

3.4                                 Liability of General Partners. The General Partners shall be liable to the Partnership and the Limited Partners for gross negligence or willful or wanton misconduct, but neither the General Partners nor their directors or officers shall be liable to either the Partnership or any Limited Partner or to Persons who have acquired interests in the Units, whether as Assignees or otherwise, for errors in judgment or for any acts or omissions that do not constitute gross negligence or willful or wanton misconduct. In all transactions for or with the Partnership, a General Partner shall act in good faith and in a manner which the General Partner believes to be in, or not opposed to, the best interests of the Partnership.

 

3.5                                 Similar Activities. Except as may otherwise be set forth in a management agreement, if any, between the Managing General Partner and the Partnership, the Managing General Partner, any General Partner,   any Affiliate of a General Partner, or any director, officer or employee of any General Partner or any Affiliate of a General Partner shall be entitled to and may have business interests and engage in business activities in addition to those relating to the Partnership, may engage in any business described in Section 2.3, and any other business and activities, including business interests and activities in direct competition with the Partnership, for their own account and for the account of others, without having or incurring any obligation to offer any interest in such properties, business or activities to the Partnership, or any Partner, and

 

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no other provision of this Agreement shall be deemed to prohibit the General Partners or any such Person from conducting such other business and activities. Neither the Partnership nor any of the Partners shall have any rights by virtue of this Agreement or the partnership relationship created hereby in any business ventures of the Managing General Partner, any General Partner, any Affiliate of a General Partner or any director, officer or employee of any General Partner or an Affiliate of a General Partner. The General Partners and any Affiliate of the General Partners may acquire Partnership Interests and shall be entitled to exercise all rights of a Limited Partner or Assignee, as applicable, relating to such interests.

 

3.6                                 Appointment of Partnership Officers; Activities of Officers and Directors.

 

(A)                              The Managing General Partner may, from time to time as it deems advisable, appoint officers of the Partnership or divisions thereof and assign a title (including, without limitation, President, Vice President, Secretary, and Treasurer) to any such person, which person may but shall not be required to be an employee of the Partnership. Each such officer shall have the duties delegated by the Managing General Partner.

 

(B)                                Each officer, director and employee of a General Partner and each officer and employee of the Partnership shall have the right to be otherwise employed by an entity or entities other than the General Partner or the Partnership on a part-time or full-time basis, except as determined by the Managing General Partner. Nothing herein shall prevent any officer, director or employee of a General Partner or of an Affiliate of a General Partner, or an officer or employee of the Partnership, from becoming a Limited Partner or Assignee, whereupon such Person shall be entitled to all rights and shall be subject to all obligations relating to the Units and shall as to such Units be deemed a Limited Partner or Assignee, as applicable.

 

3.7                                 Indemnification of General Partners, Directors, Officers and Employees.

 

(A)                              The General Partners and the directors, officers and employees of a General Partner, including but not limited to the directors of the Managing General Partner nominated, appointed and/or elected in accordance with Section 3.2, and the officers and employees of the Partnership (each, individually, an “Indemnitee”), shall each, to the extent permitted by law, be indemnified and held harmless by the Partnership from and against any and all losses, claims, damages, liabilities, joint and several, expenses (including legal fees and expenses), judgments, fines, settlements and other amounts arising from any and all threatened, pending or completed claims, costs, demands, actions, suits or proceedings, civil, criminal, administrative or investigative, in which the Indemnitee may be a party, or threatened to be made a party by reason of its status as a General Partner or a director, officer or employee of a General Partner or as an officer or employee of the Partnership, or its management of the affairs of the Partnership, or which relate to the Partnership, its property, business or affairs, whether or not the Indemnitee continues to be a General Partner or a director, officer or employee of a General Partner or as an officer or employee of the Partnership at the time any such liability or expense is paid or incurred, if the Indemnitee acted in

 

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good faith and in a manner it reasonably believed to be in, or not opposed to, the best interests of the Partnership, and, with respect to any criminal proceedings, had no reasonable cause to believe and did not believe its conduct was unlawful, provided that the Indemnitee’s conduct does not constitute gross negligence or willful or wanton misconduct. The termination of a proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere, or its equivalent, shall not, of itself, create a presumption that the Indemnitee did not act in good faith and in a manner which the Indemnitee reasonably believed to be in, or not opposed to, the best interests of the Partnership or a presumption that the Indemnitee had reasonable cause to believe that its conduct was unlawful. or that the Indemnitee’s conduct constituted gross negligence or willful or wanton misconduct.

 

(B)                                Expenses (including legal fees and expenses) incurred in defending any proceeding shall be paid by the Partnership in advance of the final disposition of such proceeding upon receipt of an undertaking by or on behalf of the Indemnitee to repay such amount if it shall ultimately be determined by a court of competent jurisdiction that the Indemnitee is not entitled to be indemnified by the Partnership as authorized hereunder.

 

(C)                                The indemnification provided by this Section 3.7 shall be in addition to any other rights to which those indemnified may be entitled under any agreement, vote of the Unitholders, as a matter of law or otherwise, both as to action in the Indemnitee’s capacity as a General Partner or as a director, officer or employee of a General Partner or as an officer or employee of the Partnership and to action in any other capacity, and shall continue as to an Indemnitee who has ceased to serve in such capacity and shall inure to the benefit of the heirs, successors, assigns and administrators of the Indemnitee.

 

(D)                               The Managing General Partner and the Partnership may purchase and maintain insurance, to the extent the Managing General Partner determines in its sole discretion that it is commercially reasonable to do so, on behalf of a General Partner, the directors, officers and employees of a General Partner or the officers and employees of the Partnership, and such other Persons as the Managing General Partner shall determine against any liability which may be asserted against or expense which may be incurred by such Person in connection with the Partnership’s activities, whether or not the Partnership would have the power to indemnify the Person against the liability under the provisions of this Agreement.

 

(E)                                 For purposes of this Section 3.7, the Partnership shall be deemed to have requested an Indemnitee to serve as fiduciary of an employee benefit plan whenever the performance by it of its duties to the Partnership also imposes duties on, or otherwise involves services by, it to the plan or participants or beneficiaries of the plan; excise taxes assessed on an Indemnitee with respect to an employee benefit plan pursuant to applicable law shall be deemed “fines” within the meaning of paragraph (A) of this Section 3.7; and action taken or omitted by it with respect to an employee benefit plan in the performance of its duties for a purpose reasonably believed by it to be in the interest of the participants and beneficiaries of the plan shall be deemed to be for a purpose which is in, or not opposed to, the best interests of the Partnership.

 

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(F)                                 An Indemnitee shall not be denied indemnification in whole or in part under this Section 3.7 because the Indemnitee had an interest in the transaction with respect to which the indemnification applies if the transaction was otherwise permitted by the terms of this Agreement.

 

(G)                                In no event may an Indemnitee subject the Limited Partners to personal liability by reason of these indemnification provisions.

 

(H)                               The provisions of this Section 3.7 are for the benefit of the Indemnitees and shall not be deemed to create any rights for the benefit of any other Persons.

 

3.8                                 Other Matters Concerning General Partners.

 

(A)                              Each of the General Partners may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, bond, debenture, or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties.

 

(B)                                Each of the General Partners may execute any of its powers or perform any of its duties either directly or by or through agents, including, without limitation, any Related Person. A General Partner may consult with counsel, accountants, appraisers, management consultants, investment bankers, and other consultants and advisers selected by it (who may serve as such for the Partnership or any Related Person) and any opinion of such Person as to matters which the General Partner believes to be within its professional or expert competence shall be full and complete authorization and protection in respect to any action taken or suffered or omitted by the General Partner hereunder in good faith and in accordance with that opinion. The General Partners shall not be responsible for the misconduct, negligence, acts or omissions of any such Person and shall assume no obligations in connection therewith other than the obligation to use due care in the selection of such Persons.

 

(C)                                Any and all fees, commissions, compensation and other consideration received by a General Partner or a partner, director, officer, agent or employee of a General Partner or of the Partnership permitted pursuant to this Section 3.8 shall be the exclusive property of the recipient, in which the Partnership shall have no right or claim to such amounts.

 

3.9                                 Agreements with a General Partner or a Related Person.

 

(A)                              A General Partner and any Related Person may deal with the Partnership in connection with carrying out the business of the Partnership or otherwise, as an independent contractor or as an agent for others, and may receive from such others or the Partnership profits, compensation, commissions or other amounts without having to account to the Partnership therefore, provided that (a) the Managing General Partner in

 

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good faith believes such dealings and amounts to be reasonable and (b) such dealing and amounts are on a basis at least as favorable as may be obtained from unrelated third parties for comparable goods and services.

 

(B)                                The satisfaction of any one of the following conditions shall be a complete and absolute defense to any claim of invalidity or for damages or other relief with respect to any agreement, act, matter or transaction between the Partnership and a General Partner or a Related Person based upon the fact that the General Partner or Related Person is a party thereto and shall constitute a determination that the agreement, act, matter or transaction was fair and reasonable to, in the best interests of the Partnership and otherwise in accordance with the provisions of this Section:

 

(1)                                  The material facts as to the agreement, act, matter or transaction and as to the relationship or interest of the General Partner or Related Person are fully disclosed or known to (a) all directors (or Persons in a similar role with respect to an entity other than a corporation) of the Managing General Partner who are not interested in the agreement, act, matter, or transaction (other than by virtue of their beneficial ownership of capital stock or other ownership interests of less than one percent of a Managing General Partner or Affiliate of the Managing General Partner that is, in either case, subject to the provisions of the Exchange Act), acting as a committee of the Board of Directors or otherwise, and (b) a majority of such non-interested directors of the Managing General Partner affirmatively vote in good faith to authorize, approve or ratify the agreement, act, matter or transaction; ; or

 

(2)                                  The material facts as to the agreement, act, matter or transaction and as to the relationship or interest of the General Partner or Related Person are fully disclosed or known to the Unitholders and such agreement, act, matter or transaction is specially authorized, approved or ratified by a Majority Interest (excluding for purposes of computing the outstanding Class A Units and the Class A Units eligible to vote all Class A Units held by the General Partner or Related Persons); or

 

(3)                                  The agreement, act, matter or transaction is fair and reasonable to the Partnership at the time it is authorized, approved or ratified by the Managing General Partner.

 

(C)                                The submission or failure of the Partnership to submit any agreement, act, matter or transaction under Section 3.9(B)(1) or Section 3.9(B)(2) shall not create any presumption or inference or otherwise be considered evidence that the agreement, act, matter or transaction was not fair and reasonable to and in the best interests of the Partnership.

 

3.10                           Conveyances. The Managing General Partner has the express authority to convey title to any Partnership Property by a conveyance executed by the Managing General Partner alone on behalf of the Partnership and may grant powers of attorney to officers or employees of the Partnership to execute conveyance documents on behalf of the Partnership.

 

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3.11                           Election To Be Governed by Successor Limited Partnership Law. The Managing General Partner may, in its sole discretion and without any vote or concurrence of the Limited Partners, elect for the Partnership to be governed by any statutes adopted to succeed or replace the Delaware Act on or after the date any part of such successor or replacement statute takes effect and to procure any permits, orders or approvals of any governmental authority in connection with such an election.

 

3.12                           Indebtedness. The Managing General Partner shall have the sole discretion and exclusive authority to determine whether, on behalf of the Partnership, to execute any loan or credit agreement or incur indebtedness, secured or unsecured, as it believes to be in the best interests of the Partners or of the Partnership. A General Partner or an Affiliate of a General Partner may lend money to the Partnership on such terms as the Managing General Partner may determine, provided, however, that the General Partner or Affiliate may not charge the Partnership interest greater than the rate (including points or other financing charges or fees) that would be charged the Partnership (without reference to the Managing General Partner’s or any other General Partner’s financial abilities or guaranties) by unrelated lenders on comparable loans for the same purpose. The Partnership shall not lend funds to the General Partners or their Affiliates. Loans by a Partner to the Partnership shall not be considered Capital Contributions.

 

3.13                           Confidentiality. The Managing General Partner may keep confidential from the Limited Partners and Assignees, for such period of time as the Managing General Partner deems reasonable, any information which the Managing General Partner reasonably believes to be in the nature of trade secrets or other information disclosure of which the Managing General Partner in good faith believes could damage the Partnership or its business or which the Partnership is required by agreements with third parties to keep confidential; provided that the provisions of this Section 3.13 shall not be interpreted to negate any obligations of the Partnership, as the Managing General Partner acting for the Partnership, to the Unitholders pursuant to the Exchange Act.

 

ARTICLE IV.
COMPENSATION OF THE GENERAL PARTNERS

 

4.1                                 Management Fee. The Partnership shall pay an annual Management Fee to the Managing General Partner, payable in arrears on February 15 of each year (or as soon as practicable thereafter when Net Income for the prior year is determined), equal to (a) two percent (2%) of Net Income, computed without regard to the Management Fee, for the immediately preceding calendar year, plus (b) an amount equal to the Hawaii general excise tax imposed on the Managing General Partner with respect to the Management Fee (including general excise tax); provided however that no such Management Fee shall be payable with respect to the pro rata portion of the prior calendar year in which the Partnership owned all of the issued and outstanding capital stock of the Managing General Partner.

 

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4.2                                 Proration of Fees. In the event the Managing General Partner shall cease to serve as Managing General Partner during any calendar year, or the Partnership ceases to own all of the issued and outstanding capital stock of the Managing General Partner, a prorated portion of the Management Fee and the Incentive Fee for such year shall be payable with respect to the number of complete and partial months of the year during which the Managing General Partner served in such capacity or was owned less than one hundred percent by the Partnership.

 

4.3                                 Expenses of General Partners. The Partnership shall pay all expenses, disbursements and advances reasonably incurred by the General Partners in connection with the conduct of Partnership business, including without limitation office expenses, secretarial expenses and expenses for entertainment, travel and similar items, general and administrative expenses, amounts paid to any Person retained to perform services for the Partnership and other incidental expenses necessary or appropriate to the conduct of the Partnership’s business (including without limitation, expenses reasonably allocated to a General Partner by its Affiliates and which are reasonably allocated to the Partnership), in addition to any reimbursement as a result of indemnification pursuant to Section 3.7, and General Partners shall be promptly reimbursed by the Partnership for any such items plus any Hawaii general excise taxes with respect to such items and such reimbursement. The Managing General Partner shall determine such fees and expenses which are allocated to the Partnership in any reasonable manner.

 

ARTICLE V.
THE LIMITED PARTNERS AND ASSIGNEES

 

5.1                                 Limited Liability.

 

(A)                              No Limited Partner or Assignee shall be personally liable for any of the obligations of the Partnership, or for any distribution made to such Limited Partner or Assignee, except as provided by Delaware law.

 

(B)                                In no event shall any Limited Partner or Assignee be obligated under any circumstances to make any additional Capital Contribution to the Partnership for any purpose whatsoever.

 

5.2                                 Restrictions on Limited Partners and Assignees.

 

(A)                              No Limited Partner or Assignee shall participate, in such Person’s capacity as Limited Partner or Assignee, in the management and control of the business of the Partnership or transact any business for the Partnership, unless such Limited Partner or Assignee is also a General Partner or other Person employed or engaged to transact any such business by or on behalf of a General Partner or the Partnership. The transaction of any such business by any such Person employed or engaged to do so by or on behalf of a General Partner or the Partnership shall not affect, impair or eliminate

 

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the limitations on the liability of the Limited Partner or Assignee under this Agreement or applicable law. This Section 5.2(A) shall not preclude a Limited Partner or Assignee from service as an employee, officer or director of a General Partner or as an officer or employee of the Partnership and exercising all rights, duties and powers relating thereto.

 

(B)                                No Limited Partner or Assignee shall have the power to represent, sign for or bind a General Partner or the Partnership, unless such Limited Partner or Assignee is also a General Partner or other Person given such power in a capacity other than as a Limited Partner or Assignee by the Managing General Partner.

 

5.3                                 Outside Activities. A Limited Partner or Assignee shall be entitled to and may have business interests and engage in business activities in addition to those relating to the Partnership, including business interests and activities in direct competition with the Partnership. Neither the Partnership nor any of the Partners shall have any rights by virtue of this Agreement in any independent business ventures of any other Limited Partner or any Assignee.

 

No Withdrawal or Dissolution. No Limited Partner shall at any time withdraw from the Partnership, except as provided in this Agreement. No Limited Partner shall have the right to have the Partnership dissolved or the right to a return of capital from the Partnership, except as provided in this Agreement. The legal incompetency, bankruptcy, termination, dissolution, withdrawal, expulsion or death of a Limited Partner shall not cause a dissolution of the Partnership.

 

Rights of Assignees. An Assignee is entitled to an interest in the Partnership equivalent to that of a Limited Partner with respect to the rights to (i) share in profits and losses of the Partnership, (ii) receive distributions, including liquidating distributions, from the Partnership, and (iii) receive from the Partnership allocations of income, gain, loss, deduction, or credit or similar items, and shall have the right to vote on Partnership matters to the same extent as does a Limited Partner, but will otherwise be subject to the limitations under the Delaware Act on the rights of an assignee who has not become a limited partner.

 

ARTICLE VI.
MEETINGS AND VOTING; AMENDMENTS

 

6.1                                 Meetings. Meetings of the Limited Partners may be called by the Managing General Partner or by Limited Partners owning at least ten percent (10%) of the Class A Units. Any Limited Partner calling a meeting shall specify the number of Class A Units as to which the Limited Partner is exercising the right to call a meeting, and only those specified Class A Units shall be counted for the purpose of determining whether the required ten percent (10%) standard of the preceding sentence has been met. Limited Partners may call a meeting only as to matters on which they have the right to vote. Limited Partners shall call a meeting by delivering to the Managing General Partner one or more calls in writing stating that the signing Persons wish to call a meeting and indicating the purposes for which the meeting is to be called. Within sixty

 

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(60) days after receipt of such call or within such a greater time as may be reasonably necessary for the Partnership to comply with any statutes, rules, regulations, listing agreements or similar requirements governing the holding of a meeting or the solicitation of proxies for use at such a meeting, the Managing General Partner shall send a notice of the meeting to the Unitholders either directly or indirectly through the Depositary. A meeting shall be held at a time and place determined by the Managing General Partner on a date not less than ten (10) nor more than sixty (60) days after the mailing of notice of the meeting. Unitholders may vote either in person or by proxy at any meeting. No matter shall be voted upon by Unitholders at any meeting of the Limited Partners unless the requirements of Section 6.10 shall be satisfied as to such matter. The Managing General Partner shall call a meeting of the Limited Partners at least once each calendar year so long as the Partnership (i) owns all of the issued and outstanding capital stock of the Managing General Partner or (ii) is otherwise entitled to specify one or more members of the Board of Directors, which meeting shall be called within the time frame in which the Partnership would be required to call a meeting pursuant to the provisions of the Exchange Act relating to the election of directors if it was electing directors itself.

 

6.2                                 Notice of Meeting. Notice of a meeting called pursuant to Section 6.1 and any report shall be given either personally or by mail or other means of written communication, addressed to the Unitholder at the address of the Unitholder appearing on the books of the Partnership or Depositary. The notice or report shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by other means of written communication. An affidavit or certificate of mailing of any notice or report in accordance with the provisions of this Article 6, executed by a General Partner, transfer agent, registrar of Units or mailing organization shall be prima facie evidence of the giving of notice. If any notice or report addressed to the Unitholder at the address of the Unitholder appearing on the books of the Partnership is returned to the Partnership by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver it, said notice or report and any subsequent notices or reports shall be deemed to have been duly given without further mailing if they are available for the Unitholder at the principal executive office of the Partnership for a period of one year from the date of the giving of the notice or report to all other Unitholders.

 

6.3                                 Record Date. For purposes of determining the Unitholders entitled to notice of or to vote at a meeting of the Limited Partners or to give consents without a meeting as provided in Section 6.8, the Managing General Partner may set a Record Date which shall be not less than ten (10) days nor more than sixty (60) days before the date of the meeting (unless such requirement conflicts with any rule, regulation, guideline or requirement of any securities exchange or market system on which the Depositary Units are listed for trading, in which case the rule, regulation, guideline or requirement of such securities exchange or market system shall govern).

 

6.4                                 Adjournment. 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 thereof are announced at the meeting at which the

 

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adjournment is taken unless such adjournment shall be for more than forty-five (45) days. At the adjourned meeting the Partnership may transact any business which might have been transacted at the original meeting. If the adjournment is for more than forty-five (45) days or if a new Record Date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given in accordance with this Article 6.

 

6.5                                 Waiver of Notice; Consent to Meeting; Approval of Minutes. The transactions of any meeting of Limited Partners, however called and noticed, and wherever held, are as valid as though a meeting had been duly held after regular call and notice, if a quorum is present either in person or by proxy, and if, either before or after the meeting, each of the Persons entitled to vote, not present in person or by proxy, signs a written waiver of notice or a consent to the holding of the meeting or an approval of the minutes thereof. All waivers, consents, and approvals shall be filed with the Partnership records or made a part of the minutes of the meeting. Attendance of a Person at a meeting shall constitute a waiver of notice of the meeting, except when the Person objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened; and except that attendance at a meeting is not a waiver of any right to object to the consideration of matters required to be included in the notice of the meeting but not so included, if the objection is expressly made at the meeting.

 

6.6                                 Quorum. A Majority Interest represented in person or by proxy shall constitute a quorum at a meeting of Limited Partners. At any meeting of the Limited Partners duly called and held in accordance with this Agreement at which a quorum is present, the act of a Majority Interest shall be deemed to constitute the act of all Unitholders unless a higher percentage is required with respect to such action under the provisions of this Agreement. The Unitholders present at a duly called or held meeting at which a quorum is present may continue to transact business until adjournment notwithstanding the withdrawal of enough Unitholders to leave less than a quorum, if any action taken (other than adjournment) is approved by the requisite percentage of interests of Unitholders specified in this Agreement. In the absence of a quorum, any meeting of Limited Partners may be adjourned from time to time by the vote of a majority of the Class A Units represented either in person or by proxy, but no other business may be transacted, except as provided in Section 6.1.

 

6.7                                 Conduct of Meeting. The Managing General Partner shall have full power and authority concerning the manner of conducting any meeting of Limited Partners and of soliciting written consents, including without limitation the determination of Persons entitled to vote, the existence of a quorum, the satisfaction of the requirements of Section 6.10, the conduct of voting, the validity and effect of any proxies, the appointment of proxies and inspectors of votes, the revocation of written consents and the determination of any controversies, votes or challenges arising in connection with or during the meeting or the solicitation of written consents. The Managing General Partner shall designate a Person to serve as chairman of the meeting and shall further designate a Person to take the minutes of the meeting, in either case including, without limitation, a partner, director or officer of a General Partner. All minutes shall be kept with the records of the Partnership maintained by the Managing General Partner.

 

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6.8                                 Action Without a Meeting. Any action that may be taken at a meeting of the Limited Partners may be taken without a meeting if a consent in writing setting forth the action so taken is signed by Unitholders owning not less than the minimum percentage of interests that would be necessary to authorize or take such action at a meeting at which all the Unitholders were present and voted. Prompt notice of the taking of action without a meeting shall be given to the Unitholders who have not consented in writing. The Managing General Partner may specify that any written ballot submitted to Unitholders for the purpose of taking any action without a meeting shall be returned to the Partnership within the time, not less than twenty (20) days, specified by the Managing General Partner. If a ballot returned to the Partnership does not vote all of the Class A Units held by a Unitholder, the Partnership shall be deemed to have failed to receive a ballot for the Class A Units which were not voted. If consent to the taking of any action by the Unitholders is solicited by any Person other than by or on behalf of a General Partner, the written consents shall have no force and effect unless and until (A) they are deposited with the Partnership in care of the Managing General Partner, (B) consents sufficient to take the action proposed are dated as of a date not more than ninety (90) days prior to the date the consents are deposited with the Partnership, and (C) no opinion of counsel for the Partnership is delivered to the Partnership pursuant to Section 6.10.

 

6.9                                 Voting Rights.

 

(A)                              Subject to Section 6.10 and 6.12, the Limited Partners shall have the right to vote on all matters specified below and the actions specified therein may be taken by the Managing General Partner only with the affirmative vote of at least a Majority Interest in the Partnership and with the separate concurrence of the Managing General Partner.

 

(1)                                  Amendment of this Agreement, including an amendment extending the term of the Partnership, except as otherwise specifically permitted by this Agreement;

 

(2)                                  Dissolution of the Partnership, other than pursuant to Section 15.1(A), (C), (D), (E) or (F);

 

(3)                                  Approval or disapproval of any merger, consolidation or combination of the business operations of the Partnership with those of any other Person;

 

(4)                                  Approval or disapproval of a sale of all or substantially all of the assets of the Partnership;

 

(5)                                  When the Partnership would otherwise dissolve and its business would not otherwise be continued pursuant to the terms of this Agreement, election to continue or election of a new General Partner to continue the business of the Partnership;

 

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(6)                                  Approval or disapproval of any matter submitted to the Unitholders pursuant to Section 3.9;

 

(7)                                  Except as provided in Article 14, election of a Managing General Partner;

 

(8)                                  Issuance of any new class of securities which are senior to the Class A Units with respect to distributions, allocations of profit and loss, liquidation or voting rights or which are convertible into or exchangeable for, or having optional rights to purchase, any securities having any such seniority;

 

(9)                                  Approval or disapproval of any compensation plan, trust or provisions for employees which provide for the issuance of Units or other securities of the Partnership; and

 

(10)                            As expressly provided in Sections 2.3 [[changes in business that would likely cause a loss of 1987 election]], 3.3 [[compensation plans]], 7.8 [[issuance of units at less than fair value]], 12.2 [[transfer of Managing General Partner interest]] and elsewhere, if any, in this Agreement.

 

(B)                                Except as expressly provided in this Agreement, Unitholders shall have no voting rights.

 

(C)                                Except as expressly provided otherwise in this Agreement, the General Partners and their Affiliates shall have the right to vote any Class A Units held by them with respect to any matter submitted to a vote of Partners.

 

6.10                           Voting Rights Conditional. The voting rights set forth in Section 6.9 shall not be exercised if the Partnership shall have received a  written opinion of counsel for the Partnership to the effect that the exercise of such right and the action proposed to be taken with respect to any particular matter (1) shall or is likely to cause the Limited Partners to be deemed to be taking part in the management and control of the business and affairs of the Partnership so as to subject the Limited Partners to unlimited liability therefore, (2) will or is likely to cause the Partnership to be treated as an association taxable as a corporation for federal income tax purposes, and (3) is not otherwise permissible under the state statutes then governing the rights, duties and liabilities of the Partnership and the Partners.

 

6.11                           Amendments by the Managing General Partner; Procedure on Amendment. Subject to Section 6.12, the Managing General Partner may without prior notice or consent of any Unitholder amend any provision of this Agreement (1) to elect to be bound by any successor statute governing limited partnerships pursuant to the power granted in Section 3.11, (2) if in its opinion such amendment does not have a material adverse effect upon the Unitholders or the Partnership, as the case may be, other than Unitholders who consent to the amendment, (3) to conform this Agreement to changes in the Delaware Act or interpretations thereof which, in the sole discretion of the Managing General Partner, it believes appropriate, necessary or desirable, provided that such amendment does not have a materially adverse effect upon the Unitholders or

 

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6.12                           Restricted Amendments.

 

(A)                              Except with the affirmative vote of the Managing General Partner and holders of 95% of the outstanding Class A Units for which the Partnership has valid current addresses, no amendment shall be adopted which would (i) result in the loss of limited liability of any Unitholder or result in the Partnership being treated as an association taxable as a corporation for federal income tax purposes, or (ii) change the form of the Partnership to a general partnership.

 

(B)                                Notwithstanding the provisions of Section 6.11, no provision of this Agreement which establishes a percentage of votes required of the Partners to take any action shall be amended, altered, changed, respected or rescinded in any respect which would have the effect of reducing the voting requirement, unless such action is approved by the written consent or the affirmative vote of holders of outstanding Class A Units whose aggregate percentage interests in such Class A Units constitute not less than the voting requirements sought to be reduced. This Section 6.12(B) shall only be amended with the approval by written consent or affirmative vote of the Managing General Partner and holders of 95% of the outstanding Class A Units for which the Partnership has valid current addresses.

 

(C)                                Notwithstanding the provisions of Section 6.11, the consent of a General Partner shall be required for any amendment, if such amendment would increase such General Partner’s duties or liabilities, or adversely affect any indemnification of such General Partner, or if the amendment would have material adverse consequences to such General Partner.

 

6.13                           Amendment of Agreement. In connection with the admission to the Partnership of any successor Managing General Partner or any additional General Partner, the Managing General Partner shall take all steps necessary and appropriate to prepare and record or file any amendment or restatement to this Agreement and the Certificate of Limited Partnership that may be required with respect to such admission and may for this purpose exercise the power of attorney granted pursuant to Article 16.

 

ARTICLE VII.
CAPITAL CONTRIBUTIONS AND CAPITAL ACCOUNTS

 

7.1                                 [INTENTIONALLY OMITTED]7.

 

7.2                                 Contribution of General Partners. No General Partner shall be obligated to make an additional Capital Contribution to the Partnership (and the Allocable Share of a General Partner shall not be reduced) in connection with any Capital Contribution made or deemed to be made to the Partnership by any other Person, whether pursuant to Section 2.7, Section 7.8 or otherwise.

 

7.3                                 [INTENTIONALLY OMITTED]7.

 

7.4                                 Units Not Assessable. Units shall not be assessable, and the Unitholders shall not be required to make any additional Capital Contribution.

 

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7.5                                 No Interest on Capital Contribution. Partners and Assignees shall not receive interest on or with respect to all or any part of their Capital Contribution or on the balances in Partners’ Capital Accounts.

 

7.6                                 Creditor’s Interest in the Partnership. No creditor who makes a loan to the Partnership shall have or acquire at any time as a result of making the loan any direct or indirect interest in the profits, capital or property of the Partnership other than as a creditor. None of the provisions of this Agreement shall be for the benefit of or enforceable by any creditors of the Partnership. For the purposes of Sections 6.9(A)(8) and 7.8, a debt obligation of the Partnership, whether or not secured, that has no voting rights, that has no rights to representation on the Board of Directors and is not convertible into or exchangeable for, and has no optional rights to purchase an interest in the Partnership, shall not be considered a security or class of securities senior to the Class A Units with respect to distributions, allocation of profit and loss, liquidation or voting rights.

 

7.7                                 Nature of Interests. All property owned by the Partnership, whether real or personal, tangible or intangible, shall be deemed to be owned by the Partnership as an entity, and none of the Partners shall have any direct ownership of such property.

 

7.8                                 Sale of Additional Securities.

 

(A)                              In order to raise additional capital, to acquire additional properties or other assets, to redeem or retire Partnership debt or for any other Partnership purpose, the Managing General Partner is authorized to cause to be issued additional Units from time to time to General Partners, Limited Partners or to other Persons and to admit such Persons as Additional Limited Partners in the Partnership. In addition, the Managing General Partner is authorized to cause to be issued, purchased, redeemed, exchanged, traded or granted calls, options, appreciation rights, partners’ interests, bonds, debentures and other securities of the Partnership from time to time. The Managing General Partner shall have sole and complete discretion in determining the consideration and terms and conditions with respect to any future issuance of Units or any other securities of the Partnership; provided, however, that the Managing General Partner shall not issue additional Units to the Managing General Partner or any of its Affiliates for consideration having a fair value less than the aggregate Unit Price of all Units being so issued without the approval of a Majority Interest.

 

(B)                                The Managing General Partner shall also have the power to create a new class of securities (for example, a Class B series) which shall have privileges or other attributes which the Managing General Partner determines are in the best interest of the Partnership. The Managing General partner shall have sole and complete discretion in determining the consideration and the terms and conditions of the creation and issuance of such units. The Managing General Partner shall not issue such units to itself or any of its affiliates.

 

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(C)                                The Managing General Partner shall do all things necessary to comply with the Delaware Act, the Code or other applicable law, statute, rule, regulation or guideline of any federal, state or other governmental agency or any stock exchange on which the Depositary Units or other securities of the Partnership are listed for trading, and is authorized and directed to do all things it deems necessary or advisable in connection with any such future issuance. Nothing in this Section 7.8 shall permit the issuance of securities in the Partnership without the approval of a Majority Interest if such approval is required by Sections 2.7, 3.3, 6.9(A)(3) or 6.9(A)(9); and the restrictions on issuance of securities set forth in this Section 7.8 shall not apply to issuance of securities pursuant to any plan or agreement that has been approved by a Majority Interest pursuant to or as contemplated by Sections 2.7, 3.3, 6.9(A)(3) or 6.9(A)(9).

 

7.9                                 No Preemptive Rights. No Partner or Assignee shall have any preemptive, preferential or other right including, without limitation, with respect to (A) additional Capital Contributions to the Partnership, (B) the issuance or sale of Units or other interests in the Partnership, (C) the issuance of any obligation, evidence of indebtedness or other interest of or in the Partnership convertible into or exchangeable for, or carrying or accompanied by any rights to receive, purchase or subscribe to, any Units, (D) the issuance of any right of subscription to, or right to receive, any warrant or option for the purchase of any Units, or (E) the issuance or sale of any other securities that may be issued or sold by the Partnership.

 

7.10                           Capital Accounts. The Partnership shall maintain Capital Accounts for the Partners and Assignees in accordance with the following provisions of this Section 7.10:

 

(A)                              (i) The Partnership shall maintain for each General Partner a separate General Partner Capital Account. Such General Partner Capital Account shall be increased by (1) the cash amount or Net Agreed Value of all Capital Contributions made by such General Partner pursuant to this Agreement and (2) all items of Partnership income and gain computed in accordance with Section 7.10(B) and allocated to such General Partner pursuant to Section 8.1 and decreased by (3) the cash amount or Net Agreed Value of all distributions of cash or property made to such General Partner pursuant to this Agreement and (4) all items of Partnership deductions and loss computed in accordance with Section 7.10(B) and allocated to such General Partner pursuant to Section 8.1.

 

(ii) The Partnership shall maintain for each Limited Partner and Assignee a separate Limited Partner Capital Account with respect to the Class A Units held by such Limited Partner or Assignee. The Limited Partner Capital Account associated with each Limited Partner’s or Assignee’s Class A Units shall be increased by (1) the cash amount or the Net Agreed Value of all Capital Contributions made in exchange for the issuance of such Class A Units, and (2) all items of income and gain computed in accordance with Section 7.10(B) and allocated with respect to such Class A Units pursuant to Section 8.1 and decreased by (3) the cash amount or Net Agreed Value of all distributions of cash or property made with respect to such Class A Units pursuant to this Agreement and (4) all items of deduction and loss computed in accordance with Section 7.10(B) and allocated with respect to such Class A Units pursuant to Section 8.1.

 

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(B)                                For purposes of computing the amount of any item of income, gain, deduction or loss to be reflected in the Capital Accounts, the determination, recognition and classification of such item shall generally be the same as its determination, recognition and classification for federal income tax purposes, provided that:

 

(1)                                  Any deductions for depreciation, cost recovery or amortization attributable to a Contributed Property shall be determined as if the Adjusted Basis of such property on the date it was acquired by the Partnership were equal to the Agreed Value of such property. Upon an adjustment pursuant to Section 7.10(D) or Section 7.10(E) to the Carrying Value of any Partnership property subject to depreciation, cost recovery or amortization, any further deductions for such depreciation, cost recovery or amortization attributable to such property shall be determined as if the Adjusted Basis of such property were equal to the Carrying Value of such property immediately following such adjustment.

 

(2)                                  Any income, gain or loss attributable to the disposition of any property shall be determined by the Partnership as if the Adjusted Basis of such property as of such date of disposition were equal in amount to the Partnership’s Carrying Value with respect to such property as of such date.

 

(3)                                  If the Partnership’s Adjusted Basis in a property is reduced for federal income tax purposes pursuant to Section 48(q)(1) of the Code, the amount of such reduction shall, solely for purposes hereof, be deemed to be an additional depreciation or cost recovery deduction in the year such property is placed in service and shall be allocated among the Partners and Assignees pursuant to Section 8.1(A). Any restoration of such Adjusted Basis pursuant to Section 48(q)(2) of the Code shall be allocated in the same manner to the Partners and Assignees to whom such deemed deduction was allocated.

 

(4)                                  The computation of all items of income, gain, loss and deduction shall be made without regard to any election under Section 754 of the Code which may be made by the Partnership and, as to those items described in Section 705(a)(1)(B) or Section 705(a)(2)(B) of the Code, without regard to the fact that such items are not includable in gross income or are neither currently deductible nor capitalizable for federal income tax purposes.

 

(5)                                  All fees and expenses incurred by the Partnership to promote the sale of (or to sell) a Partnership interest that can neither be deducted nor amortized under Section 709 of the Code shall, for purposes of maintaining Capital Accounts, be treated as an item of deduction and shall be allocated among the Partners and Assignees pursuant to Section 8.1.

 

(C)                                A transferee of a Unit shall succeed to the Capital Account associated with the Unit transferred. However, if the transfer causes a termination of the Partnership under Section 708(b)(1)(B) of the Code, the Partnership Properties shall be deemed to have been distributed in liquidation of the Partnership to the Partners and Assignees (including the transferee of a Unit) and recontributed by such Partners and Assignees in

 

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reconstitution of the Partnership. In such event, the Carrying Values of the Partnership properties shall be adjusted immediately prior to such deemed distribution pursuant to Section 7.10(E) (and such adjusted Carrying Values shall constitute the Agreed Values of such properties upon their deemed recontribution to the reconstituted Partnership). The Capital Accounts of such reconstituted Partnership shall be maintained in accordance with the principles of this Section 7.10.

 

(D)                               (1)  Immediately prior to the issuance of additional Class A Units pursuant to Section 2.7 or Section 7.8, or at such time as the Managing General Partner determines it to be necessary in connection with the issuance of Units pursuant to the exercise of options granted in connection with a compensation plan under Section 3.3, the Capital Accounts of all Partners and Assignees, and the Carrying Values of all Partnership Properties shall be adjusted (consistent with the provisions hereof) to reflect any Unrealized Gain or Unrealized Loss attributable to all Partnership Properties. Such Unrealized Gain or Unrealized Loss shall be allocated among the Partners and Assignees (immediately prior to such issuance) in accordance with their Allocable Shares.

 

(2)                                  For purposes of this Section 7.10(D), the aggregate fair market value of the Partnership Properties, as of any date of determination, shall be equal to the sum of (i) the Prescribed Asset Value as of such date, and (ii) the amount of any outstanding Partnership indebtedness as of such date, as determined in the discretion of the Managing General Partner. The Carrying Values of the respective Partnership Properties shall be adjusted according to their relative fair market values, as determined by the Managing General Partner utilizing such methods as it deems appropriate.

 

(E)                                 Immediately prior to the distribution of any Partnership Properties, the Capital Accounts of all Partners and Assignees and the Carrying Values of all Partnership Properties shall be adjusted to reflect any Unrealized Gain or Unrealized Loss attributable to the Partnership Properties. In the case of a current distribution pursuant to Section 9.2,  such Unrealized Gain or Unrealized Loss (determined in the manner provided in Section 7.10(D)(4)) shall be allocated among the Partners and Assignees in accordance with their Allocable Shares. In the case of a liquidating distribution pursuant to Section 15.4, such Unrealized Gain or Unrealized Loss (determined by the Managing General Partner or other liquidator, using such reasonable method of valuation as it may adopt) shall be allocated among the Partners and Assignees in accordance with the provisions of Section 8.1.

 

7.11                           [INTENTIONALLY OMITTED]

 

7.12                           [INTENTIONALLY OMITTED]

 

7.13                           [INTENTIONALLY OMITTED]

 

7.14                           Changes in Outstanding Units. The Managing General Partner is authorized to effect any Class A Unit split or declare and pay pro rata distributions of Class A Units to the holders of Class A Units.

 

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ARTICLE VIII.
ALLOCATION OF INCOME AND LOSSES

 

8.1                                 Allocations for Capital Account Purposes.

 

(A)                              For purposes of maintaining the Capital Accounts and in determining the rights of the Partners and Assignees among themselves, each item of income, gain, and loss of the Partnership (computed in accordance with Section 7.10(B)) shall, except as otherwise provided in this Section 8.1, be allocated among the Partners and Assignees in accordance with their respective Allocable Shares.

 

(B)                                [INTENTIONALLY OMITTED]

 

(C)                                [INTENTIONALLY OMITTED]

 

(D)                               In the event a Partner or Assignee receives an adjustment, allocation or distribution described in Section 1.704-1(b)(2)(ii)(d) of the Income Tax Regulations, such Partner or Assignee shall be allocated items of income and gain in an amount and manner sufficient to eliminate any deficit balance in such Partner’s or Assignee’s Capital Account as quickly as possible.

 

(E)                                 Except as otherwise provided in Section 1.704-2(f) of the Regulations, if there is a net decrease in Partnership minimum gain during any fiscal year of the Partnership, each Partner and Assignee shall be specially allocated items of Partnership income and gain for such fiscal year (and, if necessary, subsequent fiscal years) in an amount equal to such Person’s share of the net decrease in Partnership minimum gain, determined in accordance with Section 1.704-2(g) of the Regulations. Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Partner and Assignee pursuant thereto. The items to be so allocated shall be determined in accordance with Sections 1.704-2(f)(6) and 1.704(2)(j)(2) of the Regulations. This Section 8.1(E) is intended to comply with the minimum gain chargeback requirement in Section 1.704-2(f) of the Regulations and shall be interpreted consistently therewith.

 

8.2                                 Tax Allocations.

 

(A)                              For federal income tax purposes, all income, gain, loss and deduction (and each item thereof) shall, except as otherwise provided in this Section 8.2, be allocated among the Partners and Assignees in accordance with their respective Allocable Shares.

 

(B)                                In the case of any Contributed Property or Adjusted Property, items of income, gain, loss, depreciation and cost recovery deductions attributable thereto shall be allocated for federal income tax purposes among the Partners and Assignees as follows:

 

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(1)                                  In the case of a Contributed Property, such items in accordance with Section 704(c) of the Code and the Treasury Regulations thereunder shall be allocated among the Partners and Assignees in a manner that takes into account the variation between the Agreed Value of such property and its Adjusted Basis at the time of contribution in attempting to eliminate Book-Tax Disparities.

 

(2)                                  In the event the Carrying Value of any Partnership property is adjusted pursuant to Section 7.10(D) or Section 7.10(E), subsequent allocations to Partners and Assignees of such items with respect to such Adjusted Property shall take account of any variation between the Adjusted Basis of such property and its Carrying Value in a manner consistent with Section 704(c) of the Code and the Treasury Regulations thereunder.

 

(C)                                [INTENTIONALLY OMITTED]

 

(D)                               All items of income, gain, loss, deduction and credit recognized by the Partnership for federal income tax purposes and allocated to the Partners and Assignees in accordance with the provisions hereof shall be determined without regard to any election under Section 754 of the Code which may be made by the Partnership; provided, however, such allocations, once made, shall be adjusted as necessary to take into account those adjustments authorized under Sections 734 and 743 of the Code.

 

(E)                                 To the extent of any Recapture Income resulting from the sale or other taxable disposition of a Partnership Property, the amount of any gain from such disposition allocated to a Partner or Assignee (or its successor in interest) for federal income tax purposes pursuant to the foregoing provisions shall be deemed to be Recapture Income to the extent such Partner or Assignee (or successor) has been allocated or has claimed any deduction directly or indirectly giving rise to the treatment of such gain as Recapture Income (to the extent such Partner or Assignee (or successor) has not theretofore recognized such income upon an issuance of Class A Units by the Partnership).

 

(F)                                 It is intended that the allocations in this Section 8.2 shall effect an allocation for federal income tax purposes in a manner consistent with Section 704 and related sections of the Code and shall comply with any limitations or restrictions therein to the extent reasonably possible without causing the Units to not have uniform characteristics for federal income tax purposes. The Managing General Partner shall have the authority and discretion, without the approval of the Limited Partners and Assignees, to adopt such conventions and utilize such methods as it deems appropriate in making the allocations pursuant to this Section 8.2 and to modify and amend the provisions of this Section 8.2 and related provisions of this Agreement for the purpose of complying with Treasury Regulations promulgated under Section 704 of the Code, rulings or positions of the Service or court decisions or as the Managing General Partner otherwise deems advisable; provided that the Managing General Partner shall not have the authority to adopt conventions or amendments which would cause the Units to not have uniform characteristics for federal income tax purposes.

 

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(G)                                (1)                                  In the event a Partner or Assignee receives an adjustment, allocation or distribution described in Section 1.704-1(b)(2)(ii)(d) of the Income Tax Regulations, such Partner or Assignee shall be allocated items of income and gain in an amount and manner consistent with the allocation of income and gain pursuant to Section 8.1(D).

 

(2)                                  In the event there is a net decrease in Partnership minimum gain during any fiscal year of the Partnership, each Partner and Assignee shall be specially allocated items of income and gain in an amount and manner consistent with the allocation of income and gain pursuant to Section 8.1(E).

 

(H)                               In the event of the transfer of a Unit during a year, each item of Partnership income, gain, loss, deduction and credit attributable to the transferred Unit shall, for federal income tax purposes, be prorated between the transferor and transferee using such methods as may be adopted by the Managing General Partner, in its discretion, to comply with Section 706 of the Code. For this purpose, a Partner or an Assignee of record shall, to the extent practicable and consistent with the preceding sentence, be allocated taxable income and loss (and items thereof) from the date such Partner or Assignee acquired his Partnership Interest as if such Partner or Assignee became a Partner or Assignee of record on such date; provided that the Partnership shall not, by reason of this sentence, be obligated to reallocate taxable income or loss (or items thereof) previously reported for tax purposes or file amended tax returns or other documents reflecting any such reallocation.

 

(I)                                    If the Allocable Shares of the Partners and Assignees are changed during a taxable year due to the issuance of additional partnership Interests, items of Partnership income, gain, loss, deduction and credit shall be allocated among the Partners and Assignees to take into account their varying Allocable Shares during the year. In this regard, the Managing General Partner shall adopt such methods as it deems necessary or appropriate, in its discretion, in order to comply with Section 706 of the Code.

 

8.3                                 Tax Elections. Except as otherwise provided herein, the Managing General Partner shall, in its sole discretion, determine whether to make any available election under the Code. The Managing General Partner may, in its discretion, make the election under Section 754 of the Code in accordance with applicable regulations thereunder to cause the basis of Partnership Property to be adjusted for federal income tax purposes as provided by Sections 734 and 743 of the Code. Such election may also be made, in the Managing General Partner’s discretion, for the reconstituted Partnership upon any termination of the Partnership pursuant to Section 708 of the Code. If there is or is anticipated to be a termination of the Partnership pursuant to Section 708(b)(1)(B) of the Code, the Managing General Partner may, in its discretion, cause the Partnership to enter into such agreements with the IRS as will simplify the tax return filing requirements of the Partnership, provided that such agreements are not anticipated to have a material adverse effect on the Partnership or on the Unitholders. The Partnership has elected to be an “Electing 1987 Partnership” within the meaning of Section 7704(g) of the Code, and shall not revoke such election without the approval of

 

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the Managing General Partner and a Majority Interest. The Managing General Partner shall have the authority to make a similar election, on a prospective basis if appropriate, for the reconstituted Partnership upon any termination of the Partnership pursuant to Section 708 of the Code.

 

ARTICLE IX.
DISTRIBUTIONS

 

9.1                                 Time and Amount of Cash Distributions.

 

(A)                              The Managing General Partner, in its sole discretion but subject to applicable law, acting through its Board of Directors, shall for each quarter determine the amount, if any, to be distributed to the Partners and Assignees of record on the Record Date set for distribution, taking in account the anticipated cash needs and overall financial condition of the Partnership, the estimated tax liabilities of the Partners and Assignees with respect to their shares of Partnership income, and the maintenance of such reserves as the Managing General Partner deems appropriate for potential expenditures and obligations of the Partnership or to effect a leveling of Partnership distributions. All such distributions shall be made in accordance with such Partners’ and Assignees’ Allocable Shares.

 

(B)                                [INTENTIONALLY OMITTED]

 

(C)                                [INTENTIONALLY OMITTED]

 

(D)                               Nothing in this Partnership Agreement or this Section shall serve as a limitation on the Managing General Partner’s right to retain or use the Partnership’s assets or its revenues as, in the opinion of the Managing General Partner, may be required to satisfy the anticipated present and future cash needs of the Partnership.

 

(E)                                 The General Partner may make distributions to Partners and Assignees from any funds of the Partnership, including distributions that may constitute a return of capital.

 

9.2                                 Distributions of Partnership Property. In its sole discretion but subject to applicable law, the Managing General Partner may distribute to Partners and Assignees Partnership property other than cash, combinations of cash and property, and additional Units or securities of the Partnership which have been authorized and issued pursuant to the terms of this Agreement. Any such distribution shall be made in accordance with the Partners’ and Assignees’ Allocable Shares, based on the amount of cash (if any) plus the fair market value of the Property distributed to them in such distribution.

 

9.3                                 [INTENTIONALLY OMITTED]

 

9.4                                 Tax Withholding. Notwithstanding anything to the contrary herein, the Managing General Partner may withhold appropriate amounts from distributions to the Partners and Assignees, determined in the discretion of the Managing General Partner, as may be necessary to satisfy withholding requirements under federal and state law.

 

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ARTICLE X.
ACCOUNTING AND REPORTS

 

10.1                           Fiscal Year and Method of Accounting. The fiscal year of the Partnership shall be the calendar year or such other year as the Managing General Partner selects. Each fiscal month of the Partnership shall end on the last day of the calendar month or such other day as the Managing General Partner selects. All amounts computed for the purposes of this Agreement (other than for tax purposes) and all applicable questions concerning the rights of Partners and Assignees shall be determined using generally accepted accounting principles as in effect from time to time.

 

10.2                           Reports.

 

(A)                              The Managing General Partner shall use its best efforts to prepare and furnish, within such period after the close of each Partnership taxable year as required pursuant to the reporting requirements of the Securities Act for the distribution of financial information by subject entities, to each Person who was the holder of record of a Certificate or Depositary Receipt on the last day of any month during the Partnership’s year, the information necessary for the preparation of such Person’s United States federal income tax return and any state income tax returns or the tax returns of any other jurisdiction required of such Person as a result of the operations of the Partnership. The Partners and Assignees agree to furnish the Managing General Partner with such information as may be necessary or helpful in preparing the tax returns or other filings of the Partnership.

 

(B)                                As soon as practicable, but in any event within such period after the close of each fiscal year as required pursuant to the reporting requirements of the Securities Act for the distribution of financial information by subject entities, the Managing General Partner shall mail or deliver to each Limited Partner of record reports containing financial statements of the Partnership for the fiscal year, including a balance sheet, statements of operations, changes in Partners’ equity and changes in financial position. Such statements shall be prepared in accordance with generally accepted accounting principles and audited and certified by a nationally recognized firm of independent public accountants selected by the Managing General Partner, and are to be accompanied by a supplementary summary.

 

(C)                                As soon as practicable but in any event within such period after the close of each fiscal quarter as would be required if the Managing General Partner was subject to the reporting requirements of the Securities Act, except the last fiscal quarter of each fiscal year, the Managing General Partner shall mail or otherwise furnish to each Limited Partner and each Assignee of record a quarterly report for the fiscal quarter containing such financial and other information as the Managing General Partner deems appropriate.

 

10.3                           Tax Controversies. Subject to the provisions hereof, the Managing General Partner is designated as the “Tax Matters Partner” (as defined in the Code) and is authorized and required to represent the Partnership (at the Partnership’s expense) in

 

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connection with all examinations of the Partnership’s affairs by tax authorities, including resulting administrative and judicial proceedings, and to expend Partnership funds for professional services and costs associated therewith. Each Partner agrees to cooperate with the Managing General Partner and to do and refrain from doing any or all things reasonably required by the Managing General Partner to conduct such proceedings.

 

10.4                           Books and Records. The Managing General Partner shall maintain all records necessary for documenting and reporting the business and affairs of the Partnership. Except as restricted by law, books and records of the Partnership may be maintained by the Managing General Partner at any location selected by it. Any records maintained by the Partnership in the regular course of its business, including the record of the holders and Assignees of Units, books of account, and records of Partnership proceedings may be kept on, or be in the form of, punch cards, magnetic tape, photographs, micrographics, or any other information storage device, provided that the records so kept can be converted into clearly legible written form within a reasonable period of time. Except for information kept confidential by the Managing General Partner pursuant to the power described in Section 3.13, all books, records, reports and accounts shall be open to inspection by any Partner or duly authorized representatives of the Partner, to the extent required by applicable law, on reasonable notice at any reasonable time during business hours, for any purpose reasonably related to the Partner’s interest as a Partner, and the Partner or the representatives at the expense of the Partner shall have the further right to make copies or excerpts therefrom. A Limited Partner may request an accounting of Partnership affairs whenever circumstances render it just and reasonable, but the furnishing of such information or conducting such accounting shall be at the Limited Partners’ own expense. The Partner and the Partner’s representatives shall not divulge to any other Person any confidential or proprietary data, information or property or any trade secrets of the Partnership. A copy of the list of the names and addresses of all Partners shall be furnished to any Partner or the representatives upon request in person or by mail to a General Partner. The Person requesting the list shall pay the cost of copying the list and mailing before the list is delivered. The Partnership will maintain information on holders of Units for four years after such Persons cease to hold Units in the Partnership. Assignees shall have no rights under this Section 10.4.

 

10.5                           Bank Accounts. The Partnership shall establish and maintain accounts in financial institutions (including, without limitation, national or state banks, trust companies, or savings and loan institutions) in such amounts as the Managing General Partner may deem necessary from time to time. The funds of the Partnership shall be deposited in such accounts and shall not be commingled with the funds of  any General Partner or any Affiliate thereof. Checks shall be drawn on and withdrawals of funds shall be made from any such accounts for Partnership purposes and shall be signed by the Person or Persons designated by the Managing General Partner. Temporary surplus funds of the Partnership may be invested in commercial paper, time deposits, short-term government obligations or other investments as shall be determined by the Managing General Partner.

 

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10.6                           Accounting For Farming Activities. The Partnership shall establish and maintain such accounts as may be necessary to determine properly the Partnership’s revenue, expense, income and loss from its farming activities and the amounts of farming fees payable pursuant to farming contracts to which the Partnership is a party.

 

ARTICLE XI.
CERTIFICATES; RECORDS

 

11.1                           Issuance of Certificates. The Managing General Partner shall (subject to satisfaction of any requirements applicable to Section 2.7 or Section 13.2) cause the Partnership to issue one or more Certificates in the name of each Class A Limited Partner certifying that the Limited Partner named therein is a Class A Limited Partner in the Partnership as provided in the Partnership’s books and records, and stating the number of Class A Units into which his Partnership Interest is divided. Upon the transfer of a Unit in accordance with the terms of this Agreement, the Managing General Partner shall cause the Partnership to issue replacement Certificates, according to such procedures as the Managing General Partner may establish.

 

11.2                           Lost, Stolen or Destroyed Certificates. The Partnership shall issue a new Certificate or cause to be issued a new Depositary Receipt in place of any Certificate or Depositary Receipt previously issued if the registered owner of the Certificate or Depositary Receipt:

 

(A)                              makes proof by affidavit, in form and substance satisfactory to the Managing General Partner, that a previously issued Certificate or Depositary Receipt has been lost, destroyed or stolen;

 

(B)                                requests the issuance of a new Certificate or Depositary Receipt before the Partnership has notice that the Certificate or Depositary Receipt has been acquired by a purchaser for value in good faith and without notice of an adverse claim;

 

(C)                                if requested by the Managing General Partner, delivers to the Partnership a bond, in form and substance satisfactory to the Managing General Partner, with such surety or sureties and with fixed or open penalty, as the Managing General Partner may direct, in its discretion, to indemnify the Partnership and the Depositary against any claim that may be made on account of the alleged loss, destruction or theft of the Certificate or Depositary Receipt; and

 

(D)                               satisfies any other reasonable requirements imposed by the Managing General Partner.

 

If a Partner or Assignee fails to notify the Partnership within a reasonable time after he has notice of the loss, destruction or theft of a Certificate or Depositary Receipt, and a transfer of the Units represented by the Certificate or Depositary Receipt is registered before receiving such notification, the Partner or Assignee shall be precluded from making any claim against the Partnership or any Transfer Agent for such transfer or for a new Certificate or Depositary Receipt.

 

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11.3                           Maintenance of Transfer Records. The Partnership’s Depositary, registrar and transfer agent (who may be the same Person) will maintain records reflecting the Depositary Receipts registered in the name of each Assignee and Limited Partner, and any subsequent transfers of Depositary Receipts to Assignees and Substituted Limited Partners.

 

11.4                           Record Holder. The Partnership shall be entitled to treat the Record Holder as the Limited Partner or Assignee in fact of the Units represented thereby and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such Units on the part of any other Person, whether or not the Partnership shall have actual or other notice thereof, except as otherwise provided by law or any applicable rule, regulation, guideline or requirement of any National Securities Exchange on which the Depositary Units are listed for trading. Without limiting the foregoing when a Person (such as a broker, dealer, bank, trust company or clearing corporation, or an agent of any of the foregoing) is acting as a nominee, agent or in some other representative capacity for another Person in acquiring and/or holding Depositary Receipts or Certificates, as between the Partnership on the one hand and such Persons on the other hand, such representative Person (a) shall be the Limited Partner or Assignee (as the case may be) beneficially and of record, (b) must execute and deliver a Transfer Application and (c) will be bound by the Partnership Agreement and will have the obligations of a Limited Partner or Assignee (as the case may be) hereunder and as provided for herein.

 

11.5                           Withdrawal of Certificates. Upon the written request of any Limited Partner or Assignee accompanied by a surrendered Depositary Receipt held by a Limited Partner or Assignee, the Partnership will cause to be issued to such Person a Certificate or Certificates in the name of such Person evidencing the same number of Units. Upon issuance of any Certificate(s) to an Assignee, and upon compliance with Section 2.7 or Section 13.1(A), as the case may be, such Assignee shall be admitted as an Additional Limited Partner or as a Substituted Limited Partner, as the case may be, and such admission shall be set forth on the books and records of the Partnership. A Limited Partner may redeposit any such Certificate with the Depositary which shall then reissue Depositary Receipts in the name of the Limited Partner or an Assignee thereof upon sixty (60) days’ prior written notice.

 

11.6                           Legends. The Partnership may cause to be imposed, imprinted or stamped on any Certificate or Depositary Receipt one or more legends or restrictions on transfer which the Managing General Partner in its sole discretion believes may be necessary or advisable to comply with federal or state securities laws or other applicable laws, rules, regulations or agreements.

 

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ARTICLE XII.
TRANSFERS OF INTERESTS

 

12.1                           Transfer.

 

(A)                              The term “transfer”, when used in this Article 12 with respect to a Partnership Interest, shall be deemed to refer to a transaction by which a General Partner, including the Managing General Partner, assigns the entirety of its Partnership Interest, or any one or more rights incorporated as part of its Partnership Interest, to another Person or by which the holder of a Unit assigns the entirety of its Partnership Interest evidenced thereby, or any one or more rights incorporated as party of such Partnership Interest, to another Person as Assignee, and includes a sale, assignment, gift, exchange or any other disposition.

 

(B)                                No Partnership Interest, or any right incorporated therein, shall be transferred, in whole or in part, except in accordance with the terms and conditions set forth in this Article 12 and in Article 13. Any transfer or purported transfer of any Partnership Interest or Unit not made in accordance with this Article 12 and Article 13 shall be null and void.

 

12.2                           Transfer of Interests of General Partners.

 

(A)                              The Managing General Partner may transfer all of its Partnership Interest, but not part of its Partnership Interest, as the managing general partner only upon prior compliance with the following conditions:  (i) the Partnership receives an opinion of counsel for the Partnership that such transfer would not result in the loss of limited liability of any Limited Partner in the Partnership or cause the Partnership to be treated as an association taxable as a corporation for federal income tax purposes, (ii) the transferee Person shall have assumed, in writing, the rights and duties of the Managing General Partner and executed such documents as may be reasonably deemed necessary by the Partnership to evidence such transfer and assumption of rights and duties, and (iii) the Managing General Partner shall cause the Partnership to advise the Unitholders on or before the fifteenth day following such transfer that the transfer is being contemplated or has been consummated, as the case may be. A transfer of part of the Managing General Partner’s Partnership Interest, or a transfer without compliance with the foregoing conditions, shall be null and void.

 

(B)                                A General Partner other than the Managing General Partner may not transfer all or any part of its Partnership Interest unless (i) the Managing General Partner consents in writing to such transfer and (ii) the Partnership receives an opinion of counsel to the Partnership that such transfer would not result in the loss of limited liability of any Limited Partner in the Partnership or cause the Partnership to be treated as an association taxable as a corporation for federal income tax purposes.

 

12.3                           Transfer of Units. Any Class A Units, including, Units held by a General Partner, may be transferred following deposit of such Class A Units with the Depositary. Class A Units that have never been deposited with the Depositary or that have been withdrawn from the Depositary and not redeposited are not transferable except by operation of law.

 

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12.4                           Transfer of Depositary Units.

 

(A)                              Except as provided in Section 12.3, the Partnership shall not recognize transfers of Class A Units or interests therein except by transfer of Depositary Receipts representing Depositary Units. Depositary Units may be transferred only in the manner provided in this Agreement and the Depositary Agreement. No transfer of Depositary Receipts evidencing Depositary Units will be recorded or otherwise recognized by the Partnership unless and until the transferee has delivered a properly executed Transfer Application to the Depositary.

 

(B)                                A transferee who has completed and delivered a Transfer Application shall be deemed (i) to have agreed to be bound by the terms and conditions of the Depositary Agreement and the Depositary Receipt, (ii) to have requested admission as a Substituted Limited Partner, (iii) to have agreed to comply with and be bound by this Agreement and to execute any document that the Managing General Partner may reasonably require to be executed in connection with the transfer and admission as a Substituted Limited Partner pursuant to Article 13 and as a party to this Agreement, (iv) to have represented and warranted that such transferee has authority to enter into the Depositary Agreement and this Agreement, (v) to have appointed the Managing General Partner attorney-in-fact to execute any document that the Managing General Partner may deem necessary or appropriate to be executed in connection with the transfer and his admission as a Substituted Limited Partner, (vi) to have given the power of attorney set forth in Article 16 and (vii) to have given the consents and waivers contained herein. Until admitted as a Substituted Limited Partner pursuant to Article 13, the Record Holder of a Depositary Receipt shall be an Assignee in respect of such Depositary Units.

 

(C)                                Each distribution in respect of Class A Units shall be paid by the Partnership, directly or through the Depositary or through any other Person or agent, only to the Record Holders thereof as of the Record Date set for the distribution. Such payment shall constitute full payment and satisfaction of the Partnership’s liability in respect of such payment, regardless of any claim of any Person who may have an interest in such payment by reason of an assignment or otherwise.

 

12.5                           Depositary Arrangements. The Managing General Partner shall have full authority to amend, extend or terminate the Depositary Agreement or the services of a Depositary if, in the sole discretion of the Managing General Partner, it deems it appropriate to do so. If the services of a Depositary are terminated, the Managing General Partner shall make substitute, comparable or other arrangements to facilitate trading of Class A Units or interests in Class A Units.

 

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ARTICLE XIII.
ADMISSION OF SUBSTITUTED AND ADDITIONAL LIMITED PARTNERS

 

13.1                           Admission of Substituted Limited Partners.

 

(A)                              Any Person shall have the right to request admission as a Substituted Limited Partner subject to the conditions of and in the manner permitted by the terms of this Agreement. By transfer of a Depositary Receipt, the transferor is deemed to have given the transferee the right to request admission as a Substituted Limited Partner subject to the conditions of and in the manner permitted under this Agreement. A transferee who does not execute a Transfer Application, however, shall have only the right to negotiate such Depositary Receipt to a purchaser or other transferee. Each transferee of a Depositary Receipt (including any Person, such as a broker, dealer, bank, trust company, clearing corporation, other nominee holder or an agent of any of the foregoing, acquiring such Depositary Unit for the account of another Person) shall apply to become a Substituted Limited Partner with respect to Depositary Units transferred to such Person by executing and delivering a Transfer Application at the time of such transfer. Such transferee shall become a Substituted Limited Partner at such time as the Managing General Partner consents thereto, which consent may be given or withheld in the Managing General Partner’s sole discretion. If such consent is withheld, such transferee shall be an Assignee. Unless the Depositary is notified to the contrary, the Managing General Partner shall be deemed to have given its consent to the admission of a transferee as a Substituted Limited Partner, and such admission shall be effective, at and from the close of business on the last business day of the calendar month in which a properly executed Transfer Application is received by a Transfer Agent.

 

(B)                                Under the terms of the Depositary Agreement, the Depositary shall be obligated to prepare, as of the close of business on the last business day of each month, a list or other appropriate evidence setting forth the transfers of Depositary Units registered by all Transfer Agents since the last business day of the preceding month (the “transfer record”), setting forth the business day on which such Substituted Limited Partner was admitted to the Partnership and, as promptly as practicable after the last business day of each month, to submit the transfer record to the Managing General Partner.

 

(C)                                The admission of an Assignee as a Substituted Limited Partner shall be effective without the consent of any of the Partners other than the Managing General Partner.

 

13.2                           Admission of Additional Limited Partners. A Person  who makes a Capital Contribution to the Partnership, other than in connection with a merger or consolidation, shall be admitted to the Partnership as an Additional Limited Partner upon furnishing to the Managing General (a) an acceptance, in form satisfactory to the Managing General Partner, of all the terms and conditions of this Agreement, including, without limitation, the power of attorney granted in Article 16, and (b) such other documents or instruments as may be required in order to effect his admission as a Limited Partner,

 

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and such admission shall become effective on the date that the Managing General Partner determines in its sole discretion that such conditions have been satisfied and issues to such Additional Limited Partner a certificate evidencing ownership of his Class A Units. The admission to the Partnership of Additional Limited Partners in connection with a merger or consolidation shall be governed by the applicable provisions of Section 2.7.

 

ARTICLE XIV.
CHANGES IN GENERAL PARTNERS

 

14.1                           General Partner Ceasing to be a General Partner.

 

(A)                              A General Partner shall cease to be a General Partner of the Partnership only upon the occurrence of any one or more of the following events:

 

(1)                                  The General Partner’s withdrawal from the Partnership;

 

(2)                                  The General Partner’s removal as a General Partner;

 

(3)                                  Effective as provided in (B) below, an order for relief against the General Partner is entered under Chapter 7 of the federal bankruptcy law, or the General Partner, (a) makes a general assignment for the benefit of creditors, (b) files a voluntary petition under the federal bankruptcy law, (c) files a petition or answer seeking for that General Partner any bankruptcy, reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any statute, law, or regulation, (d) files an answer or other pleading admitting or failing to contest the material allegations of a petition filed against that General Partner in any proceeding of this nature, or (e) seeks, consents to, or acquiesces in the appointment of a trustee, receiver, or liquidator of the General Partner or of all or any substantial part of that General Partner’s properties;

 

(4)                                  The death of an individual General Partner;

 

(5)                                  The entry by a court of competent jurisdiction of an order adjudicating an individual General Partner incompetent to manage the General Partner’s person or property;

 

(6)                                  In the case of a General Partner who is acting as a General Partner by virtue of being a trustee of a trust, the termination of the trust (but not merely the substitution of a new trustee);

 

(7)                                  In the case of a General Partner that is a separate partnership, the dissolution and commencement of winding up of the separate partnership;

 

(8)                                  In the case of a General Partner that is a corporation, the filing of a certificate of dissolution, or its equivalent, for the corporation or the revocation of its charter; or

 

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(9)                                  In the case of a General Partner that is an estate, the distribution by the fiduciary of the estate’s entire interest in the Partnership.

 

(B)                                Any event described in Section 14.1(A)(3) shall cause a General Partner to cease to be a General Partner only as provided in this Section 14.1(B). Immediately upon the later of (a) the entering of the order for relief under Chapter 7 of the federal bankruptcy law or (b) the final disposition of any appeal by the General Partner from the entering of such an order, and immediately upon the occurrence of any of the other events described in Section 14.1(A)(3), the General Partner shall give notice of the event to the Partners. The General Partner shall cease to be a General Partner one hundred twenty (120) days after such notice is given.

 

14.2                           Withdrawal or Removal of the Managing General Partner.

 

(A)                              Other than a withdrawal in conjunction with a transfer by the Managing General Partner of its Partnership Interest pursuant to Section 12.2(A) or Section 14.8 and the related assumption of its rights and obligations as Managing General Partner by a new Managing General Partner, the Managing General Partner may withdraw from the Partnership effective upon, and only upon the provision of, at least 120 days’ advance written notice to the Unitholders, such withdrawal to take effect on the date specified in such notice. If the Managing General Partner gives a notice of withdrawal pursuant to this Section 14.2(A), a Majority Interest may, prior to the effective date of such withdrawal, elect a successor Managing General Partner. If no successor Managing General Partner is elected, the Partnership shall be dissolved pursuant to Section 15.1.

 

(B)                                The Managing General Partner may be removed only upon the affirmative votes of Unitholders owning at least a Majority Interest. Any such action by the Limited Partners for removal of the Managing General Partner must also provide for the election of a new Managing General Partner. The right of the Limited Partners to remove the Managing General Partner shall not exist or be exercised unless the Partnership has received an opinion of counsel for the Partnership that the removal of the Managing General Partner and the selection of a successor Managing General Partner will not result in (i) the loss of limited liability of any Limited Partner or (ii) the treatment of the Partnership as an association taxable as a corporation for federal income tax purposes.

 

14.3                           [INTENTIONALLY OMITTED]

 

14.4                           Admission of Successor Managing General Partner. A successor Managing General Partner selected pursuant to Section 14.2 or the transferee of or successor to the entire Partnership Interest of the Managing General Partner in a transfer or transaction otherwise in compliance with Section 12.2 or Section 14.8 of this Partnership Agreement shall be admitted to the Partnership as the Managing General Partner, effective as of the date an amendment or restatement of the Certificate of Limited Partnership is filed with the Secretary of State of the State of Delaware effecting such substitution or effective as of the date contemplated by Section 15.1(A).

 

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14.5                           [INTENTIONALLY OMITTED]

 

14.6                           Rights on Removal or Withdrawal. A General Partner which has ceased to be a General Partner shall be entitled to all compensation accrued as of the date of its removal or withdrawal and shall have the same rights to inspect and make copies or excerpts of the books and records of the Partnership as is provided to Limited Partners until all amounts due the General Partner as of the date the General Partner ceased to be a General Partner have been paid. The General Partner shall be a creditor of the Partnership as to all such amounts owed to it by the Partnership, and shall not have any portion of its interest as General Partner converted to an interest as a Limited Partner or Assignee except as provided in Section14.11. As to any Class A Units so held or received, the General Partner shall be entitled to exercise all of the voting rights provided under this Agreement as a Partner.

 

14.7                           Liability on Removal or Withdrawal. If, at the time of the Departing Partner’s departure, the Partnership is indebted to the Departing Partner under this Agreement or any other instrument or agreement for funds advanced, properties sold, services rendered, or costs and expenses incurred by the Departing Partner, the Partnership shall, within sixty (60) days after the effective date of such Departing Partner’s departure, pay to the Departing Partner the full amount of such indebtedness. In addition, the successor to the Departing Partner shall assume all obligations theretofore incurred by the Departing Partner, as General Partner of the Partnership, except for the liabilities which the Managing General Partner has incurred as a result of its own negligence or misconduct.

 

14.8                           Successor and Predecessor General Partners. Unless a General Partner has ceased to be a General Partner pursuant to Section 14.2, and provided such General Partner has, as applicable, given the notice contemplated by Section 12.2(A) or received the consent of the Managing General Partner required pursuant to Section 12.2(B), and otherwise complied with the conditions set forth therein, the General Partner shall have the right to transfer its Partnership Interest, directly by transfer, assignment and assumption documents or indirectly by sale of its assets, sale of ownership interests in the General Partner, merger or consolidation with another entity, or any other transfer of its business, operations or ownership interest by law or otherwise,  and any Person succeeding such General Partner or succeeding to, and continuing, the business of the General Partner shall immediately become a General Partner of this Partnership and any successor or reconstituted partnership and shall have the exclusive right to possess Partnership Property to continue the Partnership and shall continue the business of the Partnership pursuant to the terms and provisions of this Agreement without any action or vote of any Person. If the Partnership dissolves because a General Partner ceases to be a General Partner, then this Partnership shall be reformed and reconstituted and its business continued as provided in this Section 14.8, Section 14.9 and Article 15. lf it is necessary or advisable to reform and reconstitute this Partnership and to continue its business, the remaining and successor General Partners shall elect to reform and reconstitute the Partnership and to continue its business. When any Person ceases to be a General Partner under this Agreement or a partner, director or officer of a General Partner, or ceases to be an officer or

 

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employee of the Partnership, that Person shall continue to have the benefit of any provisions of this Agreement providing for indemnity, exculpation or insurance which protected the Person as a General Partner or a partner, director or officer of a General Partner, or an officer or employee of the Partnership, or which limited or defined the liability of the Person with respect to activities in which such Person engaged as a General Partner.

 

14.9                           Automatic Continuation of Partnership. If a General Partner ceases to be a General Partner (other than by removal which does not in any event dissolve the Partnership), the Partnership shall not be dissolved and its business shall be continued by the remaining General Partner or Partners, if any. The remaining General Partner or Partners agree to take any and all reasonable steps to continue the business of the Partnership.

 

14.10                     Vote on Continuation of Partnership. Unless a higher vote is required by the Delaware Act, upon an event of dissolution described in Section 15.1(A), the Partnership shall thereafter be dissolved unless a Majority Interest (and all Unitholders hereby expressly consent that such an election may be effected upon written consent or by the affirmative vote of a Majority Interest) pursuant to Section 6.9(A)(5) elects to continue the Partnership. Unless an election to continue the Partnership is made within ninety (90) days of the event of dissolution, the Partnership shall be dissolved and shall conduct only activities necessary to wind up its affairs. If such an election to continue the Partnership is made then:

 

(a)                                  within such ninety (90) day period a successor Managing General Partner shall be selected by a Majority Interest;

 

(b)                                 the Partnership shall continue without dissolution; and

 

(c)                                  all necessary steps shall be taken to amend the Agreement, and the successor Managing General Partner may for this purpose exercise the powers of attorney granted pursuant to Article 16.

 

14.11                     Interest of Departing Partner and Successor.

 

(A)                              A Departing Partner shall, at the option of its successor exercisable prior to the effective date of the departure of the Departing Partner, promptly receive from its successor in exchange for its interest as a General Partner, an amount in cash equal to the fair market value of the Departing Partner’s interest as a General Partner, determined as of the effective date of departure. If the option is exercised, the Departing Partner shall, as of the effective date of departure, cease to share in any allocations or distributions with respect to its interest as a General Partner. For purposes of this Section 14.11, the fair market value of the Departing Partner’s Partnership Interest as a General Partner herein shall be such value as may be agreed by the Departing Partner and the successor.

 

(B)                                If the successor to a Departing Partner does not exercise the option described in Section 14.11(A), the interest of the Departing Partner as a General Partner of the Partnership shall be converted into Class A Units on a basis agreed by the Partnership and the Departing Partner.

 

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(C)                                In the absence of an agreement pursuant to (A) or (B) above within thirty (30) days after the effective date of the Departing Partner’s departure, the value of the interests of the Departing Partner shall be determined by an appraiser selected by the Departing Partner and its successor  (or  the Partnership if no successor has been selected), the determination of which shall be conclusive as to the matter. If those parties cannot agree as to such appraiser within forty-five (45) days after the effective date of such departure, then such appraiser shall be designated by the two appraisers selected by the Departing Partner and its successor (or the Partnership if no successor has been selected).

 

(D)                               If the successor to a Departing Partner does not exercise the option described in paragraph (A)                        above, the successor shall at the effective date of its admission to the Partnership contribute to the capital of the Partnership cash or property having a Net Agreed Value such that its General Partner Capital Account, after giving effect to such contribution, shall be equal to that percentage of the Capital Accounts of all Partners and Assignees that is equal to its Allocable Share as Managing General Partner. In such event, such successor shall be entitled to the Allocable Share, as the case may be, of all Partnership allocations and distributions.

 

14.12                     Managing General Partner. The Managing General Partner shall be ML Macadamia Inc. and any successor thereto which becomes a General Partner of the Partnership pursuant to Section 12.2(A) or Section 14.8. If there is no such successor, then all other General Partners shall jointly be Managing General Partner until the Partners have elected a successor to serve as Managing General Partner.

 

ARTICLE XV.
DISSOLUTION, WINDING UP AND LIQUIDATION

 

15.1                           Dissolution. The Partnership shall be dissolved upon the expiration of its term or upon the first occurrence of one of the following:

 

(A)                              A General Partner ceases to be a General Partner (other than by removal) unless (1) at the time there is at least one other General Partner or (2) a Majority Interest agree in writing or by affirmative vote to continue the business of the Partnership and to admit one or more General Partners effective as of the date that the General Partner ceases to be a General Partner;

 

(B)                                an election to dissolve the Partnership by the Managing General Partner  which is approved by the affirmative vote of a Majority Interest;

 

(C)                                The Partnership becomes insolvent or bankrupt;

 

(D)                               The sale or disposition of all or substantially all assets of the Partnership, including the cessation of active business, the distribution of all cash and the termination of reserves for liabilities; or

 

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(E)                                 any other event that, notwithstanding an agreement to the contrary, would cause its dissolution under the Delaware Act.

 

15.2                           Authority to Wind Up. If dissolution occurs for any reason, the Managing General Partner (unless such Managing General Partner has ceased to be a General Partner pursuant to Section 14.1(A)(2), (3) or (8), shall have the authority to wind up the business and affairs of the Partnership. The Managing General Partner shall name upon its withdrawal, dissolution, liquidation, or removal a legal representative who will have such authority to wind up the business and affairs of the Partnership upon such event. If the Partnership is dissolved by all General Partners ceasing to be General Partners pursuant to Section 14.1(A)(2) or (3), any Person designated by a decree of court or designated by vote of a Majority Interest shall wind up the affairs of the Partnership and shall be entitled to compensation therefor as approved by the court or a vote of a Majority Interest.

 

15.3                           Accounting. Upon dissolution (if the business of the Partnership is not continued), and again upon the termination of the Partnership after the winding up of the affairs of the Partnership is complete, an accounting of the Partnership shall be made and it shall be audited or reviewed by the independent public accountants of the Partnership, and a report thereof as audited or reviewed shall be furnished to the General Partners or their legal representative and to all Limited Partners and Assignees.

 

15.4                           Winding Up and Liquidation. Upon dissolution of the Partnership, it shall be wound up and liquidated as rapidly as business circumstances permit. If the liquidator determines that an immediate sale of part or all of the Partnership assets would be impractical or would cause undue loss to the Partners and Assignees, the liquidator may, in its absolute discretion, distribute to some or all Partners and Assignees, in lieu of cash, as tenants in common undivided interests in such assets as the liquidator deems unsuitable for liquidation. The liquidator may defer liquidation or distribution of assets to the Partners and Assignees in kind if it determines that a sale or such a distribution would be impractical or would cause undue loss to the Partners or Assignees. The liabilities of the Partnership shall be entitled to payment in the following order:

 

(A)                              Those to creditors, including Partners and Assignees who are creditors, to the extent otherwise permitted by law, in satisfaction of liabilities of the Partnership (whether by payment or the making of reasonable provisions for payment thereof); and

 

(B)                                To the Partners and Assignees in proportion to and to the extent of their respective Capital Accounts on the date of distribution.

 

15.5                           No Recourse Against General Partners. The Limited Partners and Assignees shall look solely to the assets of the Partnership for the payment of any income allocated to the Limited Partners or Assignees or the return of capital, and if the assets of the Partnership remaining after payment or discharge of the debts and liabilities of the Partnership are insufficient to return the Capital Contribution, they shall

 

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have no recourse against any General Partner, any director, officer, employee or partner of a General Partner or the Partnership or any Limited Partner or Assignee for such purpose.

 

15.6                           Claim of Limited Partners and Assignees. No Limited Partner or Assignee shall have the right or power to demand or receive property other than cash, whether as a Return of Capital, a distribution, a payment on liquidation or otherwise.

 

15.7                           Restoration of Negative Account Balance. Upon the dissolution and termination of the Partnership, the General Partners shall contribute to the Partnership any deficit balance in their General Partner Capital Accounts.

 

ARTICLE XVI.
POWER OF ATTORNEY

 

Each Person who becomes a Limited Partner, each Person who executes a Transfer Application and any General Partner by executing or becoming bound by this Agreement irrevocably constitutes and appoints the Managing General Partner of the Partnership, its successors as Managing General Partner, and the authorized officers thereof, the true and lawful attorneys for such Person and in such Person’s name, place, and stead for such Person’s use and benefit to sign, certify and acknowledge, swear to, and, to the extent necessary, to file and record (1) this Agreement, the Depositary Agreement, the Certificate of Limited Partnership and all amendments to any of the foregoing; (2) any other instrument which may be required to be filed by the Partnership under the laws of any state or by any government agency which the Managing General Partner deems advisable to file, including, but not limited to, certificates of fictitious name statements, and amendments to or cancellation of the Certificate of Limited Partnership; (3) all certificates and other instruments (including, at the option of the Managing General Partner, this Agreement) and all amendments thereof which the Managing General Partner deems appropriate or necessary to qualify, or continue the qualification of, the Partnership as a limited partnership (or a partnership in which the Limited Partners have limited liability) in all jurisdictions in which the Partnership may conduct business or own any Property; and (4) instruments relating to the admission of Additional or Substituted Limited Partners.

 

Each Person also authorizes the Managing General Partner to take any further action which it shall consider necessary or appropriate in connection with any of the foregoing, thereby giving the Managing General Partner full power and authority to do and perform each and every act and thing whatsoever requisite, necessary or appropriate to be done in connection with the foregoing as fully as such Person might or could do if personally present, and thereby ratifying and confirming all that the Managing General Partner shall lawfully do or cause to be done by virtue thereof.

 

A-48

 

The foregoing grant of authority:

 

(a)                                  shall be a power of attorney coupled with an interest, is irrevocable, and shall survive, and not be affected by, the signing Person’s death, subsequent disability, or incapacity;

 

(b)                                 may be exercised for each Limited Partner by a facsimile signature of or on behalf of the Managing General Partner or by listing (or referred to) all the Limited Partners or executing an instrument with a single signature acting as attorney-in-fact for all of them; and

 

(c)                                  shall survive the delivery of an assignment by the signing Person of the whole or a portion of his interest in the Partnership.

 

Each Person who has given the Managing General Partner a power of attorney pursuant to this Article 16 shall to execute and deliver to the Managing General Partner within five (5) days after receipt of the Managing General Partner’s written request therefor such other and further statements of interest and holdings, designations, powers of attorney and other instruments that the Managing General Partner deems necessary to comply with any laws, rules or regulations relating to the business or proposed business of the Partnership. Such power of attorney shall not supersede any other part of this Agreement nor shall it be used to deprive such Person of any of such Person’s rights under this Agreement or to deprive a Limited Partner or Assignee of his rights as a Limited Partner or Assignee. It is intended only to provide a simplified system for execution of documents and the conduct of the business of the Partnership.

 

ARTICLE XVII.
MISCELLANEOUS PROVISIONS

 

17.1                           Notices. All notices or other communications required or permitted to be given pursuant to this Agreement shall, in the case of notices or communications required or permitted to be given to Unitholders, be in writing and shall be considered as properly given or made if sent by facsimile transmission, if personally delivered or if mailed by United States first class mail, postage prepaid, or if sent by prepaid telegram, and addressed to such Unitholder’s address for notices as it appears on the records of the Partnership, and, in the case of notices or communications required or permitted to be given to a General Partner, shall be in writing and shall be considered as properly given or made if sent by facsimile transmission, if personally delivered, or if sent by prepaid telegram, or if mailed by United States certified or registered mail return receipt requested, postage prepaid, and addressed to a General Partner at 828 Fort Street, Honolulu, Hawaii 96813. Any Unitholder may change the address for notices, by giving notice of such change to the Partnership, and a General Partner may change its address for notices by giving notice of such change to all Unitholders. Commencing on the tenth (10th) day after the giving of such notice, such newly designated address shall be such Unitholder’s address for the purpose of all notices or other communications required or permitted to be given pursuant to this Agreement. Any notice or other communication shall be deemed to have been given as of the date on which it is personally delivered or sent by facsimile transmission or, if mailed or telegraphed, the date on which it is deposited in the United States mails or transmitted, in each case in

 

A-49

 

compliance with the terms of this Section 17.1, except that any notice or other communication sent by facsimile transmission, mailed or telegraphed to a General Partner which is not received by the General Partner within ten (10) days after the date of its mailing or transmission shall be deemed to have been given as of the date actually received by the General Partner.

 

17.2                           Choice of Law. This Agreement and all rights and liabilities of the parties hereto with reference to the partnership shall be subject to and governed by the laws of the State of Delaware as applied to agreements among Delaware residents to be entered into and performed entirety within Delaware.

 

17.3                           Article and Section Headings. The headings in this Agreement are inserted for convenience and identification only and are in no way intended to describe, interpret, define or limit the scope, extent or intent of this Agreement or any provision hereof.

 

17.4                           Sole Agreement. This Agreement and the exhibits hereto constitute the entire understanding of the parties hereto with respect to the subject matter hereof and supersede all prior agreements and understandings pertaining thereto.

 

17.5                           Execution in Counterparts. This Agreement may be executed in any number of counterparts with the same effect as if all parties had all signed the same document. All counterparts shall be construed together and shall constitute one agreement. Each party shall become bound by the Agreement immediately upon affixing his or her signature hereto, independently of the signature of any other party.

 

17.6                           Remedies Cumulative. The remedies of the parties under this Agreement are cumulative and shall not exclude any other remedies to which any Person may be lawfully entitled.

 

17.7                           Waiver. No failure by any party to insist upon the strict performance of any covenant, duty, agreement, or condition of this Agreement or to exercise any right or remedy consequent upon a breach thereof shall constitute a waiver of any such breach or any other covenant, duty, agreement or condition.

 

17.8                           Waiver of Action for Partition. Each of the parties hereto irrevocably waives during the term of the Partnership any right that he may have to maintain any action for partition with respect to the Partnership Property.

 

17.9                           Assignability. Subject to the restrictions on transferability contained herein, each and all of the covenants, terms, provisions and agreements herein contained shall be binding upon and inure to the benefit of the successors and assigns of the respective parties hereto.

 

17.10                     Gender and Number. Whenever the context requires, the gender of all words used hereby shall include the masculine, feminine and neuter, the singular of all words shall include the singular and plural, and the plural of all words shall include the singular and plural.

 

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17.11                     Further Action. The parties shall execute and deliver all documents, provide all information and take or refrain from taking action as may be necessary or appropriate to achieve the purpose of this Agreement.

 

17.12                     Creditors. None of the provisions of this Agreement shall be for the benefit of or enforceable by any creditors of the Partnership.

 

17.13                     Severability. If any provision of this Agreement, or the application thereof, shall, for any reason and to any extent, be invalid or unenforceable, the remainder of this Agreement and the application of such provision to other Persons or circumstances shall not be affected thereby, but rather shall be enforced to the maximum extent permissible under applicable law.

 

17.14                     Certificate. The General Partner certifies that this Amended and Restated Agreement was approved by a majority interest at a meeting of Unitholders duly called and held on June 12, 2006.

 

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the day and year first written above.

 

		ML RESOURCES, INC., MANAGING GENERAL PARTNER
		By
			Dennis Simonis
			President
		By
			Wayne Roumagoux
			Secretary

 

A-51

APPENDIX B

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

ý		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2005
OR
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number 1-9145

 

ML MACADAMIA ORCHARDS, L.P.

(Exact Name of registrant as specified in its charter)

 

 

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

 

Title of Each Class		Name of Each Exchange on Which Registered
Depositary Units Representing
Class A Limited Partners’ Interests		New York Stock Exchange

 

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE

 

Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act

Yes  o    No  ý

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 of 15(d) of the Act.

Yes  o    No  ý

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  ý    No  o

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this 10-K or any amendment to this 10-K. ý

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer (as defined in Rule 12b-2 of the Act). Large accelerated filer o  Accelerated filer o  Non-accelerated filer  ý

 

Indicate by check mark whether the Registrant is a shell company as defined by Rule 12b-2 of the Securities Exchange Act of 1934. Yes  o    No  ý

 

As of March 14, 2006, 7,500,000 shares of the registrant’s Class A Units were outstanding, and the aggregate market value of such Units held by non-affiliates was $44,025,000 (based on the closing price on that date of $5.87 per Unit).

 

B-1

 

(c) Narrative Description of the Business

 

Owned-orchard Segment

 

The Partnership currently sells all of the macadamia nuts from its orchards to Mauna Loa under long-term nut purchase contracts. Mauna Loa processes and markets the nuts under the Mauna Loaâ brand name and is believed to be one of the largest processors and marketers of macadamia nuts in the world. The Partnership is Mauna Loa’s largest single supplier of macadamia nuts. Mauna Loa was a subsidiary of CBCL until its sale in September 2000 to The Shansby Group. In December 2004 Mauna Loa was purchased by Hershey Food Corporation. 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 five nut purchase contracts with Mauna Loa. They cover all nuts produced by the orchards acquired in June 1986, December 1986, October 1989, September 1991 and May 2000, respectively. The 1986 contracts expire December 31, 2006, while the 1989 contract expires June 30, 2019 and also provides for the exclusion of unusable nuts from those purchased by Mauna Loa. The first three contracts are identical in all other material respects. The fourth contract was acquired by assignment with the orchard purchase in September 1991 and expired on June 30, 2003. Effective July 1, 2003 the fourth contract was renegotiated with an expiration date of December 31, 2006. The fourth contract is a set price contract ($0.60 cents per pound at wet-in-shell moisture (“WIS”) of 25%) with an adjustment for trash and spoilage outside the range of 10% to 13%. The first three contracts use a pricing formula based 50% on a two-year trailing average of the macadamia nut price published annually by the United States Department of Agriculture and 50% on Mauna Loa’s “netback component.”  The netback component is calculated by subtracting Mauna Loa’s processing and marketing costs per pound and a “capital charge” of 20% from its nut revenues per pound. The fifth contract expires in 2006. Its pricing formula is based 100% on the two-year trailing average of USDA reported prices. The fifth contract may be terminated at any time by mutual agreement in writing.

 

On December 16, 2004, a new nut purchase contract was signed with Hamakua Macadamia Nut Company (“Hamakua”) for the annual delivery of six million WIS pounds, starting January 1, 2007. The contract provides for a minimum price of 79 cents per pounds and a maximum price of 99 cents per pound. The pricing formula includes a fixed component of 85 cents and a second component based on Hamakua’s average selling price for bulk kernel. Refer to Exhibit 10.52 on page 57.

 

On January 5, 2006, a new nut purchase contract was signed with Purdyco International, Ltd. dba 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. Refer to Exhibit 10.55 on page 57.

 

On January 6, 2006, a new nut purchase contract was signed with Mac Farms of Hawaii, LLC 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. Refer to Exhibit 10.54 on page 57.

 

Competition. Because the Partnership’s revenues from nut sales are tied to a formula dependent in large part upon Mauna Loa’s market performance, the Partnership bears certain risks associated with Mauna Loa’s marketing of the nuts, including the possibility of increased future competition. Subsequent to the sale of Mauna Loa to The Shansby Group in September 2000, the Partnership no longer has access to the operational and marketing strategies and financial results of Mauna Loa, as it is no longer a related entity.

 

B-3

 

Mauna Loa considers its primary competition to be other premium nut products, except in Hawaii where its products compete with those of other macadamia nut producers and other food and non-food tourist items. As a premium nut, macadamia nuts compete with cashews, almonds and pistachios.

 

Mauna Loa sells macadamia nuts as “retail” nuts and “commercial” nuts and produces and sells various macadamia nut products. These include pristine salted and unsalted roasted macadamia nuts, packages of diced macadamia nuts and macadamia oil (for cooking and baking), value-added products such as candy-glazed macadamia nuts, chocolate-covered macadamia nuts, chocolate macadamia nut candy bars, honey-roasted macadamia nuts and macadamia nut brittle.

 

Macadamia nuts comprise less than 5% of the sales of branded premium nuts sold through mass merchandisers, drug and grocery stores on the U.S. mainland, based upon published industry statistics. Cashews and mixed nuts represent the bulk of the dollar sales in this segment, followed by pistachios. Macadamia nuts are the highest priced of all premium nuts, and, therefore, they may be sensitive to price competition from other nuts.

 

The primary market for the Mauna Loaâ brand is the U.S. mainland, where Mauna Loa sells its products through brokers to food stores, club stores, drug store chains, mass merchandisers and commercial customers.

 

A strong secondary market for the Mauna Loaâ brand is the state of Hawaii, where Mauna Loa sells through its own direct sales force primarily to retailers. Substantial portions of the macadamia nut products sold in Hawaii are purchased by visitors as gifts and souvenirs. Mauna Loa believes that it is one of the largest sellers of macadamia products in the State of Hawaii.

 

Mauna Loa also sells macadamia products as ingredient nuts, through its visitor centers and mail order sales.

 

In addition to the State of Hawaii, mature macadamia nut orchards are located in Australia, Africa, and Central America. For the 2005 crop, Hawaii was expected to supply 24% of the world crop, and Australia, the world’s largest producer, was expected to supply 41%.

 

A general decline in nut prices would adversely affect the prices which Mauna Loa could charge for its macadamia nut products and could have a negative effect on its profitability. Since the purchase price for the Partnership’s nuts under all but one of its nut purchase contracts is based in part on nut prices reported by the industry and in part on the marketing success of Mauna Loa, 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 4,169 acres of macadamia orchards and approximately 2,505 additional acres of macadamia orchards owned by other growers. Three of the farming contracts terminated December 31, 2005, covering approximately 465 acres making the total acres covered by farming contracts for 2006 to be 2,040.

 

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.

 

B-4

 

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%.

 

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 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 and adjacent communities.

 

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 by Mauna Loa, and the Ka’u husking facility is owned 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 and kernel quality. Title to the nuts husked in Keaau passes to Mauna Loa after weighing. Title to the nuts husked at Ka’u pass to Mauna Loa after delivery to the Mauna Loa processing plant in Keaau. 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.

 

B-5

 

After the nuts are weighed, the moisture content of the nuts is reduced by blowing warm air over them, which produces 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.

 

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 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. No additional rent was due in 2003, 2004, or 2005.

 

Item 1A. Risks Involved in Operating Macadamia Orchards

 

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 2003, 0.6% in 2004, and 0.2% in 2005. 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 1.3% in 2003, 1.4% in 2004, and 0.6% in 2005. 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. It is also believed that a particular variety of macadamia nut tree (variety 333) is most susceptible to MQD. Another tree variety (variety 344) has also been identified as being more susceptible to MQD than other varieties. Approximately 9% of the Partnership’s orchards are variety 333 and 45% are variety 344. Both the Keaau and Mauna Kea orchards are areas with high moisture conditions, and may be more susceptible to the MQD problem. MQD is present in the Ka’u orchards, but tree losses to date have been less than 2% per year in the Ka’u area.

 

B-6

 

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 nutlets, and the other is Botrytis cinerea. 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.

 

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. 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. Several 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 2005 provides coverage up to a maximum of approximately $22.8 million against loss of trees due to wind, fire or volcanic activity. Crop insurance was purchased for the 2004-2005 crop year and provides coverage up to a maximum of approximately $8.6 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:

 

Year		Ka’u		Keaau		Mauna Kea
2001		46.0”		124.0”		133.4”
2002		58.5”		139.4”		156.1”
2003		22.8”		94.8”		117.4”
2004		54.9”		142.7”		151.5”
2005		34.7”		133.8”		171.8”

 

During 2005 the Ka’u, Keaau and Mauna Kea areas recorded 84%, 99% and 116% 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.

 

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The license agreement terminates on the earlier of June 30, 2045, or at the termination of the May 1, 2000 lease between Partnership and KACI.

 

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.

 

Employees

 

As of December 31, 2005, the Partnership employed 249 people, of which 164 were seasonal employees. Of the total, 23 are in farming supervision and management, 212 in production, maintenance and agricultural operations, and 14 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. The parties have recently agreed to a new 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.

 

Item 1B. Unresolved staff comments. None

 

Available Information. The Partnership files annual, quarterly and current reports and other information with the Commission. These filings are available free of charge through its 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.

 

ITEM 2. PROPERTIES

 

Location. The Partnership owns or leases approximately 4,169 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.

 

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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. 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 4,169 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 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.

 

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

 

Orchard		Acquired		Tree Acres		Tenure		Lease Expiration		Min. Rent per Annum
Keaau I		June 1986		1467		Fee simple
Ka’u I		June 1986		456		Fee simple
”		June 1986		500		Leasehold	(1)	2019		$	25,000
Ka’u Green Shoe I		Dec. 1986		266		Leasehold	(1)	2019		$	5,586
Keaau II		Oct. 1989		220		Fee simple
Ka’u II		Oct. 1989		327		Leasehold	(2)	2034		$	23,544
”		Oct. 1989		175		Leasehold	(1)	2028		$	17,314
”		Oct. 1989		26		Leasehold	(3)	2029		$	2,041
”		Oct. 1989		186		Leasehold	(1)	2031		$	18,585
Mauna Kea		Oct. 1989		326		Leasehold	(2)	2034		$	23,508
Keaau Lot 10		Sept. 1991		78		Fee simple
Ka’u O		May 2000		142		Leasehold	(1)	2045		$	10,224
Total acres				4169

 

(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.

For certain additional information concerning farming leases, see Item 13, page 47.

 

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 market 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 KACI, 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 5.

 

ITEM 3. LEGAL PROCEEDINGS AND SETTLEMENT

 

As reported on August 13, 2004, in the Quarterly Report on Form 10-Q of ML Macadamia Orchards, L.P. (the “Partnership”) for its fiscal quarter ended June 30, 2004, the Partnership and several independent growers filed suit against Mauna Loa Macadamia Nut Corporation in the Circuit Court of the Third Judicial Circuit of the State of Hawaii in Hilo, alleging that the proposed acquisition by Mauna Loa Macadamia Nut Corporation (“Mauna Loa”) of the assets of Mauna Loa’s major competitor, Mac Farms of Hawaii, LLC (“Mac Farms”), would give Mauna Loa a monopoly over the supply and processing of wet-in-shell macadamia nuts on the Island of Hawaii, which in turn would give Mauna Loa monopoly

 

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