Exhibit 10.54

 

MACADAMIA NUT PURCHASE AGREEMENT

 

THIS MACADAMIA NUT PURCHASE AGREEMENT (the “Agreement”) is entered into as of
January 6, 2006, by and between MAC FARMS OF HAWAII, LLC, a Delaware limited
liability company (“MF”) and ML MACADAMIA ORCHARDS, L.P., a Delaware limited
partnership (“MLP”).

 

W I T N E S S E T H:

 

WHEREAS, MF is engaged in the business of processing and marketing macadamia
nuts; and

 

WHEREAS, MLP is the legal and beneficial owner of macadamia nut crops grown in
certain macadamia nut orchards located on the Big Island in Hawaii (the
“Orchards”); and

 

WHEREAS, MF desires to purchase from MLP, and MLP desires to sell to MF,
wet-in-shell (“WIS”) macadamia nuts on the terms and conditions provided herein;

 

NOW, THEREFORE, in consideration of the premises, the promises, and covenants
and agreements set forth herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:

 

1.                                       Term.  This Agreement shall commence on
January 1, 2007, and shall continue in full force and effect, until December 31,
2011, unless terminated earlier, as provided herein.

 

2.                                       Purchase and Sale.  MLP agrees to sell
to MF, and MF agrees to purchase from MLP, at least 4.5 million pounds, and not
in excess of 5.5 million pounds, of WIS macadamia nuts, annually, during the
term hereof grown by MLP in the Orchards.  For purposes of this Agreement, WIS
pounds means field pounds, adjusted to twenty percent (20%) moisture. and thirty
percent (30%) SK/DIS kernel recovery.

 

3.                                       Delivery.  During the term hereof, MLP
shall harvest the macadamia nuts and load them in containers suitable for the
transport thereof, as mutually-agreed upon by the parties, and deliver WIS
macadamia nuts to MF’s processing plant (the “Plant”). Both parties acknowledge
that the macadamia nut crops must be harvested and delivered in a timely manner
to MF, so that the macadamia nut quality will not be adversely affected.
Accordingly, such harvesting and delivery shall commence during August of each
crop year, and MF agrees to accept delivery of the WIS macadamia nuts, after
husking and removal by MLP of extraneous matter (i.e., rocks, sticks), at a rate
not to exceed (i) a maximum of 500,000 WIS pounds of macadamia nuts per week,
and (ii) a maximum of 125,000 WIS pounds of macadamia nuts per

 

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day.  MLP will make deliveries of WIS macadamia nuts between the hours of 6.30am
to 3:00pm Monday to through Saturday. To the extent MF is unable to accept
deliveries at this rate, MLP and MF will take samples of the WIS macadamia nuts
intended for delivery to MF, and which delivery will be accordingly delayed. 
When such macadamia nuts, the delivery of which was delayed, are actually
delivered, payment will be based upon the foregoing samples and the actual
delivery weights thereof FOB the Plant provided by MLP.  WIS macadamia nuts,
whose delivery is delayed, will be stored at mutually-agreed sites.  MLP
recognizes, that it has a duty to mitigate any damages caused by delayed
deliveries by providing periodic forecasts of intended deliveries and by selling
delayed deliveries of macadamia nuts to other processors with excess capacity,
if at all possible.

 

4.                                       Annual Contract Price.  The parties
shall mutually agree upon a contract price for each six (6) month period
(January-June and July-December) under this Agreement.  The pricing for
January-June shall be agreed to no later than November 15th of the preceding
year, and the pricing for July-December shall be agreed to no later than the
preceding May 15th.

 

If the parties fail or are unable to agree upon a contract price by
November 15th for any January-June period or by May 15th for any
July-December period during the term hereof, the parties shall mutually-select
an independent third-party broker or specialist to (i) determine the average,
current spot price per-pound for bulk premium (Hawaiian and Australian) Style II
raw macadamia nuts (FOB West Coast) (the “Global Macadamia Kernel Price”), and
(ii) issue a certified report of the foregoing to the parties.  The procedures
for such review are set forth on Exhibit A attached hereto.  Either party may
challenge the conclusions of the report within fifteen (15) days of the issuance
thereof.  In such case, the parties shall attempt to resolve the pricing issues
through good faith negotiations.  If the parties fail or are unable to reach a
final agreement as to the contract price, within fifteen (15) days, the
objecting party may, at its own cost, engage a second, qualified, independent,
third-party broker or specialist to prepare a second certified price report. 
The results of the two reports shall be averaged to determine the Global
Macadamia Kernel Price. The Global Macadamia Kernel Price, as determined by the
independent third-party broker(s) or specialist(s), as the case may be, shall be
converted to a WIS macadamia nut contract price using a conversion factor of
15.2% of the Global Macadamia Kernel Price.

 

In the event that a contract price has not been established by the beginning of
any six (6) month period, all WIS macadamia nuts that are delivered to MF shall
be paid for, based upon the price used by the parties for the immediately
preceding six (6) month period.  As soon as the new contract price is
determined, an adjustment shall be calculated and reflected in the next payment.

 

5. (A)                  Options to Terminate.  In the event that the contract
price for any six (6) month period is less than 75 cents per pound, MLP shall be
entitled to terminate this Agreement, in-full or in-part, at its sole option, by
providing (i) two (2) year’s advance written notice, if such occurs during the
first eighteen (18) months of this Agreement, (ii) one (1) year’s advance
written notice, if such occurs between the 18th and 36th months of this
Agreement, and (iii) ninety (90) day’s advance written notice, if such occurs
during the remainder of the term hereof.  In the event that the contract price
for any six (6) month period is more than $1.20 per pound, MF shall be entitled
to terminate this Agreement, in-full or in-part, at its sole option, by
providing to MLP ninety (90) day’s advance written notice.

 

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5 (B) Suspension of WIS Macadamia Nut Delivery: In the event that Extraneous
matter (as defined in Exhibit B) contained in a delivery, as determined by the
WIS macadamia nuts sampling process exceeds 5.0% of the gross weight of the
delivery sample, MF has the right to refuse further deliveries of WIS macadamia
nuts until satisfied that MLP has taken the necessary measures to correct the
problem at their husking plant.  MF will inform MLP immediately when Extraneous
materials exceed the established criteria and allow reasonable time for MLP to
mitigate the problem. 

 

6.                                       Payment Terms.  Payments shall be made
within thirty (30) days after the date of delivery FOB the Plant.

 

7.                                       PACA Lien.  MF acknowledges, that all
payments owed by it to MLP relating to deliveries of WIS macadamia nuts are
subject to, and secured by, the provisions of the Perishable Agricultural
Commodities Act of 1930.  Notwithstanding the foregoing, MLP warrants to MF,
that all WIS macadamia nuts sold by MLP to MF, pursuant to the terms hereof,
shall be free and clear of all liens, security interests, encumbrances, and
claims whatsoever, and that MLP has good and clear title thereto.

 

8.                                       Sampling.  MF and MLP shall use such
methods and procedures as are appropriate to enable MF to determine the gross
WIS weight, the moisture content and the kernel recovery of the WIS macadamia
nuts delivered to it by MLP as accurately as reasonably possible.  The
procedures to be used in sampling to determine the gross WIS weight delivered
(after Extraneous material), moisture content, and kernel recovery, and in
calculating the payment to MLP, for the WIS macadamia nuts purchased by MF, are
set forth on Exhibit B attached hereto. Any deviations from the foregoing
sampling procedure shall be by mutual written agreement only.

 

9.                                       Accounting and Reports.  MF shall keep
full and accurate records and accounts showing, among other things, dates of
delivery, the weights of the WIS macadamia nuts upon delivery, and all other
information that may be necessary or desirable in order to calculate and verify
payments to MLP under this Agreement.

 

Each payment for deliveries of WIS macadamia nuts shall be accompanied by a
written report to MLP providing the WIS delivery weight, the quality analysis
reports, and the calculations that determine payment.

 

MLP shall be entitled to observe the sampling process, upon giving reasonable,
advance notice to MF and shall be entitled to receive any information necessary
or desirable to verify the accuracy of the WIS macadamia nut price or payment
therefor.  To the extent that information is shared between the parties
hereunder and is not in the public domain, both parties agree to keep such
information confidential, except as may be required by law or in order to
enforce the terms and conditions of this Agreement.

 

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10.                                 Termination.  The parties may terminate this
Agreement, at any time, by mutual agreement, in writing.  In the event that
either party shall be in default hereunder (as defined below), the
non-defaulting party may terminate this Agreement, at any time, by delivering
written notice of such termination to the defaulting party.  The
right-of-termination shall not exclusive.  Both parties shall be entitled to
exercise any other right or remedy provided at law or in equity. Notwithstanding
the foregoing, neither party shall be entitled to recover punitive, special,
incidental, exemplary, or consequential damages.

 

A party shall be in “default” under this Agreement in the event that (i) it
files any voluntary proceeding for dissolution or liquidation under any federal
or state bankruptcy, insolvency, receivership, or similar law; (ii) any such
proceeding is commenced against it involuntarily and is not dismissed within
sixty (60) days; (iii) it makes any composition with, or assignment for the
benefit of, its creditors; (iv) it enters into any corporate reorganization,
sale of

 

business or acquisition without making adequate provision for the performance of
its obligations under this Agreement, (v) it fails to perform any of its
obligations hereunder when due and fails to correct such non-performance within
thirty (30) days after written demand for performance is made by the other
party; or (vi) it repeatedly fails to perform its obligations under this
Agreement, except after written demand for performance.

 

11.                                 Notices.  For convenience of operations
hereunder, each of MF and MLP shall designate one representative to serve as the
channel of communication for delivering information to, and securing necessary
action by, its principals.  Either party may change its representative from
time-to-time by delivering written notice of such change to the other party. 
Until further notice is given, each party’s representative shall be the person
listed in the notice address below.

 

Any and all notices, demands, or other communications (collectively, “Notice”)
requiring 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 to its authorized
representative at the address set forth below, if served either personally, or
if deposited in the United States Mail, certified or registered, postage
prepaid, or if sent by fax.

 

MF:

Mac Farms of Hawaii, LLC

 

89-406 Mamalohoa Highway

 

Captain Cook, Hawaii 96704

 

Attention: President

 

Fax: (808) 328-2080

 

 

MLP:

ML Macadamia Orchards, L.P.

 

26-238 Hawaii Belt Road

 

Hilo, Hawaii 96720

 

Attention: President

 

Fax: (808) 969-8152

 

If such notice is delivered personally, service shall conclusively be deemed to
have been made at the time of such delivery.  If such notice is given by mail,
service shall conclusively be

 

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deemed to have been made 72 hours after deposit thereof in the mail as provided
for above.  If such notice is given by fax, service shall conclusively be deemed
to have been made twenty-four (24) hours after the transmission thereof and
receipt of the proper confirmation code, unless the transmission is received on
a Saturday, Sunday, or a holiday, in which case the transmission shall be deemed
to have been received on the next business day.  Either party may change its
address for the purpose of receiving notices as herein provided by a written
notice given to the other party.

 

12.                                 Force Majeure.  Neither party shall be
liable or accountable to the other party for any delay in complying, or failure
to comply, with any of the terms, provisions, or conditions of this Agreement,
in the event that any such delay or failure shall have been caused by an act of
God, strike, lockout, public enemy, war, civil commotion, riot, judicial, or
governmental order, or other requirements of law which directly prohibit the
performance by either party of its obligations hereunder (including, but not
limited to, governmental regulations concerning the 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, 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.  In the
event that any such event of force majeure shall have a material adverse
economic impact on the price or marketability of macadamia nuts, either party
may terminate this Agreement upon giving ninety (90) day’s prior written notice
to the other party. 

 

The party invoking the protections of this clause shall give prompt, written
notice to the other party of the commencement and termination of the applicable
event of force majeure, and, upon the termination of any such event of force
majeure, shall promptly commence performing its obligations hereunder. Further,
during any such delay in performance or failure to perform by MLP, MF may elect
to purchase the WIS macadamia nuts from other sources and, at MF’s sole option,
apply such purchases to reduce the quantity of the WIS macadamia nuts
deliverable hereunder. 

 

13.                                 Waiver.  The failure of either party to
enforce its rights upon any default on the part of the other party shall not be
construed as a waiver thereof, nor shall any custom or practice established
between the parties during the course of the term of this Agreement be construed
to waive or lessen the right of either party to demand performance by the other
party or exercise its rights in the event of default.  No provision of, or
default under, this Agreement may be waived, except by a notice in writing
signed by the party making the waiver.  A waiver by either party of a particular
default shall not be deemed to be a waiver of any other subsequent default.

 

14.                                 Assignment.  Neither party may assign any of
its rights or obligations hereunder without the prior written consent of the
other party, which consent shall not be unreasonably withheld, delayed, denied,
or conditioned. 

 

15.                                 Entire Agreement.  This Agreement represents
the entire agreement and understanding of the parties with respect to the
subject matter hereof.  The parties specifically acknowledge and agree, that no
joint venture or partnership is created hereby, and that neither party shall act
as an agent for the other party.

 

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16.                                 Mediation  Any and all matters in dispute
arising from or relating to this contract/agreement, or the breach thereof,
which remain unresolved after direct negotiation between the parties, shall
first be submitted to confidential mediation in accordance with the Rules,
Procedures and Protocols for Mediation of Dispute Prevention & Resolution, Inc.,
then in effect. The parties agree that a good faith attempt to resolve all
issues in mediation is a pre-condition to further adversarial proceedings of any
kind.

 

17.                                 Governing Law.  This Agreement will
primarily be performed in and shall be governed by and construed in accordance
with the laws of the State of Hawaii. Each of the parties consents to the
jurisdiction of the courts of the State of Hawaii or any federal court sitting
in Hawaii and agrees that Hawaii is an appropriate venue for any action that may
be brought under this Agreement.

 

18.                                 Authority.  Each party hereto represents and
warrants to the other party, that it has full authority to enter into this
Agreement, and that its execution and delivery hereof has been duly-authorized
by all appropriate action.

 

19.                                 Severability.  Whenever possible, each
provision of this Agreement shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of this Agreement
shall be prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.

 

20.                                 Counterparts.  This Agreement may be
executed in counterparts, each of which shall be deemed an original, but all of
which together shall constitute the entire Agreement.

 

21.                                 Headings.  The headings in this Agreement
are for convenience only, and are not to be construed as part of the Agreement
and shall not in any way effect the interpretation of this Agreement.

 

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IN WITNESS WHEREOF, MF and MLP have caused this Agreement to be executed and
delivered by their duly-authorized representatives as of the date first above
written.

 

 

 

 

MAC FARMS OF HAWAII, LLC

 

 

 

 

 

 

 

By:

/s/ Hilary Brown

 

 

 

HILARY BROWN, President

 

 

 

 

 

ML MACADAMIA ORCHARDS, L.P.

 

 

By: ML Resources, Inc., its general partner

 

 

 

 

 

 

 

By:

/s/ Dennis J. Simonis

 

 

 

DENNIS J. SIMONIS, President

 

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EXHIBIT A

 

PROCEDURES FOR DETERMINATION OF GLOBAL MACADAMIA PRICES

 

1.                                       If the parties fail or are unable to
agree upon a contract price by November 15th for any January-June period or by
May 15th for any July-December period during the term hereof, the following
procedures shall be used to determine the Global Macadamia Kernel Price, as
defined herein.  This Global Macadamia Kernel Price shall then be converted to a
WIS contract price equal to 15.2% of the Global Macadamia Kernel Price. 

 

2.                                       The parties shall mutually-select an
independent third-party broker or specialist (the “Specialist”) from the list
below with current experience and transactions in the macadamia nut market.  The
Specialist shall be independent and shall have no material business relationship
with either party.

 

a.                                       J.F. Braun & Associates

b.                                      Trademark Commodities Inc.

c.                                       Jennings & Associates

d.                                      Debbie Roy Brokerage

e.                                       York Sutch & Associates

 

If the parties shall be unable to mutually agree upon a Specialist, then the
parties shall alternately delete one name each from the list, until only one
Specialist is left. 

 

3.                                       The Specialist shall determine the
average, current spot price per-pound for bulk premium (Hawaiian and Australian)
Style II raw macadamia nuts (FOB West Coast) (the “Global Macadamia Kernel
Price”).  Any distressed or discounted sales for old or inferior macadamia nuts
shall be excluded from the determination.  The Specialist shall thereupon issue
a certified report of the foregoing to the parties, which report shall state the
average price per pound for the applicable period, together with the
methodology, procedure and actual sample of transactions utilized in the
calculation.

 

4.                                       If neither party objects to the
reported Global Macadamia Kernel Price, as determined above, the WIS contract
price will be 15.2% of the Global Macadamia Kernel Price.

 

5.                                       If either party challenges the
conclusions of the report within fifteen (15) days of the issuance thereof, the
parties shall attempt to resolve the pricing issues through good faith
negotiations.  In the event that the parties fail or are unable to reach a final
agreement as to the contract price within fifteen (15) days, the objecting party
may, at its own cost, engage a second, qualified, independent, third-party
broker or specialist to prepare a second certified price report using the
procedures set forth in item no. 3 above.  The results of the two reports shall
be averaged to determine the Global Macadamia Kernel Price.  The Global
Macadamia Kernel Price, as determined by the independent third-party broker(s)
or specialist(s), as the case may be, shall be converted to a WIS macadamia nut
contract price using a conversion factor of 15.2% of the Global Macadamia Kernel
Price.

 

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EXHIBIT B

 

PROCEDURE FOR SAMPLING NIS FOR PAYMENT PURPOSES

 

1.  Upon delivery, weigh or verify certified weight ticket to determine the
Gross Weight of each wet-in-shell (“WIS”) shipment. A shipment (“shipment”)
shall mean one load delivered on a single day.  Additional loads delivered on
the same day will be treated as individual shipments, i.e. separate weights and
samples.  MF will provide, upon delivery, a receipt that states the weight of
each shipment delivered by MLP.

 

2.  MLP will provide samples from its continuous sampler until MF has the
ability to draw a continuous sample from throughout the delivered shipment of
mutually agreed upon quantity of nuts.  MF will collect a minimum of 60 lbs.
from each shipment through it continuous sampler to determine the moisture
content, amount of extraneous material, kernel quality and recovery.  The
material shall be further split into two sub-samples, A and B, of 20 lbs. each. 
Determine the amount of extraneous material in sub-sample “A” and the Gross
Weight WIS Delivered as described in paragraph 3.  The balance of sub-sample “A”
shall be used to determine the moisture content, spoilage and kernel recovery as
described in paragraph 4. Sub-sample “B” shall be held for 30 days and used for
confirmation of the results for sub-sample “A” when requested by MLP.

 

3.  Weigh the sample and record the weight of WIS designated herein as “W”.  For
loads received as WIS a sample will be taken and weighed. This weight will be
recorded. Any Extraneous material (trash, husk, empty nuts, rat damaged nuts,
sticks, rocks, nuts with mechanically fractured shell exposing kernel and peewee
nuts (< 5/8” in diameter)) that were captured in the sample will be removed from
the sample and weighed. The ratio of weight for the Extraneous material to the
total weight of sub-sample “A” will be applied to the Gross Weight of the
shipment to determine the Gross Weight WIS Delivered (after Extraneous
material), herein designated “GW”.

 

4.  Split the sample into two lots, one to determine moisture (“moisture
sample”) and the other to determine spoilage and kernel recovery (“quality
sample”).  Two (2) lbs. of sub-sample “A” shall be used to determine the
moisture content as described in paragraph 5.  Ten (10) lbs. of sub-sample “A”
shall be used to determine the spoilage and recovery for each shipment as
described in paragraphs 6 to 11.

 

5.  Weigh the moisture sample and record the weight.  Dry the sample at
approximately 250 degrees Fahrenheit for a period of 1 day.  Weigh the dried
sample and record the weight after drying.  Divide the difference in weight
prior to and after drying by the weight prior to drying.  The result is the
percentage of moisture of the WIS nuts designated herein as “M”.

 

6.  Weigh the quality sample and record the weight. Dry the sample at
approximately 122 degrees Fahrenheit for 3 days then raise the temperature to
140 degrees Fahrenheit for 2 days.

 

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Record the dry-in-shell (“DIS”) weight.  The weight, in grams, of the DIS sample
is designated herein as “X”.

 

7.  Crack the DIS sample and separate the shells from the kernels.  Determine
the weight of the recovered raw kernels.  Roast all recovered kernel at 260
degrees Fahrenheit for 35 minutes in a convection oven.

 

8.  Inspect the roasted kernels and separate unsaleable kernels and record the
weights of the following categories.

a)   Stinkbug damage (>2 spots)

b)   Koa Seed Worm damage

c)   Tropical Nut Borer damage

d)   Mold

e)   Germination

f)   Immature/Shrivels

g)   Total a) through f)

 

Record the data and summarize for field management purposes.

 

9.  Using Hawaii, Department of Agriculture “Standards for Hawaii-Grown Shelled
Macadamia Nuts” criteria, separate out the salable kernel and record the
weight.  The weight, in grams, of salable kernel is designated herein as “Y”.

 

10.  Determine the Salable Kernel Recovery (SK/DIS) factor designated herein as
“KR”.

 

KR = Y/X

 

11.  Determine spoilage percentages for each category of unusable as follows:

 

For each category of unusable, divide the recorded category

weight by the total of unusable and usable kernel (8(g) plus Y).

 

12.  Determine Payable Pounds for the load.

 

a)  Convert total load to WIS weight at 20% moisture designated herein as “WM”

 

WM = GW*(1-M)/(1-.2)

 

b)  Determine Payable Pounds for the load designated herein as “P”

 

P = WM*(KR/.3)

 

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13.  Sample Calculation.

 

Gross Weight WIS Delivered (after Ex-       45,000 lbs traneous material)

Moisture (from sample)

 

21.0

%

Salable Kernel Recovery (from sample)

 

30.5

%

Price (e.g. 1st year volume price)

 

$

.85

 

 

WM = 45,000 * (1-.21)/(1-.2) = 44,437 lbs WIS adjusted to 20% moisture

P = 44,437 * 0.305/0.3 = 45,178 lbs WIS adjusted to 20% moisture &30% recovery
(Contract Pounds)

Payment = 45,178 lbs * $0.85  =                            $38,401.30

 

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