ML MACADAMIA ORCHARDS L P (Form: 10-Q, Received: 11/09/2011 06:02:28)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2011

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)

DELAWARE		99-0248088
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

26-238 Hawaii Belt Road, HILO, HAWAII		96720
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (808) 969-8057

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 x No o

Indicate by check mark whether the registrant has submitted electronically and posted on it corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer o

Non-accelerated filer o		Smaller reporting company x

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 x

As of November 9, 2011, Registrant had 7,500,000 Class A Units issued and outstanding.

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ML MACADAMIA ORCHARDS, L.P.

INDEX

		Page
Part I - Financial Information

Item 1.	Unaudited Consolidated Financial Statements	3-11

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12-17

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	17

Item 4.	Controls and Procedures	17

Part II - Other Information

Item 1A.	Risk Factors	18

Item 6.	Exhibits	18

Signatures		19

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Item 1. Unaudited Consolidated Financial Statements

ML Macadamia Orchards, L.P.

Consolidated Balance Sheets

(in thousands)

	September 30,						December 31,
	2011			2010			2010
	(unaudited)
Assets
Current assets
Cash and cash equivalents	$	58		$	27		$	245
Accounts receivable	4,506			3,625			4,322
Inventory of farming supplies	275			174			171
Deferred farming costs	2,678			3,449			—
Other current assets	359			345			389
Total current assets	7,876			7,620			5,127
Land, orchards and equipment, net	50,604			52,638			52,359
Intangible assets, net	530			605			586
Other non-current assets	87			98			87
Total assets	$	59,097		$	60,961		$	58,159

Liabilities and partners’ capital
Current liabilities
Current portion of long-term debt	$	1,050		$	1,050		$	1,050
Short-term borrowings	4,800			4,700			3,200
Accounts payable	688			662			567
Accrued payroll and benefits	734			689			811
Other current liabilities	21			101			33
Total current liabilities	7,293			7,202			5,661
Non-current benefits	409			364			439
Long-term debt	8,138			9,275			8,925
Deferred income tax liability	1,037			1,045			1,067
Total liabilities	16,877			17,886			16,092
Commitments and contingencies
Partners’ capital
General partner	81			81			81
Class A limited partners, no par or assigned value, 7,500 units authorized, issued and outstanding	42,226			43,109			42,073
Accumulated other comprehensive loss	(87		)	(115		)	(87		)
Total partners’ capital	42,220			43,075			42,067
Total liabilities and partners’ capital	$	59,097		$	60,961		$	58,159

See accompanying notes to consolidated financial statements.

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ML Macadamia Orchards, L.P.

Consolidated Income Statements (unaudited)

(in thousands, except per unit data)

	Three months						Nine months
	ended September 30,						ended September 30,
	2011			2010			2011			2010

Macadamia nut sales	$	5,357		$	4,087		$	7,688		$	5,259
Contract farming revenue	651			615			1,191			2,417
Total revenues	6,008			4,702			8,879			7,676
Cost of goods and services sold
Cost of macadamia nut sales	4,679			3,682			6,375			4,578
Cost of contract farming services	607			567			1,088			2,225
Total cost of goods and services sold	5,286			4,249			7,463			6,803
Gross income	722			453			1,416			873
Total general and administrative expenses	460			517			1,218			1,264
Operating income (loss)	262			(64		)	198			(391		)
Impairment loss	—			(306		)	—			(306		)
Interest expense	(199		)	(140		)	(575		)	(153		)
Other income	—			218			579			430
Income (loss) before income taxes	63			(292		)	202			(420		)
Income tax expense	25			16			49			31
Net income (loss)/comprehensive income (loss)	$	38		$	(308	)	$	153		$	(451	)

Net cash flow (as defined in the Partnership Agreement)	$	570		$	506		$	703		$	(323	)

Net income (loss) per Class A Unit	$	0.01		$	(0.04	)	$	0.02		$	(0.06	)

Net cash flow per Class A Unit	$	0.08		$	0.07		$	0.09		$	(0.04	)

Cash distributions per Class A Unit	$	0.00		$	0.00		$	0.00		$	0.00

Class A Units outstanding	7,500			7,500			7,500			7,500

See accompanying notes to consolidated financial statements.

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ML Macadamia Orchards, L.P.

Consolidated Statements of Partners’ Capital (unaudited)

(in thousands)

	Three months						Nine months
	ended September 30,						ended September 30,
	2011			2010			2011			2010

Partners’ capital at beginning of period:
General partner	$	81		$	81		$	81		$	81
Class A limited partners	42,188			43,417			42,073			43,560
Accumulated other comprehensive loss	(87		)	(115		)	(87		)	(115		)
	42,182			43,383			42,067			43,526

Allocation of net income (loss)/comprehensive income (loss):
Class A limited partners	38			(308		)	153			(451		)
	38			(308		)	153			(451		)

Cash distributions:
Class A limited partners	—			—			—			—
	—			—			—			—

Partners’ capital at end of period:
General partner	81			81			81			81
Class A limited partners	42,226			43,109			42,226			43,109
Accumulated other comprehensive loss	(87		)	(115		)	(87		)	(115		)
	$	42,220		$	43,075		$	42,220		$	43,075

See accompanying notes to consolidated financial statements.

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ML Macadamia Orchards, L.P.

Consolidated Statements of Cash Flows (unaudited)

(in thousands)

	Three months						Nine months
	ended September 30,						ended September 30,
	2011			2010			2011			2010
Cash flows from operating activities:
Cash received from goods and services	$	1,804		$	1,863		$	9,399		$	7,148
Cash paid to suppliers and employees	(3,656		)	(3,424		)	(9,763		)	(9,682		)
Interest received	—			—			1			—
Interest paid	(273		)	(54		)	(575		)	(66		)
Net cash used in operating activities	(2,125		)	(1,615		)	(938		)	(2,600		)

Cash flows from investing activities:
Acquisition of land and capital equipment	(1		)	—			(62		)	(79		)
Acquisition of IASCO	—			(200		)	—			(200		)
Net cash used in investing activities	(1		)	(200		)	(62		)	(279		)

Cash flows from financing activities:
Financing cost	—			(137		)	—			(137		)
Proceeds from drawings on line of credit	2,300			1,700			3,400			2,900
Repayment on line of credit	—			—			(1,800		)	—
Payments on long term borrowings	(350		)	(175		)	(787		)	(1,100		)
Net cash provided by financing activities	1,950			1,388			813			1,663

Net decrease in cash and cash equivalents	(176		)	(427		)	(187		)	(1,216		)
Cash and cash equivalents at beginning of period	234			454			245			1,243
Cash and cash equivalents at end of period	$	58		$	27		$	58		$	27

Reconciliation of net income (loss) to net cash used in operating activities:
Net income (loss)	$	38		$	(308	)	$	153		$	(451	)
Adjustments to reconcile net income (loss) to cash used in operating activities:
Depreciation and amortization	882			804			1,337			1,042
Goodwill impairment	—			306			—			306
Inventory write down	—			7			—			7
Gain on acquisition of IASCO	—			(120		)	—			(120		)
Increase in accounts receivable	(4,249		)	(3,017		)	(184		)	(1,074		)
Increase in inventories	(45		)	(15		)	(104		)	(14		)
Decrease (increase) in deferred farming costs	747			195			(2,141		)	(2,458		)
Decrease (increase) in other current assets	34			84			30			(19		)
Increase in accounts payable	413			229			121			367
Increase (decrease) in accrued payroll and benefits	206			148			(77		)	46
Increase (decrease) in other current liabilities	(119		)	74			(13		)	(227		)
Decrease in non-current accrued benefits	(2		)	(2		)	(30		)	(5		)
Decrease in deferred income tax liabilities	(30		)	—			(30		)	—
Total adjustments	(2,163		)	(1,307		)	(1,091		)	(2,149		)
Net cash used in operating activities	$	(2,125	)	$	(1,615	)	$	(938	)	$	(2,600	)

Supplemental Schedule of noncash investing and financing activities
Acquisition of IASCO financed by debt	$	—		$	12,300		$	—		$	12,300

See accompanying notes to consolidated financial statements .

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ML MACADAMIA ORCHARDS, L.P.

Notes to Consolidated Financial Statements

(1) BASIS OF PRESENTATION

In the opinion of management, the accompanying unaudited consolidated financial statements of ML Macadamia Orchards, L.P. and its subsidiary ML Resources, Inc., (“the Partnership”) include all adjustments, consisting only of normal recurring adjustments, necessary to present fairly its financial position as of September 30, 2011 and 2010 and the results of operations, changes in partners’ capital and cash flows for the three and nine-month periods ended September 30, 2011 and 2010. The results of operations for the period ended September 30, 2011 are not necessarily indicative of the results to be expected for the full year or for any future period.

The year-end condensed consolidated balance sheet data was derived from audited consolidated financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. These interim consolidated financial statements should be read in conjunction with the Consolidated Financial Statements and the Notes to Consolidated Financial Statements filed with the Securities and Exchange Commission in the Partnership’s 2010 Annual Report on Form 10-K.

(2) CONSOLIDATION

The consolidated financial statements include the accounts of the Partnership and ML Resources, Inc. (“MLR”), its General Partner. All significant intercompany balances and transactions, including management fees and distributions, have been eliminated.

(3) REVISION

The amounts reported as net cash flow (as defined in the Partnership Agreement) and net cash flow per Class A Unit for the three and nine months ended September 30, 2010 in the Form 10-Q for the quarter ended September 30, 2010 have been revised to be consistent with the presentation in the 2010 Form 10-K, which excludes the $120,000 bargain purchase price gain and $306,000 goodwill impairment related to the IASCO acquisition from such calculation. This revision does not affect the financial statements and other financial information set forth in said Form 10-Q.

The Partnership revised the amounts previously reported as follows:

	As Previously Reported			Adjustments		Revised Net Cash Flow
	(in thousands, except per unit data)
Three months ended September 30, 2010
Net cash flow	$	320		$	186	$	506
Net cash flow per Class A Unit	$	0.04		$	0.03	$	0.07

Nine months ended September 30, 2010
Net cash flow	$	(509	)	$	186	$	(323	)
Net cash flow per Class A Unit	$	(0.07	)	$	0.03	$	(0.04	)

(4) RECLASSIFICATIONS

Certain balances have been reclassified to conform to the current year presentation. These reclassifications had no impact on net income (loss) previously reported.

(5) RECENT AUTHORITATIVE PRONOUNCEMENTS

In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2011-05 (“ASU 2011-05”), Comprehensive Income (Topic 220): Presentation of Comprehensive Income. The objective of this update is to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. ASU 2011-05 requires that all non owner changes in stockholders’ equity be presented either in a single continuous

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statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income, and the total comprehensive income. ASU 2011-5 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 and should be applied retroactively. The Partnership does not expect this Update to have a significant effect on its financial statements.

(6) SEGMENT INFORMATION

The Partnership has two reportable segments, the owned-orchard segment and the farming segment, which are organized on the basis of revenues and assets. The owned-orchard segment derives its revenues from the sale of macadamia nuts grown in orchards owned or leased by the Partnership. The farming segment derives its revenues from the farming of macadamia orchards owned by other growers. The Partnership also farms the orchards it owns and leases.

Management evaluates the performance of each segment on the basis of operating income. The Partnership accounts for intersegment sales and transfers at cost. Such intersegment sales and transfers are eliminated in consolidation. The Partnership’s reportable segments are distinct business enterprises that offer different products or services. Revenues from the owned-orchard segment are subject to nut purchase contracts and tend to vary from year to year due to changes in the prices paid under its various nut contracts. The farming segment’s revenues are based on farming contracts that generate a farming profit based on a pass through of farming cost plus a fee which is a percentage of farming cost or a fixed amount per acre and tend to be less variable than revenues from the owned-orchard segment.

The following tables summarize each reportable segment’s revenues, operating income (loss), assets and other information as of and for the three and nine-month periods ended September 30, 2011 and 2010. Due to seasonality of crop patterns and the timing of nut purchase contract fulfillment, interim results are not necessarily indicative of annual performance.

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	Three months ended September 30, (in thousands)						Nine months ended September 30, (in thousands)
	2011			2010			2011			2010
Revenues:
Owned orchards	$	5,357		$	4,087		$	7,688		$	5,259
Farming	4,005			3,251			6,734			6,619
Intersegment elimination (all farming)	(3,354		)	(2,636		)	(5,543		)	(4,202		)
Total	$	6,008		$	4,702		$	8,879		$	7,676

Operating income (loss):
Owned orchards	$	218		$	(110	)	$	95		$	(583	)
Farming	44			46			103			192
Total	$	262		$	(64	)	$	198		$	(391	)

Depreciation:
Owned orchards	$	766		$	707		$	986		$	824
Farming	98			85			295			186
Total	$	864		$	792		$	1,281		$	1,010

Expenditures for property and equipment:
Owned orchards	$	1		$	—		$	48		$	79
Owned orchards - IASCO	—			11,668			—			$	11,668
Farming	—			—			14			—
Total	$	1		$	11,668		$	62		$	11,747

Segment assets:
Owned orchards							$	51,059		$	53,780
Farming							8,038			7,181
Total							$	59,097		$	60,961

All revenues are from sources within the United States of America.

(7) DEFERRED FARMING COSTS

Orchard costs (e.g. irrigation, fertilizer, pruning, etc.) related to nuts sold under nut purchase contracts and services provided under farming contracts are expensed to cost of goods sold and cost of services provided based on management’s estimate of the costs incurred to produce macadamia nuts sold during the interim reporting period, with the difference between costs incurred-to-date and costs expensed-to-date reported on the consolidated balance sheet as deferred farming costs.

Deferred farming cost amounted to $2.7 million and $3.4 million at September 30, 2011 and 2010, respectively.

(8) GENERAL EXCISE TAXES

The Partnership records Hawaii general excise taxes when goods and services are sold on a gross basis as components of revenues and expenses. For the three months ended September 30, 2011 and 2010, Hawaii general excise taxes charged or passed on to customers and reflected in revenues and expenses amounted to $10,000. For the nine months ended September 30, 2011 and 2010, Hawaii general excise taxes charged or passed on to customers and reflected in revenues and expenses amounted to $20,000 and $42,000, respectively.

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(9) CREDIT FACILITY - DEBT

The Partnership has a $5.0 million revolving credit facility with American AgCredit, PCA which expires on July 13, 2012. Drawings on the revolving credit facility bear interest at the base rate, which is defined as the prime lending rate plus 1%. The Partnership had $4.8 million and $4.7 million outstanding on the revolving credit facility at September 30, 2011 and 2010, respectively. At September 30, 2011 and 2010, interest on revolving advances was 4.25% per annum.

In addition to the revolving credit facility the Partnership has a 10-year $10.5 million term loan with American AgCredit, PCA which was entered into on August 4, 2010. The term loan matures on July 1, 2020, requires equal monthly payments over the term and bears fixed interest at 6.5% per annum. The Partnership had $9.2 million and $10.3 million outstanding on the term loan at September 30, 2011 and 2010, respectively.

The credit agreements with American AgCredit, PCA, contain various financial covenants. The Partnership was in compliance with all debt covenants at September 30, 2011 and 2010.

The fair value of the revolving credit facility is approximately the carrying value due to the variability of the interest rate and frequency that the interest rate resets. The 10-year term loan has a fixed rate and has a fair value of approximately $10.0 million compared to a carrying value of $9.2 million as of September 30, 2011.

The estimated fair value of the Partnership’s fixed rate term loan was determined using an estimated market interest rate of 4.25% over a life equal to the remaining maturity. The Partnership has not considered lender fees in determining the estimated fair value.

(10) PARTNERS’ CAPITAL

Net income (loss) per Class A Unit is calculated by dividing 100% of Partnership net income (loss) by the average number of Class A Units outstanding for the period.

(11) CASH DISTRIBUTIONS

The credit agreement with American AgCredit, PCA prohibits the declaration and payment of cash distributions without prior approval from the lender. No distributions were declared or paid during the three and nine-month periods ended September 30, 2011 or 2010.

(12) PENSION PLAN

The Partnership sponsors a defined benefit pension plan covering employees that are members of a union bargaining unit. The Partnership’s funding policy is to contribute an amount to the plan sufficient to meet the minimum funding requirements set forth in the Employee Retirement Income Security Act of 1974.

COMPONENTS OF NET PERIODIC BENEFIT COST

	Pension Benefits
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	(in thousands)						(in thousands)
	2011			2010			2011			2010
Service Cost	$	15		$	17		$	45		$	49
Interest Cost	11			10			33			31
Expected Return on Assets	(14		)	(15		)	(42		)	(44		)
Amortization of Unrecognized Prior Service Costs	2			2			6			5
Net Periodic Pension Cost	$	14		$	14		$	42		$	41

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(13) INTERMITTENT SEVERANCE PLAN

The Partnership sponsors a defined intermittent severance benefit plan covering employees that are members of a union bargaining unit and not covered by the defined benefit pension plan. Payment of the severance benefits is made when covered employees cease employment with the Partnership under certain terms and conditions as defined in the union bargaining agreement.

COMPONENTS OF NET PERIODIC BENEFIT COST

	Intermittent Severance Benefits
	Three Months Ended September 30, (in thousands)				Nine Months Ended September 30, (in thousands)
	2011		2010		2011		2010
Service Cost	$	4	$	4	$	12	$	12
Interest Cost	4		4		12		13
Net Periodic Intermittent Severance Cost	$	8	$	8	$	24	$	25

(14) EMPLOYEES

The Partnership has two bargaining agreements with the ILWU Local 142. These agreements cover all production, maintenance, and agricultural employees of the Ka’u Orchard Division and the Keaau and Mauna Kea Orchard Division. On June 1, 2011 the Partnership and the ILWU Local 142 agreed to a two-year contract, which is effective June 1, 2011 through May 31, 2013. The Partnership believes that relations with its employees and the ILWU are good.

(15) LEGAL PROCEEDINGS

The Partnership is not a party to any legal proceedings.

(16) ACQUISITION

Effective August 1, 2010 the Partnership acquired from IASCO certain real property and assets used in connection with the macadamia nut farming operations on the property, for a purchase price of $12.5 million. The acquisition provides the Partnership with a significant increase in owned orchards. As a result of the acquisition the Partnership has acquired approximately 1,100 acres of mature macadamia nut orchards along with the associated infrastructure and equipment necessary to the business of growing macadamia nuts.

Effective as of the acquisition date, the sales of nuts grown in these orchards are recorded by the Partnership as macadamia nut revenue and related costs are reported as cost of goods sold. Prior to the acquisition, the Partnership performed farming services on these orchards for IASCO and generated contract farming revenue based on a pass through of farming cost plus a management fee. The contract farming revenue and cost of contract farming services relating to the IASCO orchards are eliminated as of the effective date of the Partnership’s acquisition of these orchards. The elimination of the IASCO farming contract, which represented approximately 50% to 55% of the cash flow of the contract farming segment, resulted in the impairment of goodwill.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation

Significant Accounting Policies and Estimates

The Partnership prepares its consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. Certain of our accounting policies, including the estimated lives assigned to our assets, nut pricing under certain nut sales agreements, determination of bad debt, deferred farming costs, asset impairment, goodwill and goodwill impairment, self-insurance reserves, assumptions used to determine employee benefit obligations and the calculation of our income tax liabilities, require that we apply significant judgment in defining the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. Our judgments are based on our historical experience, terms of existing contracts, our observance of trends in the industry and crop, information provided by our customers and information available from outside sources, as appropriate. There can be no assurance that the actual results will not differ from our estimates. To provide an understanding of the methodology we apply, our significant accounting policies are discussed where appropriate in this discussion and analysis and in the notes to consolidated financial statements in the 2010 Form 10-K.

Results of Operations

The Partnership’s results of operations and financial condition at September 30, 2011 are not necessarily directly comparable to the Partnership’s results of operations and financial condition at September 30, 2010 due to the acquisition of real property and assets from IASCO on August 1, 2010 and the financing as previously reported by the Partnership. Effective as of the acquisition date, the sales of nuts grown in the IASCO orchards are recorded by the Partnership as macadamia nut revenue and related costs are reported as cost of nuts sold. The orchard acquisition effectively cancelled the farming contract for those acres resulting in lower contract farming revenue and lower contract farming costs.

The Partnership’s financial results are principally driven by nut production, which is seasonal and highly contingent upon Hawaii’s climatic conditions, as well as nut prices. Traditionally, nut production is highest during the third and fourth quarters, with very low production in the first and second quarters. Improved rainfall distribution from October 2010 at Ka’u and the earlier than normal start of flower development at Keaau and Mauna Kea and nuts that fell in the second quarter at all orchards locations increased the nut production for the nine-month period ended September 30, 2011 compared to the same period in 2010.

Nut sales recorded for the three-month period ended September 30, 2011 and 2010 were $5.4 million and $4.1 million, respectively. Nut sales for the nine-month period ended September 30, 2011 and 2010 were $7.7 million and $5.3 million, respectively. The Partnership’s WIS pounds produced for the three-month period ended September 30, 2011 and 2010 was 9.5 million pounds and 7.1 million pounds, respectively, or an increase of 32%. The Partnership’s WIS pounds produced for the nine-month period ended September 30, 2011 and 2010 was 13.1 million pounds and 8.9 million pounds, respectively, or an increase of 48%. WIS pounds refers to the actual wet-in-shell pounds of macadamia nuts. The increase in nut sales in 2011 is mainly attributable to the nut sales from the IASCO orchards of $1.6 million which includes $1.5 million from 2.2 million pounds produced in 2011 and $58,000 additional sales due to the nut price adjustment for the prior year’s production. Nut sales in 2010 were lower than 2011 for the nine-month period due to the shortfall of nut production because of the drought conditions at the Ka’u orchards during the fall and winter of 2009.

For the nine-month period ended September 30, 2011, the Partnership had a net income of $153,000 from total revenues of $8.9 million. Net loss for the nine-month period ended September 30, 2010 was $451,000 from total revenue of $7.7 million. Net income per Class A Unit for the nine-month period ended September 30, 2011 was $0.02 and net loss per Class A Unit for the same period in 2010 amounted to ($0.06). The net income in 2011 is mainly attributable to increased nut sales primarily due to the nut sales from the IASCO orchards, crop insurance claim in the amount of $534,000 compared with $303,000 in 2010, and $45,000 in distributions from American AgCredit, PCA compared with $7,000 in 2010, offset by higher interest expense. The net loss in 2010 is a result of lower nut sales, IASCO acquisition costs and the impairment of goodwill.

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Net cash flow per Class A unit for the nine-month period ended September 30, 2011 and 2010, as defined in the Partnership Agreement, amounted to $0.09 and ($0.04), respectively. The net cash flow for the nine-month period ended September 30, 2010 excludes the $120,000 bargain purchase price gain and $306,000 goodwill impairment related to the IASCO acquisition. The improved net cash flow result in 2011 is attributable to higher net income and lower debt payments. The net cash flow result in 2010 is attributable to lower net income and the Partnership paying off $1.1 million of debt.

The Partnership had a net income of $38,000 for the three-month period ended September 30, 2011 from revenues of $6.0 million. Net loss for the three-month period ended September 30, 2010 was $308,000 from revenues of $4.7 million. Net income per Class A Unit for the third quarter of 2011 amounted to $0.01 and net loss per Class A Unit for the same period in 2010 amounted to ($0.04). The net income for the third quarter 2011 is mainly attributable to increased nut sales primarily due to the IASCO orchards, lower general and administrative expenses, offset by higher interest expense. The net loss for the third quarter 2010 is mainly attributable to acquisition costs of $125,000 and the impairment of goodwill in the amount of $306,000, offset by crop insurance claim in the amount of $99,000 and the bargain purchase price gain of $120,000.

Net cash flow per Class A Unit for the third quarters of 2011 and 2010, as defined in the Partnership Agreement was $0.08 and $0.07, respectively. The net cash flow for the third quarter 2010 excludes the $120,000 bargain purchase price gain and $306,000 goodwill impairment related to the IASCO acquisition. The improved net cash flow result for the third quarter 2011 is attributable to higher net income, offset by higher debt payments.

Owned-orchard Segment

The Partnership currently sells all of its macadamia nuts to Mauna Loa Macadamia Nut Corporation (“Mauna Loa”) under various nut purchase agreements. In December 2009 the Partnership executed a nut purchase contract with Mauna Loa under which it agreed to sell its entire production from its then existing orchards at a fixed price for the calendar years 2010 and 2011. This nut purchase contract is based on wet-in-shell production adjusted to moisture at 20% (“WIS”) and saleable kernel/dry-in-shell of 30% (“SK/DIS”). Under this contract, the Partnership is paid $0.73 based on the adjusted pounds, WIS @ 20% SK/DIS @ 30%. In January 2011 Mauna Loa agreed to an incremental $0.10 per pound WIS SK/DIS for nuts produced, up to 400,000 wet-in-shell pounds, from certain orchards in Keaau with lower nut densities. Similarly, in March 2011 Mauna Loa agreed to an incremental $0.10 per pound WIS SK/DIS for nuts produced from certain orchards in Ka’u, up to 200,000 wet-in-shell pounds. The additional $0.10 per pound, applicable to nuts harvested from certain orchards in the first quarter, was subject to the same quality terms as outlined in the December 2009 contract and helped offset additional harvest costs incurred for nuts harvested from orchards with lower nut densities. In the first quarter 2011, 273,000 wet-in-shell pounds harvested from the orchards subject to this additional payment produced 203,000 contract pounds at a nut purchase price of $0.83 per adjusted WIS pound. The additional $0.10 per pound resulted in $20,300 additional revenue above the revenue generated by the standard contract purchase price.

Effective August 1, 2010, in connection with the purchase of the real property, orchards and farming assets from IASCO, the Partnership acquired two lease agreements and one license agreement under which all macadamia nuts produced in the acquired orchards must be sold to and are required to be purchased by Mauna Loa. The agreements are long term agreements which expire at various dates through 2080. Under these agreements, the Partnership is paid based on wet-in-shell pounds, at a price which is derived annually from a formula which factors in the Mauna Loa wholesale price of the highest year-to-date volume fancy and choice products sold in Hawaii, and the USDA reported sales of WIS Hawaii macadamia nuts. To the extent that the Final USDA Report for the year contains a price or moisture that varies from that used in the formula price calculations for nuts delivered during the year, then an adjustment is made between the parties. In 2011 the Partnership recorded additional nut revenue of $58,000 on the production from the IASCO orchards recorded in 2010, which includes $4,000 on nuts produced in the third quarter and $54,000 on nuts produced in the fourth quarter 2010. Including the additional revenue recorded in 2011, the average nut price received by the Partnership for nuts produced from the IASCO orchards for the five-month period beginning August 1, 2010, the date of the Partnership’s acquisition of those orchards, is $0.66 per pound. The average price received for WIS nuts produced from the IASCO orchards for the three and nine-month periods ended September 30, 2011 was $0.73 and $0.71 per pound, respectively. Including the additional revenue recorded in 2011, the average nut price for nuts recorded from the IASCO orchards for the third quarter 2010 was $0.68 per pound.

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On January 31, 2011, the Partnership entered into three nut purchase contracts with Mauna Loa, each effective January 1, 2012. These contracts replace the nut purchase contract executed in December 2009, which expires on December 31, 2011. The new contracts are identical except for the terms, which are one, two and three years, respectively. Each contract requires that Mauna Loa purchase and the Partnership sell 1/3 of all macadamia nut production of the Partnership (or approximately 6.5 million pounds of wet-in-shell nuts annually) excluding production from the IASCO orchards. The nut purchase price under each of the contracts will be $0.77 per adjusted pound on a WIS SK/DIS basis. The contracts will terminate on the respective expiration dates if the parties are unable to extend the agreements on mutually acceptable terms. In the event any of the agreements are terminated, Mauna Loa is obligated, at the Partnership’s option, to use commercially reasonable efforts to convert the nuts into kernel, for a period of two years after a contract is terminated, at a cost equal to Mauna Loa’s average processing cost.

For the three and nine-month periods ended September 30, 2011 and 2010, nut production, nut prices and nut revenues were as follows:

	For the Three Months Ended September 30,
	2011							2010
	Nut Purchase Contract Based on Adjusted WIS Pounds			Nut Purchase Contracts IASCO Orchards Based on WIS Pounds		Total Production		Nut Purchase Contract Based on Adjusted WIS Pounds			Nut Purchase Contracts IASCO Orchards Based on WIS Pounds		Total Production
Nuts harvested (000’s pounds)
WIS pounds	8,534			975		9,509		6,994			183		7,177
Adjustment for WIS @ 20% SK/DIS @ 30%	(2,175		)					(1,560		)
Adjusted WIS pounds	6,359							5,434
Nut price (per adjusted WIS pound)	0.7300							0.7300
Nut price (per WIS pound, IASCO only)				0.7313							0.6520
Net nut sales ($000’s)	$	4,641		$	713	$	5,354	$	3,967		$	120	$	4,087
Qtr 1 nut revenue adjustment	0			3		3		0			0		0
Total nut sales ($000’s)	$	4,641		$	716	$	5,357	$	3,967		$	120	$	4,087
Price per WIS pound (Net nut sales)	$	0.5439		$	0.7313	$	0.5630	$	0.5672		$	0.6520	$	0.5695

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	For the Nine Months Ended September 30,
	2011							2010
	Nut Purchase Contract Based on Adjusted WIS Pounds			Nut Purchase Contracts IASCO Orchards Based on WIS Pounds		Total Production		Nut Purchase Contract Based on Adjusted WIS Pounds			Nut Purchase Contracts IASCO Orchards Based on WIS Pounds		Total Production
Nuts harvested (000’s pounds)
WIS pounds	10,968			2,193		13,161		8,716			183		8,899
Adjustment for WIS @ 20% SK/DIS @ 30%	(2,676		)					(1,683		)
Adjusted WIS pounds	8,292							7,033
Nut price (per adjusted WIS pound)	0.7324							0.7300
Nut price (per WIS pound, IASCO only)				0.7100							0.6520
Net nut sales ($000’s)	$	6,073		$	1,557	$	7,630	$	5,135		$	120	$	5,255
Prior year nut revenue adjustment	0			58		58		4			0		4
Total nut sales ($000’s)	$	6,073		$	1,615	$	7,688	$	5,139		$	120	$	5,259
Price per WIS pound (Net nut sales)	$	0.5537		$	0.7100	$	0.5842	$	0.5892		$	0.6520	$	0.5906

The return of adequate rainfall distribution at Ka’u from October 2010 through April 2011 contributed to a light mature nut drop at the Ka’u orchards in the second quarter of 2011 that was harvested along with the mature nuts that fell in the third quarter. At Keaau and Mauna Kea, the nut drop in the second quarter, which is negligible under normal conditions, improved the harvest volumes for the third quarter. However, kernel quality and recovery were negatively affected by the older nuts harvested in the third quarter.

The timing and manner in which farming costs are recognized in the Partnership’s consolidated financial statements over the course of the year is based on management’s estimate of annual farming costs expected to be incurred. For interim financial reporting purposes, farming costs are recognized as expense based on an estimate of the cost incurred to produce macadamia nuts sold during the quarter. Management estimates the average cost per pound for each orchard based on the estimated annual costs to farm each orchard and the anticipated annual production from each orchard. The amount of farming costs recognized as expense throughout the year is calculated by multiplying each orchard’s estimated cost per pound by the actual production from that orchard. The difference between actual farming costs incurred and the amount of farming costs recognized as expense is recorded as either an increase or decrease in deferred farming costs, which is reported as an asset in the consolidated balance sheets. Deferred farming costs accumulate throughout the year, typically peaking midway through the third quarter, since nut production is lowest during the first and second quarter of the year. Deferred farming costs are expensed over the remainder of the calendar year since nut production is highest at the end of the third and fourth quarters. Management evaluates the validity of each orchard’s estimated cost on a monthly basis based on actual production and farming costs incurred, as well as any known events that might significantly affect forecasted annual production and farming costs for the remainder of the year.

Cost of goods sold (owned-orchard segment), for the nine-month period ended September 30, 2011 was $0.61 per contract pound which is lower than the $0.63 per contract pound for the nine-month period ended September 30, 2010. The decrease in cost per pound is the result of the increased production in 2011 from the IASCO orchards which has a lower estimated cost per pound.

Farming Segment

Farming service revenue and expense for the third quarter of 2011 were 6% and 7% higher, respectively compared to the same period in 2010. Farming service revenue and expense for the nine-month period ended September 30, 2011 were 51% lower compared to the same period in 2010. The decrease is the result of the elimination of the contract farming revenue and cost of contract farming services relating to the IASCO orchards. Depreciation expense included in farming expense for the three and nine-month periods ended

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September 30, 2011 were $98,000 and $295,000, respectively, compared to the three and nine-month periods ended September 30, 2010 which were $85,000 and $186,000, respectively. The increase in depreciation expense in the three and nine month periods ended September 30, 2011 compared to the same periods in 2010 was due to additional farm equipment and depreciable assets acquired in the IASCO purchase.

General and Administrative Expense

General and administrative expense for the three and nine-month periods ended September 30, 2011 decreased by 11% and 4%, respectively, compared to 2010. The decrease is mainly attributable to lower legal fees in 2011 due to the absence of costs related to the IASCO acquisition, offset by higher costs associated with the orchard operations due to the IASCO orchards acquired in August 2010.

Other Income and Expenses

Interest expense for the three and nine-month periods ended September 30, 2011 was $199,000 and $575,000, respectively, compared to $140,000 and $153,000 for the same periods in 2010. The increase was mainly attributable to a higher average outstanding balance on the revolving credit facility in 2011 and the $10.5 million term loan executed on August 4, 2010. The Partnership had $4.8 million outstanding on the revolving credit facility at the end of the third quarter 2011 compared to $4.7 million outstanding on the credit facility at the end of the third quarter 2010. The Partnership had a $9.2 million principal balance on its term loan at the end of the third quarter 2011 compared to $10.3 million principal balance on its term loan at the end of the third quarter 2010.

The Partnership had $1,000 in interest income for the nine-month period ended September 30, 2011, which was recorded in the first quarter 2011. There was no interest income in 2010.

The Partnership had no other income in the third quarter 2011. Other income recorded for the third quarter of 2010 included the non-recurring bargain purchase price gain of $120,000 on the purchase of assets from IASCO and $98,000 in crop insurance claims. In the third quarter of 2010 the Partnership also recorded a noncash expense of $306,000 due to the impairment of goodwill, a result of the elimination of the IASCO farming contract. Other income of $579,000 recorded for the nine-month period ended September 30, 2011 was primarily attributable to crop insurance proceeds of $534,000, net of general excise tax and $45,000 in distributions from American AgCredit, PCA. Other income recorded for the nine-month period ended September 30, 2010 included $303,000 in crop insurance claims, net of general excise tax, the IASCO asset purchase price gain of $120,000, and $7,000 in distributions from American AgCredit, PCA. The income was offset by a noncash goodwill impairment of $306,000.

Liquidity and Capital Resources

Macadamia nut farming is seasonal, with production normally peaking in the fall and winter, however, farming operations continue year round. In general, a significant amount of working capital is required for much of the harvesting season.

The Partnership has a master Credit Agreement with American AgCredit, PCA. At December 31, 2010, the Credit Agreement provided a maximum revolving credit facility of $5.0 million until July 15, 2011 and $4.0 million from July 16, 2011 to July 13, 2012. On March 7, 2011, American AgCredit, PCA provided an amendment to the revolving credit facility to maintain the maximum revolving credit facility of $5.0 million through July 13, 2012. The Credit Agreement also includes a $10.5 million term loan. This ten year term loan bears fixed interest at 6.5% per annum, matures on July 1, 2020 and requires equal monthly payments over the term. The proceeds of this loan were used by the Partnership on August 6, 2010 for the acquisition of the real property and assets used in connection with the macadamia farming operations of IASCO. At September 30, 2011, the Partnership had $9.2 million in outstanding long-term debt and revolving credit facility drawings outstanding of $4.8 million. At September 30, 2010, the Partnership had $10.3 million in outstanding long-term debt and $4.7 million in drawings on the revolving credit facility.

At September 30, 2011 the Partnership had a cash balance of $58,000 compared to $27,000 at September 30, 2010. Cash flows used in operating activities for the nine-month periods ended September 30, 2011 and 2010 totaled $938,000 and $2.6 million, respectively. Cash flows used in operating activities for the three-month periods ended September 30, 2011 and 2010 totaled $2.1 million and $1.6 million, respectively. The

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improvement in operating cash flows for the nine-month period ended September 30, 2011 was primarily attributable to cash received in 2011 on the increased nut sales in the fourth quarter of 2010, compared to less cash received in 2010 due to lower nut production and sales. The $534,000 crop insurance proceeds and $45,000 distribution from American AgCredit, PCA also contributed to the improved operating cash flows in 2011. The decrease in operating cash flows for the three-month period ended September 30, 2011 was primarily attributable to an increase in cash paid for operating expenses and interest, compared to the same period in 2010.

At September 30, 2011 the Partnership had working capital of $583,000 and a current ratio of 1.08 to 1 compared to a working capital of $418,000 and a current ratio of 1.06 to 1 at September 30, 2010. The increase in working capital was primarily due to an increase in accounts receivable offset by a decrease in deferred farming costs.

Management anticipates additional draws on the revolving credit facility as necessary to fund working capital needs arising from the normal seasonal requirements of macadamia nut farming. Management also believes that the credit facility with American AgCredit, PCA will provide the Partnership with adequate borrowing capacity to meet anticipated working capital needs during 2011 for operations as presently conducted. The Partnership’s fixed price nut purchase contract with Mauna Loa requires Mauna Loa to make nut payments in accordance with Hershey’s (Mauna Loa’s parent company) standard payment terms which are up to sixty days from date of nut delivery. The payment terms of the two lease agreements and one license agreement are thirty days after the end of month delivery. During certain parts of the year, if payments are not received as the contract requires, available cash resources could be depleted.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Partnership is exposed to market risks resulting from changes in the market price of macadamia kernels in Hawaii and the price of Mauna Loa’s YTD price of the highest volume fancy and choice products as it relates to the two lease agreements and one license agreement relating to the IASCO orchards acquired in August 2010. A $0.25 increase or decrease in USDA nut price would affect the price received by the Partnership by $0.09 per pound WIS under the two lease and one license agreements. The other nut purchase contract effective through December 31, 2011 is a fixed price contract.

Item 4. Controls and Procedures

(a) As of the end of the period covered by this Quarterly Report (the “Evaluation Date”) on Form 10-Q, the Partnership carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Partnership’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, the Partnership’s disclosure controls and procedures were effective. The Partnership’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Partnership in the reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the applicable SEC’s rules and forms, and (ii) accumulated and communicated to the Partnership’s management, including the Chief Executive Officer and Chief Financial Officer to allow timely decisions regarding required disclosure.

(b) There have been no changes to internal control over financial reporting during the third quarter of 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Part II - Other Information

Item 1A. Risk Factors

Adverse Weather Conditions . Drought conditions in the Ka’u region from June 2009 through November 2010 negatively impacted the Partnership’s nut production in 2010. While rainfall patterns have improved over the past eleven months there is no guarantee that the Partnership’s production in 2011 will rebound to historical levels.

Item 6. Exhibits

(a) The following documents are filed as part of this report:

Exhibit
Number		Description

10.85		Agricultural License Agreement dated September 12, 1979, with Mauna Loa Macadamia Nut Corporation (IASCO Orchards)

10.86		Agricultural Lease Agreement dated September 12, 1979, with Mauna Loa Macadamia Nut Corporation (IASCO Orchards)

10.87		Agricultural Lease Agreement dated September 21, 1981, with Mauna Loa Macadamia Nut Corporation (IASCO Orchards)

11.1		Statement re Computation of Net Income (loss) per Class A Unit

31.1		Form of Rule 13a-14(a) [Section 302] Certifications

31.2		Form of Rule 13a-14(a) [Section 302] Certifications

32.1		Certification pursuant to 18 U.S.C. Section 1350 As adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certification pursuant to 18 U.S.C. Section 1350 As adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101*		Financial statements from the quarterly report on Form 10-Q of ML Macadamia Orchards, L.P. for the quarter ended September 30, 2011, filed on November 9, 2011, formatted in XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Income Statements, (iii) Consolidated Statements of Partners’ Capital, (iv) Consolidated Statements of Cash Flows, and (v) Notes to Consolidated Financial Statements, tagged as blocks of text.

* XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities and Exchange Act of 1933, is deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, and otherwise is not subject to liability under these sections.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		ML MACADAMIA ORCHARDS, L.P.
		(Registrant)

	By	ML Resources, Inc.
		Managing General Partner

Date: November 9, 2011	By		/s/ Dennis J. Simonis
			Dennis J. Simonis
			President and Chief Executive Officer
			(and Duly Authorized Officer)

	By		/s/ Wayne W. Roumagoux
			Wayne W. Roumagoux
			Principal Accounting Officer
			Chief Financial Officer

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Exhibit Index

Exhibit
Number		Description

10.85		Agricultural License Agreement dated September 12, 1979, with Mauna Loa Macadamia Nut Corporation (IASCO Orchards)

10.86		Agricultural Lease Agreement dated September 12, 1979, with Mauna Loa Macadamia Nut Corporation (IASCO Orchards)

10.87		Agricultural Lease Agreement, dated September 21, 1981, with Mauna Loa Macadamia Nut Corporation (IASCO Orchards)

11.1		Statement re Computation of Net Income (Loss) per Class A Unit

31.1		Form of Rule 13a-14(a) [Section 302] Certification

31.2		Form of Rule 13a-14(a) [Section 302] Certification

32.1		Certification pursuant to 18 U.S.C. Section 1350 As adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certification pursuant to 18 U.S.C. Section 1350 As adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101*		Financial statements from the quarterly report on Form 10-Q of ML Macadamia Orchards, L.P. for the quarter ended September 30, 2011, filed on November 9, 2011, formatted in XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Income Statements, (iii) Consolidated Statements of Partners’ Capital, (iv) Consolidated Statements of Cash Flows, and (v) Notes to Consolidated Financial Statements, tagged as blocks of text.

Exhibit 10.85

AGRICULTURAL LICENSE AGREEMENT FOR
626 ACRES TO BE DEVELOPED WITH
MACADAMIA ORCHARDS

THIS AGREEMENT OF AGRICULTURAL LICENSE, made and entered into this 12 th day of, September, 1979, by and between INTERNATIONAL AIR SERVICE CO., LTD. organized under the laws of the State of California and qualified to do business in the State of Hawaii (herein called “Owner”), and MAUNA LOA MACADAMIA NUT CORPORATION, a Hawaii corporation (herein called “Mauna Loa”),

WITNESSETH :

WHEREAS, the Owner will develop 626 acres (Parcel B ) with macadamia orchards at Ka’u, County and State of Hawaii, said parcel being more particularly described in Exhibit A, attached hereto and made a part hereof, and being hereinafter called the “Owner’s Land”;

WHEREAS, the Owner desires to enter into this Agricultural License of Owner’s Land to Mauna Loa for the purposes of Mauna Loa’s farming a macadamia orchard thereon the license fee for which will be measured by the macadamia nuts produced thereon offset by reimbursable farming costs, all as set forth in this Agreement of License, and

WHEREAS, Owner and Mauna Loa already are working under a letter agreement dated March 29, 1979, to develop 126 acres of macadamia orchards on Owner’s Land which letter agreement is superceded by this Agricultural License and declared to be null and void as of the date of this Agricultural License.

NOW, THEREFORE, in consideration of the premises and of the mutual promises herein contained, it is agreed that Mauna Loa shall have the irrevocable Agricultural License rights, coupled with an interest in Owner’s Land specified herein for a period of 50 years upon the conditions and in accordance with the terms and conditions set forth herein.

SECTION 1.

License Term and Rent

This Agricultural License Agreement shall commence and take effect July , 1979, and (unless sooner terminated as hereinafter provided in Section 9) shall continue in full force and effect for fifty (50) years thereafter. The License Fee shall be measured by the value of macadamia nuts produced on the premises minus offsets for reimbursable farming costs, in addition to all of the other terms and conditions of this Agreement. This Agreement shall be interpreted under the laws of the State of Hawaii.

SECTION 2.

Orchard Development Services to be Performed by Mauna Loa

2.1 Clearing and Leveling . As soon as practicable following the signing of this Agreement, Owner (or Mauna Loa at Owner’s request) shall clear and level Owner’s Land in such a manner as may be deemed by Mauna Loa to be the most advisable for the establishment of a macadamia orchard thereon. In fact, Owner has prior to the date of signing of this Agreement started this work.

2.2 Windbreaks and Field Roads . As soon as practicable following its clearing and leveling of Owner’s Land Mauna Loa shall plant such trees as supplied by Owner.

If owner requests Mauna Loa to grow windbreak trees, all costs associated therewith shall be treated as reimbursable costs in accordance with Section 4 hereof. If owner purchases windbreak trees from Mauna Loa (or other sources) for planting by Mauna Loa, the purchase price shall be treated as a capital expenditure, and all planting costs shall be treated as Reimbursable Costs in accordance with Section 4 hereof. As soon as practicable following the clearing and leveling of the Owner’s Land, Mauna Loa shall install such field roads as may be reasonably necessary for the conduct of its operations in the management of Owner’s Land and to provide Owner reasonable access at places it selects to its property below Parcel B.

2.3 Purchase of Macadamia Trees . Mauna Loa will make available to Owner grafted trees of Mauna Loa’s recommended commercial varieties, field ready to be planted (approximately 97 trees to the net tree acre). Owner shall pay to Mauna Loa $10.00 per tree during the first 2 years of this Agreement, and a price to be mutually agreed upon thereafter.

Mauna Loa will purchase from Owner for $38,000, Owner’s macadamia seedling trees which Owner has delivered to Mauna Loa’s nursery at Keeau during 1979. This credit to Owner will be applied against Owner’s first $38,000 of obligations to Mauna Loa due under this Agreement.

Owner recognizes that, due to unpredictable climatic conditions and the normal agricultural risks involved, the amount of tree mortality and the number of replants necessary is uncertain, as are the yields from the orchard. Except as provided elsewhere herein, Mauna Loa gives no warranties or guaranties whatsoever concerning the amount of tree mortality and number of replants that are necessary, or the yields from the orchards.

2.4 Macadamia Planting . As soon as practicable following the clearing and leveling of the Owner’s Land, Mauna Loa shall prepare Owner’s Land for planting and shall plant grafted macadamia trees of such variety or varieties of root stock and scion wood in accordance with proven sound agricultural practices used by Mauna Loa in its own orchards. Mauna Loa shall plant approximately 97 macadamia trees to the acre upon that portion of Owner’s Land which is to be devoted to the planting of macadamia trees. The cost of any macadamia trees or windbreak trees which are replants during the term of this Agreement, shall be charged to Owner at the Mauna Loa market value of such trees without mark-up at the time that they are planted and at no charge if the replanting is required because of Mauna Loa’s error.

Section 3.

Irrigation, Orchard Care, etc.

and at Mauna Loa’s sole cost and expense, a primary water irrigation distribution system (the “Primary System”) capable of supplying a maximum aggregate annual requirement of 215 million gallons (the “Maximum Requirement”) as described in Alternate IV of Exhibit E-2 attached hereto, jointly to Parcel A, described in that Agricultural Lease between the parties of even date hereof, and Parcel B, described in this Agricultural License, to an in-field drip irrigation system located on Owner’s land. Except for water shortgages caused by nature and not by matters within the control of Mauna Loa or Ka’u Sugar Co., Mauna Loa agrees to supply said 215 million gallons of water to Owner from the Palima Well. The Primary System shall consist of all equipment and materials required to make it operable, including but not limited to a pumping station, a lift station and a water pipeline capable of supplying the Maximum Requirement. The Primary System shall be located as described in Exhibit .

(B) Mauna Loa shall also install an in-field drip irrigation system (the “Drip System”). The Drip System shall be installed in accordance with sound irrigation practices for macadamia nut orchards and shall be capable of being utilized in conjunction with the Primary System as is required to irrigate macadamia nut orchards up to the Maximum Requirement. The cost of installation of the Drip System shall be borne by Owner.

(C) The Primary System and the Drip System shall be installed in accordance with plans approved by Owner, whose consent shall not be unreasonably withheld. Mauna Loa has provided Owner with a water resource study

consisting of fourteen (14) pages dated March 8, 1979, and it is understood that water shall be distributed to Owner in accordance with Alternate IV shown in such study, attached hereto as Exhibit E-2, jointly to Parcel A, described in that Agricultural Lease between the parties of even date hereof, and Parcel B, described in this Agricultural License.

(D) For a period one (1) year after the installation of the Primary System, Mauna Loa shall at its sole cost and expense be responsible for maintaining, repairing and renewing the Primary System. For a period of one (1) year after the installation of the Drip System, Mauna Loa shall at its sole cost and expense be responsible for maintaining, repairing and renewing the Drip System, but limited to defects caused by poor materials or workmanship. During the first year owner shall pay owner’s pro rata share of operating, and insurance premium, costs. Thereafter the owner’s pro rata share of costs of operating, insurance premiums, maintenance, repair and renewal of the Primary System shall be charged back to Owner, but such costs shall not exceed those which would be customarily charged by an independent third party. The costs of operating, insurance premiums, maintenance, repair and renewal of the Drip System shall be at Owner’s expense as a “Reimbursable Cost” in accordance with Section 4 hereof, except that Mauna Loa shall during the first year only at its expense be responsible for defects caused by poor materials or workmanship. Mauna Loa at its expense (subject to the pro rata charge provision above) shall carry insurance to insure the Primary System against casualty.

(E) Mauna Loa hereby agrees to deliver water to Owner’s Land during the term of this Lease in the quantities set forth above (recognizing that normally irrigation is required for only 4 or 5 months per year on these parcels) at no additional charge or cost to Owner, except as set forth above, subject to the exceptions set forth below. Owner recognizes that Mauna Loa is in no way guaranteeing this supply of water and is not responsible if for reasons beyond Mauna Loa’s control the supply is not available.

3 .1.1. In the event of a water shortage due to natural causes and not to additional utilization of the water source by Mauna Loa or persons authorized by Mauna Loa, such that Mauna Loa is unable to deliver to Owner the supply provided for above, Mauna Loa’s sole responsibility shall be to deliver to Owner, a pro rata share of water actually available (exclusive of any excess water sold to Owner under the terms of Section 3.1.6. below) based upon Owner’s percentage of use of water to the total amount of water measured in the year prior to shortage. It is noted for informational purposes only, and without contractual significance, that current planning for the irrigation system provides for a connecting line between the Pahala Shaft and the Palima Well for emergency use.

3 .1.2. If a water shortgage (other than shortage caused by Mauna Loa’s increased demand for water) can be alleviated by additional capital investment in the Palima Well, Owner shall share pro rata with Mauna Loa the amount of such investment on an actual acreage served basis at the time of such investment.

3 .1.3. If for any reason, other than sufficiency of water supply as set forth above, Mauna Loa wishes to cease delivery of water from the Palima Well, Mauna Loa may, at its sole cost and expense, drill a well or wells and install all the appurtenances to a new irrigation system (including any necessary adjustments to the Drip System) on Owner’s Land (including the adjacent 3,485 acre parcel described as TMK 9-6-13-06) at a location or locations to be mutally agreed upon by Owner and Mauna Loa pursuant to an easement to be granted by Owner, neither parties’ agreement to such new location to be unreasonably withheld. The original Primary System and any replacement system, as provided for in this paragraph, shall remain the property of Mauna Loa throughout the term of this Agreement and thereafter. Throughout the term of this Agreement Mauna Loa agrees not to remove this Primary System and to continue to maintain it according to the cost provisions in this agreement. Upon the successful completion of such new well and the delivery of water therefrom to Owner’s Lands in the manner and amounts provided for in Section 3.1 above, Mauna Loa shall no longer be obligated to deliver water to Owner from the Palima Well system.

3 .1.4. In the event Owner drills new wells independently of Mauna Loa on its lands mauka of the boundary line between TMK 9-6-13-04 & 05 and 9-6-13-06, Mauna Loa’s obligations to provide water to Owner’s Land from the Palima Well will immediately terminate.

3 .1.5 In the event it is determined that the State of Hawaii (the “State”) owns the water which is the subject of this Agreement and the State assesses a charge to

Mauna Loa (or any other party from whom it obtains water) for utilization of the water, then Owner shall pay to Mauna Loa its pro-rata share of such charge.

3 .1.6. Water is provided by Mauna Loa to Owner under this Agreement only for use in developing and maintaining macadamia orchards, for which Mauna Loa has the right pursuant to Lease or License to manage and to purchase the nut supply. Owner and Mauna Loa recognize that the maximum obligation to deliver water as stated above in no way precludes Mauna Loa making available to Owner, at Owner’s request and cost, excess water available in the system (over and above the present and future needs of C. Brewer and Company, Limited and all of its subsidiaries plus their contractual obligations) to serve other Owner requirements. Further, for its other requirements, Owner will have first call on water from this system which is in excess to the present and future needs of C. Brewer and Company, Limited and all of its subsidiaries plus their contractual obligations, except that Owner’s future requirements once established will have precedence to water prior to any new contractual obligations of C. Brewer or any of its subsidiaries which arise thereafter: Should water be sold from Mauna Loa to Owner from this system for other purposes than to irrigate macadamia orchards for which Mauna Loa has the Lease or License with right to manage and to purchase the nut supply, the cost of the water to Owner shall be determined by comparison with other agricultural water charges then current on the Island of Hawaii.

Mauna Loa has the obligation, subject to reimbursement as provided elsewhere in this Agreement throughout

the term of this Agreement to irrigate the orchards (if water is available under the terms of this Agreement) and to maintain the in-field drip irrigation system at competitive cost.

3.2 Orchard Care and Maintenance . Mauna Loa shall conduct all such operations and perform all such services as shall be necessary in order to provide for the economical growth and yield of the Owner’s macadamia orchard in accordance with proven sound agricultural practices used by Mauna Loa in the planting, cultivation and harvesting of its own macadamia orchards and Owner agrees to follow Mauna Loa’s advice, including but not limited to, the management of the following: ground cover, replanting, tree bracing, cultivation, weed control, pest control, fertilization, pruning, hedging, transplanting, branch disposal, irrigation, and soil and plant tissue analysis, and in order to provide for the protection of the planted acreage through the maintenance of such windbreaks as may be reasonably necessary for such purposes. Mauna Loa shall maintain at Owner’s expense such field roads as may be reasonably necessary for the conduct of its operations under Sections 3.2 and 3.3 hereof.

3.3 Harvesting . Mauna Loa shall conduct all such operations and perform all such services as shall be necessary, in accordance with proven sound harvesting practices used by Mauna Loa in its own macadamia orchards in the most economical manner which the terrain permits, and Owner agrees to follow Mauna Loa’s advice, in order to harvest macadamia nuts produced in the Owner’s Orchard, and

to transport such nuts to Mauna Loa’s receiving station at Ka’u for husking.

3.4 Procurement and Employment of Equipment, etc. Mauna Loa either now owns or from time to time shall procure in its own name and shall employ the use of all of such tools, supplies, materials and equipment as shall be reasonably necessary for the conduct of the operations and the performance of the services required to be conducted and/or performed hereunder by Mauna Loa, without any capital expenditure cost to the Owner except as herein specifically provided, or as mutually agreed to in the future.

3.5 Employment of Personnel . In the performance of its obligations hereunder Mauna Loa shall employ, train and supervise such personnel, as shall be reasonably necessary for the efficient conduct of the orchard operations as set forth herein. Nothing herein contained shall be construed to prohibit Mauna Loa from subcontracting to others any portion of the work required hereunder, if such work would normally be subcontracted for work in Mauna Loa’s own macadamia orchards. Mauna Loa, being fully responsible for the general management of the Owner’s Orchard, shall have full authority over the performance of any such subcontract. However Mauna Loa may not subcontract its duties under this Agreement in their entirety.

any and all claims, obligations, liabilities or demands with respect to and arising out of the performance of Mauna Loa’s obligations under this License and the employment of Mauna Loa’s personnel and agents on Owner’s Lands.

3.6 Accounting . At all times during the term of this Agreement Mauna Loa shall keep full and accurate accounts and complete records, in accordance with generally accepted accounting principles, showing all costs, advances, payments, expenditures and liabilities, and all other data which shall be necessary for the computation of the payments to be made by the Owner hereunder as hereinafter provided in Section 4 of this Agreement. Mauna Loa shall cause such accounts and records to be audited annually by the independent auditor regularly employed by Mauna Loa and as soon as practicable following the end of each calendar year during the term of this Agreement, such auditor shall render to Mauna Loa a statement for the purpose of verifying the amount of the Reimbursable Costs (hereinafter defined) paid or incurred by Mauna Loa and the amount of fees payable to Mauna Loa with respect to such year. Upon its receipt of such statement Mauna Loa shall deliver a copy thereof to the Owner and the Owner shall have a period 180 days after its receipt thereof to raise objections with respect thereto. The auditor’s determination as to the amount of such Reimbursable Costs and fees shall be binding unless the Owner shall have made objections thereto in writing to Mauna Loa within such 180-day period. Owner shall have the right to examine business records supporting the financial statements or material to the matters set forth therein and to employ

auditors to verify the financial statements submitted to it by Mauna Loa. In the event they contain errors which result in the Owner having been overcharged by 2% or more, Mauna Loa shall pay all reasonable expenses incurred by Owner in making such verification and shall pay Owner the amount of any such overcharge.

3.7 Home Office and Other Support Services and Facilities . At all times during the term of this Agreement Mauna Loa shall provide such centralized office and other support services and facilities as may be necessary or appropriate in order to provide adequate support for all field operations hereunder, including without limitation of the generality of the foregoing, staff management, accounting, purchasing, industrial relations, engineering, agricultural, garage and warehouse services and facilities.

3.8 Protection of Ownership . At all times during the term of this Agreement Owner shall take any and all such actions as are customarily taken by a landowner in the husbanding of his property, including without limitation the making of surveys, the payment of taxes and assessments, the procurement of necessary permits and licenses, the insurance of properties (including trees), the insurance against liabilities, and the compliance with all laws, ordinances and governmental regulations relating to the ownership and/or use of the Owner’s Land. It is the intent of this Agreement that Owner, not Mauna Loa, pay all of the expenses relating to the Land and the orchards thereon. When requested by Owner, Mauna Loa shall assist Owner in the making of surveys, the processing of tax appeals, if any, and

the procurement of necessary permits, licenses, insurance and other items which the Owner requires for the proper use of the Land for macadamia purposes.

3.9 Additional Services . From time to time during the term of this Agreement Mauna Loa shall perform any and all such additional services as may be reasonably requested in writing by the Owner and agreed upon in writing by Mauna Loa, at a cost to be agreed upon.

3.9.1 Agricultural Practices . In the performance of its obligations hereunder Mauna Loa shall conduct all of its agricultural operations in accordance with proven sound agricultural practices use by Mauna Loa in its own macadamia orchards and Owner agrees to follow Mauna Loa’s advice. Owner recognizes that Mauna Loa gives no guarantees as to the yields from the orchards, except as may be specifically set forth herein. The agricultural risks associated with any growing crop and the natural risks in the area are recognized and assumed by Owner.

SECTION 4.

Reimbursement of Costs and Payment of Fees

4.1 Reports and Payments . The license fee due from Mauna Loa to Owner shall be offset by Reimbursable Costs and Fees due from Owner to Mauna Loa as set forth in this Section. Mauna Loa will furnish to the Owner unaudited reports reflecting the accrual of Reimbursable Costs and Management Fee hereunder, monthly during the term of this Agreement. Owner will pay these monthly amounts of Reimbursable Costs and Management Fee within 30 days of the date of each report if these Costs and Fees are not offset when

Mauna Loa pays its License Fee to Owner as measured by Mauna Loa’s purchase of nuts from Owner. Interest shall accrue against Owner at the rate of l% per month on any unpaid amounts.

4.2 Reimbursable Costs . The term “Reimbursable Costs” as used herein shall not include any capital expenditures except as otherwise provided for in this Agreement and shall mean the following costs incurred by Mauna Loa in connection with the performance of its obligations under this Agreement.

(a) direct hourly wages, overtime pay, payroll taxes, insurance and other fringe benefits paid with respect to personnel working under this Agreement.

(b) amounts paid for replanted windbreak and macadamia trees, unless such replanting is required because Mauna Loa failed to follow said proven sound agricultural or harvesting practices.

(c) costs (including transportation costs) incurred for fertilizers, herbicides, fungicides, rodenticides and other materials, used in the Owner’s Orchard;

(d) costs incurred for expendable tools and supplies;

(e) “costs” as defined in sub-Section 4.2 (c) and (d) above shall be invoice cost plus a 5% up charge to cover costs of processing and filling orders and delivery of purchases (where not otherwise specifically invoiced) to Ka’u;

(f) service charges for the use of equipment employed in the Owner’s Orchard, which shall be charged to the Owner at the same rate customarily charged by Mauna Loa to other C. Brewer subsidiaries (this “intercompany rate” is currently equal to 125% of internal charge out rate);

(g) irrigation - costs incurred to construct and operate the in-field irrigation system and to maintain and repair and renew it and to pump and deliver water to the irrigation system and apply water to the orchards. The payment for water delivered to Owner’s land shall equal all costs of producing the water and the pumping and delivery of it to Owner’s lands (including cost of maintaining, repairing and renewing the Primary distribution system) save and except as provided in Section 3.1(D) above;

(h) Ka’u overhead which applies to each item (a) through (g) above - an allocation of Ka’u Facility overhead shall be made at the rate of 20% times total Reimbursable Costs;

(i) Costs which Mauna Loa may incur to repair damage which it by gross negligence or deliberately caused shall not constitute reimbursable cost.

(j) in the event that the State or any governmental agency imposes a sales tax or

general excise tax on service rendered or supplies and materials provided, such tax shall become a Reimbursable Cost under this Agreement.

(k) In no case, without prior co-ordination and concurrence of Owner, will Owner’s direct cost per acre, net of all percentage up charges as set forth in this Section 4, exceed 110% of Mauna Loa’s direct cost per year for comparable orchards.

4.3 Management Fee . For each year of this Agreement, Owner shall pay to Mauna Loa, in accordance with monthly statements, a Management Fee, as compensation for services rendered hereunder, in the amount of 20% of total Reimbursable Costs (as defined in Section 4.2 above but not including taxes under 4.2 [j]).

SECTION 5.

License Fee Measured By Nuts Produced

5.1 Delivery and Acceptance of Crops . As license fee, Mauna Loa shall purchase, as set forth herein, from Owner all macadamia nuts produced on Owner’s Land. Mauna Loa shall deliver from time to time during the term of this Agreement to Mauna Loa’s Ka’u receiving station all of the in-husk macadamia nuts produced on the Owner’s Land. The Owner shall not be obligated hereunder to deliver to Mauna Loa, and Mauna Loa shall not be obligated hereunder to accept any macadamia crops other than those produced upon the Owner’s Acreage. Title to the nuts and risk of loss shall

pass from Owner to Mauna Loa at the time that Mauna Loa loads the in husk nuts into Mauna Loa’s trucks for delivery to the Ka’u receiving station.

5.2 Husking, Weighing

(a) Husking . After delivery to Mauna Loa at its Ka’u receiving station of each shipment of macadamia nuts hereunder, the total shipment shall be husked by Mauna Loa with the cost thereof paid by Owner.

(b) Weighing . As soon as practicable following husking of the Owner’s macadamia nuts as aforesaid, Mauna Loa shall weigh the total shipment of the husked macadamia nuts in order to determine the wet-in-shell weight of the shipment. As hereinafter used, the term “shipment” shall mean all deliveries of macadamia nuts from the Owner to Mauna Loa during each day. In weighing the shipments Mauna Loa from time to time shall employ such methods and procedures as will enable Mauna Loa with as much accuracy as may be reasonably practicable to ascertain the wet-in-shell weight of the nuts contained in shipment.

SECTION 6.

6.1 Payments of the License Fee

(a) Payments . Within thirty days after the end of each calendar month during the term of this Agreement in which the Owner has

delivered one or more shipments of macadamia nuts to Mauna Loa hereunder, Mauna Loa shall furnish to the Owner a detailed statement evidencing the calculation of the license fee payment to be made by Mauna Loa with respect to shipments delivered to Mauna Loa during such month. Payments shall be made within thirty days after the end of the calendar month in which such shipments were delivered, if this amount exceeds the Reimbursable Costs and Management Fees due from Owner to Mauna Loa under Section 4 hereof. Interest shall accrue against Mauna Loa at the rate of 1% per month on any unpaid amounts.

(b) Purchase Price . The purchase price per pound of wet-in-shell nut production shall consist of two elements. Fifty percent of the price will be computed at 37% of the MAUNA LOA average wholesale list price as published in the MAUNA LOA Hawaii Wholesale Price List. This wholesale price will be adjusted to convert kernel price to a wet-in-shell basis. Fifty percent of the price will be computed at the actual price paid as quoted in the current issue of “HAWAII MACADAMIA NUTS ANNUAL SUMMARY” published by the Hawaii Agricultural Reporting Service, for the most current crop year listed. Payments for each crop year will be adjusted after the average price for the

entire year has been published. If the “HAWAII MACADAMIA NUTS ANNUAL SUMMARY” report is changed, discontinued, or otherwise not available, the best available industry recognized objective documentation will be substituted. Payments shall be computed using wet-in-shell weight net of defective nuts and kernels and price established as described in Attachment A.

SECTION 7 .

Management Representatives

For convenience of operation hereunder, each of the Owner and Mauna Loa shall designate one representative to effectuate decisions of their principals and to serve as the channel of communication for disseminating information to and securing necessary action by their principals. The representative of any party hereto may be changed from time to time by written notice by such party to the other party hereto.

SECTION 8 .

Force Majeure

law (such as but not limited to governmental regulations concerning hazards of marketing or consumption of macadamia nuts) or the refusal or failure of any governmental office or officer to grant any permit or order necessary for compliance herewith by either party hereto, nor shall either of the parties hereto be liable or accountable to the other party for any damages arising from any such delay or failure. Owner purchased the premises with an awareness of the natural risks such as but not limited to earthquakes, volcanic eruptions, floods, winds, etc., and the agricultural risks and assumes those risks.

SECTION 9.

Termination

(a) Mutual Agreement . This Agreement may be terminated, in whole or in part, at any time by the mutual agreement in writing of the parties hereto.

(b) Insolvency, etc. Should either party hereto be declared bankrupt following the filing of a voluntary or involuntary petition, or be declared insolvent, or enter into any composition with creditors, or execute an assignment for the benefit of creditors, or should a receiver or trustee be appointed by any court or governmental agency to administer the affairs or assets of either party hereto, and is not removed within 60 days of such appointment, the other party hereto at its option may cancel and terminate this Agreement upon giving not less than 15 days’ written notice to the bankrupt or insolvent party.

hereunder the other party may, at any time, while such default continues, by written notice specifying such default, demand the performance of such obligations. Upon the failure of the other to cure such default within 30 days from the date of such demand, this dispute shall be immediately referred to arbitration, pursuant to Section 14 without the 60 day time restriction specified therein.

(d) Destruction or Condemnation . In the event of the destruction or condemnation of any or all of the Owner’s Land, the Owner shall at Owner’s expense restore the premises to the same condition as prior to the destruction if it can be reasonably restored. If it cannot be reasonably restored this Agreement shall terminate as to that portion of Owner’s Land. In the event of condemnation this License shall terminate as to the condemned portion and be of no further force or effect, but both Owner and Mauna Loa may pursue their separate rights against the condemning authority.

(e) Use of Land . Mauna Loa covenants and warrants unto Owner that Mauna Loa will utilize the Owner’s Land only for the production of macadamia nuts and for no other use whatsoever during the term of this Agreement, and will keep all of Owner’s Land planted with macadamia and windbreak trees during the entire term of this Agreement. Provided, however, that Owner may from time to time withdraw certain portions of Owner’s Land (the “withdrawn land”) and substitute therefore other suitable acreage (the “substitute land”) having grafted macadamia trees of comparable age and yield. Upon written notice by Owner to Mauna Loa, this Agreement shall terminate as to the withdrawn land and shall

immediately commence as to the substitute land. Notwithstanding the foregoing, the withdrawn land shall not be used on a long-term basis for purposes of growing macadamia nuts, and any macadamia nuts grown on the withdrawn land following withdrawal by Owner shall be subject to Sections 4 and 5 of this Agricultural License. Owner shall at all times have access to the managed orchards and may have Mauna Loa remove scion wood therefrom so long as it would not damage the trees for Owner’s use in the State of Hawaii and not for resale or export as scion wood or grafted trees.

(f) Mauna Loa recognizes that for Owner to use or develop its lands adjacent to Parcels A and B it will require adequate roadway and utility access to the adjacent lands. It is agreed that Owner at its expense may install such roadways, utility lines, signs and other improvements in such manner and at such places as it determines. In doing so it will interfere as little as possible with Mauna Loa’s development and management of the orchards on Parcels A and B and, as provided in Section 9(e) above, it may substitute other acreage in the event such improvements adversely affect the orchards’ production of macadamia nuts.

SECTION 10.

Waiver

construed to waive or to lessen the right of either party hereto to insist upon the performance by the other party of any term, provision or condition hereof, or to exercise any rights given it on account of any such default. A waiver by either party hereto of a particular breach or default shall not be deemed to be a waiver of the same or any other subsequent breach or default. The acceptance of payments hereunder shall not be, or be construed to be, a waiver of any breach of any term, provision or condition of this Agreement.

SECTION 11.

Assignment

Neither of the parties hereto may assign any of its rights or obligations hereunder to any other person or legal entity without the prior written consent of the other party hereto. Any consent or approval required under this Agreement shall not be unreasonably withheld and no charge for the giving of such consent or approval shall be made. This Agreement shall bind all successors to the land, if any, of Owner, and may be recorded, or a short form of it will be signed by the parties and may be recorded.

SECTION 12.

First Refusal Right on Future Macadamia Nut Orchards of Owner

(a “Proposed Agreement”), then prior to entering into a Proposed Agreement with a person or entity other than Mauna Loa or its affilitates (a “Third Party”) the Owners shall first offer to enter into an agreement with Mauna Loa upon the same terms and conditions as the Proposed Agreement with the Third Party. Mauna Loa shall have a period of sixty (60) days from the date of the giving of written notification by Owner to Mauna Loa of the terms and conditions of the Proposed Agreement, to enter into an agreement with Owner upon the same terms and conditions as the Proposed Agreement.

In the event Mauna Loa fails to enter into an agreement with Owner upon the same terms and conditions as a

Proposed Agreement within the required sixty (60) days period, then Owner shall be free to enter into a Proposed Agreement with a Third Party without any further obligation to Mauna Loa with respect to the macadamia nut orchards and related Lands covered by such Proposed Agreement.

SECTION 13.

Owner’s Covenant Not to Hire Mauna Loa’s Employees

Owner recognizes that Mauna Loa has spent considerable time, money and effort in training its employees in the specialized area of developing, farming and managing macadamia orchards and processing and marketing macadamia nuts. Neither Owner, nor any of its parents, subsidiaries, affiliates, officers, directors, or substantial stockholders shall attempt to hire any of the employees of Mauna Loa, or any ex-employees of Mauna Loa within a period of five years for salaried employees or one year for all other

employees after the employee terminated his employment with Mauna Loa, without the prior written consent of Mauna Loa.

SECTION 14.

All claims, demands, disputes, differences, controversies and misunderstandings (hereinafter called “disputes”) arising out of, or in connection with, or in relation to this License, the Agreement to Sell to which this License is Exhibit “El”, or any of the other contracts attached as Exhibits to said Agreement to Sell of even date herewith, shall be submitted to and determined only by an arbitrator selected in the following manner: The parties hereby appoint Bert T. Kobayashi, Sr., Ted Tsukiyama, Harold Nickelsen, Suyeki Okumura and Masato Doi, as qualified arbitrators. Either party may within 60 days after there has been failure to reach amicable agreement (impasse) with the other party on any such dispute serve written notice on the other party of its election to have the dispute settled by arbitration under this section and with such notice shall strike one name from the panel of arbitrators. The second party shall then by written notice within ten days thereafter to the first party strike a name and this process shall be repeated until only one name is left and that person shall serve as the arbitrator. If any of the five named members of the panel is unable or unwilling to serve as arbitrator the parties may agree upon a substitution and if unable to agree either party upon a showing of good cause and notice to the other party may have the Administrative Judge of the First Judicial Circuit, State of Hawaii, appoint a substitute.

Each party shall pay one-half of the arbitrator’s fee and expenses and its own fees and expenses. The decision of the Arbitrator so chosen shall be final and binding upon the parties and enforceable in accordance with the provisions of Ch. 658, H. R. S. as it may from time to time be amended.

SECTION 15.

Notices

Any and all notices, demands, or other communications required or desired to be given hereunder by either party shall be in writing and shall be validly given or made to the other party or his authorized representative at the addresses set forth below, if served either personally or if deposited in the mails, certified or registered, postage prepaid first class airmail, return receipt requested or if sent by telex. If such notice, demand or other communication be served personally, service shall be conclusively deemed made at the time of such personal service. If such notice, demand or other communication be given by mail, such shall be conclusively deemed given seventy-two (72) hours after deposit thereof in the mails as provided for above. If such notice demand or other communication be given by telex, such shall be conclusively deemed given twenty-four (24) hours after the transmission thereof and receipt of the proper response code as set forth below:

To IASCO :

International Air Service Co., Ltd.

1710 Gilbreth Road

Burlingame, California 94010
Attention: James C. Jack, Jr.
Telex: 331 - 346

Response Code: IASCO B BRGM

With informational copies to Charles W. Smith, 4476 Kolohala,

Honolulu, Hawaii and Howard K. Hoddick, P. O. Box 3199, both of Honolulu, Hawaii.

To Mauna Loa :

Mauna Loa Macadamia Nut Corporation

c/o C. Brewer and Company, Limited

827 Fort Street
Attn: A. Kugle
Honolulu, Hawaii 96813
Telex: 392481

Response Code: CBREW O

Any party hereto may change its address for the purpose of receiving notices, demands and other communications as herein provided by a written notice given in the manner aforesaid to the other party hereto.

IN WITNESS WHEREOF, the Owner and Mauna Loa have caused this Agreement to be executed by their duly authorized representatives on the day and year first written above.

	INTERNATIONAL AIR SERVICE CO., LTD.


	By	/s/ James C. Jack, Jr.
		PRES.

	MAUNA LOA MACADAMIA NUT CORPORATION


	By	/s/ J Alan Kugle
		Vice Pres

		/s/ James G. Higgins
		Vice Pres. & Secretary

EXHIBIT A TO LICENSE

Six-hundred and twenty six acres, consisting of 126 acres (TMK 9-6-13-5) more particularly described hereafter as Lot 1-A and 500 acres of TMK 9-6-13-6 contiguous to TMK 9-6-13-4 and TMK 9-6-13-5 as shown on page 3 of this Exhibit A.

LOT 1-A

Land Situated on the Southeasterly side of Mamalahoa Highway

(F. A. P. No-18-B)

At Ilikoloa and Kauhuhuula-Nui

Kau, Island of Hawaii, Hawaii

Being a portion of Grant 2604 to F. S. Lyman

Beginning at the North corner of this parcel of land on the Southeasterly side of Mamalahoa Highway, (F. A. P, No. 18-B), the coordinates of which referred to Government Survey Triangulation Station “PUU ULAULA” being 673.82 feet North and 13,019.70 feet West and running by azimuths measured clockwise from true South:

1.	312°	55’	40”	322.15 feet along remainder of Grant 2604 to F. S. Lyman;
2.	201°	33’	30”	169.57 feet along remainder of Grant 2604 to F. S. Lyman;
3.	312°	15’	45”	653.47 feet along remainder of Grant 2604 to F. S. Lyman;
4.	313°	42’	30”	339.03 feet along remainder of Grant 2604 to F. S. Lyman;
5.	312°	54’		876.00 feet along remainder of Grant 2604 to F. S. Lyman;
6.	21°	33’	30”	3439.40 feet along remainder of Grant 2604 to F. S. Lyman to middle of ravine;

				thence along Grant 3533 to Estate of B. P. Bishop along middle of ravine for the next three (3) courses, the direct azimuths and distances between points along said middle ravine being:

7.	164°	28’	45”	1263.93 feet;
8.	152 °	00’		750.00 feet;
9.	139°	15’		800.00 feet to a “+” cut on rock, thence;
10.	201°	33’	30”	2198.20 feet along the Southeasterly side Mamalahoa Highway to the point beginning and containing an area of 126.15 acres more or less.

		Description Prepared by:
		WILLIAM HEE &, ASSOCIATES, INC.

		/s/ Jerry S. Nakagawa
1020 Auahi Street		Jerry S. Nakagawa
Building 1, Room 1		Registered Professional Survey:
Honolulu, Hawaii 96814		Certificate Number 1698

April 12, 1976

Attachment A

SAMPLING PROCEDURE SUMMARY

From a delivered lot of Wet-in-Shell (W. I. S.) nuts, a random sample of approximately 20 pounds is drawn from throughout the lot and the moisture content analyzed. The sample is split into two 10 pound samples. One sample is analyzed to determine saleable kernel weight. The second is held for a period to serve as a confirmation sample should one be required, and is then returned to the commercial lot for processing. A shipment can be comprised of one or more loads delivered in a single day for IASCO. However, one shipment, for sampling purposes, will consist of nuts harvested by the same method where practicable. If the confirmation sample is tested, an average of the results of the two samples will be used.

Both in-shell and kernel weight and moisture content for the W. I. S. nuts are determined.

The W. I. S. nuts are dried to a constant weight, cracked and the kernels separated from the shells. The kernels are inspected to remove and weigh spoilage and subsequently determine the kernel spoilage as a percentage of the gross W. I. S. sample weight.

The kernels are roasted, inspected and sorted into Fancy, Choice and Substandard grades. The percent Fancy and Choice of the total weight of the kernels recovered is determined.

The purchase price per pound of W. I. S. nut production shall consist of two elements; 60% (or 50%) of the price will be computed at 37% of the MAUNA LOA average wholesale list price as published in the Mauna Loa Hawaii Wholesale Price List weighted according to the percentage of Choice and Fancy grades recovered from the shipment sample evaluation. (60% relates to the 285-acre parcel and 50% will be used for all other acreage included in this contract.) Should Choice grade not be available for commercial sale, then the price for Choice grade nuts will be determined as a percent reduction from

the published price for Fancy grade as the average of the prior three years appearing in the Mauna Loa Hawaii Wholesale Price List immediately preceding removal of Choice quality from general marketing as evidenced by removal from the Mauna Loa Hawaii Wholesale Price List. This wholesale price will be adjusted to convert kernel price to a W. I. S. basis. Forty percent (or 50%) of the price will be computed at the actual price paid as quoted in the current issue of “Hawaii Macadamia Nuts Annual Summary” published by the Hawaii Agriculture Reporting Service for the most current crop year listed. Payments shall be computed using W. I. S. weight net of spoilage adjusted to State’s average in-shell moisture content which is currently assumed to be 19%.

JEA: ssi

7/31/79

PROCEDURE FOR SAMPLING & EVALUATING

NUT DELIVERIES

WET-IN-SHELL

1.	Upon receipt of commercial shipment, weight and determine gross weight of WIS volume delivered.	lbs.

2.	Draw random 20 pound sample from throughout the delivered shipment (a shipment is one or more loads in a single day consisting of nuts harvested by the same method where practicable).	lbs.

3.	Determine in–shell and kernel moisture content of WIS nuts in the sample.	%

4.	Split the remainder of the WIS sample into approximately two equal lots of about 10 pounds each and accurately determine the WIS weight of each lot.	grams
	Letter the lots A and B.

5.	Inspect the WIS nuts in lots A and B and separate:
	(a) Rodent damage	grams
	(b) Germinating nuts	”
	(c) Nuts with black or moldy shells	”
	(d) Other including foreign matter	”
	Record the weights and return all but the foreign matter to the lots.

6.	Dry the WIS nuts in lots A and B to a constant weight (about 5 days), and accurately record the DIS weight of each lot.

7.	Crack the DIS nuts from lot A and separate shell from kernels. Hold the DIS nuts from lot B for possible confirmation testing.

8.	Accurately determine the weight of the recovered raw kernels in lot A:	grams

9.	Inspect the raw kernels and separate defective or spoiled kernels in lot A:
	(a) Stinkbug damage	grams
	(b) Other insect damage	”
	(c) Moldy	”
	(d) Germinating	”
	(e) Bacterial damage	”
	(f) Other	”
	(g) Total (a) through (f)	”
	Accurately determine and record the weight of the above described kernels by category and discard the kernels.

10.	Determine the percent spoilage (by category and total) as a percentage of the gross WIS weight of the lot. (Item 9 (%) Item 4).	%

11.	Roast the raw kernels remaining in lot A in accordance with commercial criteria.

12.	Using commercial criteria, grade the roasted kernels in lot A into:
	(a) Hawaii Grade A (Hawaii Fancy)	grams
	(b) Hawaii Grade B (Hawaii Choice)	”
	(c) Substandard (Unusable)	”

	Refer to the State of Hawaii Department of Agriculture Regulations #4, Subsection 1. 11 - Standards for Grades of Roasted Macadamia Nuts.

	Accurately determine the weight of the saleable kernels in each of (a) and (b) above and total of (a) plus (b).

13.	Determine the percent Hawaii Fancy [ 12. (a) ] as a percentage of the weight of the saleable roasted kernels [ total of 12. (a) plus 12. (b) ] in the sample. Repeat for Hawaii Choice; 12. (b).	%

14.	Determine percent saleable kernel as a percentage of the gross WIS weight	%

15.	If confirmation is requested test lot B in accordance with Items 7 - 14. Use the average test results of lots A and B.

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SAMPLE COMPUTATION *

A =	Total weight = 100 pounds.

B =	60% or .60 from contract.

C =	80% or .80 from lab sample.

D =	37% or .37

E =	From 10/9/78 price list, 12/5 oz. cans, ($20. 00 for 60 ozs.) = $5. 33 per pound.

F =	Saleable as percent of WIS from sample.

G =	20% or .20 from lab sample.

H =	From 10/10/78 price list, diced, 25 pound bag, $94.15 = $3. 77 per pound.

I =	40% of .40 from contract.

J =	$. 487 price wet-in-shell from July 1978, State of Hawaii Agricultural Reporting Service.

K =	Assume moisture content = 19%.

Price paid =	(100)	(. 6)	(. 8)	(. 37)	(5. 33)	(. 24)	+
	(100)	(. 6)	(. 2)	(. 37)	(3. 77)	(. 24)	+
	(100)	(. 4)	(. 487)	(1. 19 - . 19) = $22. 72 + $4. 02 + $19. 48
=	$46. 22 or $. 462 per pound

* Actual price data from the 1977-78 harvest season.

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FORMULA

Total purchase price will be computed in three elements using the following formula:

Price paid =	A x B x C x D x E x F

plus	A x B x G x D x H x F

plus	A x I x J x K

Where:

A =	Total weight of nuts received wet-in-shell. (Item 1)

B =	Percent of total weight to be calculated using “percent of wholesale price” method (60% for 285-acre parcel, 50% for other orchards).

C =	Percent of Fancy quality kernels from sample analysis.(Item 13)

G =	Percent of Choice quality kernels from sample analysis. (Item 13)

	(Note: C + G = 100%)

D =	Constant percent of wholesale price (37%).

E =	Wholesale highest volume price per pound of single largest volume nut only product line item on the current Mauna Loa Hawaii Wholesale Price List using Fancy quality nut (less promotional discounts when applicable).

H =	Same as E except using Choice quality nuts.

F =	Derived from sample. Percentage factor which converts wet-in-shell weight to total saleable roasted kernel weight. (Item 14)

I =	Percent of total weight to be calculated using “market price” method. (40% for 285-acre parcel, 50% for other orchards).

J =	Most recent price wet-in-shell as published in current issue of the “Hawaii Macadamia Nuts Annual Summary” published by the State of Hawaii Agricultural Reporting Service.

K =	Derived from sample. Factor which converts wet-in-shell kernel weight to average State in-shell moisture content to assure consistency in pricing based on average moisture content as published by the State of Hawaii. (Use average moisture content of nuts reflected in State report. For purposes of sample computation, 19% is assumed.)

=	[(1 + State’s average moisture content in-shell) - moisture content of sample in-shell ] x (total weight WIS)

Exhibit 10.86

AGRICULTURAL LEASE OF 316 ACRES OF DEVELOPED MACADAMIA ORCHARDS

THIS AGREEMENT OF AGRICULTURAL LEASE, made and entered into this 12 th day of September, 1979, by and between INTERNATIONAL AIR SERVICE CO., LTD. organized under the laws of the State of California and qualified to do business in the State of Hawaii (herein called “Owner”), and MAUNA LOA MACADAMIA NUT CORPORATION, a Hawaii corporation (herein called “Mauna Loa”),

WITNESSETH :

WHEREAS, the Owner has acquired from Mauna Loa 285 acres of developed macadamia orchards and an additional 31 acres to be developed into macadamia orchards (Parcel A) at ka’u, County and State of Hawaii, said parcel being more particularly described in Exhibit A, attached hereto and made a part hereof, and being hereinafter called the “Owner’s Land”;

WHEREAS, the Owner desires to enter into this Agricultural Lease of Owner’s Land to Mauna Loa for the purposes of Mauna Loa’s farming a macadamia orchard thereon the rental for which will be measured by the value of the macadamia nuts produced thereon offset by reimbursable farming costs, all as set forth in this Agreement of Lease.

NOW, THEREFORE, the Owner, for and in consideration of the rents hereinafter reserved and of the covenants and conditions herein contained and on the part of Mauna Loa to

be observed and performed, does hereby demise and lease unto Mauna Loa, and Mauna Loa does hereby lease and hire from the Owner, the property described in Exhibit A attached hereto and made a part hereof;

TO HAVE AND TO HOLD said demised premises, together with all improvements, tenements, rights, easements, privileges and appurtenances thereunto belonging or appertaining thereto for the term and upon the rent hereinbelow provided.

SECTION 1.

Lease Term and Rent

This Agricultural Lease Agreement shall commence and take effect July , 1979, and (unless sooner terminated as hereinafter provided in Section 10) shall continue in full force and effect for ninety-nine (99) years thereafter. The Lease Rent shall be measured by the value of macadamia nuts produced on the premises minus offsets for reimbursable farming costs, in addition to all of the other terms and conditions of this Agreement. This Agreement shall be interpreted under the laws of the State of Hawaii.

SECTION 2.

Orchard Development Services to be Performed by Mauna Loa on the Undeveloped 31 acres.

2.1 Clearing and Leveling . As soon as practicable following the signing of this Agreement, Owner (or Mauna Loa at Owner’s request) shall clear and level the remaining undeveloped 31 acres of Owner’s Land in such a manner as may

be deemed by Mauna Loa to be the most advisable for the establishment of a macadamia orchard thereon.

2.2 Windbreaks and Field Roads . As soon as practicable following its clearing and leveling of Owner’s Land Mauna Loa shall plant such trees as supplied by Owner.

If owner requests Mauna Loa to grow windbreak trees, all costs associated therewith shall be treated as reimbursable costs in accordance with Section 5 hereof. If owner purchases windbreak trees from Mauna Loa (or other sources) for planting by Mauna Loa, the purchase price shall be treated as a capital expenditure, and all planting costs shall be treated as Reimbursable Costs in accordance with Section 4 hereof. As soon as practicable following the clearing and leveling of the Owner’s Land, Mauna Loa shall install such field roads as may be reasonably necessary for the conduct of its operations in the management of Owner’s Land and to provide Owner reasonable access at places it selects to its property below Parcel A.

2.3 Purchase of Macadamia Trees . Mauna Loa will make available to Owner grafted trees of Mauna Loa’s recommended commercial varieties, field ready to be planted (approximately 97 trees to the net tree acre). Owner shall pay to Mauna Loa $10.00 per tree during the first 2 years of this Agreement; and a price to be mutually agreed upon thereafter.

Owner recognizes that, due to unpredictable climatic conditions and the normal agricultural risks involved, the amount of tree mortality and the number of

replants necessary is uncertain, as are the yields from the orchard. Except as provided elsewhere herein, Mauna Loa gives no warranties or guaranties whatsoever concerning the amount of tree mortality and number of replants that are necessary, or the yields from the orchards.

Section 3. Irrigation, Orchard Care, etc.

3.1 Installation of Irrigation System . (A) As part of the consideration for Owner’s execution of this Agreement, Mauna Loa hereby agrees to install in accordance with sound irrigation practices for macadamia nut orchards and at Mauna Loa’s sole cost and expense, a primary water irrigation distribution system (the “Primary System”) capable of supplying a maximum aggregate annual requirement of 215 million gallons (the “Maximum Requirement”) as described in Alternate IV of Exhibit E-2 attached hereto,

jointly to Parcel A, described in this Agricultural Lease, and Parcel B, described in that Agricultural License between the parties of even date hereof, to an in-field irrigation system located on Owner’s land. Except for water shortgages caused by nature and not by matters within the control of Mauna Loa or Ka’u Sugar Co., Mauna Loa agrees to supply said 215 million gallons of water to Owner from the Palima Well. The Primary System shall consist of all equipment and materials required to make it operable, including but not limited to a pumping station, a lift station and a water pipeline capable of supplying the Maximum Requirement. The Primary System shall be located as described in Exhibit .

(B) Mauna Loa shall also install an in-field drip irrigation system (the “Drip System) on Parcel A. The Drip System shall be installed in accordance with sound irrigation practices for macadamia nut orchards and shall be capable of being utilized in conjunction with the Primary System as is required to irrigate macadamia nut orchards up to the Maximum Requirement. The cost of installation of the Drip System on the 285 acres of developed orchards on Parcel A shall be borne by Mauna Loa and on the 31 undeveloped acres shall be borne by Owner.

(C) The Primary System and the Drip System shall be installed in accordance with plans approved by Owner, whose consent shall not be unreasonably withheld. The installation of the Primary System and infield drip irrigation system for Parcel A shall be completed no later than April 30, 1980. Mauna Loa has provided Owner with a water resource study consisting of fourteen (14) pages dated

March 8, 1979, and it is understood that water shall be distributed to Owner in accordance with Alternate IV shown in such study, attached hereto as Exhibit E-2.

(D) For a period of one (1) year after the installation of the Primary System, Mauna Loa shall at its sole cost and expense be responsible for maintaining, repairing and renewing the Primary System. For a period of one (1) year after the installation of the Drip System, Mauna Loa shall at its sole cost and expense be responsible for maintaining, repairing and renewing the Drip System, but limited to defects caused by poor materials or workmanship. During the first year Owner shall pay Owner’s pro rata share of operating, and insurance premium, costs. Thereafter the owner’s pro rata share of costs of operating, insurance premiums, maintenance, repair and renewal of the Primary System shall be charged back to Owner, but such costs shall not exceed those which would be customarily charged by an independent third party. The costs of operating, insurance premiums, maintenance, repair and renewal of the Drip System shall be at Owner’s expense as a “Reimbursable Cost” in accordance with Section 4, hereof, except that Mauna Loa shall during the first year only at its expense be responsible for defects caused by poor materials or workmanship. Mauna Loa at its expense (subject to the pro rata charge provision above) shall carry insurance to insure the Primary System against casualty loss.

(E) Mauna Loa hereby agrees to deliver water to Owner’s Parcel A and B as described above during the term of this Lease in the quantities set forth above (recognizing

that normally irrigation is required for only 4 or 5 months per year on these parcels) at no additional charge or cost to Owner, except as set forth above, subject to the exceptions set forth below. Owner recognizes that Mauna Loa is in no way guaranteeing this supply of water and is not responsible if for reasons beyond Mauna Loa’s control the supply is not available.

3 .1.1. In the event of a water shortgage due to natural causes and not to additional utilization of the water source by Mauna Loa or persons authorized by Mauna Loa, such that Mauna Loa is unable to deliver to Owner the supply provided for above, Mauna Loa’s sole responsibility shall be to deliver to Owner, a pro rata share of water actually available (exclusive of any excess water sold to Owner under the terms of Section 3.1.6. below) based upon Owner’s percentage of use of water to the total amount of water measured in the year prior to shortage. It is noted for informational purposes only, and without contractual significance, that current planning for the irrigation system provides for a connecting line between the Pahala Shaft and the Palima Well for emergency use.

3 .1.3. If for any reason, other than insufficiency of water supply as set forth above, Mauna Loa wishes to cease

delivery of water from the Palima Well, Mauna Loa may, at its sole cost and expense, drill a well or wells and install all the appurtenances to a new irrigation system (including any necessary adjustments to the Drip System) on Owner’s Land (including the adjacent 3,485 acre parcel described as TMK 9-6-13-06) at a location or locations to be mutally agreed upon by Owner and Mauna Loa pursuant to an easement to be granted by Owner, neither parties’ agreement to such new location to be unreasonably withheld. The original Primary System and any replacement system, as provided for in this paragraph, shall remain the property of Mauna Loa throughout the term of this Agreement and thereafter. Throughout the term of this Agreement Mauna Loa agrees not to remove this Primary System and to continue to maintain it according to the cost provisions in this agreement. Upon the successful completion of such new well and the delivery of water therefrom to Owner’s Lands in the manner and amounts provided for in Section 3.1 above, Mauna Loa shall no longer be obligated to deliver water to Owner from the Palima Well system.

3 .1.5 In the event it is determined that the State of Hawaii (the “State”) owns the water which is the subject of this Agreement and the State assesses a charge to Mauna Loa (or any other party from whom it obtains water) for

utilization of the water, then Owner shall pay to Mauna Loa its pro rata share of such charge.

3 .1.6. Water is provided by Mauna Loa to Owner under this Agreement only for use in developing and maintaining macadamia orchards, for which Mauna Loa has the right pursuant to Lease or License to manage and to purchase the nut supply. Owner and Mauna Loa recognize that the maximum obligation to deliver water as stated above in no way precludes Mauna Loa making available to Owner, at Owner’s request and cost, excess water available in the system (over and above the present and future needs of C. Brewer and Company, Limited and all of its subsidiaries plus their contractual obligations) to serve other Owner requirements. Further, for its other requirements, Owner will have first call on water from this system which is in excess to the present and future needs of C. Brewer and Company, Limited and all of its subsidiaries plus their contractual obligations, except that Owner’s future requirements once established will have precedence to water prior to any new contractual obligations of C. Brewer or any of its subsidiaries which arise thereafter. Should water be sold from Mauna Loa to Owner from this system for other purposes than to irrigate macadamia orchards for which Mauna Loa has the Lease or License with right to manage and to purchase the nut supply, the cost of the water to Owner shall be determined by comparison with other agricultural water charges then current on the Island of Hawaii.

Mauna Loa has the obligation, subject to reimbursement as provided elsewhere in this Lease, throughout

the term of this Agreement to irrigate the orchards (if water is available under the terms of this Agreement) and to maintain the in-field drip irrigation system at competitive cost.

to transport such nuts to Mauna Loa’s receiving station at Ka’u for husking.

any and all claims, obligations, liabilities or demands with respect to and arising out of the performance of Mauna Loa’s obligations under this Lease and the employment of Mauna Loa’s personnel and agents on Owner’s Lands.

or material to the matters set forth therein and to employ auditors to verify the financial statements submitted to it by Mauna Loa. In the event they contain errors which result in the Owner having been overcharged by 2% or more, Mauna Loa shall pay all reasonable expenses incurred by Owner in making such verification and shall pay Owner the amount of any such overcharge.

3.8 Protection of Ownership . At all times during the term of this Agreement Owner shall take any and all such actions as are customarily taken by a landowner in the husbanding of his property, including without limitation the making of surveys, the payment of taxes and assessments, the procurement of necessary permits and licenses, the insurance of properties (including trees), the insurance against liabilities, and the compliance with all laws, ordinances and governmental regulations relating to the ownership and/or use of the Owner’s Land. It is the intent of this Agreement of Lease that Owner, not Mauna Loa, pay all of the expenses relating to the Land and the orchards thereon. When requested by Owner, Mauna Loa shall assist Owner in

the making of surveys, the processing of tax appeals, if any, and the procurement of necessary permits, licenses, insurance and other items which the Owner requires for the proper use of the Land for macadamia purposes.

SECTION 4.

Reimbursement of Costs and Payment of Fees

4.1 Reports and Payments . The rental due from Mauna Loa to Owner shall be offset by Reimbursable Costs and Fees due from Owner to Mauna Loa as set forth in this Section. Mauna Loa will furnish to the Owner unaudited reports reflecting the accrual of Reimbursable Costs and Management Fee hereunder, monthly during the term of this Agreement. Owner will pay these monthly amounts of Reimbursable Costs and Management Fee within 30 days of the date

of each report, if these Costs and fees are not off-set when Mauna Loa pays its rental to Owner as measured by Mauna Loa’s purchase of nuts from Owner. Interest shall accrue against Owner at the rate of 1% per month on any unpaid amounts.

4.2 Reimbursable Costs . The term “Reimbursable Costs” as used herein shall not include any capital expenditures except as otherwise provided for in this Agreement, and shall mean the following costs incurred by Mauna Loa in connection with the performance of its obligations under this Agreement.

(a) direct hourly wages, overtime pay, payroll taxes, insurance and other fringe benefits paid with respect to personnel working under this Agreement.

(b) amounts paid for replanted windbreak and macadamia trees, unless such replanting is required because Mauna Loa failed to follow said proven sound agricultural or harvesting practices.

(c) costs (including transportation costs) incurred for fertilizers, herbicides, fungicides, rodenticides and other materials, used in the Owner’s Orchard;

(d) costs incurred for expendable tools and supplies;

(e) “costs” as defined in sub-Sections 4.2(c) and (d) above shall be invoice cost

plus a 5% up charge to cover costs of processing and filling orders and delivery of purchases (where not otherwise specifically invoiced) to Ka’u;

(g) irrigation - costs incurred to construct and operate the in-field irrigation system on Parcel A and to maintain and repair and renew it and to pump and deliver water to the irrigation system and apply water to the orchards. The payment for water delivered to Owner’s land shall equal all costs of producing the water and the pumping and delivery of it to Owner’s lands (including cost of maintaining, repairing and renewing the Primary distribution system) save and except as provided in Sections 3.1(B) and (D) above;

(h) Ka’u overhead which applies to each item (a) through (g) above - an allocation of Ka’u Facility overhead shall be made at the rate of 20% times total Reimbursable Costs; the cost of constructing the infield irrigation system on parcel A shall not be

considered a Reimbursable Cost for purposes of this sub-Section (h);

(i) Costs which Mauna Loa may incur to repair damage which it by gross negligence or deliberately caused shall not constitute Reimbursable Cost.

(j) in the event that the State or any governmental agency imposes a sales tax or general excise tax on service rendered or supplies and materials provided, such tax shall become a Reimbursable Cost under this Agreement.

(k) In no case, without prior coordination and concurrence of Owner, will Owner’s direct cost per acre, net of all percentage up charges as set forth in this Section 4, exceed 110% of Mauna Loa’s direct cost per acre in a given year for comparable orchards.

SECTION 5.

Rental Measured by Nuts Produced

5.1 Delivery and Acceptance of Crops . As rental, Mauna Loa shall purchase, as set forth herein,

from Owner all macadamia nuts produced on Owner’s Land. Mauna Loa shall deliver from time to time during the term of this Agreement to Mauna Loa’s Ka’u receiving station all of the in-husk macadamia nuts produced on the Owner’s Land. The Owner shall not be obligated hereunder to deliver to Mauna Loa, and Mauna Loa shall not be obligated hereunder to accept any macadamia crops other than those produced upon the Owner’s Acreage. Title to the nuts and risk of loss shall pass from Owner to Mauna Loa at the time that Mauna Loa loads the in husk nuts into Mauna Loa’s trucks for delivery to the Ka’u receiving station.

5.2 Husking, Weighing

practicable to ascertain the wet-in-shell weight of the nuts contained in shipment.

SECTION 6.

6. 1 Payment of the Rental

(a) Payments . Within thirty days after the end of each calendar month during the term of this Agreement in which the Owner has delivered one or more shipments of macadamia nuts to Mauna Loa hereunder, Mauna Loa shall furnish to the Owner a detailed statement evidencing the calculation of the rental payment to be made by Mauna Loa with respect to shipments delivered to Mauna Loa during such month. Rental payments shall be made within thirty days after the end of the calendar month in which such shipments were delivered, if this amount exceeds the Reimbursable Costs and Management Fees due from Owner to Mauna Loa under Section 4 hereof. Interest shall accrue against Mauna Loa at the rate of 1% per month on any unpaid amounts.

(b) Purchase Price . The purchase price per pound of wet-in-shell nut production shall consist of two elements. Sixty percent of the price will be computed at 37% of the MAUNA LOA average wholesale list price as published in the MAUNA LOA Hawaii Wholesale Price List. This wholesale price will be adjusted to convert kernel price to a wet-in-shell basis.

Forty percent of the price will be computed at the actual price paid as quoted in the current issue of “HAWAII MACADAMIA NUTS ANNUAL SUMMARY” published by the Hawaii Agricultural Reporting Service, for the most current crop year listed. Payments for each crop year will be adjusted after the average price for the entire year has been published. If the “HAWAII MACADAMIA NUTS ANNUAL SUMMARY” report is changed, discontinued, or otherwise not available, the best available industry recognized objective documentation will be substituted. Payments shall be computed using wet-in-shell weight net of defective nuts and kernels and price established as described in Attachment A.

SECTION 7.

Sale of nuts to Owner

7.1 Mauna Loa will make available for sale to Owner or one of its affiliates for delivery on the island of Hawaii, a maximum of 30,000 pounds of macadamia nut kernels during the period January 1, 1980 to December 31, 1980 for Owner’s placement into the Japanese market. The form and source of the nuts (i.e. bulk kernels, nuts in cans or jars or in some product such as chocolate covered macadamia nuts or macadamia brittle) will be determined by Owner in subsequent direct contact with Mauna Loa marketing personnel and must be of a form available at the time of delivery each year, provided however that Mauna Loa shall give priority to

Owner’s request for a particular form. Mauna Loa will increase this amount in the year January 1, 1981 to December 31, 1981 to a maximum of 60,000 pounds of nuts per year, and in the year January 1, 1981 to December 31, 1982 to 90,000 pounds of nuts per year. This commitment will then remain constant at 90,000 pounds of nuts per year throughout the term of the contract, except that should Mauna Loa determine that supply is available and demand warrants, an amount greater than 90,000 pounds may be considered for delivery to Owner, but this decision shall be solely at the discretion of Mauna Loa. The resale price from Mauna Loa to Owner’s subsidiary will be at the market price at time of delivery of nuts to Owner. Market price is defined as the wholesale price as published in the Mauna Loa Hawaii Wholesale Price List. (Should Mauna Loa deliver to the Owner at another location outside of the State of Hawaii, the Price List for that geographical location will govern.) Each year Owner may buy all, part, or none of the supply that Mauna Loa makes available. Each year Owner shall notify Mauna Loa in writing of Owner’s decision by November 1 of the preceding year, and if such written notice is not received by Mauna Loa by November 1 of the preceding year it shall mean that Owner has elected to buy no nuts during that year. Mauna Loa retains the right during periods of nut shortage, to allocate to Owner a pro rata share of nuts in proportion to the normal percentage of nut production purchased by Owner as compared with Mauna Loa’s normal total nut sales as measured in the year immediately preceding the shortage. Owner must place these nuts into the Japanese market to be sold in Japan and

nowhere else. If Owner breaches this covenant, Mauna Loa is relieved of all future supply obligations to Owner through the entire term of this Lease Agreement. Owner will pay for these nuts within 30 days after the date of each billing. Interest will accrue against Owner at the rate of 1% per month on any unpaid amount.

SECTION 8 .

Management Representatives

SECTION 9 .

Force Majeure

officer to grant any permit or order necessary for compliance herewith by either party hereto, nor shall either of the parties hereto be liable or accountable to the other party for any damages arising from any such delay or failure. Owner purchased the premises with an awareness of the natural risks such as but not limited to earthquakes, volcanic eruptions, floods, winds, etc., and the agricultural risks and assumes those risks.

SECTION 10.

Termination

(a) Mutual Agreement . This Agreement of Lease may be terminated, in whole or in part, at any time by the mutual agreement in writing of the parties hereto.

(b) Insolvency, etc. Should either party hereto be declared bankrupt following the filing of a voluntary or involuntary petition, or be declared insolvent, or enter into any composition with creditors, or execute an assignment for the benefit of creditors, or should a receiver or trustee be appointed by any court or governmental agency to administer the affairs or assets of either party hereto, and is not removed within 60 days of such appointment, the other party hereto at its option may cancel and terminate this Agreement of Lease upon giving not less than 15 days’ written notice to the bankrupt or insolvent party.

the performance of such obligations. Upon the failure of the other to cure such default within 30 days from the date of such demand, this dispute shall be immediately referred to arbitration, pursuant to Section 15, without the 60-day time restriction specified therein.

(d) Destruction or Condemnation . In the event of the destruction or condemnation of any or all of the Owner’s Land, the Owner shall at Owner’s expense restore the premises to the same condition as prior to the destruction if it can be reasonably restored. If it cannot be reasonably restored this Agreement shall terminate as to that portion of Owner’s Land. In the event of condemnation this Lease shall terminate as to the condemned portion and be of no further force or effect, but both Owner and Mauna Loa may pursue their separate rights against the condemning authority.

(e) Use of Land . Mauna Loa covenants and warrants unto Owner that Mauna Loa will utilize the Owner’s Land only for the production of macadamia nuts and for no other use whatsoever during the term of this Agreement, and will keep all of Owner’s Land planted with macadamia and windbreak trees during the entire term of this Agreement. Provided, however, that Owner may substitute other suitable acreage having grafted macadamia trees of comparable age for portions of the said 316 acres from time to time if the yields are comparable. Owner shall at all times have access to the managed orchards and may have Mauna Loa remove scion wood therefrom so long as it would not damage the trees for Owner’s use in the State of Hawaii and not for resale or export as scion wood or grafted trees.

(f) Mauna Loa recognizes that for Owner to use or develop its lands adjacent to Parcels A and B it will require adequate roadway and utility access to the adjacent lands. It is agreed that Owner at its expense may install such roadways, utility lines, signs and other improvements in such manner and at such places as it determines. In doing so it will interfere as little as possible with Mauna Loa’s development and management of the orchards on Parcels A and B and, as provided in Section 10(e) above, it may substitute other comparable acreage in the event such improvements adversely affect the orchards’ production of macadamia nuts.

SECTION 11.

Waiver

The failure of either party hereto to take advantage of any default or breach of agreement on the part of the other party shall not be construed as a waiver thereof, nor shall any custom or practice which may grow up between the parties in the course of administering this Agreement be construed to waive or to lessen the right of either party hereto to insist upon the performance by the other party of any term, provision or condition hereof, or to exercise any rights given it on account of any such default. A waiver by either party hereto of a particular breach or default shall not be deemed to be a waiver of the same or any other subsequent breach or default. The acceptance of payments hereunder shall not be, or be construed to be, a waiver of

any breach of any term, provision or condition of this Agreement.

SECTION 12.

Assignment

Neither of the parties hereto may assign any of its rights or obligations hereunder to any other person or legal entity without the prior written consent of the other party hereto. Any consent or approval required under this Agreement shall not be unreasonably withheld and no charge for the giving of such consent or approval shall be made. This Agreement of Agricultural Lease shall bind all successors to the land, if any, of Owner, and may be recorded, or a short form of it will be signed by the parties and may be recorded.

SECTION 13.

First Refusal Right on Future Macadamia Nut Orchards of Owner

If Owner or any of its affiliates (hereinafter collectively referred to as the “Owners”) develop or acquire any other macadamia nut orchards in the county of Hawaii, and the Owners determine to enter into a Lease or License or an orchard management or development agreement for such orchards (a “Proposed Agreement”), then prior to entering into a Proposed Agreement with a person or entity other than Mauna Loa or its affilitates (a “Third Party”) the Owners shall first offer to enter into an agreement with Mauna Loa upon the same terms and conditions as the Proposed Agreement with the Third Party. Mauna Loa shall have a period of sixty (60) days from the date of the giving of written notification by Owner to Mauna Loa of the terms and conditions of the

Proposed Agreement, to enter into an agreement with Owner upon the same terms and conditions as the Proposed Agreement. ment, to enter into an agreement with Owner upon the same terms and conditions as the Proposed Agreement.

In the event Mauna Loa fails to enter into an agreement with Owner upon the same terms and conditions as a Proposed Agreement within the required sixty (60) days period, then Owner shall be free to enter into a Proposed Agreement with a Third Party without any further obligation to Mauna Loa with respect to the macadamia nut orchards and related Lands covered by such Proposed Agreement.

SECTION 14.

Owner’s Covenant Not to Hire Mauna Loa’s Employees

SECTION 15.

Arbitration

Lease is Exhibit “E-1”, or any of the other contracts attached as Exhibits to said Agreement to Sell of even date herewith, shall be submitted to and determined only by an arbitrator selected in the following manner: The parties hereby appoint Bert T. Kobayashi, Sr., Ted Tsukiyama, Harold Nickelsen, Suyeki Okumura and Masato Doi, as qualified arbitrators. Either party may within 60 days after there has been failure to reach amicable agreement (impasse) with the other party on any such dispute serve written notice on the other party of its election to have the dispute settled by arbitration under this section and with such notice shall strike one name from the panel of arbitrators. The second party shall then by written notice within ten days thereafter to the first party strike a name and this process shall be repeated until only one name is left and that person shall serve as the arbitrator. If any of the five named members of the panel is unable or unwilling to serve as arbitrator the parties may agree upon a substitution and if unable to agree either party upon a showing of good cause and notice to the other party may have the Administrative Judge of the First Judicial Circuit, State of Hawaii, appoint a substitute. Each party shall pay one-half of the arbitrator’s fee and expenses and its own fees and expenses. The decision of the Arbitrator so chosen shall be final and binding upon the parties and enforceable in accordance with the provisions of Ch. 658, H.R.S. as it may from time to time be amended.

SECTION 16.

Notices

Any and all notices, demands, or other communications required or desired to be given hereunder by either

party shall be in writing and shall be validly given or made to the other party or his authorized representative at the addresses set forth below, if served either personally or if deposited in the mails, certified or registered, postage prepaid first class airmail, return receipt requested or if sent by telex. If such notice, demand or other communication be served personally, service shall be conclusively deemed made at the time of such personal service. If such notice, demand or other communication be given by mail, such shall be conclusively deemed given seventy-two (72) hours after deposit thereof in the mails as provided for above. If such notice demand or other communication be given by telex, such shall be conclusively deemed given twenty-four (24) hours after the transmission thereof and receipt of the proper response code as set forth below:

To IASCO :	International Air Service Co., Ltd.
	1710 Gilbreth Road
	Burlingame, California 94010
	Attention: James C. Jack, Jr.
	Telex: 331 - 346
	Response Code: IASCO B BRCM

With informational copies to Charles W. Smith, 4476 Kolohala, Honolulu, Hawaii and Howard K. Hoddick, P.O. Box 3199 both of Honolulu, Hawaii.

To Mauna Loa :	Mauna Loa Macadamia Nut Corporation
	c/o C. Brewer and Company, Limited
	827 Fort Street
	Attn: A. Kugle Honolulu, Hawaii 96813
	Telex: 392481
	Response Code: CBREW O

Any party hereto may change its address for the purpose of receiving notices, demands, and other communications

as herein provided by a written notice given in the manner aforesaid to the other party hereto.

IN WITNESS WHEREOF, the Owner and Mauna Loa have caused this Agreement of Lease to be executed by their duly authorized representatives on the day and year first written above.

	INTERNATIONAL AIR SERVICE CO., LTD.

	By	/s/ James C. Jack, Jr.
		[ILLEGIBLE]

	MAUNA LOA MACADAMIA NUT CORPORATION


	By	/s/ J. Alan Kugle
		Vice Pres

		/s/ James G. Higgins
		Vice Pres. & Secretary

Encumbrances

1. Lease to Mauna Loa Macadamia Nut Corporation of even date herewith.

2. Mortgage to Bank of Hawaii of even date herewith.

Property Description for TMK 9-6-13-04

LOT 4

LAND SITUATED ON THE SOUTHEASTERLY SIDE OF MAMALAHOA HIGHWAY

(F.A.P. NO. 18-B)

AT KAUHUHUULA-NUI, KAUHUHUULA-IKI, KUMU,

HALELUA, WAILOA AND KEAIWA

KAU, ISLAND OF HAWAII, HAWAII

BEING PORTIONS OF GRANT 2604 TO F. S. LYMAN, GRANT 2973 TO F. S. LYMAN

AND ROYAL PATENT 7876, LAND COMMISSION AWARD 8452, APANA 16 TO A. KEOHOKALOLE

Beginning at a pipe (found) at the West corner of this parcel of land on the Southeasterly side of Mamalahoa Highway, (F.A.P. No. 18-B), the coordinates of which referred to Government Survey Triangulation Station “PUU ULAULA” being 980.73 feet North and 12,898.45 feet West and running by azimuths measured clockwise from true South:

1.	201°	33’	30”	1805.77 feet	along the Southeasterly side of Mamalahoa Highway;

2.	291°	33’	30”	10.00 feet	along the Southeasterly side of Mamalahoa Highway;

3.	201°	33’	30”	116.00 feet	along the Southeasterly side of Mamalahoa Highway;

4.	111°	33’	30”	10.00 feet	along the Southeasterly side of Mamalahoa Highway;

5.	201°	33’	30”	434.00 feet	along the Southeasterly side of Mamalahoa Highway;

6.	291°	33’	30”	10.00 feet	along the Southeasterly side of Mamalahoa Highway;

7.	201°	33’	30”	325.00 feet	along the Southeasterly side of Mamalahoa Highway;

8.	111°	33’	30”	10.00 feet	along the Southeasterly side of Mamalahoa Highway;

9.	201°	33’	30”	2275.00 feet	along the Southeasterly side of Mamalahoa Highway;

10.	201°	33’	30”	10.00 feet	along the Southeasterly side of Mamalahoa Highway;

11.	201°	33’	30”	200.00 feet	along the Southeasterly side of Mamalahoa Highway;

12.	111°	33’	30”	10.00 feet	along the Southeasterly side of Mamalahoa Highway;

13.	201°	33’	30”	515.19 feet	along the Southeasterly side of Mamalahoa Highway; thence along the Southeasterly side of Mamalahoa Highway on a curve to the right with a radius of 5,699.65 feet, the chord azimuth and distance being:

14.	205°	54’	21.5”	864.16 feet;
					thence along reminder of R. P. 7876 L. C. Aw. 8452, Ap. 16 to A. Keohokalole on a curve to the right with a radius of 20.00 feet, the chord azimuth and distance being:

15.	262°	39’	03”	31.69 feet;

16.	315°	02’	53”	1442.25 feet	along remainder of R. P. 7876, L. C. Aw. 8452, Ap. 16 to A. Keohokalole;

17.	11°	17’	20”	364.07 feet	along remainder of R. P. 7876, L. C. Aw. 8452, Ap. 16 to A. Keohokalole;

18.	11°	24’	10”	234.23 feet	along remainder of R. P. 7876, L. C. Aw. 8452, Ap. 16 to A. Keohokalole a pipe (found);

19.	26°	29’	20”	527.76 feet	along remainder of R. P. 7876, L. C. Aw. 8452, Ap. 16 to A. Keohokalole a pipe (found);

20.	312°	30’	10”	299.24 feet	along remainder of R. P. 7876, L. C. Aw. 8452, Ap. 16 to A. Keohokalole a pipe (found);

21.	21°	54’	40”	682.11 feet	along remainders of R. P. 7876, L. C. Aw. 8452, Ap. 16 to A. Keohokalole Grant 2604 to F . S. Lyman;

22.	306°	50’	50”	41.19 feet	along remainder of Grant 2604 to F. S. Lyman;

23.	11°	13’	40”	352.66 feet	along remainder of Grant 2604 to F. S. Lyman;

24.	355°	26’		356.88 feet	along remainder of Grant 2604 to F. S. Lyman;

25.	6°	26’	20”	116.25 feet	along remainder of Grant 2604 to F. S. Lyman;

26.	357°	59’	30”	67.86 feet	along remainder of Grant 2604 to F. S. Lyman;

27.	6°	00’	45”	139.47 feet	along remainder of Grant 2604 to F. S. Lyman;

28.	359°	04’	40”	82.49 feet	along remainder of Grant 2604 to F. S. Lyman;

29.	347°	22’		68.63 feet	along remainder of Grant 2604 to F. S. Lyman;

30.	0°	32’	50”	171.82 feet	along remainder of Grant 2604 to F. S. Lyman;

31.	37°	27’	10”	456.19 feet	along remainder of Grant 2604 to F. S. Lyman;

32.	9°	04’	30”	135.09 feet	along remainder of Grant 2604 to F. S. Lyman;

33.	50°	53’	40”	279.65 feet	along remainder of Grant 2604 to F. S. Lyman;

34.	340°	23’	10”	334.96 feet	along remainder of Grant 2604 to F. S. Lyman;

35.	305°	03’		88.00 feet	along remainder of Grant 2604 to F. S. Lyman;

36.	332°	41’		208.95 feet	along remainder of Grant 2604 to F. S. Lyman;

37.	328°	48’	50”	320.81 feet	along remainder of Grant 2604 to F. S. Lyman;

38.	337°	51’	20”	491.22 feet	along remainder of Grant 2604 to F. S. Lyman;

39.	51°	53’	30”	487.92 feet	along remainder of Grant 2604 to F. S. Lyman;

40.	53°	31’	40”	234.99 feet	along reminder of Grant 2604 to F. S. Lyman;

41.	83°	07’	10”	303.48 feet	along reminder of Grant 2604 to F. S. Lyman;

42.	55°	55’	10”	231.52 feet	along remainders of Grants 2604 and 2973 to F. S. Lyman;

43.	44°	04’		497.03 feet	along remainder of Grant 2973 to F. S. Lyman to a pipe (found);

44.	31°	32’		371.76 feet	along remainder of Grant 2973 to F. S. Lyman;

45.	132°	38’	20”	522.00 feet	along Grant 2604 to F. S. Lyman;

46.	41°	04’		23.87 feet	along remainder of Grant 2604 to F. S. Lyman;

47.	132°	54’		284.86 feet	along remainder of Grant 2604 to F. S. Lyman;

48.	133°	42’	30”	339.86 feet	along remainder of Grant 2604 to F. S. Lyman;

49.	132°	15’	45”	706.15 feet	along remainder of Grant 2604 to F. S. Lyman;

50.	132°	55’	40”	328.08 feet	along remainder of Grant 2604 to F. S. Lyman to the point of beginning and containing an area of 316.06 acres.

Attachment A

SAMPLING PROCEDURE SUMMARY

Both in-shell and kernel weight and moisture content for the W. I. S. nuts are determined.

The kernels are roasted, inspected and sorted into Fancy, Choice and Substandard grades. The percent Fancy and Choice of the total weight of the kernels recovered is determined.

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7/31/79

PROCEDURE FOR SAMPLING & EVALUATING

NUT DELIVERIES

WET-IN-SHELL

1.	Upon receipt of commercial shipment, weight and determine gross weight of WIS volume delivered.	lbs.

2.	Draw random 20 pound sample from throughout the delivered shipment (a shipment is one or more loads in a single day consisting of nuts harvested by the same method where practicable).	lbs.

3.	Determine in-shell and kernel moisture content of WIS nuts in the sample.	%

4.	Split the remainder of the WIS sample into approximately two equal lots of about 10 pounds each and accurately determine the WIS weight of each lot. Letter the lots A and B.	grams

5.	Inspect the WIS nuts in lots A and B and separate:
	(a) Rodent damage	grams
	(b) Germinating nuts	"
	(c) Nuts with black or moldy shells	"
	(d) Other including foreign matter	"
	Record the weights and return all but the foreign matter to the lots.

6.	Dry the WIS nuts in lots A and B to a constant weight (about 5 days), and accurately record the DIS weight of each lot.

7.	Crack the DIS nuts from lot A and separate shell from kernels. Hold the DIS nuts from lot B for possible confirmation testing.

8.	Accurately determine the weight of the recovered raw kernels in lot A:	grams

9.	Inspect the raw kernels and separate defective or spoiled kernels in lot A:
	(a) Stinkbug damage	grams
	(b) Other insect damage	"
	(c) Moldy	"
	(d) Germinating	"
	(e) Bacterial damage	"
	(f) Other	"
	(g) Total (a) through (f)	"
	Accurately determine and record the weight of the above described kernels by category and discard the kernels.

10.	Determine the percent spoilage (by category and total) as a percentage of the gross WIS weight of the lot. (Item 9 (%) + Item 4).	%

11.	Roast the raw kernels remaining in lot A in accordance with commercial criteria.

12.	Using commercial criteria, grade the roasted kernels in lot A into:
	(a) Hawaii Grade A (Hawaii Fancy)	grams
	(b) Hawaii Grade B (Hawaii Choice)	"
	(c) Substandard (Unusable)	"

	Refer to the State of Hawaii Department of Agriculture Regulations #4, Subsection 1. 11 - Standards for Grades of Roasted Macadamia Nuts.

	Accurately determine the weight of the saleable kernels in each of (a) and (b) above and total of (a) plus (b).

13.	Determine the percent Hawaii Fancy [l2.(a)] as a percentage of the weight of the saleable roasted kernels [total of 12. (a) plus 12. (b)] in the sample. Repeat for Hawaii Choice; 12. (b).	%

14.	Determine percent saleable kernel as a percentage of the gross WIS weight [% = 12. (a) + 12. (b) ] 4	%

15.	If confirmation is requested test lot B in accordance with Items 7 - 14. Use the average test results of lots A and B.

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7/31/79

FORMULA

Total purchase price will be computed in three elements using the following formula:

Price paid	=	A x B x C x D x E x F

plus		A x B x G x D x H x F

plus		A x I x J x K

Where:

A	=	Total weight of nuts received wet-in-shell. (Item 1)

B	=	Percent of total weight to be calculated using “percent of wholesale price” method (60% for 285 -acre parcel, 50% for other orchards).

C	=	Percent of Fancy quality kernels from sample analysis. (Item 13)

G	=	Percent of Choice quality kernels from sample analysis. (Item 13) (Note: C + G = 100%)

D	=	Constant percent of wholesale price (37%).

E	=	Wholesale highest volume price per pound of single largest volume nut only product line item on the current Mauna Loa Hawaii Wholesale Price List using Fancy quality nut (less promotional discounts when applicable).

H	=	Same as E except using Choice quality nuts.

F	=	Derived from sample. Percentage factor which converts wet-in-shell weight to total saleable roasted kernel weight. (Item 14)

I	=	Percent of total weight to be calculated using “market price” method. (40% for 285-acre parcel, 50% for other orchards).

J	=	Most recent price wet-in-shell as published in current issue of the “Hawaii Macadamia Nuts Annual Summary” published by the State of Hawaii Agricultural Reporting Service.

K	=	Derived from sample. Factor which converts wet-in-shell kernel weight to average State in-shell moisture content to assure consistency in pricing based on average moisture content as published by the State of Hawaii. (Use average moisture content of nuts reflected in State report. For purposes of sample computation, 19% is assumed.)

	=	[(1 + State’s average moisture content in-shell) - moisture content of sample in-shell] x (total weight WIS)

SAMPLE COMPUTATION*

A	=	Total weight = 100 pounds.

B	=	60% or .60 from contract.

C	=	80% or .80 from lab sample.

D	=	37% or .37

E	=	From 10/9/78 price list, 12/5 oz. cans, ($20. 00 for 60 ozs.) = $5.33 per pound.

F	=	Saleable as percent of WIS from sample.

G	=	20% or .20 from lab sample.

H	=	From 10/10/78 price list, diced, 25 pound bag, $94.15 = $3. 77 per pound.

I	=	40% of .40 from contract.

J	=	$.487 price wet-in-shell from July 1978, State of Hawaii Agricultural Reporting Service.

K	=	Assume moisture content = 19%.

Price paid	=	(100) (.6) (.8) (.37) (5.33) (.24) +
		(100) (.6) (.2) (.37) (3.77) (.24) +
		(100) (.4) (.487) (1.19 - .19) = $22.72 + $4.02 + $19.48
	=	$46. 22 or $. 462 per pound

* Actual price data from the 1977-78 harvest season.

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7/31/79

Exhibit 10.87

AGRICULTURAL LEASE OF 624 GROSS ACRES OF

MACADAMIA ORCHARDS

THIS AGREEMENT OF AGRICULTURAL LEASE (this “Lease”) is made and entered into this 21st day of September, 1981, by and between INTERNATIONAL AIR SERVICE COMPANY, LTD. a corporation organized under the laws of the State of California and qualified to do business in the State of Hawaii (herein called “Owner”), and MAUNA LOA MACADAMIA NUT CORPORATION, a Hawaii corporation (herein called “Mauna Loa”),

WITNESSETH:

WHEREAS, the Owner has acquired from Mauna Loa Three Hundred Fifty-Four (354) tree acres of developed macadamia orchards and an additional approximate One Hundred Twenty-Eight (128) acres to be developed into macadamia orchards, plus additional acres which will not be developed as macadamia orchards. All of such land totals approximately Five Hundred Seventy Two (572) acres and is located at Ka’u, County and State of Hawaii, and is more particularly described in Exhibit “A”, attached hereto and made a part hereof, and is hereinafter called the “Owner’s Land”;

WHEREAS, the Owner desires to enter into this Agricultural Lease of Owner’s Land to Mauna Loa for the purposes of Mauna Loa’s farming an existing macadamia orchard thereon and the development of new macadamia nut orchards on a portion thereof, the rentals for which will be measured by the value of the macadamia nuts produced thereon, offset by reimbursable farming and development costs, all as set forth in this Lease.

NOW THEREFORE, the Owner, for and in consideration of the rentals hereinafter reserved and of the covenants and conditions herein contained and on the part of Mauna Loa to be observed and performed, does hereby demise and lease unto Mauna Loa, and Mauna Loa does hereby lease and hire from the Owner, the property described in Exhibit “A” attached hereto and made a part hereof;

SECTION 1.

Lease Term and Rentals

This Lease shall commence and take effect September 21st, 1981, and (unless sooner terminated as hereinafter provided in Section 10) shall continue in full force and effect for ninty-nine (99) years thereafter. The

lease rentals shall be measured by the value of macadamia nuts produced on the premises minus offsets for reimbursable farming and development costs, in addition to all of the other terms and conditions of this Lease. This Lease shall be interpreted under the laws of the State of Hawaii.

SECTION 2.

Orchard Development Services to be Performed by Mauna Loa on the Undeveloped Approximate 128 Acres to be Converted to Macadamia Orchards.

2.1 Clearing and Leveling. As soon as practicable following the signing of this Lease, Owner in consultation with Mauna Loa (or Mauna Loa at Owner’s request in which event all costs thereof shall be treated as Reimbursable Costs as defined in accordance with Section 4 hereof) shall clear and level the developable approximate One Hundred Twenty-Eight (128) acres of Owner’s Land in such a manner as may be deemed by Mauna Loa to be the most advisable for the establishment of macadamia orchards thereon.

2.2 Windbreaks and Field Roads. As soon as practicable following the clearing and leveling of Owner’s Land, Mauna Loa shall plant such windbreak trees as are required.

If Owner requests Mauna Loa to grow windbreak trees, all costs associated therewith shall be treated as Reimbursable Costs. If Owner purchases windbreak trees from

Mauna Loa (or other sources) for planting by Mauna Loa, the purchase price shall not be treated as a Reimbursable Cost. Provided, however, all planting costs shall be treated as Reimbursable Costs. As soon as practicable following the clearing and leveling of Owner’s Land, Owner in consultation with Mauna Loa (or Mauna Loa at Owner’s request in which event all costs thereof shall be treated as Reimbursable Costs) shall install such field roads as may be reasonably necessary for the conduct of its operations in the management of Owner’s Land and to provide Owner reasonable access at places Owner selects.

2.3 Purchase of Macadamia Trees. Mauna Loa will make available to Owner grafted trees of Mauna Loa’s recommended commercial varieties, field ready to be planted (approximately Ninety-Seven (97) trees to the net tree acre). Owner shall pay to Mauna Loa Three Dollars ($3.00) per tree through the year 1982, which price shall be increased Ten Percent (10%) per year cumulatively thereafter from year to year with 1982 as the base year. The purchase price shall not be treated as a Reimbursable Cost but all planting costs shall be treated as Reimbursable Costs.

amount of tree mortality and number of replants that are necessary, or the yields from the orchards.

2.4 Macadamia Planting. As soon as practicable following the clearing and leveling of Owner’s Land, Mauna Loa shall prepare Owner’s Land for planting and shall plant grafted macadamia nut trees of such variety or varieties of root stock and scion wood in accordance with proven sound agricultural practices used by Mauna Loa in its own orchards. Mauna Loa shall plant approximately Ninety-Seven (97) macadamia nut trees to the acre. The planting costs shall be treated as Reimbursable Costs. The cost of any macadamia nut trees or windbreak trees which are replants during the term of this Lease, shall be charged to Owner at the Mauna Loa then market value of such trees without mark-up at the time that they are planted and at no charge if the replanting is required because of Mauna Loa’s error.

SECTION 3.

Irrigation, Orchard Care, etc.

3.1 Installation of Extended Irrigation System .

(A) As part of the consideration for Owner’s execution of this Lease, Mauna Loa hereby agrees to install in accordance with sound irrigation practices for macadamia nut orchards and at Mauna Loa’s sole cost and expense (subject to the provisions of subsection (C) below), an extension to the existing primary water irrigation distribution system (the “Extended Primary

System”) capable of supplying a maximum aggregate annual requirement of Seventy-Seven Million (77,000,000) gallons (the “Maximum Requirement”) as described in Alternative IV of Exhibit “D” attached hereto, to in-field irrigation systems located on Owner’s Land as described below. Except for water shortages caused by nature and not by matters within the control of Mauna Loa or Kau’ Sugar Company, Inc., (“Ka’u Sugar”), Mauna Loa agrees to supply said Seventy-Seven Million (77,000,000) gallons of water to Owner from the Palima Well. The Extended Primary System shall consist of all equipment and materials required to make it operable, including but not limited to a lift station, a filter station and a water pipeline capable of supplying the Maximum Requirement. The Extended Primary System shall be located on Owner’s Land so as to serve in-field irrigation systems on such Land.

(B) As a part of the consideration for Owner’s execution of this Lease, Mauna Loa hereby agrees to install in accordance with sound irrigation practices for macadamia nut orchards and at Mauna Loa’s sole cost and expense (subject to the provisions of subparagraph (C) above), an in-field drip water irrigation distribution system (the “In-Field System”) to supply water to Two Hundred Forty (240) tree acres of orchards as described on Exhibit “B”, Forty (40)

acres of which are already in place. Except for water shortages caused by nature and not by matters within the control of Mauna Loa or Ka’u Sugar, Mauna Loa agrees to supply water to Owner to support the In-Field System and other irrigation systems installed by Owner up to the Maximum Requirement. The In-Field System shall be installed in accordance with sound irrigation practices for macadamia nut orchards.

(C) Notwithstanding the provisions of subparagraph (A) and (B) above, it is presently estimated by the parties that the cost of the Extended Primary System will be Eighty-One Thousand Dollars ($81,000) and that the cost of the In-Field System will be One Hundred and Nine Thousand Dollars ($109,000) for an aggregate total of One Hundred Ninety Thousand Dollars ($190,000). The cost of the In-Field System will be borne by Mauna Loa at its sole cost and expense and was included in the purchase price for Owner’s Land. The cost of the Extended Primary System will initially be borne by Mauna Loa at its sole cost and expense but a depreciation charge (provided for below) will be assessed to Owner by Mauna Loa for the Extended Primary System. The aggregate total of One Hundred Ninety Thousand Dollars ($190,000) does not include any of the prior expenditures by Mauna Loa on the existing in-field system on the Forty (40) acres of Owner’s Land. All costs in excess of One Hundred Ninety

Thousand Dollars ($190,000) shall be paid by Mauna Loa but borne equally by Owner and Mauna Loa. Owner’s share of such costs will not be a Reimbursable Cost and Mauna Loa’s share will be depreciated in the same manner as the Extended Primary System. Any additional in-field irrigation systems installed by Owner on the approximate One Hundred Twenty-Eight (128) acres of developable land shall be paid for by Owner at its sole cost and expense. If Owner requests Mauna Loa to install such in-field systems, the cost of such shall be paid by Owner as a Reimbursable Cost. If any extension to the Extended Primary System is required as a result of the installation of such additional in-field systems, the costs of such extensions shall be paid by Mauna Loa but such costs shall be depreciated and assessed to Owner in the same manner as the Extended Primary System. The Extended Primary System and extensions to the Extended Primary System, if any, shall be and remain the sole property of Mauna Loa, along with any repairs or renewals of said systems. Upon written request of Mauna Loa, Owner agrees to grant Mauna Loa a non-exclusive easement as may be reasonably necessary to service said systems during the term of this Lease in a form similar to that certain Easement Agreement by and between the parties hereto dated September 12, 1979 and recorded on September 14,

1979 in Liber 13991 on page 781 of the records of the State of Hawaii Bureau of Conveyances.

(D) The Extended Primary System and the In-Field System shall be installed in accordance with plans approved by Owner, whose consent shall not be unreasonably withheld. The installation of said Systems for the Two Hundred and Forty (240) tree acres shall be completed no later than April 30, 1982.

(E) For a period of one (1) year after the installation of said Systems serving the Two Hundred Forty (240) tree acres, Mauna Loa shall at its sole cost and expense be responsible for maintaining and repairing said Systems serving the Two Hundred Forty (240) tree acres, but limited to defects caused by poor materials or workmanship. During that first year, Owner shall pay Owner’s pro rata share of operating and insurance premium costs as provided in Section 4 hereof. After the first year, the costs of operating, insurance premiums, maintenance and repair of said Systems serving the Two Hundred Forty (240) tree acres shall be at Owner’s expense in accordance with Section 4 hereof. Mauna Loa at its expense (subject to the pro rata charge provision above) shall carry reasonable amounts of insurance to insure the Extended Primary System and any extensions thereof against casualty loss.

(F) Depreciation on the estimated Eighty-One Thousand Dollars ($81,000) cost of the Extended Primary System plus Owner’s share of any additional construction costs of such System and any future extensions to said Extended Primary System (as provided for above) shall be amortized over a thirty (30) year period on a straight line basis and will be billed to Owner with the Five Percent (5%) mark-up provided for in Section 4.3 hereof, but with no other mark-ups assessments or upcharges. Except as provided above, there shall be no other depreciation charges by Mauna Loa to Owner other than the normal depreciation included in the equipment service charges provided for in Section 4.2(f) hereof.

(G) Mauna Loa hereby agrees to deliver water to Owner’s Land as described above during the term of this Lease (recognizing that normally irrigation is required for only four (4) or five (5) months per year on Owner’s Land) at no additional charge or cost to Owner, except as set forth above, subject to the exceptions set forth below. Owner recognizes that Mauna Loa is in no way guaranteeing this supply of water and is not responsible if, for reasons beyond Mauna Loa’s control, the supply is not available.

3 .1.1. In the event of a water shortage due to natural causes and not to additional utilization of the water source by

Mauna Loa or persons authorized by Mauna Loa, such that Mauna Loa is unable to deliver to Owner the supply provided for above, Mauna Loa’s sole responsibility shall be to deliver to Owner, a pro rata share of water actually available (exclusive of any excess water sold to Owner under the terms of Section 3.1.6. below) based upon Owner’s percentage of use of water to the total amount of water used, measured in the year prior to shortage.

3 .1.2. If a water shortage (other than shortage caused by Mauna Loa’s increased demand for water) can be alleviated by additional capital investment in the Palima Well, Owner shall share pro rata with Mauna Loa the amount of such investment on an actual acreage served basis at the time of such investment.

3 .1.3. If for any reason, other than insufficiency of water supply as set forth above, Mauna Loa wishes to cease delivery of water from the Palima Well, Mauna Loa may, at its sole cost and expense (including all depreciation charges that would otherwise be charged to Owner), drill a well or wells and install all the appurtenances to a new irrigation system (including any necessary adjustments to the In-Field System) on Owner’s Land (and also including the 3,485 acre parcel

described as TMK 9-6-13-06) at a location or locations to be mutually agreed upon by Owner and Mauna Loa pursuant to an easement to be granted by Owner. Neither parties’ agreement to such new location to be unreasonably withheld. The original Extended Primary System any extensions thereof and any replacement system, as provided for in this paragraph, shall remain the property of Mauna Loa throughout the term of this Lease and thereafter. Throughout the term of this Lease, Mauna Loa agrees not to remove this Extended Primary System and any extensions thereof and to continue to maintain said systems according to the provisions of this Lease. Upon the successful completion of such new well and the delivery of water therefrom to Owner’s Lands in the manner and amounts provided for in Section 3.1 above, Mauna Loa shall no longer be obligated to deliver water to Owner from the Palima Well system.

3 .1.5. In the event it is determined that the State of Hawaii (the “State”) owns the

water which is the subject of this Lease and the State assesses a charge to Mauna Loa (or any other party from whom it obtains water) for utilization of the water, then Owner shall pay to Mauna Loa its pro rata share of such charge.

3 .1.6. Water is provided by Mauna Loa to Owner under this Lease only for use in developing and maintaining macadamia orchards under this Lease. Owner and Mauna Loa recognize that the maximum obligation to deliver water as stated above in no way precludes Mauna Loa from making available to Owner, at Owner’s request and cost, excess water available in the Palima Well system only (over and above the present and future needs of C. Brewer and Company, Limited and all of its subsidiaries plus their contractual obligations) to serve other Owner requirements. Further, for its other requirements, Owner will have first call only on that water from the Palima Well system which is in excess to the present and future needs of C. Brewer and Company Limited (“C. Brewer”) and all of its subsidiaries plus their contractual obligations, except that Owner’s future requirements once established will have precedence to water prior to any new contractual obligations of C. Brewer or any of its subsidiaries which arise thereafter. Should water

be sold by Mauna Loa to Owner from this system for purposes other than to irrigate macadamia orchards under this Lease , the cost of the water to Owner shall be determined by comparison with other agricultural water charges then current on the Island of Hawaii.

Mauna Loa has the obligation, subject to reimbursement as provided elsewhere in this Lease, throughout the term of this Lease to irrigate the orchards (if water is available under the terms of this Lease) and to maintain the in-field drip irrigation system at competitive cost.

3.2 Orchard Care and Maintenance. Mauna Loa shall conduct all such operations and perform all such services as shall be necessary in order to provide for the economical growth and yield of the Owner’s macadamia orchards in accordance with proven sound agricultural practices used by Mauna Loa in the planting, cultivation and harvesting of its own macadamia orchards and Owner agrees to follow Mauna Loa’s advice, including but limited to, the management of the following: ground cover, replanting, tree bracing, cultivation, weed control, pest control, fertilization, pruning, hedging, transplanting, branch disposal, irrigation, and soil and plant tissue analysis, and in order to provide for the protection of the planted acreage through the maintenance of such windbreaks as may be reasonably necessary for such purposes. Mauna Loa shall

maintain at Owner’s expense such field roads as may be reasonably necessary for the conduct of its operations under Sections 3.2 and 3.3 hereof.

3.3 Harvesting. Mauna Loa shall conduct all such operations and perform all such services as shall be necessary, in accordance with proven sound harvesting practices used by Mauna Loa in its own macadamia orchards in the most economical manner which the terrain permits, and Owner agrees to follow Mauna Loa’s advice, in order to harvest macadamia nuts produced on Owner’s Land, and to transport such nuts to Mauna Loa’s receiving station at Ka’u for husking.

to others any portion of the work required hereunder, if such work would normally be subcontracted for work in Mauna Loa’s own macadamia orchards. Mauna Loa, being fully responsible for the general management of Owner’s Land, shall have full authority over the performance of any such subcontract. However Mauna Loa may not subcontract its duties under this Lease in their entirety.

Mauna Loa shall comply with all requirements of federal and state law with respect to employment of personnel, including but not limited to all necessary insurance coverages under worker’s compensation laws. Mauna Loa shall indemnify and hold Owner harmless from and against any and all claims, obligations, liabilities or demands with respect to and arising out of the performance of Mauna Loa’s obligations under this Lease and the employment of Mauna Loa’s personnel and agents on Owner’s Land.

3.6 Accounting. At all times during the term of this Lease, Mauna Loa shall keep full and accurate accounts and complete records, in accordance with generally accepted accounting principles, showing all costs, advances, payments, expenditures and liabilities, and all other data which shall be necessary for the computation of the payments to be made by the Owner hereunder as hereinafter provided in Section 4 of this Lease. Mauna Loa shall cause such accounts and records to be audited annually by the independent auditor regularly employed by Mauna Loa and as soon as practicable following the end of each calendar year

during the term of this Lease such auditor shall render to Mauna Loa a statement for the purpose of verifying the amount of the Reimbursable Costs (hereinafter defined) paid or incurred by Mauna Loa and the amount of fees payable to Mauna Loa with respect to such year. Upon its receipt of such statement, Mauna Loa shall deliver a copy thereof to the Owner and Owner shall have a period of One Hundred Eighty (180) days after its receipt thereof to raise objections with respect thereto. The auditor’s determination as to the amount of such Reimbursable Costs and fees shall be binding unless the Owner shall have made objections thereto in writing to Mauna Loa within such One Hundred Eighty (180) day period. Owner shall have the right to examine business records supporting the financial statements material to the matters set forth therein and to employ auditors to verify the financial statements submitted to it by Mauna Loa. In the event that errors are identified which result in the Owner having been overcharged or undercharged, there shall be an adjustement of such charges correcting such errors. Owner shall pay Mauna Loa interest at the rate of One Percent (1%) on any such undercharges to Owner. If there are overcharges by Mauna Loa which result in Owner having been overcharged by less than Two Percent (2%), Mauna Loa shall pay Owner interest at the rate of One Percent (1%) on such overcharge. If such overcharges are Two Percent (2%) or more, Mauna shall pay all reasonable expenses incurred by Owner in verifying such overcharges and

shall also pay interest on such overcharges at a rate equal to Two Percent (2%) over the prime rate charged by Bank of Hawaii to its most credit-worthy customers.

3.7 Home Office and Other Support Services and Facilities. At all times during the term of this Lease, Mauna Loa shall provide such centralized office and other support services and facilities as may be necessary or appropriate in order to provide adequate support for all field operations hereunder, including without limitation of the generality of the foregoing, staff management, accounting, purchasing, industrial relations, engineering, agricultural, garage and warehouse services and facilities.

3.8 Protection of Ownership. At all times during the term of this Lease, Owner shall take any and all such actions as are customarily taken by a landowner in the husbanding of his property, including without limitation the making of surveys, the payment of taxes and assessments, the procurement of necessary permits and licenses, the insurance of properties (including trees), the insurance against liabilities, and the compliance with all laws, ordinances and governmental regulations relating to the ownership and/or use of the Owner’s Land. It is the intent of this Lease that Owner, not Mauna Loa, pay all of the expenses relating to such land and the orchards thereon. When requested by Owner, Mauna Loa shall assist Owner in the making of surveys, the processing of tax appeals, if any, and the procurement of necessary permits, licenses,

insurance and other items which the Owner requires for the proper use of the Land for macadamia purposes.

3.9 Additional Services. From time to time during the term of this Lease, Mauna Loa shall perform any and all such additional services as may be reasonably requested in writing by the Owner and agreed upon in writing by Mauna Loa, at a cost to be agreed upon.

3 .9.1. Agricultural Practices. In the performance of its obligations hereunder, Mauna Loa shall conduct all of its agricultural operations in accordance with proven sound agricultural practices used by Mauna Loa in its own macadamia orchards and Owner agrees to follow Mauna Loa’s advice. Owner recognizes that Mauna Loa gives no guarantees as to the yields from the orchards, except as may be specifically set forth herein. The agricultural risks associated with any growing crop and the natural risks in the area are recognized and assumed by Owner.

SECTION 4.

Reimbursement of Costs and Payment of Fees

4.1 Reports and Payments . The rental due from Mauna Loa to Owner shall be offset by (1) the Reimbursable Costs and the Management Fee due from Owner to Mauna Loa as set forth in this Section and (2) any monies past due to Mauna Loa from Owner under the note(s) or Mortgage dated September 21st, 1981 between the parties. Mauna Loa will

furnish Owner unaudited reports reflecting the accrual of Reimbursable Costs and the Management Fee hereunder, monthly during the term of this Lease. Owner will pay these monthly amounts of Reimbursable Costs and the Management Fee within thirty (30) days of the date of each report, unless such Costs and Fee are not off-set by Mauna Loa when Mauna Loa pays its lease rentals to Owner as set forth above. Interest shall accrue against Owner at the rate of One Percent (1%) per month on any unpaid amounts.

4.2 Reimbursable Costs. The term “Reimbursable Costs” as used herein shall not include any capital expenditures made either by Mauna Loa or Owner (for which overhead, mark-ups and management fees shall be separately negotiated between the parties), except as otherwise provided for in this Lease, and shall mean the following costs incurred by Mauna Loa in connection with the performance of its obligations under this Lease.

(a) Direct hourly wages, overtime pay, payroll taxes, insurance and other fringe benefits paid with respect to personnel working under this Lease.

(b) Amounts paid for replanted windbreak and macadamia trees, unless such replanting is required because Mauna Loa failed to follow said proven sound agricultural or harvesting practices.

(c) Costs (including transportation costs) incurred for fertilizers, herbicides, fungicides, rodenticides and other materials, used on Owner’s Land.

(d) Costs incurred for expendable tools and supplies.

(e) “Costs” as defined in Sub-section 4.2(c) and (d) above shall be invoice cost plus a Five Percent (5%) up charge to cover costs of processing and filling orders and delivery of purchases (where not otherwise specifically invoiced) to Ka’u;

(f) Service charges for the use of equipment employed on Owner’s Land, which shall be charged to Owner at the same rate customarily charged by Mauna Loa to other C. Brewer subsidiaries (this “inter-company rate” is currently equal to One Hundred Twenty-Five Percent (125%) of internal charge out rate);

(g) Irrigation costs (subject to the provisions of Section 3.1 above relating to depreciation and other matters) incurred to operate, maintain and repair the Extended Primary System and any extensions thereof and the In-Field System. The payment for water delivered to Owner’s Land shall equal all costs of producing the water and pumping and delivering it to Owner’s Land. Provided, however, that the Twenty Percent (20%) Ka’u overhead charge described in Sub-section (h) below and the Five Percent (5%) Management Fee described in Section 4.3 below shall not be applied to the diesel fuel portion of such irrigation costs.

(h) Ka’u overhead which applies to each item (a) through (g) above - an allocation of Ka’u Facility overhead shall be made at the rate of Twenty Percent (20%) times total Reimbursable Costs;

(i) Costs which Mauna Loa may incur to repair damage which it caused deliberately or by gross negligence shall not constitute Reimbursable Costs.

(j) In the event that the State or any governmental agency imposes a sales tax or general excise tax on services rendered or supplies and materials provided, such tax shall become a Reimbursable Cost under this Lease.

(k) In no case, without prior coordination and concurrence of Owner, will Owner’s direct cost per acre, net of all percentage up charges as set forth in this Section 4, exceed One Hundred Ten Percent (110%) of Mauna Loa’s direct cost per acre in a given year for comparable orchards. Owner shall have reasonable rights to inspect Mauna Loa’s records to verify compliance with this provision.

4.3 Management Fee. For each year of this Lease Owner shall pay to Mauna Loa, in accordance with monthly statements, a “Management Fee”, as compensation for services rendered hereunder and in payment for the sale of water hereunder, the amount of Five Percent (5%) of total Reimbursable Costs (as defined in Section 4.2 (a) through (h) above.

SECTION 5.

Rental Measured by Nuts Produced

5.1 Delivery and Acceptance of Crops. As rental, Mauna Loa shall purchase, as set forth herein, from Owner all macadamia nuts produced on Owner’s Land. Mauna Loa shall deliver from time to time during the term of this Agreement to Mauna Loa’s Ka’u receiving station all in-husk macadamia nuts produced on Owner’s Land. Owner shall not be obligated hereunder to deliver to Mauna Loa, and Mauna Loa shall not be obligated hereunder to accept any macadamia crops other than those produced upon Owner’s Land. Title to the nuts and risk of loss shall pass from Owner to Mauna Loa at the time that Mauna Loa loads the in-husk nuts into Mauna Loa’s trucks for delivery to the Ka’u receiving station.

5.2 Husking, Weighing.

(a) Husking. After delivery to Mauna Loa at its Ka’u receiving station of each shipment of macadamia nuts hereunder, the total shipment shall be husked by Mauna Loa with the cost thereof paid by Owner as a Reimbursable Cost.

day. In weighing the shipments, Mauna Loa from time to time shall employ such methods and procedures as will enable Mauna Loa with as much accuracy as may be reasonably practicable to ascertain the wet-in-shell weight of the nuts contained in shipment.

SECTION 6.

6.1 Payment of the Rental.

(a) Payments. Within thirty (30) days after the end of each calendar month during the term of this Lease in which the Owner has delivered one or more shipments of macadamia nuts to Mauna Loa hereunder, Mauna Loa shall furnish to the Owner a detailed statement evidencing the calculation of the rental payment to be made by Mauna Loa with respect to shipments delivered to Mauna Loa during such month. Rental payments shall be made within thirty (30) days after the end of the calendar month in which such shipments were delivered, if this amount exceeds the Reimbursable Costs and the Management Fee due from Owner to Mauna Loa under Section 4 hereof, and if there are not monies past due to Mauna Loa under the note(s) or mortgage dated September 21st, 1981. Interest shall accrue against Mauna Loa at the rate of One Percent (1%) per month on any unpaid amounts.

(b) Purchase Price. The purchase price per pound of wet-in-shell nut production shall consist of two elements. Sixty Percent (60%) of the price will be computed at Thirty-Seven Percent (37%) of the MAUNA LOA average wholesale list price as published in the MAUNA LOA Hawaii Wholesale Price List. Said List shall be sent to Owner, attention Controller, within a reasonable period of time after the publication of such List and prior to or concurrently with any invoices reflecting changes in such list. This wholesale price will be adjusted to convert kernel price to a wet-in-shell basis. Forty Percent (40%) of the price will be computed at the actual price paid as quoted in the current issue of “HAWAII MACADAMIA NUTS ANNUAL SUMMARY” published by the Hawaii Agricultural Reporting Service, for the most current crop year listed. Payments for each crop year will be adjusted after the average price for the entire year has been published. If the “HAWAII MACADAMIA NUTS ANNUAL SUMMARY” report is changed, discontinued, or otherwise not available, the best available industry recognized objective documentation will be substituted. Payments shall be computed using wet-in-shell weight net of defective nuts and kernels and price established as described in Exhibit “C”.

SECTION 7.

Sale of Nuts to Owner

7.1 Mauna Loa will make available for sale to Owner or one of its affiliates for delivery on the island of Hawaii, a maximum of One Hundred Forty Thousand (140,000) pounds of macadamia nut kernels per calendar year starting January 1, 1982 and continuing throughout the term of this Lease, for Owner’s development of the Mainland U.S. market. The form and source of the nuts (i.e. bulk kernels, nuts in cans or jars or in some product such as chocolate covered macadamia nuts or macadamia brittle) will be determined by Owner in subsequent direct contact with Mauna Loa marketing personnel and must be of a form available at the time of delivery each year, provided however that Mauna Loa shall give priority to Owner’s request for a particular form. Mauna Loa agrees to provide product under the Mauna Loa label but is willing to consider providing separate products and pricing under a private label, but agreement to do so will be subject to Mauna Loa’s reasonable determination of the propriety of such a decision at that time. The sale price from Mauna Loa to Owner or one of its affiliates will be at the market price at time of delivery of nuts to Owner. Market price is defined as the wholesale price as published in the Mauna Loa Hawaii Wholesale Price List. (Should Mauna Loa deliver to the Owner at another location outside of the State of Hawaii, the Price List for that geographical location will govern.) Each year Owner may buy all, part,

or none of the supply that Mauna Loa makes available. Each year Owner shall notify Mauna Loa in writing of Owner’s decision by November 1st of the preceding year, and if such written notice is not received by Mauna Loa by November 1st of the preceding year it shall mean that Owner has elected to buy no nuts during that year. Mauna Loa retains the right during periods of nut shortage, to allocate to Owner a pro rata share of nuts in proportion to the normal percentage of nut production purchased by Owner as compared with Mauna Loa’s normal total nut sales as measured in the year immediately preceding the shortage. Owner will pay for these nuts within thirty (30) days after the date of each billing. Interest will accrue against Owner at the rate of One Percent (1%) per month on any unpaid amount.

SECTION 8.

Management Representatives

For convenience of operation hereunder, Owner and Mauna Loa shall each designate one representative to effectuate decisions of their principals and to serve as the channel of communication for disseminating information to and securing necessary action by their principals. Until changed as provided for below, Charles W. Smith and Jerry E. Allen shall be the representatives of IASCO and Mauna Loa. The representative of any party hereto may be changed from time to time by written notice by such party to the other party hereto.

SECTION 9.

Force Majeure

Neither of the parties hereto shall be liable or accountable to the other party for any delay in complying or any failure to comply with any of the terms, provisions or conditions of this Lease in the event that such failure shall have been caused by an act of God, strike, lockout, public enemy, war, civil commotion, riot, condemnation, judicial or governmental order or other requirements of law (such as but not limited to governmental regulations concerning hazards of marketing or consumption of macadamia nuts) or the refusal or failure of any governmental office or officer to grant any permit or order necessary for compliance herewith by either party hereto, nor shall either of the parties hereto be liable or accountable to the other party for any damages arising from any such delay or failure. Owner purchased the premises with an awareness of the natural risks such as but not limited to earthquakes, volcanic eruptions, floods, winds, etc., and the agricultural risks and assumes those risks.

SECTION 10.

Termination

(a) Mutual Agreement. This Lease may be terminated, in whole or in part, at any time by the mutual agreement in writing of the parties hereto.

(b) Insolvency, etc. Should either party

hereto be declared bankrupt following the filing of a voluntary or involuntary petition, or be declared insolvent, or enter into any composition with creditors, or execute an assignment for the benefit of creditors, or should a receiver or trustee be appointed by any court or governmental agency to administer the affairs or assets of either party hereto, and is not removed within Sixty (60) days of such appointment, the other party hereto at its option may cancel and terminate this Lease upon giving not less than Fifteen (15) days’ written notice to the bankrupt or insolvent party.

(c) Default. If either party hereto shall default in the performance of any of its obligations hereunder the other party may, at any time, while such default continues, by written notice specifying such default, demand the performance of such obligations. Upon the failure of the other to cure such default within Thirty (30) days from the date of such demand, this dispute shall be immediately referred to arbitration, pursuant to Section 14, without the Sixty (60) day time restriction specified therein.

(d) Cross-Default by Owner Under Mortgage or Notes. This demise is upon the express condition that if Owner shall default in the payment of any monies or the performance or observance of any condition or covenant under either of those promissory note(s), made

by Owner in favor of Mauna Loa, dated September 21st, 1981, or that purchase money mortgage, between Owner, as mortgagor, and Mauna Loa, as mortgagee, dated September 21st, 1981, securing said note(s) with Owner’s Land, and Owner fails, within the time period provided in said note(s) or mortgage, if any, to cure such default in all respects, such failure shall constitute and be deemed to be a default under this Lease. In such event, Mauna Loa may at once pursue any of the remedies provided for herein, at law or in equity including, without limitation, cumulatively or in the alternative, its right to: (i) make no further rental payments to Owner unless and until the default is cured; (ii) offset all monies due to holder under either said note(s) or mortgage against said rental payments; and/or (iii) terminate this Lease. Nothing herein shall prevent Mauna Loa from exercising any other right it may have under or with respect to said note(s) and/or mortgage including, without further limitation, the right to accelerate said note(s) or to foreclose said mortgage.

(e) Destruction or Condemnation. In the event of the destruction of any or all of the Owner’s Land, Owner shall at Owner’s expense restore the premises to the same condition as prior to the destruction, if it can be reasonably restored. If it cannot be reasonably restored,

this Lease shall terminate as to that portion of Owner’s Land. In the event of condemnation, this Lease shall terminate as to the condemned portion and be of no further force or effect, but both Owner and Mauna Loa may pursue their separate rights against the condemning authority.

SECTION 11.

Use of Land

Mauna Loa covenants and warrants unto Owner that Mauna Loa will utilize the Owner’s Land only for the production of macadamia nuts and for no other use whatsoever during the term of this Lease, and will keep all of the Owner’s Land planted with macadamia and windbreak trees during the entire term of this Lease. Provided, however, that Owner may substitute other suitable acreage having grafted macadamia trees of comparable age for portions of the said Five Hundred Seventy Two (572) acres from time to time if the yields are comparable. Owner shall at all times have access to the leased orchards and may have Mauna Loa remove scion wood therefrom, so long as it would not materially damage the trees, for Owner’s use in the State of Hawaii and not for resale or export as scion wood or grafted trees.

SECTION 12.

Waiver

The failure of either party hereto to take advantage of any default or breach of agreement on the part of the other party shall not be construed as a waiver thereof, nor shall any custom or practice which may grow up between the parties in the course of administering this Lease be construed to waive or to lessen the right of either party hereto to insist upon the performance by the other party of any term, provision or condition hereof, or to exercise any rights given it on account of any such default. A waiver by either party hereto of a particular breach or default shall not be deemed to be a waiver of the same or any other subsequent breach or default. The acceptance of payments hereunder shall not be, or be construed to be, a waiver of any breach of any term, provision or condition of this Lease.

SECTION 13.

Assignment

Neither of the parties hereto may assign any of its rights or obligations hereunder to any other person or legal entity without the prior written consent of the other party hereto. Any consent or approval required under this Lease shall not be unreasonably withheld and no charge for the giving of such consent or approval shall be made. This Lease shall bind all successors to the land, if any, of Owner.

SECTION 14.

Arbitration

All claims, demands, disputes, differences, controversies and misunderstandings (hereinafter called “disputes”) arising out of, or in connection with, or in relation to this Lease, shall be submitted to and determined only by an arbitrator selected in the following manner: The parties hereby appoint Bert T. Kobayashi, Sr., Ted Tsukiyama, Harold Nickelsen, Suyeki Okumura and Masato Doi, as qualified arbitrators. Either party may within Sixty (60) days after there has been failure to reach amicable agreement (impasse) with the other party on any such dispute serve written notice on the other party of its election to have the dispute settled by arbitration under this paragraph and with such notice shall strike one (1) name from the panel of arbitrators. The second party shall then by written notice with ten (10) days thereafter to the first party strike a name and this process shall be repeated until only one (1) name is left and that person shall serve as the arbitrator. If any of the five (5) named members of the panel is unable or unwilling to serve as arbitrator the parties may agree upon a substitution. If unable to agree, either party, upon a showing of good cause and notice to the other party, may have the Administrative Judge of the First Judicial Circuit, State of Hawaii, appoint a substitute. Each party shall pay one-half ( 1 / 2 ) of the arbitrator’s fee and expenses and its own fees and expenses. The decision of

the Arbitrator so chosen shall be final and binding upon the parties and enforceable in accordance with the provisions of Ch. 658, H.R.S. as it may from time to time be amended.

SECTION 15.

Notices

To IASCO :	International Air Service
	Company, Ltd.
	1710 Gilbreth Road
	Burlingame, California 94010
	Attention: James C. Jack, Jr.
	Telex: 331346
	Response Code: IASCO B BRGM

With informational copies to Charles W. Smith, 4476 Kolohala, Honolulu, Hawaii.

To Mauna Loa :	Mauna Loa Macadamia
	Nut Corporation
	c/o C. Brewer and Company,
	Limited
	827 Fort Street
	Honolulu, Hawaii 96813
	Attention: A. Kugle
	Telex: 392481
	Response Code: CBREW O

IN WITNESS WHEREOF, the Owner and Mauna Loa have caused this Lease to be executed by their duly authorized representatives on the day and year first written above.

INTERNATIONAL AIR SERVICE COMPANY, LTD.


	By	/s/ [ILLEGIBLE]
	Its:	Exec. V.P.


MAUNA LOA MACADAMIA NUT CORPORATION

	By	/s/ J Alan Kugle
	Its:	Vice President

	By	/s/ James G. Higgins
	Its:	Secretary

EXCEPTIONS TO TITLE

1. Real Property Taxes have been fully paid up to and including June 30, 1981.

2. Reservation in favor of the State of Hawaii of all mineral and metallic mines.

LEGAL DESCRIPTION

LOT B

LAND SITUATED ON THE WESTERLY SIDE OF MAMALAHOA HIGHWAY

AT ILIOKOLOA, KAUHUHUULA, KUMA, HALELUA, WAILOA AND KEAIWA,

KA’U, ISLAND OF HAWAII, HAWAII

BEING THE WHOLE OF ROYAL PATENT 7173,

LAND COMMISSION AWARD 8032, APANA 3 TO AWIHI

ROYAL PATENT 7930,

LAND COMMISSION AWARD 8980, APANAS 1 AND 2 TO KEPIO

ROYAL PATENT 7931,

LAND COMMISSION AWARD 9219, APANAS 1, 2, AND 3 TO KALUA

AND PORTIONS OF GRANTS 2604 AND 2973 TO F. S. LYMAN

ROYAL PATENT 7876,

LAND COMMISSION AWARD 8452, APANA 16 TO A, KEOHOKALOLE,

ROYAL PATENT 7002,

LAND COMMISSION AWARD 7555, APANA 2 TO KAWAA,

AND ROYAL PATENT 6591,

LAND COMMISSION AWARD 10876 to PAAHAO

EXHIBIT “A”

AGRICULTURAL LEASE OF 624

Beginning at a 3/8” pipe (found) at the Southeast corner of this parcel of land on the Westerly side of Mamalahoa Highway, the coordinates of which referred to Government Survey Triangulation Station “PUU ULAULA” being 995.88 feet North and 12,956.98 feet West and running by azimuths measured clockwise from true South:

1.	132°	51’		1,906.68	feet along remainder of Grant 2604 to F. S. Lyman;

2.	30°	33’		1,244.97	feet along remainder of Grant 2604 to F. S. Lyman;

3.	18°	16’	30”	414.81	feet along remainder of Grant 2604 to F. S. Lyman to middle of Paauau Stream; thence along middle of Paauau Stream, along the land of Paauau 2nd, along Grant 3533 to Estate of B. P. Bishop for the next nine (9) courses, the direct azimuths and distances between points along said middle of stream being;

4.	136°	41’	15”	37.01	feet along Lot 87 of Pahala Village, 9th Series;

5.	151°	02’	45”	59.12	feet along Lot 86 of Pahala Village, 9th Series;

6.	174°	37’		64.00	feet along Lots 86 and 85 of Pahala Village, 9th Series;

7.	130°	33’	30”	60.21	feet along Lot 85 of Pahala Village, 9th Series;

8.	106°	32’		60.00	feet along Lot 84 of Pahala Village, 9th Series;

9.	130°	04’	30”	36.45	feet along Lot 84 of Pahala Village, 9th Series;

10.	113°	25’	30”	92.83	feet along Lot 83 of Pahala Village, 9th Series;

11.	103°	30’		94.35	feet along Lot 82 of Pahala Village, 9th Series;

12.	129°	53’	30”	51.68	feet along Lot 81 of Pahala Village, 9th Series, thence;

13.	162°	46’	30”	746.08	feet along remainder of Grant 2604 to F. S. Lyman;

14.	231°	35’	20”	944.00	feet along remainder of Grant 2604 to F. S. Lyman to the middle of small stream and passing over a pipe (found) at 87.00 feet; thence along middle of small stream, for the next seven (7) courses, the direct azimuths and distances between points along said middle of small stream being;

15.	147°	15’		345.00	feet along remainder of Grant 2604 to F. S. Lyman;

16.	182°	15’		608.54	feet along remainder of Grant 2604 to F. S. Lyman;

17.	175°	25’		630.48	feet along remainders of Grants 2604 and 2973 to F. S. Lyman;

18.	190°	40’		1,064.00	feet along remainders of Grants 2973 and 2604 to F. S. Lyman;

19.	216°	00’		538.00	feet along remainder of Grant 2604 to F. S. Lyman;

20.	173°	30’		452.80	feet along remainder of Grant 2604 to F. S. Lyman;

21.	149°	30’		726.30	feet along remainder of Grant 2604 to F. S. Lyman, thence;

22.	255°	45’		103.89	feet along remainder of Grant 2604 to F. S. Lyman to a pipe;

23.	233°	20’		470.00	feet along remainder of Grant 2604 to F. S. Lyman to a pipe;

24.	225°	15’		237.00	feet along remainder of Grant 2604 to F. S. Lyman to a pipe;

25.	230°	00’		475.00	feet along remainder of Grant 2604 to F. S. Lyman to a pipe;

26.	242°	15’		305.00	feet along remainder of Grant

					2604 to F. S. Lyman to a pipe;

27.	288°	30’		160.00	feet along remainder of Grant 2604 to F. S. Lyman to a pipe;

28.	184°	00’		115.00	feet along remainder of Grant 2604 to F. S. Lyman to a pipe;

29.	249°	30’		140.00	feet along remainder of Grant 2604 to F. S. Lyman to a pipe;

30.	270°	30’		330.00	feet along remainder of Grant 2604 to F. S. Lyman to the middle of stream; thence along middle of stream for the next three (3) courses, the direct azimuths and distances between points along said middle of stream being;

31.	165°	54’		595.60	feet along remainders of Grant 2604 to F. S. Lyman and R. P. 7876, L. C. Aw. 8452, Ap. 16 to A. Keohokalole;

32.	163°	24’		489.10	feet along remainder of R. P. 7876, L. C. Aw. 8452, Ap. 16 to A. Keohokalole;

33.	131°	02’	30”	556.00	feet along remainder of R. P. 7876, L. C. Aw. 8452, Ap. 16 to A. Keohokalole, thence;

34.	193°	09’	15”	1,581.66	feet along remainders of R. P. 7876, L. C. Aw. 8452, Ap. 16 to A. Keohokalole, R. P. 6591, L. C. Aw. 10876 to Paahao and R. P. 7002, L. C. Aw. 7555, Ap. 2 to Kawaa and passing over a pipe (found) at 317.00 feet;

35.	313°	40’	30”	87.56	feet along the Government Land of Kaalaala Makai;

36.	314°	10’	30”	869.90	feet along the Government Land of Kaalaala Makai to an “A” cut (found);

37.	319°	49’		1,645.60	feet along the Government Land

					of Kaalaala Makai;

38.	315°	56’	30”	496.30	feet along the Government Land of Kaalaala Makai;

39.	315°	04’	30”	1,487.64	feet along the Government Land of Kaalaala Makai;

40.	30°	16’	30”	123.89	feet along the Westerly side of Mamalahoa Highway; thence along the Westerly side of Mamalahoa Highway, on a curve to the left with a radius of 5,759.65 feet, the chord azimuth and distance being;

41.	25°	55’		875.40	feet, thence;

42.	21°	33”	30”	3,749.19	feet along the Westerly side of Mamalahoa Highway;

43.	111°	33’	30”	10.00	feet along the Westerly side of Mamalahoa Highway;

44.	21°	33’	30”	116.00	feet along the Westerly side of Mamalahoa Highway;

45.	291°	33’	30”	10.00	feet along the Westerly side of Mamalahoa Highway;

46.	21°	33’	30”	1,813.18	feet along the Westerly side of Mamalahoa Highway to the point of beginning and containing an area of 572.40 acres, more or less.

Exhibit 11.1

ML MACADAMIA ORCHARDS, L.P.

Computation of Net Income (loss) per Class A Unit (unaudited)

(in thousands, except per unit data)

	Three months ended September 30,					Nine months ended September 30,
	2011		2010			2011		2010

Net income (loss)	$	38	$	(308	)	$	153	$	(451	)

Class A Unit Holders (ownership percentage)	x	100%	x	100%		x	100%	x	100%

Net income (loss) allocable to Class A Unit Holders	$	38	$	(308	)	$	153	$	(451	)

Class A Units outstanding	7,500		7,500			7,500		7,500

Net income (loss) per Class A Unit	$	0.01	$	(0.04	)	$	0.02	$	(0.06	)

Exhibit 31.1

CERTIFICATIONS

I, Dennis J. Simonis, certify that:

1. I have reviewed this quarterly report on Form 10-Q of M. L. Macadamia Orchards, L.P.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal in the case of an annual report) that has materially affected, or is likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal controls over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: November 9, 2011

/s/ Dennis J. Simonis

Dennis J. Simonis
President and Chief Executive Officer

Exhibit 31.2

I, Wayne W. Roumagoux, certify that:

1. I have reviewed this quarterly report on Form 10-Q of M. L. Macadamia Orchards, L.P.;

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: November 9, 2011

/s/ Wayne W. Roumagoux

Wayne W. Roumagoux
Chief Financial Officer / Principal Accounting Officer

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of M.L. Macadamia Orchards, L.P. (the “Company”) on Form 10-Q for the period ended September 30, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Dennis J. Simonis, President and Chief Executive of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that,

(1) The Report fully complies with the requirements of section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Dennis J. Simonis

Dennis J. Simonis
President and Chief Executive Officer
November 9, 2011

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of M.L. Macadamia Orchards, L.P. (the “Company”) on Form 10-Q for the period ended September 30, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Wayne W. Roumagoux, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that,

(3) The Report fully complies with the requirements of section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and

(4) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Wayne W. Roumagoux

Wayne W. Roumagoux
Chief Financial Officer / Principal Accounting Officer
November 9, 2011