Document:

Exhibit 10.60

 

AMENDED AND RESTATED

 

AGREEMENT
OF LIMITED PARTNERSHIP

OF

ML MACADAMIA ORCHARDS, L.P.

 

This Agreement of Limited Partnership entered
into as of April 14, 1986,as amended and restated
as October 14, 1989, and as further amended and restated effective as of March 10,
2008,, is made by and among ML Resources, Inc., a Hawaii corporation,
(formerly known as Mauna Loa Resources, Inc.) as managing general partner,
and ML Resources, Inc. as attorney-in-fact for each of the Limited
Partners of this Limited Partnership as provided herein.  This Amended and Restated Agreement of
Limited Partnership was approved by a vote of a Majority Interest, as defined
herein, at a meeting of Unitholders called and held on March 10, 2008, in
Honolulu, Hawaii, USA.

 

The Partnership was formed as a limited
partnership under the laws of the State of Delaware pursuant to an Agreement of
Limited Partnership dated April 14, 1986 and a Certificate of Limited
Partnership dated April 14, 1986 filed by the Partnership with the Office
of the Secretary of State of Delaware. 
The Agreement of Limited Partnership was amended and restated as of October 14,
1989.  Thereafter, the Partnership’s
special general partner withdrew, the Partnership continued without
dissolution, and all Class B units were cancelled.

 

NOW, THEREFORE, the Agreement of Limited
Partnership, as previously amended and restated, is further amended and
restated in its entirety as follows:

 

ARTICLE I.

DEFINITIONS

 

When used in this Agreement, the following
terms shall have the meanings set forth below except as otherwise specifically
modified:

 

“Additional Limited Partner” means a Person
admitted to the Partnership pursuant to Section 13.2 as a Limited Partner.

 

“Adjusted Basis” means, with respect to
Partnership assets as of any date of determination, the Partnership’s adjusted
basis in such assets, as determined for federal income tax purposes.

 

“Adjusted Property” means any property the
Carrying Value of which has been adjusted pursuant to Section 7.10(D).

 

“Affiliate” means any person that directly or
indirectly controls, is controlled by, or is under common control with the
Person in question.  As used in this
definition of “Affiliate,” the term “control” means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through ownership of voting securities, by
contract or otherwise.

 

“Agreed Value” of the Original Orchard
Properties contributed by Mauna Loa to the 

 

 

Partnership in
exchange for Units pursuant to Section 7.1 means the sum of (a) the
excess of (i) that amount arrived at by multiplying the Initial Class A
Unit Issue Price by four million, over (ii) the consideration other than
the Original Orchard Properties transferred by Mauna Loa and Ka’u for the Class A
Units pursuant to Section 7.1 (as determined by the Managing General
Partner), and (b) the amount of any liabilities either assumed by the
Partnership upon such exchange or to which such Contributed Properties are
subject when contributed.  The “Agreed
Value” of any other Contributed Property transferred to the Partnership means
the fair market value of such property as determined by the Managing General
Partner using such reasonable method of valuation as it may adopt.  The Managing General Partner may, in its
discretion, utilize such methods as it deems reasonable and appropriate to
allocate the aggregate Agreed Value of multiple Contributed Properties
transferred to the Partnership in a single or integrated transaction among the
individual Contributed Properties.  The
Agreed Value of any property shall reflect any adjustment made pursuant to Section 7.10(C).

 

“Agreement” means this limited partnership
agreement as the same may be amended from time to time.

 

“Allocable Share” means (a) as to the
Managing General Partner, .99%, (b) as to the Special General Partner, .01%,
and (c) as to a Limited Partner or Assignee, at any particular time, 99%
multiplied by the number of Class A Units owned by such Limited Partner or
Assignee and divided by the total number of Class A Units outstanding at
such time. 

 

“Annual Indicated Distributions per Unit”
means, with respect to each Class A Unit, $1.00 for 1986, $1.05 for 1987,
$1.10 for 1988, $1.15 for 1989 and $1.20 for all subsequent years; provided
that in the event the Partnership makes any Capital Distributions, “Annual
Indicated Distributions per Unit” shall thereafter mean an amount with respect
to each Class A Unit for each calendar year equal to the product of the
Unrecovered Class A Capital as of the beginning of such year multiplied by
the following percentages:

 

	
  Year

  	
   

  	
  Percentage

  	
   

  
	
  1986

  	
   

  	
  10.0

  	
  %

  
	
  1987

  	
   

  	
  10.5

  	
  %

  
	
  1988

  	
   

  	
  11.0

  	
  %

  
	
  1989

  	
   

  	
  11.5

  	
  %

  
	
  All
  subsequent years

  	
   

  	
  12.0

  	
  %

  

 

Notwithstanding the foregoing, solely for the
purpose of determining the Indicated Distributions for any quarter during a
year after 1990 in order to calculate the number of Class B Units that may
be converted to Class A Units for such year pursuant to Section 7. 11(C) and
the number of Class A Units that may be issued for such year pursuant to Section 7.12
(but not for the purpose of determining the Indicated Distributions for any
year prior to the year for which such calculation is being made or for any
other purpose under this Agreement), the term “Annual Indicated Distributions
per Unit” shall mean, with respect to any Class A Unit, an amount equal to
the product of the Unrecovered Class A Capital at the beginning of such
year multiplied by 13%.  If the
Unrecovered Class A Capital is reduced during a
year due to a Capital Distribution, the Annual Indicated Distributions per Unit
shall be reduced for the period after such Capital Distribution to reflect the
reduction in Unrecovered Class A Capital. 
Appropriate adjustments shall also be made to the Annual Indicated Distributions
per Unit for any Class A Unit splits.

 

 

“Assignee” means a Person to whom one or more
Units have been transferred in accordance with Article 12, and who has not
become a Substituted Limited Partner.

 

“Book-Tax Disparities” means differences that
exist between the balance of a Partner’s Capital Account, as maintained
pursuant to Section 7.10, and such balance had the Capital Account been
maintained strictly in accordance with tax accounting principles (such
disparities reflecting the differences between the Carrying Value of either
Contributed Properties or Adjusted Properties, as adjusted from time to time,
and the Adjusted Basis thereof).

 

“Capital Account” means the capital account
maintained for each Partner and Assignee pursuant to Section 7.10.

 

“Capital Contribution” means any cash or
Contributed Property which a Contributing Partner contributes or is deemed to
have contributed to the Partnership pursuant to Article 7.

 

“Capital Conversion Balance” means, as of any
point in time, that amount as determined at such time, equal to any
contribution to the Partnership made pursuant to Section 7.2(C) by
Mauna Loa reduced by cumulative Conversion Reduction Amounts with respect to
prior issuances of Class A Units to Mauna Loa
pursuant to Section 7.12.

 

“Capital Distributions” means, at any time of
determination, the cumulative amounts of any distributions made pursuant to Section 9.1(B)(3) with respect to a Class A Unit from the
Capital Transaction Account on or prior to such time.  Any Class A Units
issued pursuant to Section 7.11(C) or 7.12 shall be deemed to have
received all Capital Distributions made with respect to the Class A Units
issued in the Initial Offering.

 

“Capital Expenditures” means expenditures for
the acquisition of assets having a useful life to the Partnership of more than
one year.

 

“Capital Transaction” means a sale,
condemnation, exchange, or other disposition (or series of related
dispositions) of assets with a fair market value in excess of 10% of the fair
market value of all assets of the Partnership, as determined by the Managing
General Partner utilizing such reasonable valuation methods as it deems
appropriate.  In the event the proceeds
of any Capital Transaction are to be paid in more than one installment then
each such installment shall be treated as a separate Capital Transaction for
purposes of this Agreement, except for the purpose of determining whether more
than 10% of the Partnership assets have been disposed of.

 

“Capital Transaction Account” means that
segregated account maintained in accordance with Section 10.6(C).

 

“Capital Transaction Premium” means that
amount determined with respect to a Capital Transaction by multiplying (a) the
initial Carrying Value of the property disposed of in the subject Capital Transaction
by (b) a percentage determined with respect to the period in which the
Capital Transaction occurs according to the following schedule: 14% if the
Capital Transaction occurs in 1986 and reduced by 1% per calendar year
thereafter.

 

“Capital Transaction Premium per Unit” means
that amount determined with respect to a Capital Transaction equal to the
product of (a) the Capital Transaction Premium with respect to the
property disposed of in the Capital Transaction divided by the number of Class A
Units issued in the Initial Offering, multiplied by (b) 99%.

 

 

“Carrying Value” means (a) with respect
to a Contributed Property, the Agreed Value of such property reduced (but not
below zero) by all depreciation and cost recovery deductions charged to Capital
Accounts pursuant to Section 7.10(A) with respect to such Contributed
Property, and (b) with respect to any property other than a Contributed
Property, the Adjusted Basis of such property. 
The Carrying Value of the Partnership Properties shall be adjusted from
time to time in accordance with Sections 7.10(C), 7.10(D) and 7.10(E) and
to reflect charges, additions, or other adjustments to such Carrying Values for
dispositions, acquisitions or improvements of Partnership Properties, as deemed
appropriate by the Managing General Partner.

 

“Cash Account” means that segregated account
maintained in accordance with Section 10.6(A).

 

“Cash Account Subsidy Ratio” means the
quotient of (a) the Initial Class A Unit
Issue Price multiplied by 4 million, divided by (b) the sum of (i) the
initial balance of the Over-Allotment Cash Account and (ii) the Initial Class A
Unit Issue Price multiplied by 4 million.

 

“Certificate” means a non-negotiable
certificate issued by the Partnership evidencing ownership of one or more Class A Units.

 

“Certificate of Limited Partnership” means
the certificate of limited partnership for the Partnership recorded or filed
pursuant to the Delaware Act, as the certificate may be amended or restated
from time to time.

 

“Class A Units”
means those units of limited partners’ interest in the Partnership acquired or
issued pursuant to this Agreement.

 

“Class B Units” means those contingent
rights issued by the Partnership pursuant to Section 7.1 representing the
right to be issued additional Class A Units
pursuant to Section 7.11.

 

“Class B Unitholders” means
the holders of Class B Units from time to time.

 

“Closing Date” means the “First Closing Date”
as defined in the Underwriting Agreement.

 

“Code” means the Internal Revenue Code of
1954, as amended and in effect from time to time.  References in this Agreement to the Code or
to sections of the Code shall include any successor statutes or sections.

 

“Contributed Property” means property
transferred to the Partnership by a Contributing Partner as a contribution to
the Partnership (or deemed to have been contributed to the Partnership upon a
termination of the Partnership pursuant to Section 708 of the Code), any
such property retaining its status as Contributed Property until becoming
Adjusted Property as a result of adjustments to its Carrying Value made
following its contribution (or deemed contribution).

 

“Contributing Partner” means each Partner or
Assignee transferring a Contributed Property to the Partnership as a
contribution to the Partnership (or as a deemed contribution upon a termination
of the Partnership pursuant to Section 708 of the Code).

 

“Conversion Reduction Amount” means, as of
any point in time at which Class A Units are issued pursuant to either Section 7.11(C) or
7.12, that amount equal to (a) in the case of an 

 

 

issuance under Section 7.11(C), the
Cumulative Excess Distributions relating to such issuance and (b) in the
case of an issuance under Section 7.12. (i) if the number of Class A
Units issued is determined under the formula set forth in Section 7.12(A),
the Cumulative Excess Distributions relating to such issuance, and (ii) if
the number of Class A Units is determined under the formula set forth in Section 7.12(B),
the Unit Price of the Class A Units multiplied by the number of Class A
Units issued at such point in time.

 

“Conveyance Agreement” means those certain
agreements, designated as the Conveyance Agreement and the Assignment of Lease
and Consent, to be entered into among the General Partners, Ka’u and the
Partnership wherein the General Partners and Ka’u contribute and convey to the
Partnership certain assets and the Partnership agrees to assume certain
liabilities as such assets and liabilities are provided therein.

 

“Cumulative Distribution Deficit,” as
determined at any point in time, means that amount, if any, equal to the excess
of (a) the sum of any Distribution Deficits for each calendar quarter of
the Partnership beginning with the calendar quarter which includes the Closing
Date and ending on or prior to such point of determination, over (b) the
sum of any Excess Distributions for each calendar quarter of the Partnership
beginning with the calendar quarter which includes the Closing Date and ending
on or prior to such point of determination. 
The Cumulative Distribution Deficit attributable to the Class A Units issued in the Initial Offering shall not be reduced
or otherwise diluted with respect to such Class A Units upon issuances of
additional Units pursuant to Section 7.8.

 

“Cumulative Distribution Deficit per Unit,”
as determined at any point in time, means an amount equal to the product of (a) the
Cumulative Distribution Deficit at such point in time divided by the number of Class A Units outstanding at such point in time, multiplied by (b) 99%.

 

“Cumulative Excess Distributions,” as
determined at any point in time. means that amount, if any, equal to the excess
of (a) the sum of any Excess Distributions for each calendar quarter of the
Partnership beginning with the calendar quarter which includes the Closing Date
and ending on or prior to such point of determination, over (b) the sum of
(i) the sum of any Distribution Deficits for each calendar quarter of the
Partnership beginning with the calendar quarter which includes the Closing Date
and ending on or prior to such point of determination, (ii) the cumulative
Conversion Reduction Amounts with respect to prior issuances of Class A
Units to Mauna Loa pursuant to Sections 7.11(C) and 7.12 and (iii) amounts
distributed to the Partners and Assignees pursuant to Section 9.1(B)(1).

 

“Current Carrying Value per Unit” means, with
respect to any Partnership Property, the product of (a) the Carrying Value
of such Property at the time of its disposition by the Partnership divided by
the number of Class A Units outstanding at the
time of such disposition, multiplied by (b) 99%.

 

“Deferred Account” means that account that
will be maintained for a Class B Unitholder with respect to such
Unitholders’ Class B Units.

 

“Deficit Cash Flow” means, as determined for
each calendar quarter, the excess, if any, of (a) the sum of (i) the
Indicated Distributions for such quarter, and (ii) any Incentive Fee
payable for such quarter, over (b) the Net Cash Flow for such quarter.

 

“Delaware Act” means the Delaware Revised
Uniform Limited Partnership Act, as 

 

 

amended and in effect from time to time.

 

“Departing Partner” means a General Partner,
as of the effective date of any withdrawal or removal of such General Partner.

 

“Depositary” means any Person selected by the
Managing General Partner to serve as depositary or any successor to it as
depositary under the Depositary Agreement or any other Person appointed to
serve as depositary.

 

“Depositary Agreement” means the agreement so
designated, to be entered into between the Partnership and the Depositary, as
it may be amended or supplemented from time to time.

 

“Depositary Receipt” means a depositary
receipt, executed and delivered by the Depositary or agents appointed by the
Depositary in accordance with the Depositary Agreement, evidencing ownership of
one or more Depositary Units.

 

“Depositary Unit” means a Class A Unit on deposit with the Depositary pursuant to the
Depositary Agreement.

 

“Distribution Deficit,” as determined for
each calendar quarter, means the excess, if any, of (a) the Indicated
Distributions for such quarter, over (b) the actual distributions to the
Partners and Assignees for such quarter pursuant to Sections 9.1(A) and
9.1(B)(1).

 

“Excess Cash Flow,” as determined for each
calendar quarter, means the excess, if any, of (a) the Net Cash Flow for
such quarter, over (b) the sum of (i) the Indicated Distributions for
such quarter, and (ii) any Incentive Fee payable for such quarter.

 

“Excess Distributions,” as determined for
each calendar quarter, means the excess, if any, of the (a) the actual
distributions to the Partners and Assignees for such quarter pursuant to
Sections 9.1(A) and 9.1(B)( 1) over (b) the
Indicated Distributions for such quarter.

 

“Exchange Act” means the Securities Exchange
Act of 1934, as amended, and any successor to such statute.

 

“Farming Fee” means the fee payable to Mauna
Loa pursuant to the Farming Contract to be entered into between the Partnership
and Mauna Loa.

 

“Final Determination” means a final
adjudication regarding subject federal income tax issues or a final
administrative determination of such issues agreed to by Mauna Loa or the
Managing General Partner.

 

“First Year Deficit Cash Flow” means the
excess, if any, of (a) the sum of (i) the Indicated Distributions for
the quarter ending December 31, 1986, (ii) the accounts and fees
payable by the Partnership as of December 31, 1986, and (iii) $3.5
million, over (b) the sum of (i) the balance of the Cash Account as
of December 31. 1986, (ii) the balance of the
Operating Cash Account as of December 31, 1986 (after any required
transfers from the Over-Allotment Cash Account through such date), and (iii) the
accounts receivable of the Partnership as of December 31, 1986.

 

“First Year Excess Cash Flow” means the
excess, if any, of (a) the sum of (i) the balance of the Cash Account
as of December 31, 1986, (ii) the balance of the Operating Cash
Account as 

 

 

of December 31,
1986 (after any required transfers from the Over-Allotment Cash Account through
such date) and (iii) the accounts receivable of the Partnership as of December 31,
1986, over (b) the sum of (i) the Indicated Distributions for the
quarter ending December 31, 1986, (ii) the accounts and fees payable
by the Partnership as of December 31, 1986, and (iii) $3.5 million.

 

“General Partner Capital Account” means that
Capital Account maintained for each General Partner with respect to the
interest of such General Partner as a general partner of the Partnership.

 

“General Partners” means MLR and Mauna Loa in
their capacity as general partners of the Partnership, and any successor or
additional general partners.  “General
Partner” means one of the General Partners.

 

“Gross Expenses” means all expenditures of
the Partnership, computed by the accrual method of accounting, whether incurred
directly or indirectly, with respect to the Partnership’s operations and
activities during the relevant period, including, but not limited to, costs of
farming, insurance, taxes, rentals, general and administrative expense, and
payments of principal and interest on indebtedness of the Partnership (other
than principal payments on debt having a term of one year or less), but not
including Capital Expenditures of the Partnership (or any depreciation or
amortization with respect to such Capital Expenditures), depreciation or
amortization with respect to Contributed Properties or Adjusted Properties,
expenditures in connection with a Capital Transaction, the Farming Fee,
Management Fee or Incentive Fee incurred during the relevant period, or any
deemed expenditure of the Partnership as a result of an allocation of a portion
of the initial value (or Adjusted Basis) of the Contributed Properties to
inventory items.  “Gross Expenses” also
includes reserves established, in the Managing General Partner’s discretion,
for any potential expenditures of the Partnership or
in order to effect a leveling of Partnership distributions.

 

“Gross Revenues” means all receipts of the
Partnership from any source, computed by the accrual method of accounting,
including cash amounts released from reserves previously established for Gross
Expenses, but does not include loan proceeds, net recoveries under insurance
policies, other net receipts representing a recovery for the loss or
destruction of Partnership assets, proceeds of a Capital Transaction or capital
contributions to the Partnership.

 

“Incentive Fee” means the fee paid to the
Managing General Partner pursuant to Section 4.2.

 

“Indicated Distributions” means, with respect
to any calendar quarter, the quotient of (a) the product obtained by
multiplying the Quarterly Indicated Distributions per Unit for such quarter by
the number of Class A Units outstanding on the Record Date for payment of
regular cash distributions for such quarter or, if no cash distributions were
paid for such quarter, the number of Class A Units outstanding on the last
business day of such quarter, divided by (b) 99%.

 

“Initial Carrying Value per Unit” means, with
respect to any Partnership Property, the product of (a) the Carrying Value
of such Property at the date of its acquisition by the Partnership divided by
the number of Class A Units outstanding on such
date, multiplied by (b) 99%.

 

 

“Initial Class A
Unit Offering Price” means that price specified in the Underwriting Agreement
as the price at which a Class A Unit will be offered by the Underwriters
to the public.

 

“Initial Class A
Unit Issue Price” means that price specified in the Underwriting Agreement as
the price at which a Class A Unit will be Purchased by the Underwriters.

 

“Initial Contribution” means cash in the
aggregate amount of $2.0 million, reduced by the cash contributed by Mauna Loa
and MLR pursuant to Section 7.2(A)(1) and 7.2(B)(1), to be
contributed by Mauna Loa to the Partnership on the Closing Date in exchange for
Class A Units.

 

“Initial Limited Partner” means Mauna Loa.

 

“Initial Offering” means the initial public
offering of the Depositary Units, as more fully described in the Registration
Statement.

 

“Issue Price” means the price at which a Unit
is purchased from the Partnership.

 

“Ka’u” means Ka’u Agribusiness Co., Inc.,
and any successor to Ka’u Agribusiness Co., Inc., by merger or
consolidation or by sale or transfer of all or substantially all of the assets
of Ka’u Agribusiness Co., Inc.

 

“Limited Partner Capital Account” means that
Capital Account maintained for each Limited Partner or Assignee with respect to
such Limited Partner’s or Assignee’s Class A Units.

 

“Limited Partners” means the Initial Limited
Partners and the holders of Class A Units who
have been admitted to the Partnership as Substituted Limited Partners or as
Additional Limited Partners.  “Limited
Partner” means one of the Limited Partners.

 

“Majority Interest” means
those Persons holding more than fifty percent (50%) of the Class A Units
eligible to receive notice of or to vote or consent with respect to any matter.

 

“Management Fee” means the fee paid to the
Managing General Partner pursuant to Section 4.1.

 

“Managing General Partner” means MLR or its
successor as managing general partner of the Partnership.

 

“Mauna Loa” means Mauna Loa Macadamia Nut
Corporation, a Hawaii corporation, and any successor
to Mauna Loa Macadamia Nut Corporation by merger or consolidation or by sale or
transfer of all or substantially all of the assets of Mauna Loa Macadamia Nut
Corporation.

 

“MLR” means Mauna Loa Resources Inc., a
Hawaii corporation, and any successor to Mauna Loa
Resources Inc., by merger or consolidation or by sale or transfer of all or
substantially all of the assets of Mauna Loa Resources Inc.

 

“National Securities Exchange” means an
exchange registered with the Securities and Exchange Commission under Section 6(a) of
the Securities Exchange Act of 1934, as amended.

 

“Net Agreed Value” means (a) in the case
of any Contributed Property, the Agreed Value of such property reduced by any
liabilities either assumed by the Partnership upon such contribution or to
which such property is subject when contributed, (b) in the case of any 

 

 

property
distributed to a Partner pursuant to Section 9.2 or distributed in
liquidation of the Partnership pursuant to Section 15.4(C), the
Partnership’s Carrying Value for such property at the time such property is
distributed reduced by any liabilities attributable to such property either
assumed by such Partner upon such distribution or to which such property is
subject at the time of distribution.

 

“Net Cash Flow” means, for any period, the
Operating Cash Flow for such period, less the sum of (a) the Farming Fee
for such period and (b) the Management Fee for such period.

 

“Net Proceeds of a Capital Transaction” means
the proceeds received by the Partnership in connection with a Capital
Transaction, after (a) the payment of all costs and expenses of any kind
or nature incurred by the Partnership in connection with such Capital
Transaction, (b) the utilization of any such proceeds in connection with
the discharge of debts and other obligations of the Partnership required or
intended (as determined by the Managing General Partner, in its sole and
absolute discretion) to be discharged with the proceeds of such Capital
Transaction and (c) the retention of such proceeds or a portion thereof in
connection with the creation of or addition to any reserves established by the
Managing General Partner, in its sole discretion, to provide for any amounts
required to be paid by the Partnership.  “Net
Proceeds of a Capital Transaction” does not include any interest payable on
installment obligations received by the Partnership upon a Capital Transaction.

 

“Operating Cash Account” means that
Segregated Account maintained in accordance with Section 10.6(D).

 

“Operating Cash Flow” means, with respect to
any period, the Gross Revenues for such period less the Gross Expenses for such
period, plus (i) payments received by the Partnership under a Cash Flow
Warranty Agreement, dated as of July 1, 1989, among Ka’u Agribusiness Co.
Inc., a Hawaii corporation, Mauna Kea Agribusiness Co., Inc., a Hawaii
corporation, and Mauna Loa Orchards, LP., a Hawaii limited partnership, and (ii) similar
cash flow warranty or stabilization payments received by the Partnership to
supplement the cash flows from particular orchards.

 

“Organization Expenses” means all expenses
incurred by the Partnership or Mauna Loa in connection with the organization of
the Partnership, the transfer of the Original Orchard Properties to the
Partnership and the Initial Offering.

 

“Original Orchard Properties” means the entire interests in macadamia nut orchard
properties transferred by Mauna Loa and Ka’u to the Partnership pursuant to Section 7.1
and the Conveyance Agreement.

 

“Over-Allotment Cash Account” means that
segregated account maintained in accordance with Section 10.6(B),

 

“Over-Allotment Subsidy Ratio” means the
quotient of (a) the initial balance of the Over-Allotment Cash Account,
divided by (b) the sum of (i) the initial balance of the
Over-Allotment Cash Account and (ii) the Initial Class A Unit Issue Price multiplied by 4 million.

 

“Partner” means a General Partner or a
Limited Partner; and “Partners” means the General Partners and all Limited Partners.

 

 

“Partnership” means the limited partnership
created by this Agreement and any successor partnership continuing the business
of the Partnership which is a reformation or reconstitution of a partnership
governed by this Agreement.

 

“Partnership Interest” means the interest of
a Person in the Partnership.

 

“Partnership Property” means any and all
property, real or personal, now or hereafter owned by the Partnership or in or
to which the Partnership has any interest, right or claim.

 

“Person” means an individual, partnership,
joint venture, estate, association, corporation, trust company, trust or other
entity.

 

“Prescribed Asset Value” means, as of any
date of determination, that amount determined by dividing (a) that amount
equal to the product of (i) the total number of outstanding Class A
Units (including Class A Units to be issued pursuant to Section 7.8, Section 7.11
or Section 7.12, if such issuance triggered an asset valuation pursuant to
Section 7.10(D)) times (ii)(1) in the case of a valuation occasioned
by an issuance of Class A Units pursuant to Section 7.11 or 7.12, an
actual distribution pursuant to Section 9.2, or a deemed distribution
occurring as a result of Section 708 of the Code (except as otherwise
provided in clauses (2) or (3)), the Unit Price of such Class A
Units as of the date of issuance or distribution, (2) in the case of a
valuation occasioned by an issuance of Class A Units pursuant to Section 7.8
(except as otherwise provided in clause (4)) the Issue Price of such Class A
Units, (3) in the case of a valuation occasioned by a deemed distribution
and recontribution occurring in connection with the Initial Offering pursuant
to Section 708 of the Code, the Initial Class A Unit Issue Price, or (4) in
the case of an event described in Section 7.10(F), the Initial Class A
Unit Offering Price, by (b) 99%.

 

“Prescribed Capital Balance” means, with
respect to a Partner or Assignee as of any date of determination, that amount
equal to the product obtained by multiplying (a) the Prescribed Asset
Value as of such date, by (b) the Partner’s or Assignee’s Allocable Share
as of such date (taking into consideration any Class A Units issued
pursuant to Section 7.11 on such date).

 

“Quarterly Indicated Distributions per Unit”
means, with respect to any calendar quarter of a particular year, one-fourth of
the Annual Indicated Distributions per Unit for such year, provided that in
determining the Quarterly Indicated Distributions per Unit for any relevant
period within a quarter of a calendar year (including any partial quarter in
1986 and the quarter in which the Partnership is liquidated and its assets
distributed), the Quarterly Indicated Distributions per Unit determined for
such quarter shall be evenly prorated on a daily basis, based on the reduced
number of days in the quarter.  If the
Unrecovered Class A Capital is reduced during a
quarter due to a Capital Distribution, the Quarterly Indicated Distributions
per Unit for such quarter shall be reduced for the period after such Capital
Distribution to reflect the reduction in Unrecovered Class A Capital.

 

“Recapture Income” means any income or gain
of the Partnership (computed without regard to any adjustment required by Section 734
or Section 743 of the Code) treated as ordinary income for federal income
tax purposes pursuant to any provision of the Code converting capital gain to
ordinary income as a result of prior deductions.

 

“Record Date” means the date established by
the Managing General Partner, in its discretion, for determining (a) the identity
of Persons entitled to notice of or to vote at any 

 

 

meeting of the Partnership or entitled to
vote by ballot or give consent to Partnership action in writing without a
meeting or entitled to exercise rights in respect of any other lawful action,
or (b) the identity of Persons entitled to receive any report or
distribution from the Partnership as a Partner or Assignee.

 

“Record Holder” of a Depositary Unit means
the Person in whose name the Depositary Receipt evidencing such Depositary Unit
is issued, as registered on the books of the Depositary as of the close of
business on a particular business day, and as applied to the holder of a
Certificate means the Person shown as the owner of such Certificate on the
records of the Depositary or the Partnership.

 

“Registration Statement” means the
Registration Statement on Form S-1 (No. 33-4903) filed by the
Partnership with the Securities and Exchange Commission under the Securities
Act of 1933, as amended to register the offering and sale of the Depositary
Units in the Initial Offering, as it may be amended from time to time.

 

“Related Person” means a General Partner, any
partner, officer, director or Affiliate of a General Partner, or any Person in
which any of the foregoing has a material financial interest.

 

“Residual Gain” or “Residual Loss” means any
net gain or net loss of the Partnership for federal income tax purposes
resulting from a Capital Transaction, to the extent such net gain or net loss
is not allocated under Section 8.2(B) to eliminate Book-Tax
Disparities.

 

“Return of Capital” means any distribution to
the extent that the distribution reduces the Partner’s share of the fair market
value of the net assets of the Partnership below the value (as set forth in the
Partnership’s books and records) of the contribution attributable to the
Partner or his Assignee which has not been distributed to the Partner or his
Assignee.

 

“Service” means the Internal Revenue Service.

 

“Special General Partner” means Mauna Loa in
its capacity as the special general partner of the Partnership, or any
successor thereto.

 

“Substituted Limited Partner” means a person
who is admitted to the Partnership as a Limited Partner pursuant to this
Agreement in place of and with all the rights of a Limited Partner pursuant to Section 13.1.

 

“Transfer Agent” means the Depositary or any
bank, trust company, or other Person appointed by the Partnership to act as
transfer agent for Depositary Receipts.

 

“Transfer Application” means a request for
admission as a Substituted Limited Partner or Additional Limited Partner, an
agreement to be bound by the terms of this Agreement and the Depositary
Agreement, a power of attorney, and the provision of such other information as
the Partnership shall request in such forms as are approved by the Partnership.

 

“Underwriters” means those underwriting firms
listed in the Underwriting Agreement or an exhibit or schedule thereto that
agree to purchase the Class A Units from Mauna
Loa and the Partnership.

 

“Underwriting Agreement” means that agreement
to be entered into prior to the Closing Date among Mauna Loa, on its own behalf
and as agent for Ka’u, the Partnership and the 

 

 

Underwriters
with respect to the purchase of the Class A Units
by the Underwriters in the Initial Offering.

 

“Unit” means a Class A
Unit or a Class B Unit.  “Units”
means all of such Class A Units and Class B
Units outstanding at the time of determination.

 

“Unit Price” of a Class A Unit or a
Depositary Unit means, as of any date of determination, (a) if such Unit
or Depositary Unit is one of a class of Depositary Units listed or admitted to
trading on a National Securities Exchange, the average of the last reported
sale prices per Depositary Unit regular way or, in case no such reported sale
takes place on any such date, the average of the mean of the last reported bid
and asked prices per Depositary Unit regular way, in either case on the
principal National Securities Exchange on which such Depositary Units are
listed or admitted to trading, for the five trading days immediately preceding
the date of determination; (b) if such Unit or Depositary Unit is not of a
class of Depositary Units listed or admitted to trading on a National
Securities Exchange but is of a class quoted by NASDAQ, the average of the last
reported sale prices per Depositary Unit if last reported sale prices are
quoted by NASDAQ or, in case no such reported sale takes place on any such day
or in case last reported sale prices are not quoted by NASDAQ, the average of
the mean of the closing bid and asked prices per Depositary Unit, for the five
trading days immediately preceding such date of determination, as furnished by
the National Quotation Bureau Incorporated or such other nationally recognized
quotation service as may be selected by the Managing General Partner for such
purpose if said Bureau is not at the time furnishing quotations; or (c) if
such Unit or Depositary Unit is not of a class of Depositary Units listed for
trading on a National Securities Exchange or quoted by NASDAQ, an amount equal
to the fair market value of such Unit as of such date of determination, as
determined by the Managing General Partner using any reasonable method of
valuation it may select.  Notwithstanding
the foregoing, for purposes of calculating the Incentive Fee payable to the
Managing General Partner pursuant to Section 4.2, the term “Unit Price”
shall be determined in the foregoing manner, but based on the sales prices of
the Depositary Units on the first trading day of each month, rather than by
means of a five-day average.  “Unit Price”
of a Class B Unit means the fair market value of a Class B Unit as
determined by the Managing General Partner using any reasonable method of
valuation it may select.

 

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

 

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

 

“Unrecovered Class A
Capital” means, with respect to a Class A Unit, at any time of
determination, $10 multiplied by the quotient of (a) the Initial Class A
Unit Offering Price minus prior Capital Distributions with respect to such Class A
Unit, divided by (b) the Initial Class A Unit Offering Price.

 

 

ARTICLE II.

THE LIMITED PARTNERSHIP

 

2.1                                 Formation of the Partnership.  The
General Partners and the Initial Limited Partner hereby form the Partnership as
a limited partnership organized under the Delaware Act, which Act, as amended,
and any successor statutes thereto pursuant to Section 3.11, and this
Agreement shall govern the rights and liabilities of the parties and their
successors in interest.

 

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

 

2.3                                 Business and Purpose of the Partnership.  The
business and purpose of the Partnership shall be, and shall be limited to, the
acquisition, ownership, management, operation, development, leasing and
disposition of macadamia nut orchard properties; the carrying on of any
business and the doing of any act relating to or arising from the acquisition,
ownership, management, operation, leasing and disposition of macadamia nut
orchard properties that a limited partnership organized under the Delaware Act
may carry on; the processing and marketing of macadamia nuts; the carrying on
of any business and the doing of any act relating to or arising from the
processing and marketing of macadamia nuts; the ownership of stock in any
corporation or the entering into any partnership, joint venture or other
similar arrangement, to engage in any of the foregoing; and anything incidental
to the foregoing.

 

2.4                                 Principal Place of Business.  The
principal place of business of the Partnership shall be at 827 Fort Street,
Honolulu, Hawaii, 96813, but the Managing General Partner may substitute or
establish such other place or places of business for the Partnership (within or
without the State of Hawaii) as it may, from time to time, deem necessary or
appropriate; provided, however, that the Managing General Partner shall give
the Limited Partners notice in writing of any change of address of the
principal place of business of the Partnership and, in connection therewith,
shall amend the Certificate of Limited Partnership in accordance with
applicable requirements of law.  The
Managing General Partner shall select one or more Persons to act as the
registered agent for service of process on the Partnership and shall designate
a registered office where such agent may be found.  The initial agent for service of process is
The Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware 19501.

 

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

 

2.6                                 Execution of Documents.  The
Managing General Partner, on its own behalf and as attorney-in-fact for the
other Partners of the Partnership pursuant to the power of attorney 

 

 

granted in Article 16, shall execute, acknowledge
and file or deliver all certificates of limited partnership, amended or
restated certificates, instruments or other documents and counterparts thereof
and make all filings and recordings and perform all other acts as shall be
necessary to comply with the laws of the State of Delaware for the formation,
continuation or reformation of the Partnership, thereafter for the continued
good standing of the Partnership, and, when appropriate, for the termination of
the Partnership.  The Managing General
Partner shall also execute such certificates, amended or restated certificates
and other documents conforming hereto and do such filing, recording, publishing
and other acts as may be appropriate to comply with the requirements of law for
the formation, continuation, reformation, qualification and/or operation of a
limited partnership (or as a partnership in which the limited partners have
limited liability) in all jurisdictions where the Partnership may wish to do
business, which shall be accomplished prior to doing business in any such
jurisdiction if deemed necessary by the Managing General Partner for the
maintenance of such limited liability.

 

2.7                                 Initial Limited Partner.  In
order to create the Partnership under the Delaware Act, the Managing General
Partner has heretofore accepted a capital contribution in the amount of $1,000
from the Initial Limited Partner for an interest as a Limited Partner.  As of the Closing Date, the interest so
acquired by the Initial Limited Partner in its capacity as such shall be
terminated and the amount contributed by it to the Partnership shall be
refunded.  Any interest or other profit
which may have resulted from the investment or other use of such amount paid by
the Initial Limited Partner to the Partnership shall be distributed one percent
to the General Partners in accordance with their relative percentage interests
and ninety-nine percent to the Initial Limited Partner.  The interest acquired by the Initial Limited
Partner pursuant to this Section 2.7 is not transferable except by
operation of law.

 

2.8                                 Rights to Mauna Loa Name and Trademark.  The
name and trademark Mauna Loa is the exclusive property of Mauna Loa.  The Partnership is hereby granted a
non-exclusive, non-transferable royalty-free right and license to use such name
and trademark in connection with the operations of the Partnership as described
in the Registration Statement, provided that none of the Limited Partners of
the Partnership shall, by such grant, have any right to use such name or
trademark.  Mauna Loa shall have all
right to control all use made of the name and mark by the Partnership, and the
Partnership agrees to submit samples of all proposed uses of the name and mark
for written approval thereof by Mauna Loa.  Any and all use of the name and mark by the
Partnership shall inure to the benefit of Mauna Loa.

 

ARTICLE III.

THE GENERAL PARTNER

 

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

 

 

the concurrence of the Special General Partner,
notwithstanding any reference in this Agreement to General Partners.

 

3.2                                 Special General Partner.  Mauna
Loa shall be the Special General Partner until it ceases to be a General
Partner.  If Mauna Loa serves as Managing
General Partner by virtue of Section 14.12, Mauna Loa shall again become
Special General Partner when it ceases to serve as Managing General Partner
pursuant to Section 14.12 unless the Limited Partners have elected a new
Special General Partner or removed Mauna Loa.

 

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

 

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

 

3.5                                 Similar
Activities of General Partners.

 

(A)                             The
Managing General Partner shall not acquire any assets (other than Partnership
Interests) or enter into or conduct any business or activity in which the
Partnership is permitted to be engaged, except that the Managing General
Partner may acquire assets and may enter into or conduct any business or
activity in connection with the performance by it of the terms of this
Agreement or incidental to its status as a Partner in this Partnership or
incidental to the acquisition, ownership or disposition of Partnership
Interests.

 

(B)                               The
Special General Partner, any Affiliate of a General Partner, or any director,
officer or employee of any General Partner or any Affiliate of a General
Partner shall be entitled to and may have business interests and engage in
business activities in addition to those relating to the Partnership, may
engage in the acquisition, ownership, management, operation, development,
leasing and disposition of macadamia nut orchards, and any other business and
activities, including business interests and activities in direct competition
with the Partnership, for their own account and for the account of others,
without having or incurring any obligation to offer any interest in such
properties, business or activities to the Partnership, or any Partner, and,
except as specified in Section 3.5(A), no other provision of this
Agreement shall be deemed to prohibit the General Partners or any such Person
from conducting such other business and activities.  Neither the Partnership nor any of the
Partners shall have any rights by virtue of this 

 

 

Agreement or the partnership relationship created
hereby in any business ventures of the Special General Partner, any Affiliate
of a General Partner or any director, officer or employee of any General
Partner or an Affiliate of a General Partner. 
The General Partners and any Affiliate of the General Partners may
acquire Partnership Interests in addition to those acquired by any of those
Persons on the Closing Date, and shall be entitled to exercise all rights of a
Limited Partner or Assignee, as applicable, relating to such interests.

 

3.6                                 Activities of Officers and Directors.  Any
officers and directors of a General Partner shall have the right to be
otherwise employed by an entity or entities other than the Partnership on a
part-time or full-time basis, except as determined by the General Partner.  Nothing herein shall prevent any officer or
director of a General Partner from becoming a Limited Partner or Assignee,
whereupon such Person shall be entitled to all rights and shall be subject to
all obligations relating to the Units and shall as to such Units be deemed a
Limited Partner or Assignee, as applicable.

 

3.7                                 Indemnification
of General Partners.

 

(A)                             The
General Partners and the directors, officers and employees of a General Partner
(individually, an “Indemnitee”), shall each, to the extent permitted by law, be
indemnified and held harmless by the Partnership from and against any and all
losses, claims, damages, liabilities, joint and several, expenses (including
legal fees and expenses), judgments, fines, settlements and other amounts
arising from any and all threatened, pending or completed claims, costs,
demands, actions, suits or proceedings, civil, criminal, administrative or
investigative, in which the Indemnitee may be a party, or threatened to be made
a party by reason of its status as a General Partner or a director, officer or
employee of a General Partner or its management of the affairs of the
Partnership, or which relate to the Partnership, its property, business or
affairs, whether or not the Indemnitee continues to be a General Partner or a
director, officer or employee of a General Partner at the time any such
liability or expense is paid or incurred, if the Indemnitee acted in good faith
and in a manner it reasonably believed to be in, or not opposed to, the best
interests of the Partnership, and, with respect to any criminal proceeding, had
no reasonable cause to believe and did not believe its conduct was unlawful,
provided that the Indemnitee’s conduct does not constitute gross negligence or
willful or wanton misconduct.  The
termination of a proceeding by judgment, order, settlement, conviction or upon
a plea of nolo contendere, or its equivalent, shall not, of itself, create a
presumption that the Indemnitee did not act in good faith and in a manner which
the Indemnitee reasonably believed to be in, or not opposed to, the best
interests of the Partnership or a presumption that the Indemnitee had
reasonable cause to believe that its conduct was unlawful. or that the
Indemnitee’s conduct constituted gross negligence or willful or wanton
misconduct.

 

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

 

(C)                               The
indemnification provided by this Section 3.7 shall be in addition to any
other rights to which those indemnified may be entitled under any agreement,
vote of the Partners, as a matter of law or otherwise, both as to action in the
Indemnitee’s capacity as a General Partner or as a director, officer or
employee of a General Partner and to action in any other capacity, and 

 

 

shall continue as to an Indemnitee who has ceased to
serve in such capacity and shall inure to the benefit of the heirs, successors,
assigns and administrators of the Indemnitee.

 

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

 

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

 

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

 

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

 

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

 

3.8                                 Other
Matters Concerning General Partners.

 

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

 

(B)                               Each
of the General Partners may execute any of its powers or perform any of its
duties either directly or by or through agents, including, without limitation,
any Related Person.  A General Partner
may consult with counsel, accountants, appraisers, management consultants,
investment bankers, and other consultants and advisers selected by it (who may
serve as such for the Partnership or any Related Person) and any opinion of
such Person as to matters which the General Partner believes to be within its
professional or expert competence shall be full and complete authorization and
protection in respect to any action taken or suffered or omitted by the General
Partner hereunder in good faith and in accordance with that opinion.  The General Partners shall not be responsible
for the misconduct, negligence, acts or omissions of any such 

 

 

Person and shall assume no obligations in connection
therewith other than the obligation to use due care in the selection of such
Persons.

 

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

 

3.9                                 Agreements
with a General Partner or a Related Person.

 

(A)                             Subject
to the provisions of this Section 3.9, a General Partner and any Related
Person may deal with the Partnership in connection with carrying out the
business of the Partnership or otherwise, as an independent contractor or as an
agent for others, and may receive from such others or the Partnership profits,
compensation, commissions or other amounts which the Managing General Partner
in good faith believes to be reasonable without having to account to the
Partnership therefor.  The Partnership
shall purchase goods and services from subsidiaries of C. Brewer and Company,
Limited or its subsidiaries only so long as and to the extent that, as
determined by the Managing General Partner, such purchases can be made on a
basis at least as favorable as may be obtained from unrelated third parties for
comparable goods or services.

 

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

 

(1)                                  The
material facts as to the agreement, act, matter or transaction and as to the
relationship or interest of the General Partner or Related Person are fully
disclosed or known to (a) any directors (or Persons in a similar role with
respect to an entity other than a corporation) of the Managing General Partner
who are not interested in the agreement or transaction (other than by virtue of
their ownership of capital stock of an Affiliate of the Managing General Partner),
including any directors who are members of a committee organized to evaluate
transactions in which any party has an actual or potential conflict of interest
(the “Conflicts Committee”) and a majority of such directors of the Managing
General Partner affirmatively vote in good faith to authorize, approve or
ratify the agreement, act, matter or transaction or (b) the Conflicts
Committee and a majority of the directors who are members of the Conflicts
Committee affirmatively vote in good faith to authorize, approve or ratify the
agreement, act, matter or transaction; or

 

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

 

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

 

 

The Conflicts Committee shall be composed on
and after the Closing Date of individuals who are not officers, directors,
employees or shareholders of the General Partners or any Affiliate of the
General Partners; provided that one initial member of the Conflicts Committee
may be a director of a subsidiary of C. Brewer and Company, Limited.

 

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

 

(D)                              Each
of the Partners and Assignees hereby approves, ratifies and confirms the
execution, delivery and performance of all agreements, acts, matters or
transactions described in the prospectus contained in the Registration
Statement and authorizes, ratifies and confirms such execution, delivery and
performance by the Managing General Partner on behalf of the Partnership,
without any further act, approval or vote of the Limited Partners, Assignees or
the Partnership.  Any action taken by the
Managing General Partner pursuant to the terms of any such agreement or with
respect to any such matter or transaction shall not constitute a breach by the
Managing General Partner of any duty that the Managing General Partner may owe
the Partnership or the Partners under this Agreement or under applicable law.

 

3.10                           Conveyances.  The
Managing General Partner has the express authority to convey title to any
Partnership Property by a conveyance executed by the Managing General Partner
alone on behalf of the Partnership.

 

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

 

3.12                           Indebtedness.

 

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

 

(B)                               Through
December 31, 1990, if the Partnership borrows funds for the purpose of
funding working capital or maintaining level quarterly distributions, any such
borrowings must be paid down for a period of at least 60 consecutive days in
every twelve-month period, unless the Managing General Partner determines that
such a pay-down would have a material adverse effect on the financial condition
of the Partnership.  During this period,
if the Partnership 

 

 

borrows for the purpose of acquisitions or purposes
other than funding working capital maintaining level quarterly distributions or
funding capital projects designed to increase orchard yields or reduce
operating costs, such borrowings will in no case exceed 10% of the Partnership’s
initial capital.  Prior to 1991, the
Partnership will not borrow for the purpose of acquisitions if, on a historical
pro forma basis (based on the immediately preceding calendar year) such
acquisition would result in reductions in distributions to the holders of Class A
Units below the Annual Indicated Distribution per Unit or accelerate the use of
cash in the Cash Account to support Indicated Distributions.

 

3.13                           Confidentiality.  The
Managing General Partner may keep confidential from the Limited Partners and
Assignees for such period of time as the Managing General Partner deems
reasonable, any information which the Managing General Partner reasonably
believes to be in the nature of trade secrets or other information disclosure
of which the Managing General Partner in good faith believes could damage the
Partnership or its business or which the Partnership is required by agreements
with third parties to keep confidential.

 

ARTICLE IV.

COMPENSATION OF THE GENERAL PARTNERS

 

4.1                                 Management Fee.  The
Partnership shall pay an annual Management Fee to the Managing General Partner,
payable in arrears on February 15 of each year (or as soon as practicable
thereafter when Operating Cash Flow for the prior year is determined), equal to
two percent (2%) of Operating Cash Flow for the immediately preceding calendar
year.  For years ending on December 31,
1991 and 1992 the annual Management Fee shall be foregone if and to the extent
that the payment of the Management Fee would result in actual distributions per
Class A Unit for such year to be less than the Annual Indicated
Distribution per Unit for such year.  For
all other years, the Management Fee shall be payable notwithstanding that such
payment results in the distributions for such year to be less than the
aggregate Indicated Distributions for such year.

 

4.2                                 Incentive Fee.  Beginning
February 15, 1988, the Partnership shall pay an annual Incentive Fee to
the Managing General Partner for services rendered in managing the Partnership’s
activities, payable in arrears on February 15 for the preceding year (or
as soon thereafter as Operating Cash Flow for the preceding year is determined).  The Incentive Fee shall be equal to one-half
of one percent (.5%) of the aggregate fair market value of the Depositary Units
for such preceding calendar year, provided that payment of the Incentive Fee
shall be made only if and to the extent the Partnership’s aggregate Net Cash
Flow for such preceding calendar year exceeds the sum of (A) the aggregate
Indicated Distributions for such preceding year and (B) the Cumulative
Distribution Deficit as of the end of the second preceding year.  For this purpose, the aggregate fair market
value of the Depositary Units for any calendar year shall be the product of (A) the
quotient of the sum of the Unit Prices for the Depositary Units on the first
trading day of each month during such year divided by 12, multiplied by (B) the
difference of (1) the weighted average number of Class A Units
outstanding during such year less (2) the weighted average number of Class A
Units held by the General Partners and their Affiliates during such year.

 

4.3                                 Proration of Fees.  In
the event the Managing General Partner shall cease to serve as Managing General
Partner during any calendar year, a prorated portion of the Management Fee and
the Incentive Fee for such year shall be payable in arrears to the Managing
General 

 

 

Partner on February 15 of the next year according
to the number of complete and partial months of the year during which the
Managing General Partner served in such capacity.

 

4.4                                 Organization Expenses.  The
Partnership shall pay or reimburse Mauna Loa for any title insurance with
respect to the Partnership Property.  In
addition, if the Underwriters’ over-allotment option is exercised in whole or
in part, the Partnership shall pay or reimburse Mauna Loa for all other
Organization Expenses to the extent of the product of such Organization
Expenses multiplied by the Over-Allotment Subsidy Ratio.

 

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

 

ARTICLE V.

THE LIMITED PARTNERS AND ASSIGNEES

 

5.1                                 Limited
Liability.

 

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

 

(B)                               To
the extent required by law, each Limited Partner or Assignee receiving a
distribution which represents a Return of Capital may be liable to return such
distribution.  A General Partner may not
seek to recover any distribution to the extent it constituted a Return of
Capital, unless the General Partner has applied all other available Partnership
assets to the payment of liabilities of the Partnership and the liabilities of
the Partnership, other than to Partners and Assignees as such, have not been
fully paid, satisfied, assumed or discharged. 
In no event shall any Limited Partner or Assignee be obligated under any
circumstances to make any additional Capital Contribution to the Partnership
for any purpose whatsoever.

 

5.2                                 Restrictions
on Limited Partners and Assignees.

 

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

 

(B)                               No
Limited Partner or Assignee shall have the power to represent, sign for or bind
a General Partner or the Partnership, unless such Limited Partner or Assignee
is also a General 

 

 

Partner or other Person given such power in a capacity
other than as a Limited Partner or Assignee by the Managing General Partner.

 

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

 

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

 

ARTICLE VI.

MEETINGS AND VOTING; AMENDMENTS

 

6.1                                 Meetings.  Meetings
of the Limited Partners may be called by the Managing General Partner or by
Limited Partners owning at least ten percent (10%) of the Class A
Units.  Any Limited Partner calling a
meeting shall specify the number of Class A Units as to which the Limited
Partner is exercising the right to call a meeting, and only those specified Class A
Units shall be counted for the purpose of determining whether the required ten
percent (10%) standard of the preceding sentence has been met.  Limited Partners may call a meeting only as
to matters on which they have the right to vote.  Limited Partners shall call a meeting by
delivering to the Managing General Partner one or more calls in writing stating
that the signing Persons wish to call a meeting and indicating the purposes for
which the meeting is to be called. 
Within sixty (60) days after receipt of such call or within such a
greater time as may be reasonably necessary for the Partnership to comply with
any statutes, rules, regulations, listing agreements or similar requirements
governing the holding of a meeting or the solicitation of proxies for use at
such a meeting, the Managing General Partner shall send a notice of the meeting
to the Limited Partners either directly or indirectly through the
Depositary.  A meeting shall be held at a
time and place determined by the Managing General Partner on a date not less
than ten (10) nor more than sixty (60) days after the mailing of notice of
the meeting.  Partners may vote either in
person or by proxy at any meeting.  No
matter shall be voted upon by Limited Partners at any meeting of the Limited
Partners unless the requirements of Section 6.10 shall be satisfied as to
such matter.

 

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

 

 

the Partner at the principal executive office of the
Partnership for a period of one year from the date of the giving of the notice
or report to all other Partners.

 

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

 

6.4                                 Adjournment.  When
a meeting is adjourned to another time or place, notice need not be given of
the adjourned meeting, and a new Record Date need not be fixed, if the time and
place thereof are announced at the meeting at which the adjournment is taken
unless such adjournment shall be for more than forty-five (45) days.  At the adjourned meeting the Partnership may
transact any business which might have been transacted at the original
meeting.  If the adjournment is for more
than forty-five (45) days or if a new Record Date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given in accordance with
this Article 6.

 

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

 

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

 

6.7                                 Conduct of Meeting.  The
Managing General Partner shall have full power and authority concerning the
manner of conducting any meeting of Limited Partners or the solicitation of
written consents, including without limitation the determination of Persons
entitled 

 

 

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

 

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

 

6.9                                 Voting
Rights.

 

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

 

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

 

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

 

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

 

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

 

 

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

 

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

 

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

 

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

 

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

 

(10)                            As
expressly provided in Sections 3.3, 7.8, 12.2 and elsewhere, if any, in this
Agreement.

 

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

 

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

 

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

 

6.11                          Amendments by the Managing General Partner;
Procedure on Amendment.  Subject to Section 6.12, the
Managing General Partner may without prior notice or consent of any Partner
amend any provision of this Agreement (1) to elect to be bound by any
successor statute governing limited partnerships pursuant to the power granted
in Section 3.11, (2) if in its opinion such amendment does not have a
material adverse effect upon the Limited Partners or the Partnership, as the
case may be, other than Limited Partners who consent to the amendment, (3) to
conform this Agreement to changes in the Delaware Act or interpretations
thereof which, in the sole discretion of the Managing General Partner, it
believes appropriate, necessary or desirable, provided that such amendment does
not have a materially adverse effect upon the Limited Partners or the
Partnership, (4) subject to Section 6.12(C), to change the allocation
between the General Partners of any amounts allocated to any or all General
Partners, (5) if the amendment is necessary, in the opinion of counsel to
the Partnership, to prevent the Partnership or a General Partner or the partners,
directors or officers of a General Partner from being in any 

 

 

manner subject to the provisions of the Investment
Company Act of 1940, as amended, the Investment Advisers Act of 1940, as
amended or “plan asset” regulations adopted under the Employee Retirement
Income Security Act of 1974, as amended, whether or not substantially similar
to plan asset regulations currently applied or proposed by the Department of
Labor, provided that such amendment does not have a materially adverse effect
upon the Limited Partners or the Partnership, (6) to reflect the exercise
of any power granted to the Managing General Partner under this Agreement, (7) to
make any change which, in the sole discretion of the Managing General Partner
is advisable to qualify or to continue the qualification of the Partnership, as
a limited partnership or a partnership in which the Limited Partners have
limited liability under the laws of any state or that is necessary or advisable
in the sole discretion of the Managing General Partner to ensure that the
Partnership will not be treated as an association taxable as a corporation for
federal income tax purposes, (8) to make any change that is necessary or
advisable, in the sole discretion of the Managing General Partner, to satisfy
any requirements, conditions or guidelines contained in any opinion, directive,
order, ruling, or regulation of any federal or state agency or contained in any
federal or state statute or that is necessary or desirable in order to
implement the provisions of the last sentence of Section 8.2(G)(1), or
that is necessary or desirable to facilitate the trading of the Depositary
Units or comply with any rule, regulation, guidelines or requirement of any
securities exchange or market system on which the Depositary Units are or will
be listed for trading, compliance with any of which the Managing General
Partner deems to be in the best interests of the Partnership and the Limited
Partners, (9) to correct a mistake or clerical or technical error or
omission in this Agreement, (10) subject to Section 6.9(A)(8), as
necessary to reflect the respective allocations, distributions, voting,
liquidation and other rights, privileges and preferences with respect to new
securities issued by the Partnership, and (11) any other amendment similar to
the foregoing that does not have a materially adverse effect on the Limited
Partners; provided, however, that the Managing General Partner shall not make
any of the foregoing amendments unless the Partnership shall have received the
favorable written opinion of counsel for the Partnership to the effect that
such amendment (1) shall not cause the Limited Partners to be deemed to be
taking part in the management and control of the business and affairs of the
Partnership so as to subject the Limited Partners to unlimited liability
thereof, (2) will not cause the Partnership to be treated as an
association taxable as a corporation for federal income tax purposes, and (3) is
otherwise permissible under the state statutes then governing the rights,
duties and liabilities of the Partnership and the Partners.  The amendment shall promptly thereafter be
disclosed to the Limited Partners.  In
the event an amendment shall have been approved pursuant to this Article 6,
the Managing General Partner shall execute such amendment, certificate and
other documents as may be reasonably required for the purpose of effectuating
the same; provided, however, that nothing in this Article 6 shall be
construed to limit the authority of the Managing General Partner to admit
Additional Limited Partners or Substituted Limited Partners.

 

6.12                          Restricted
Amendments.

 

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

 

(B)                               Notwithstanding
the provisions of Section 6.11, no provision of this Agreement which
establishes a percentage of votes required of the Partners to take any action
shall be amended, altered, changed, respected or rescinded in any respect which
would have the effect of 

 

 

reducing the voting requirement, unless such action is
approved by the written consent or the affirmative vote of holders of
outstanding Class A Units whose aggregate percentage interests in such Class A
Units constitute not less than the voting requirements sought to be
reduced.  This Section 6.12(B) shall
only be amended with the approval by written consent or affirmative vote of the
Managing General Partner and holders of 95% of the outstanding Class A
Units for which the Partnership has valid current addresses.

 

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

 

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

 

ARTICLE VII.

CAPITAL CONTRIBUTIONS, TRANSFER TO UNDERWRITERS AND 

CAPITAL ACCOUNTS

 

7.1                                Contribution of Mauna Loa and Ka’u as
Limited Partners. On
the Closing Date, Mauna Loa and Ka’u shall transfer their respective interests
in the Original Orchard Properties and the Initial Contribution (as adjusted
pursuant to Section 7.2) to the Partnership pursuant to the Conveyance
Agreement in exchange for that number of Class A Units designated in the
Conveyance Agreement.  Mauna Loa shall
also pay the Organization Expenses of the Partnership (subject to Section 4.4).  At the time of such Capital Contribution, the
Partnership shall assume (or take the Original Orchard Properties subject to)
all liabilities to be assumed by the Partnership in accordance with the
Conveyance Agreement.  Mauna Loa’s and Ka’u’s
respective Limited Partner Capital Accounts shall be appropriately credited
with the amount of the Initial Contribution, the Net Agreed Value of the
Original Orchard Properties and the Organization Expenses paid on the
Partnership’s behalf.  In addition to the
Class A Units, as consideration for additional (but unagreed) value, if
any, in the Original Orchard Properties on the Closing Date, Mauna Loa and Ka’u
shall be issued that number of Class B Units designated in the Conveyance
Agreement.  The Partnership shall issue
to Mauna Loa the Class B Units to which Ka’u is entitled.  No credit shall be given for any unagreed
value of the Original Orchard Properties for which such Class B Units are
issued until such value is established through Partnership operations or
dispositions of such Original Orchard Properties as provided herein.  The Class B Units shall not be
transferable except by operation of law or to an Affiliate of Mauna Loa;
provided, that Mauna Loa shall not be entitled to transfer the Class B
Units to an Affiliate that is not a Partner except upon receipt by the
Partnership of an opinion of counsel that the conversion of such Class B
Units by such Affiliate will not result in adverse tax consequences, if any,
that would not otherwise have resulted upon Mauna Loa’s conversion of such Class B
Units.

 

7.2                                Contribution
of General Partners.

 

(A)                             (1)                                   On
the Closing Date, the Managing General Partner shall contribute to the
Partnership cash in an amount such that its Capital Contribution then being
made as Managing 

 

 

General Partner shall be equal to .99% of the total
Capital Contributions (based on the amounts credited to the Capital Accounts on
account thereof) to the Partnership pursuant to this Section 7.2(A) (1),
Section 7.2(B) (1), Section 7.1 and Section 7.3(B). The
amount of the Initial Contribution required to be contributed by Mauna Loa
pursuant to Section 7.1 shall be reduced on a dollar-for-dollar basis by
the amount of the cash contribution made by the Managing General Partner
pursuant to this Section 7.2(A)(1).

 

(2)                                  Following
the Closing Date, whenever a Partner makes a Capital Contribution to the
Partnership pursuant to Section 7.2(C) or Section 7.8, the
Managing General Partner shall contribute to the Partnership cash in an amount,
or property having a Net Agreed Value, such that its Capital Contribution then
being made as Managing General Partner shall be equal to .99% of the total
Capital Contributions (based on amounts credited to Capital Accounts on account
thereof) to the Partnership pursuant to this Section 7.2(A)(2), Section 7.2(B)(2),
and Section 7.2(C) or Section 7.8, as the case may be.

 

(B)                               (1)                                   On
the Closing Date, the Special General Partner shall contribute to the
Partnership cash in an amount, or property having a Net Agreed Value, such that
its Capital Contribution then being made as a Special General Partner shall be equal
to .01% of the total Capital Contributions (based on the amounts credited to
the Capital Accounts on account thereof) to the Partnership pursuant to
Sections 7.1, 7.2(A)(1), this Section 7.2(B)(1), and Section 7.3(B).
The Initial Contribution required to be contributed by Mauna Loa pursuant to Section 7.1
shall be reduced on a dollar-for dollar basis by the amount of the cash
contribution made by Mauna Loa pursuant to this Section 7.2(B)(1).

 

(2)                                  Following
the Closing Date, whenever a Partner makes a Capital Contribution to the
Partnership pursuant to Section 7.2(C) or Section 7.8, the
Special General Partner shall contribute to the Partnership cash in an amount
or property having a Net Agreed Value, such that its Capital Contributions then
being made as a Special General Partner shall be equal to .01% of the total
Capital Contributions (based on amounts credited to Capital Accounts on account
thereof) to the Partnership pursuant to Section 7.2(A)(2), this Section 7.2(B)(2),
and Section 7.2(C) or Section 7.8, as the case may be.

 

(C)                               In
the event the Managing General Partner determines that there exists a First
Year Deficit Cash Flow as of December 31, 1986, Mauna Loa shall be
obligated to contribute to the Partnership. in its capacity as Special General
Partner, that amount of cash that is equal to the lesser of (1) such First
Year Deficit Cash Flow, or (2) $1.5 million, reduced in either instance on
a dollar-for-dollar basis by amounts contributed to the Partnership by the
General Partners pursuant to Sections 7.2(A)(2) and 7.2(B)(2) incident
to Mauna Loa’s contribution.  Mauna Loa
shall make any such Capital Contribution by March 31, 1987.  Mauna Loa shall, upon the occurrence of
certain events in accordance with Section 7.12, be entitled to receive additional
Class A Units in consideration of any Capital Contributions made pursuant
to this Section 7.2(C).

 

7.3                                Sale
of Class A Units to the Underwriters.

 

(A)                             Pursuant
to the Underwriting Agreement, Mauna Loa shall sell to the Underwriters Class A
Units issued to Mauna Loa and Ka’u in connection with the Initial Offering as
more fully described in the Registration Statement.

 

 

(B)                               In
the event an Underwriter shall exercise its option to purchase additional Class A
Units pursuant to the Underwriting Agreement, the Partnership shall issue to
such Underwriter that number of Class A Units to be purchased by such
Underwriter pursuant to the exercise of such option upon receipt of cash
specified in the Underwriting Agreement. 
For purposes of this Agreement all Units issued pursuant to this Section 7.3(B) shall
be deemed to be issued on the Closing Date regardless of whether the issuance
actually occurs on the Closing Date.

 

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

 

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

 

7.6                                Creditor’s Interest in the Partnership.  No
creditor who makes a loan to the Partnership shall have or acquire at any time
as a result of making the loan any direct or indirect interest in the profits,
capital or property of the Partnership other than as a creditor.  None of the provisions of this Agreement
shall be for the benefit of or enforceable by any creditors of the Partnership.

 

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

 

7.8                                Sale of Additional Securities.  In
order to raise additional capital, to acquire additional macadamia orchard
properties or other assets, to redeem or retire Partnership debt or for any
other Partnership purpose, the Managing General Partner is authorized to cause
to be issued additional Units from time to time to General Partners, Limited
Partners or to other Persons and to admit such Persons as Additional Limited
Partners in the Partnership.  In
addition, the Managing General Partner is authorized to cause to be issued,
purchased, redeemed, exchanged, traded or granted calls, options, appreciation
rights, partners’ interests, bonds, debentures and other securities of the
Partnership from time to time.  The
Managing General Partner shall have sole and complete discretion in determining
the consideration and terms and conditions with respect to any future issuance
of Units or any other securities of the Partnership; provided, however, that
the Managing General Partner shall not (A) issue additional Units to the
Managing General Partner or any of its Affiliates for consideration having a
fair value less than the aggregate Unit Price of all Units being issued without
the approval of a Majority Interest, except as provided in Sections 7.11 and
7.12; (B) through December 31, 1990, shall not issue any additional Class A
Units after the Initial Offering if, on a historical pro forma basis (based on
the immediately preceding calendar year) such issuance would result in
reductions of distributions to all holders of Class A Units (including
newly issued Class A Units) below the Annual Indicated Distribution per
Unit or accelerate the use of cash in the Cash Account to support Indicated
Distributions; and (C) shall not issue securities which are senior to the Class A
Units with respect to distributions, allocations of profit and loss,
liquidation or voting rights or which are convertible into or exchangeable for,
or having optional rights to purchase, any securities having any such seniority
without the affirmative vote of a Majority Interest in the Partnership;
provided further, that the acquisition by the Partnership of certain interests
in approximately 1,260 tree acres of macadamia orchard properties from Mauna
Loa Orchards, L.P., a Hawaii limited partnership (“MLO”), and Howard Butcher
III, an individual who is a limited partner of MLO, in exchange for 3,000,000 Class A
Units (or, with respect to a portion of 

 

 

such Class A Units which are proposed to be sold
in an underwritten public offering, the net proceeds to the Partnership from
such sale) and 500,000 Class B Units, as more specifically set forth in
the Proxy Statement dated August 21, 1989 and any amendments thereto,
shall be specifically excepted from the limitations set forth in clauses (A) and
(B) of this Section. Such specific exception shall not act as a waiver of
the limitations set forth in clauses (A) and (B) of this Section with
regard to any future acquisitions of macadamia orchard properties or
assets.  The Managing General Partner
shall do all things necessary to comply with the Delaware Act, the Code or
other applicable law, statute, rule, regulation or guideline of any federal,
state or other governmental agency or any stock exchange on which the
Depositary Units or other securities of the Partnership are listed for trading,
and is authorized and directed to do all things it deems necessary or advisable
in connection with any such future issuance.

 

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

 

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

 

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

 

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

 

The Partnership shall maintain for each Class B
Unitholder a separate Deferred Account with respect to the Class B Units
held by such Class B Unitholder. 
The Deferred Accounts shall initially have a zero balance and shall be
increased or decreased for all items of income, gain and loss allocated to the Class B
Unitholders pursuant to Section 8.1 and shall be decreased by all 

 

 

distributions
to the Class B Unitholders pursuant to Section 9.1(B); provided that
if it is ultimately established pursuant to a Final Determination that the Class B
Unitholders’ contributions to the Partnership in exchange for Class B
Units have an ascertainable value as of the Closing Date, appropriate
adjustments shall be made to the Deferred Accounts in a manner consistent with
such determination.  The Deferred
Accounts shall be adjusted as provided in Section 7.10(D) upon the
issuance of Class A Units to the Class B Unitholders pursuant to Section 7.11.  Following the conversion of all of the Class B
Units to Class A Units or upon the lapse of the right to convert Class B
Units, any remaining balance of the Deferred Account shall be transferred to any
General Partner Capital Account of the subject Class B Unitholder.

 

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

 

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

 

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

 

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

 

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

 

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

 

(C)                               Generally,
a transferee of a Unit shall succeed to the Capital Account associated with the
Unit transferred.  However, if the
transfer causes a termination of the Partnership under 

 

 

Section 708(b)(1)(B) of the Code, the
Partnership Properties shall be deemed to have been distributed in liquidation
of the Partnership to the Partners and Assignees (including the transferee of a
Unit) and recontributed by such Partners and Assignees in reconstitution of the
Partnership.  In such event, the Carrying
Values of the Partnership properties shall be adjusted immediately prior to
such deemed distribution pursuant to Section 7.10(E) (and such
adjusted Carrying Values shall constitute the Agreed Values of such properties
upon their deemed recontribution to the reconstituted Partnership).  The Capital Accounts of such reconstituted
Partnership shall be maintained in accordance with the principles of this Section 7.10.

 

(D)                              (1)                                   Upon
a Class B Unitholder’s conversion of Class B Units to Class A
Units pursuant to Section 7.11, any balance in the Deferred Account of
such Class B Unitholder shall be transferred to the Limited Partner
Capital Account maintained with respect to the Class A Units received by
such Class B Unitholder upon the conversion, but only to the extent that
the resulting Limited Partner Capital Account balance of the Class B
Unitholder with respect to the Class A Units received does not exceed the
Prescribed Capital Balance attributable to such Class A Units.  The Capital Account of each Partner and
Assignee (including the Capital Account of the Class B Unitholder with
respect to the Class A Units received) shall immediately be adjusted to
reflect any Unrealized Gain or Unrealized Loss allocated to such Partner
pursuant to Section 7.10(D)(3). 
Following this adjustment to the Capital Accounts, the Limited Partner
Capital Accounts of all Limited Partners and Assignees (including any Class B
Unitholder holding any Class A Units, including those issued upon the
conversion) shall, if and to the extent necessary, be appropriately adjusted to
reflect a balance equal to each such Partner’s or Assignee’s Prescribed Capital
Balance.

 

(2)                                  Upon
the issuance of Class A Units to Mauna Loa pursuant to Section 7.12,
with respect to the Units issued, Mauna Loa’s General Partner Capital Account
shall be reduced by the Conversion Reduction Amount relating to such issuance
of Class A Units and Mauna Loa’s Limited Partner Capital Account shall
immediately be increased by an amount equal to this Conversion Reduction
Amount.

 

(3)                                  Upon
the conversion of Class B Units to Class A Units pursuant to Section 7.11
or upon an issuance of additional Class A Units pursuant to Section 7.8
or Section 7.12, the Capital Accounts of all Partners and Assignees, and
the Carrying Values of all Partnership Properties shall, upon such conversion
or issuance, be adjusted (consistent with the provisions hereof) to reflect any
Unrealized Gain or Unrealized Loss attributable to all Partnership
Properties.  Upon the conversion of Class B
Units to Class A Units pursuant to Section 7.11, any Unrealized Gain
or Unrealized Loss shall be allocated 1% to the General Partners in accordance
with their Allocable Shares, and 99% to the Limited Partners (including any Class B
Unitholder participating in such conversion) and Assignees as follows:  (a) first, any such Unrealized Gain or
Unrealized Loss allocated to the Limited Partners and Assignees shall be
allocated among the Limited Partners and Assignees in a manner that will, to
the extent possible, bring the Capital Accounts of the Limited Partners and
Assignees into a relative balance reflective of such parties’ respective
Allocable Shares (as adjusted for the issuance of the Class A Units
resulting from the conversion), and (b) second, any remaining Unrealized
Gain or Unrealized Loss allocated to the Limited Partners and Assignees shall
be allocated among the Limited Partners and Assignees in accordance with their
respective Allocable Shares (as adjusted for the issuance of the Class A
Units resulting from the conversion). 
Upon an issuance of Class A Units pursuant to Section 7.8 or Section 7.12,
any Unrealized Gain or Unrealized Loss shall be allocated among the Partners
and Assignees (immediately prior to such issuance) in accordance with their
Allocable Shares.

 

 

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

 

(E)                                Immediately
prior to the distribution of any Partnership Properties, the Capital Accounts
of all Partners and the Carrying Values of all Partnership Properties shall be
adjusted to reflect any Unrealized Gain or Unrealized Loss attributable to the
Partnership Properties.  In the case of a
current distribution pursuant to Section 9.2 or a deemed distribution
occurring as a result of Section 708 of the Code, such Unrealized Gain or
Unrealized Loss (determined in the manner provided in Section 7.10(D)(4))
shall be allocated among the Partners and Assignees in accordance with their
Allocable Shares.  In the case of a
liquidating distribution pursuant to Section 15.4, such Unrealized Gain or
Unrealized Loss (determined by the Managing General Partner or other
liquidator, using such reasonable method of valuation as it may adopt) shall be
allocated among the Partners, Assignees and Class B Unitholders in
accordance with the provisions of Section 8.1 as if such assets had been
sold in a Capital Transaction.

 

(F)                                In
the event that it is determined pursuant to a Final Determination that the Underwriters
purchasing Class A Units pursuant to Section 7.3(B) will not be
treated as partners for purposes of the application of Section 743 of the
Code, such issuance of Class A Units shall be treated as an issuance of
additional Class A Units for purposes of Sections 7.8 and 7.10 hereof.

 

7.11                          Conversion of Class B Units to Class A
Units. The outstanding
Class B Units shall from time to time be converted to Class A Units
in accordance with this Section 7.11:

 

(A)                             If
for the year ending December 31, 1986, the Partnership has First Year
Excess Cash Flow, then, effective as of December 31, 1986, that number of Class B
Units shall be converted to Class A Units determined by the following
quotient:  such First Year Excess Cash
Flow divided by the Unit Price of the Class A Units as of December 31,
1986.  Any Class A Unit issued
pursuant to this Section 7.11(A) shall be redeemed by the Partnership
pursuant to Section 9.3.

 

(B)                               If
as of December 31, 1990, there is a positive balance in the Cash Account
(taking into account any required transfers from the Operating Cash Account to
the Cash Account pursuant to Section 10.6(D) for the period through December 31,
1990), then, effective as of March 31, 1991, that number of Class B
Units shall be converted to Class A Units determined according to the
following quotient:  such positive
balance divided by the Unit Price of the Class A Units as of March 31,
1991.  Any Class A Units issued
pursuant to this Section 7. 11(B) shall be redeemed by the
Partnership pursuant to Section 9.3.

 

(C)                               If
for any year of the Partnership after 1990 and prior to 2007 while Class B
Units remain outstanding, the Partnership has made Cumulative Excess
Distributions, as determined based on distributions for periods through the end
of such year, then, effective as of March 31 of the next year or the first
Record Date for distributions for such year if other than March 31, that
number of Class B Units outstanding shall be converted to Class A
Units as determined by the 

 

 

following quotient: 
such Cumulative Excess Distributions divided by the Annual Indicated
Distributions per Unit for such prior fiscal year.

 

7.12                          Issuance of Additional Class A Units to
Mauna Loa.  In consideration of any additional
Capital Contributions required to be made by Mauna Loa pursuant to Section 7.2(C),
Mauna Loa shall be entitled to be issued additional Class A Units in
accordance with this Section 7.12. 
If for any year of the Partnership after 1990, the Partnership has made
Cumulative Excess Distributions, determined based on distributions for periods
through the end of such year, and after taking into consideration any
conversion of Class B Units to Class A Units pursuant to Section 7.11(C) with
respect to such year, then, effective as of March 31 of the next year or
the first Record Date for distributions for such year if other than March 31,
that number of additional Class A Units shall be issued to Mauna Loa as
determined by the following formula: the lesser of (A) the quotient
derived by dividing such Cumulative Excess Distributions by the Annual
Indicated Distributions per Unit for such prior year, or (B) the quotient
derived by dividing the Capital Conversion Balance, as of the end of such prior
year, by the Unit Price of the Class A Units as of the date of conversion.

 

7.13                          Registration of Class A Units.  At
any time after the conversion of Class B Units to Class A Units by
Mauna Loa or the issuance of Class A Units to Mauna Loa in consideration
of any additional Capital Contributions by Mauna Loa, upon the request of Mauna
Loa, the Partnership shall file with the Securities and Exchange Commission as
promptly as practicable after receiving such request. and use its best efforts
to cause to become effective, a registration statement under the Securities Act
of 1933 registering the offering and sale of all or a portion of the Class A
Units owned by Mauna Loa and included in such request; provided that the
Partnership shall not be required to file more than one such registration
solely with respect to the Class A Units owned by Mauna Loa each
year.  If the Partnership has executed a
letter of intent with respect to a proposed offering of Class A Units with
a prospective managing underwriter and intends to file a registration statement
within thirty (30) days, and if the managing underwriter advises Mauna Loa in
writing that marketing factors require a limitation of the number of Class A
Units to be underwritten, then the number of Class A Units that may be
included in the underwriting by Mauna Loa shall be limited as provided below
and the registration shall not be considered to be solely with respect to Class A
Units owned by Mauna Loa.  If (but
without any obligation to do so) the Partnership proposes to register
(including for this purpose a registration effected by the Partnership for
Unitholders other than Mauna Loa) any of its Class A Units or other
securities in connection with an underwritten public offering of the securities
solely for cash (other than a registration relating solely to the sale of
securities to participants in a Partnership employee benefit plan, a Securities
and Exchange Commission Rule 145 transaction, or a registration on any
form which does not include substantially the same information as would be
required to be included in a registration statement covering the sale of Class A
Units held by Mauna Loa), the Partnership shall, at such time, promptly give
Mauna Loa written notice of the proposed registration.  Upon the written request of Mauna Loa given
within twenty (20) days after giving of such notice by the Partnership, the
Partnership shall cause to be included in the filing all of the Class A
Units that Mauna Loa has requested to be registered.  The Partnership may withdraw any such filing
at any time before it becomes effective, or postpone its effectiveness, without
any obligation or liability to Mauna Loa. 
The Partnership shall not be required to include any of Mauna Loa’s
securities in an underwritten offering of the Partnership’s securities unless
Mauna Loa accepts the terms of the underwriting as agreed upon between the
Partnership and the underwriters selected by it and agrees to execute such
documents in connection with the registration as the Partnership may reasonably
request.  If the total amount of
securities, including Class A Units owned by Mauna Loa, requested to be 

 

 

included in the offering exceeds the amount of
securities that the underwriters reasonably believe compatible with the success
of the offering, then the Partnership shall be required to include in the
offering only that number of such securities, including Class A Units
owned by Mauna Loa, which the underwriters believe in their sole discretion
will not jeopardize the success of the offering (the securities so included to
be apportioned pro rata among the selling security holders according to the
total amount of securities entitled to be included therein owned by each
selling security holder or in such other proportion as shall be mutually agreed
to by such selling security holders).  In
connection with any registration pursuant to this Section 7.13, the
Partnership shall promptly prepare and file such documents as may be necessary
to register or qualify such Class A Units subject to such registration
under the securities laws of such states as Mauna Loa shall reasonably request
and do any and all other acts and things which may reasonably be necessary or
advisable to enable Mauna Loa to consummate a public sale of such Class A
Units in such states.  Registrations
effected under this paragraph shall be effected at the expense of Mauna Loa in
proportion to the securities registered for Mauna Loa.

 

7.14                          Changes in Outstanding Units.  The
Managing General Partner is authorized to effect any Class A Unit split or
declare and pay pro rata distributions of Class A Units to the holders of Class A
Units.  In the event of any such Class A
Unit split or distribution, appropriate adjustments shall be made to the
Indicated Distributions per Unit and the number of Class B Units
convertible into Class A Units.

 

ARTICLE VIII.

ALLOCATION OF INCOME AND LOSSES

 

8.1                                Allocations
for Capital Account Purposes.

 

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

 

(B)                               In
the event the Partnership undertakes a Capital Transaction while any Class B
Units remain outstanding, any gain (computed in accordance with Section 7.10(B))
arising upon such Capital Transaction shall be allocated (1) first, among
the Partners and Assignees in accordance with their Allocable Shares until the
gain allocated to the Limited Partners and Assignees equals the product of (a) the
number of then outstanding Class A Units and (b) the excess, if any,
of (i) the sum of the Initial Carrying Value per Unit with respect to the
property disposed of in the Capital Transaction, the Capital Transaction
Premium per Unit with respect to the property disposed of and the Cumulative
Distribution Deficit per Unit as of the date of such Capital Transaction, over (ii) the
Current Carrying Value per Unit with respect to the property disposed of at the
time of the Capital Transaction; (2) then to the Class B Unitholders
until the gain allocated to each Class B Unit equals the Initial Carrying
Value per Unit with respect to the property disposed of; and (3) any
balance, in accordance with the Partners’ and Assignees’ Allocable Shares, but
assuming for this purpose that all outstanding Class B Units had been
converted to Class A Units pursuant to Section 7.11 immediately prior
to the Capital Transaction.

 

(C)                               In
the event the Partnership undertakes a Capital Transaction while any Class B
Units remain outstanding, any loss arising upon such Capital Transaction
(computed in 

 

 

accordance with Section 7.10(B)) shall be
allocated (1) first, to the Class B Unitholders until the balance
reflected in the Deferred Accounts associated with the Class B Units is
reduced to zero; and (2) then among the Partners and Assignees in
accordance with their Allocable Shares.

 

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

 

8.2                                Tax
Allocations.

 

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

 

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

 

(1)                                  In
the case of a Contributed Property, such items shall be allocated among the
Partners and Assignees in a manner that takes into account the variation
between the Agreed Value of such property and its Adjusted Basis at the time of
contribution in attempting to eliminate Book-Tax Disparities.  Except as otherwise provided in paragraph (C) below,
any items of Residual Gain or Residual Loss attributable to a Contributed
Property shall be allocated among the Partners and Assignees in accordance with
their respective Allocable Shares.

 

(2)                                  In
the case of an Adjusted Property, such items shall (a) first, be allocated
among the Partners and Assignees in a manner (consistent with the principles of
Section 704 and the regulations thereunder) which takes into account the
Unrealized Gain or Unrealized Loss attributable to such property and the
allocations thereof pursuant to Section 7.10(D)(3) in attempting to
eliminate Book-Tax Disparities, and (b) second, in the event such property
was originally a Contributed Property, be allocated among the Partners and
Assignees in a manner consistent with the first sentence of paragraph (B)(1) above.  Except as otherwise provided in paragraph (C) below,
any items of Residual Gain or Residual Loss attributable to an Adjusted
Property shall be allocated among the Partners and Assignees in accordance with
their respective Allocable Shares.

 

(C)                               In
the event the Partnership undertakes a Capital Transaction while any Class B
Units remain outstanding, any Residual Gain or Residual Loss recognized upon
such Capital Transaction shall be allocated in a manner consistent with the
manner in which the gain or loss computed with respect to such Capital
Transaction for purposes of maintaining Capital Accounts pursuant to Section 7.10(B) is
allocated pursuant to Section 8.1(B) or 8.1(C), whichever is
applicable.

 

(D)                              All
items of income, gain, loss, deduction and credit recognized by the Partnership
for federal income tax purposes and allocated to the Partners and Assignees in
accordance with the provisions hereof shall be determined without regard to any
election under Section 754 of the Code which may be made by the
Partnership; provided, however, such 

 

 

allocations, once made, shall be adjusted as necessary
to take into account those adjustments authorized under Sections 734 and 743 of
the Code.

 

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

 

(F)                                (1)                                   It
is intended that the allocations in this Section 8.2 shall effect an
allocation for federal income tax purposes in a manner consistent with Section 704
and related sections of the Code and shall comply with any limitations or
restrictions therein to the extent reasonably possible without causing the
Units to not have uniform characteristics for federal income tax purposes.  The Managing General Partner shall have the
authority and discretion, without the approval of the Limited Partners and
Assignees, to adopt such conventions as it deems appropriate in making the
allocations pursuant to this Section 8.2 and to modify and amend the
provisions of this Section 8.2 and related provisions of this Agreement
for the purpose of complying with Treasury Regulations promulgated under Section 704
of the Code, rulings or positions of the Service or court decisions or as the
Managing General Partner otherwise deems advisable; provided that the Managing
General Partner shall not have the authority to adopt conventions or amendments
which would cause the Units to not have uniform characteristics for federal
income tax purposes.

 

(2)                                  In
the event a “technical termination” of the Partnership occurs under Section 708
of the Code upon either the assignment by Mauna Loa of Class A Units to
the Underwriters pursuant to the Initial Offering or any other assignment of
Units, it is intended that the allocations provided in this Section 8.2 be
applied to take into account the variation, if any, between the Agreed Value of
the Contributed Property and its Adjusted Basis for federal income tax
purposes, as determined under Section 732 of the Code, following the
deemed distribution and recontribution of such properties which occurs as a
result of such termination.

 

(3)                                  In
addition, if the initial Adjusted Basis of the Original Orchard Properties is
increased (along with an attribution of value to the Class B Units)
pursuant to a Final Determination, the federal income tax attributes resulting
from such increased Adjusted Basis shall be allocated solely to the Class B
Unitholders.  Any such allocation of tax
attributes shall not be reflected in the Deferred Accounts of the Class B
Unitholders.

 

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

 

(H)                              In
the event of the transfer of a Unit during a year, each item of Partnership
income, gain, loss, deduction and credit attributable to the transferred Unit
shall, for federal income tax purposes, be prorated between the transferor and
transferee using such methods as may be adopted by the Managing General Partner,
in its discretion, to comply with Section 706 

 

 

of the Code. 
For this purpose, a Partner or an Assignee of record shall, to the
extent practicable and consistent with the preceding sentence, be allocated
taxable income and loss (and items thereof) from the date such Partner or
Assignee acquired his Partnership Interest as if such Partner or Assignee
became a Partner or Assignee of record on such date; provided that the
Partnership shall not, by reason of this sentence, be obligated to reallocate
taxable income or loss (or items thereof) previously reported for tax purposes
or file amended tax returns or other documents reflecting any such
reallocation.

 

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

 

8.3                                Tax
Elections.

 

(A)                             Except
as otherwise provided herein, the Managing General Partner shall, in its sole
discretion, determine whether to make any available election under the
Code.  The Managing General Partner may,
in its discretion, make the election under Section 754 of the Code in
accordance with applicable regulations thereunder to cause the basis of
Partnership Property to be adjusted for federal income tax purposes as provided
by Sections 734 and 743 of the Code. 
Such election may also be made, in the Managing General Partner’s
discretion, for the reconstituted Partnership upon any termination of the
Partnership pursuant to Section 708 of the Code.  In connection with the Initial Offering, the
Managing General Partner shall make a Section 754 election for the
Partnership as constituted prior to a sale of the Class A Units to the
Underwriters.  The Managing General
Partner shall elect to deduct expenses incurred in organizing the Partnership
ratably over a sixty-month period as provided in Section 709 of the Code.

 

(B)                               The
General Partners, the Underwriters and any Limited Partner and Assignees, by agreeing
to the terms of this Agreement hereby elect to be governed by the provisions of
Section 732(d) of the Code upon a termination of the Partnership
pursuant to Section 708 of the Code if the Managing General Partner, in
its absolute discretion, deems such election to be advisable at any time.  All such parties hereby further agree to
execute and file all documents and to take any other steps necessary to effect
such election and appoint the Managing General Partner as their authorized
agent to take such steps on their behalf.

 

ARTICLE IX.

DISTRIBUTIONS

 

9.1                                Time
and Amount of Cash Distributions.

 

(A)                             During
the period through December 31, 1990, as of the close of each quarter, an
amount equal to the Net Cash Flow of the Partnership for such quarter shall be
distributed to the Partners and Assignees of record on the Record Date set for
the distribution in accordance with their Allocable Shares to the extent such
Net Cash Flow does not exceed an amount equal to the sum of (1) the
Indicated Distributions for such quarter and (2) the Cumulative
Distribution Deficit as of the end of the prior quarter.  In addition, any amount credited to the
Operating Cash Account pursuant to Section 9.1(C) with respect to
such quarter shall be distributed to such 

 

 

Partners and Assignees in accordance with their
Allocable Shares.  During the period
after December 31, 1990, an amount equal to the Net Cash Flow for each
quarter, reduced by amount of any Incentive Fee payable with respect to such
quarter, shall be distributed to the Partners and Assignees of record on the
Record Date set for distribution in accordance with their Allocable
Shares.  The Managing General Partner, in
its sole discretion, may determine that any distribution described in this Section 9.1(A) shall
be a lesser amount or shall not be made because distribution of the full amount
could have a materially adverse effect on the operations or financial condition
of the Partnership.

 

(B)                               In
the event the Partnership undertakes a Capital Transaction, the Managing
General Partner, may, in its discretion, distribute to the Partners, Assignees
and Class B Unitholders the Net Proceeds of the Capital Transaction as
reflected in the Capital Transaction Account. 
Any such distributions shall be made (1) first, among the Partners
and Assignees in accordance with their Allocable Shares to the extent of any
Cumulative Distribution Deficit as determined for the last quarter ending prior
to the date of the distribution; (2) next, among the Partners and
Assignees in accordance with their Allocable Shares to the extent of any
aggregate Capital Transaction Premium previously credited to the Partners and
Assignees with respect to Capital Transactions occurring on or prior to the
date of the distribution, less any prior distributions pursuant to this Section 9.1(B)(2);
(3) next, to the Partners and Assignees in accordance with their Allocable
Shares up to an amount equal to the aggregate initial Carrying Values of all
assets disposed of in Capital Transactions occurring on or prior to such date
and (4) then, to the Partners, Assignees and the Class B Unitholders
in accordance with their proportionate interests in any balance of the Capital
Transaction Account (taking into account allocations made pursuant to Section 8.1(B)).

 

(C)                               In
the event there is a Deficit Cash Flow for any quarter through December 31,
1990, the Cash Account and Over-Allotment Cash Account shall be charged, and
the Operating Cash Account shall be credited, with an aggregate amount equal to
such Deficit Cash Flow (or such lesser remaining cash balances in the Cash
Account and Over-Allotment Cash Account) in order to fund Indicated
Distributions as follows: (1) first, the Cash Account shall be charged
according to the Cash Account Subsidy Ratio applied to such Deficit Cash Flow
and the Over-Allotment Cash Account share be charged according to the
Over-Allotment Subsidy Ratio applied to such Deficit Cash Flow until the cash
balance of either the Cash Account or the Over-Allotment Cash Account is
exhausted; and then (2) if any balance remains in the Cash Account, 100%
shall be charged to the Cash Account until the Cash Account is exhausted.

 

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

 

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

 

9.2                                Distributions of Partnership Property.  In
its sole discretion, the Managing General Partner may distribute to Partners
and Assignees Partnership property other than cash, combinations of cash and
property, and additional Units or securities of the Partnership which have been
authorized and issued pursuant to the terms of this Agreement.

 

 

9.3                                Redemption of Units.  In
the event Mauna Loa is entitled to convert any Class B Units to Class A
Units pursuant to Sections 7.11(A) or 7.11(B), such Class A Units
shall be immediately redeemed upon conversion for a price equal to the Unit
Price as of the date of conversion.

 

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

 

ARTICLE X.

ACCOUNTING AND REPORTS

 

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

 

10.2                          Reports.

 

(A)                             The
Managing General Partner shall use its best efforts to prepare and furnish
within ninety (90) days after the close of each Partnership taxable year to
each Person who was the holder of record of a Certificate or Depositary Receipt
on the last day of any month during the Partnership’s year the information
necessary for the preparation of such Person’s United States federal income tax
return and any United States or state income tax returns or the tax returns of
any other jurisdiction required of such Person as a result of the operations of
the Partnership.  The Partners and
Assignees agree to furnish the Managing General Partner with such information
as may be necessary or helpful in preparing the tax returns or other filings of
the Partnership.

 

(B)                               As
soon as practicable, but in no event later than ninety (90) days after the
close of each fiscal year, the Managing General Partner shall mail or deliver
to each Limited Partner of record reports containing financial statements of
the Partnership for the fiscal year, including a balance sheet, statements of
operations, changes in Partners’ equity and changes in financial position.  Such statements shall be prepared in
accordance with generally accepted accounting principles and audited and
certified by a nationally recognized firm of independent public accountants
selected by the Managing General Partner, and are to be accompanied by a
supplementary summary.

 

(C)                               As
soon as practicable but in no event later than forty-five (45) days after the
close of each fiscal quarter, except the last fiscal quarter of each fiscal
year, the Managing General Partner shall mail or otherwise furnish to each
Limited Partner and each Assignee of record a quarterly report for the fiscal
quarter containing such financial and other information as the Managing General
Partner deems appropriate.

 

10.3                          Tax Controversies.  Subject
to the provisions hereof, the Managing General Partner is designated as the “Tax
Matters Partner” (as defined in the Code) and is authorized and 

 

 

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

 

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

 

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

 

10.6                          Segregated
Accounts.

 

(A)                             The
Partnership shall maintain a Cash Account as a segregated account subject to
the provisions hereof.  The Cash Account
shall initially consist of the Initial Contribution and the amounts contributed
by the General Partners pursuant to Section 7.2(A)(1) and 7.2(B)(1),
and shall be increased by any contribution by Mauna Loa pursuant to Section 7.2(C),
any amounts contributed by the General Partners pursuant to Section 7.2(A)(2) and
Section 7.2(B)(2) and any 

 

 

amounts credited to the Cash Account and charged to
the Operating Cash Account pursuant to Section 10.6(D).  Any receipts with respect to assets held in
the Cash Account shall be added to the Cash Account, and any net income with
respect to the Cash Account shall be transferred to the Operating Cash Account
on a quarterly basis.  The Cash Account
shall be utilized for the purpose of supplementing Net Cash Flow to provide the
Indicated Distributions to the Partners and Assignees to the extent provided in
Section 9.1(C), funding redemption of Class A Units pursuant to Section 9.3
and funding Partnership working capital requirements to the extent not
otherwise funded from Partnership revenues. 
Any amounts charged to the Cash Account in funding distributions to the
Partners and Assignees pursuant to Section 9.1(C) shall be
transferred from the Cash Account to the Operating Cash Account.  The Cash Account shall be closed upon the
redemption of the Class A Units on March 31, 1991 pursuant to Section 9.3.

 

(B)                               The
Partnership shall maintain an Over-Allotment Cash Account as a segregated
account subject to the provisions hereof. 
The Over-Allotment Cash Account shall initially consist of any cash
received by the Partnership from the Underwriters upon an exercise of their
over-allotment option.  Any receipts with
respect to assets held in the Over-Allotment Cash Account shall be added to the
Over-Allotment Cash Account, and any net income with respect to the
Over-Allotment Cash Account shall be transferred to the Operating Cash Account
on a quarterly basis.  The Over-Allotment
Cash Account shall be utilized for the purposes of paying (or reimbursing Mauna
Loa for) certain Organization Expenses pursuant to Section 4.4, funding
capital projects designed to increase yields or reduce operating costs,
acquiring additional properties, if suitable properties are found, and
supplementing Net Cash Flow to provide the Indicated Distributions to the
Partners and Assignees to the extent provided in Section 9.1(C). Any
amounts charged to the Over-Allotment Cash Account in funding distributions to
the Partners and Assignees pursuant to Section 9.1(C) shall be
transferred from the Over-Allotment Cash Account to the Operating Cash
Account.  The Over-Allotment Cash Account
shall be closed on March 31, 1991, and the balance of the Over-Allotment Cash
Account shall be transferred to the Operating Cash Account.

 

(C)                               The
Partnership shall maintain a Capital Transaction Account as a segregated
account subject to the provisions hereof. 
Any Net Proceeds of a Capital Transaction shall be transferred to the
Capital Transaction Account.  Any
receipts with respect to assets held in the Capital Transaction Account shall
be added to the Capital Transaction Account, and any net income with respect to
the Capital Transaction Account shall be transferred to the Operating Cash
Account on a quarterly basis.  Any
amounts distributed to the Partners, Assignees and the Class B Unitholders
pursuant to Section 9.1(B) shall be withdrawn from the Capital
Transaction Account for the purpose of making such distributions.  In addition, the Capital Transaction Account
may be utilized to fund capital projects designed to increase yields or reduce
operating costs, to acquire additional properties, if suitable properties are
found, or for other Partnership purposes as the Managing General Partner deems
appropriate in its discretion.

 

(D)                              The
Partnership shall maintain an Operating Cash Account as a segregated account
subject to the provisions hereof.  The
Operating Cash Account shall consist of and be increased by all receipts of the
Partnership, including loan proceeds, not added to the Cash Account, the
Over-Allotment Cash Account or the Capital Transaction Account.  The Operating Cash Account shall be utilized
to pay all expenses of the Partnership and to make all distributions to the
Partners and Assignees, other than distributions in redemption of Class A
Units pursuant to Section 9.3. As of the end of each calendar quarter
through December 31, 1990, an amount equal to any Excess Cash Flow for
such quarter, less distributions made for 

 

 

such quarter pursuant to Section 9.1(A)(2), shall
be charged to the Operating Cash Account and credited to the Cash Account.

 

(E)                                All
assets held in the accounts provided for in this Section 10.6 shall be
invested in bank accounts or certificates of deposit, short-term United States
government securities, “money market” funds, bonds with a Moody’s rating of no
less than a BBB or a comparable rating from a different rating service or other
similar investment grade securities.

 

(F)                                Notwithstanding
anything to the contrary in this Section 10.6, the Managing General
Partner may, in its discretion, utilize any funds in any of the aforementioned
accounts for the purpose of making short-term advances to other accounts.

 

ARTICLE XI.

ISSUANCE AND TRANSFER OF UNITS

 

11.1                          Issuance of Certificates.  Upon
the issuance of Class A Units, the Managing General Partner shall cause
the Partnership to issue one or more Certificates substantially in the form of
the Certificate attached hereto as Exhibit A in the name of each Class A
Limited Partner certifying that the Limited Partner named therein is a Class A
Limited Partner in the Partnership as provided in the Partnership’s books and
records, stating the number of Class A Units into which his Partnership
Interest is divided, and including as a part thereof a form of assignment,
subject to this Article 11, sufficient to convey the partnership interest
of a limited partner to an assignee under the Delaware Act.  Upon the transfer of a Unit in accordance
with the terms of this Agreement, the Managing General Partner shall cause the
Partnership to issue replacement Certificates, according to such procedures as
the Managing General Partner may establish.

 

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

 

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

 

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

 

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

 

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

 

If a Partner
or Assignee fails to notify the Partnership within a reasonable time after he
has notice of the loss, destruction or theft of a Certificate or Depositary
Receipt, and a transfer of the Units represented by the Certificate or
Depositary Receipt is registered before receiving such 

 

 

notification, the Partner or Assignee shall be precluded from making
any claim against the Partnership or any Transfer Agent for such transfer or
for a new Certificate or Depositary Receipt.

 

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

 

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

 

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

 

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

 

ARTICLE XII.

TRANSFERS OF INTERESTS

 

12.1                          Transfer.

 

(A)                             The
term “transfer”, when used in this Article 12 with respect to a
Partnership Interest, shall be deemed to refer to a transaction by which a
General Partner assigns its Partnership Interest as a General Partner to
another Person or by which the holder of a Unit assigns its Partnership
Interest evidenced thereby to another Person as Assignee, and includes a 

 

 

sale, assignment, gift, pledge, encumbrance,
hypothecation, mortgage, exchange or any other disposition.

 

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

 

12.2                          Transfer
of Interests of General Partners.

 

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

 

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

 

(C)                               Neither
subsections (A) or (B) of this Section 12.2 nor any other
provisions of this Agreement shall be construed to prevent (and all Partners
hereby expressly consent to) (i) the transfer by a General Partner of its
Partnership Interest to an Affiliate, or the transfer by a General Partner of
its Partnership Interest upon its merger or consolidation into any other
corporation or the transfer by it of all or substantially all of its assets to
another corporation, and the assumption of the rights and duties of the General
Partner by such Affiliate or the transferee corporation, provided such
Affiliate or such corporation furnishes to the Partnership an opinion of
counsel that such merger, consolidation, transfer or assumption will not result
in a loss of limited liability of any Limited Partner or result in the
Partnership being treated as an association taxable as a corporation for
federal income tax purposes, (ii) the transfer by a General Partner of or
the mortgage, pledge, hypothecation or granting a security interest in all or
any part of its interest in items of Partnership income, gains, losses,
deductions, credits, distributions or surplus or (iii) the General Partner’s
mortgaging, pledging, hypothecating or granting a security interest in any
Units owned by such General Partner as collateral for a loan or loans.

 

12.3                          Transfer of Units.  Any
Class A Units, including, Units held by a General Partner, may be
transferred following deposit of such Class A Units with the
Depositary.  Class A Units that have
never been deposited with the Depositary or that have been withdrawn from the
Depositary and not redeposited are not transferable except by operation of law;
provided, however, that Mauna Loa or its Affiliates may, without restriction,
transfer between or among themselves, Class A Units that have never been
deposited with the Depositary and Class A Units that have been withdrawn
from the Depositary and not redeposited and any Partner may transfer Class A
Units to the Partnership or a General Partner.

 

 

12.4                          Transfer
of Depositary Units.

 

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

 

(B)                               A
transferee who has completed and delivered a Transfer Application shall be
deemed (i) to have agreed to be bound by the terms and conditions of the
Depositary Agreement and the Depositary Receipt, (ii) to have requested
admission as a Substituted Limited Partner, (iii) to have agreed to comply
with and be bound by this Agreement and to execute any document that the
Managing General Partner may reasonably require to be executed in connection
with the transfer and admission as a Substituted Limited Partner pursuant to Article 13
and as a party to this Agreement, (iv) to have represented and warranted
that such transferee has authority to enter into the Depositary Agreement and
this Agreement, (v) to have appointed the Managing General Partner
attorney-in-fact to execute any document that the Managing General Partner may
deem necessary or appropriate to be executed in connection with the transfer
and his admission as a Substituted Limited Partner, (vi) to have given the
power of attorney set forth in Article 16 and (vii) to have given the
consents and waivers contained herein. 
Until admitted as a Substituted Limited Partner pursuant to Article 13,
the Record Holder of a Depositary Receipt shall be an Assignee in respect of
such Depositary Units.  Except as
specifically provided in this Agreement, an Assignee shall not be treated as or
have the rights of a Partner with the rights granted to an Assignee pursuant to
this Agreement.

 

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

 

(D)                              Notwithstanding
anything to the contrary herein, the Underwriters purchasing Class A Units
pursuant to the Underwriting Agreement shall not be required to execute a
Transfer Application in order to effect the transfer of the Depositary Receipts
evidencing the Class A Units to such Underwriters or to constitute such
Underwriters as Substituted Limited Partners or Additional Limited Partners
with respect to the Class A Units evidenced thereby.  Each such Underwriter, by acquiring such
Depositary Receipts in connection with the Initial Offering, shall be deemed to
have agreed to comply with and be bound by the terms and conditions of this
Agreement, the Depositary Agreement, and the Depositary Receipt and to have
taken the other actions specified in the Transfer Application and Sections 12.4(A) and
12.4(C) as if such Underwriter had executed the Transfer Application.

 

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

 

 

ARTICLE XIII.

ADMISSION OF SUBSTITUTED AND ADDITIONAL LIMITED PARTNERS

 

13.1                          Admission
of Substituted Limited Partners.

 

(A)                             Any
person shall have the right to request admission as a Substituted Limited
Partner subject to the conditions of and in the manner permitted by the terms
of this Agreement.  By transfer of a
Depositary Receipt, the transferor is deemed to have given the transferee the
right to request admission as a Substituted Limited Partner subject to the
conditions of and in the manner permitted under this Agreement.  A transferee who does not execute a Transfer
Application, however, shall have only the right to negotiate such Depositary
Receipt to a purchaser or other transferee. 
Each transferee of a Depositary Receipt (including any Person, such as a
broker, dealer, bank, trust company, clearing corporation, other nominee holder
or an agent of any of the foregoing, acquiring such Depositary Unit for the
account of another Person) shall apply to become a Substituted Limited Partner
with respect to Depositary Units transferred to such Person by executing and
delivering a Transfer Application at the time of such transfer.  Such transferee shall become a Substituted
Limited Partner at such time as the Managing General Partner consents thereto,
which consent may be given or withheld in the Managing General Partner’s sole
discretion.  If such consent is withheld,
such transferee shall be an Assignee.  An
Assignee is entitled to an interest in the Partnership equivalent to that of a
Limited Partner with respect to the right to receive distributions from the
Partnership, including liquidating distributions, but will not have the right
to vote directly on Partnership matters and will otherwise be subject to the
limitations under the Delaware Act on the rights of an assignee who has not
become a limited partner.  The Managing
General Partner will vote, and exercise other powers attributable to Class A
Units owned by an Assignee at the direction of such Assignee.  Unless the Depositary is notified to the
contrary, the Managing General Partner shall be deemed to have given its
consent to the admission of a transferee as a Substituted Limited Partner, and
such admission shall be effective, at and from the close of business on the
last business day of the calendar month in which a properly executed Transfer
Application is received by a Transfer Agent.

 

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

 

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

 

13.2                          Admission of Additional Limited Partners.  A
Person (other than the Initial Limited Partner in its capacity as such) who
makes a Capital Contribution to the Partnership shall be admitted to the
Partnership as an Additional Limited Partner upon furnishing to the Managing
General (a) an acceptance, in form satisfactory to the Managing General
Partner, of all the terms and conditions of this Agreement, including, without
limitation, the power of attorney granted in Article 16, and (b) such
other documents or instruments as may be required in order to effect his
admission as a Limited Partner, and such admission shall become effective on
the date that the Managing General Partner determines in its sole discretion
that such conditions have 

 

 

been satisfied and issues to such Additional Limited
Partner a certificate evidencing ownership of his Class A Units.

 

ARTICLE XIV.

CHANGES IN GENERAL PARTNERS

 

14.1                          General
Partner Ceasing to be a General Partner.

 

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

 

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

 

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

 

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

 

(4)                                  The
death of an individual General Partner;

 

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

 

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

 

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

 

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

 

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

 

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

 

 

14.2                          Withdrawal
or Removal of the Managing General Partner.

 

(A)                             MLR
covenants and agrees that it shall continue to act as Managing General Partner
of the Partnership until the date which is ten years after the Closing Date,
subject to its right to transfer its interest as a General Partner pursuant to Section 12.2
of this Agreement.  At any time after the
date which is ten years from the Closing Date, the Managing General Partner may
withdraw from the Partnership effective upon at least 90 days’ advance written
notice to the Limited Partners, such withdrawal to take effect on the date
specified in such notice.  Except as
provided in Section 14.8, any transfer by the Managing General Partner of
all of its interest as a General Partner pursuant to Section 12.2 shall
constitute the withdrawal of the Managing General Partner for purposes of this Section 14.2(A).  If the Managing General Partner gives a
notice of withdrawal, a Majority Interest may, prior to the effective date of
such withdrawal, elect a successor Managing General Partner.  If no successor Managing General Partner is
elected, the Partnership shall be dissolved pursuant to Section 15.1.

 

(B)                               The
Managing General Partner may be removed only in accordance with the following:

 

(1)                                  before
the tenth anniversary of the Closing Date, only upon the affirmative votes of
Limited Partners owning at least 95% of the Class A Units then outstanding
for which the Partnership has valid current addresses; and

 

(2)                                  from
and after the tenth anniversary of the Closing Date, only upon the affirmative
votes of Limited Partners owning at least 66K% of the Class A Units then
outstanding.

 

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

 

14.3                          Withdrawal
or Removal of Special General Partner.

 

(A)                             Mauna
Loa covenants and agrees that it shall continue to act as Special General
Partner of the Partnership until the date which is ten years after the Closing
Date, subject to its right to transfer its interest as a General Partner
pursuant to Section 14.8 of this Agreement.  At any time after the date which is ten years
from the Closing Date, the Special General Partner may withdraw from the
Partnership upon at least 90 days’ advance written notice to the Managing
General Partner, except as otherwise provided herein, such withdrawal to take
effect on the date specified in such notice. 
Except as provided in Section 14.8, the transfer by the Special
General Partner of all of its interest as a General Partner shall constitute
the withdrawal of the Special General Partner for purposes of this Section 14.3(A).  Upon receiving such notice, the Managing
General Partner shall select a successor Special General Partner within such
90-day period.  Such withdrawal of the
Special General Partner shall not become effective unless the Partnership has
received by the end of such 90-day period an opinion of independent counsel
that the Special General Partner’s withdrawal from the Partnership (following
the selection of the successor 

 

 

Special General Partner) would not cause the
Partnership to be treated as an association taxable as a corporation for
federal income tax purposes.

 

(B)                               If
the Special General Partner ceases to be a General Partner, the Managing
General Partner shall as promptly as practicable select a successor Special
General Partner.  Pending such selection,
the person who is at the time the President of the Special General Partner
shall be the Special General Partner, effective as of the time the Special
General Partner ceases to be a General Partner.

 

(C)                               Notwithstanding
the foregoing, a successor Special General Partner need not be selected if (i) the
Partnership has received an opinion of counsel that the failure to select a
successor would not result in the Partnership being treated as an association
taxable as a corporation for federal income tax purposes or (ii) the
Partnership is already treated in all material respects as an association
taxable as a corporation for federal income tax purposes.  If a successor Special General Partner is not
selected, the Managing General Partner shall have the rights, and be subject to
the obligations, of a successor to the Special General Partner.

 

14.4                          Admission of Successor Managing General
Partner.  A successor Managing General
Partner selected pursuant to Section 14.2 or the transferee of or
successor to the entire Partnership Interest of the Managing General Partner
shall be admitted to the Partnership as the Managing General Partner, effective
as of the date an amendment or restatement of the Certificate of Limited
Partnership is filed with the Secretary of State of the State of Delaware
effecting such substitution.

 

14.5                          Admission of Successor Special General
Partner.  A successor Special General
Partner selected pursuant to Section 14.3 or the transferee of or
successor to the entire Partnership Interest of the Special General Partner
shall be admitted to the Partnership as the Special General Partner upon
furnishing to the Managing General Partner (a) an acceptance in form
satisfactory to the Managing General Partner of all terms of this Agreement,
including, without limitation, the power of attorney granted in Article 16,
and (b) such other documents as the Managing General Partner shall
require, effective as of the date an amendment or restatement of the
Certificate of Limited Partnership is filed.

 

14.6                          Rights on Removal or Withdrawal.  A
General Partner which has ceased to be a General Partner shall be entitled to
all compensation accrued as of the date of its removal or withdrawal and shall
have the same rights to inspect and make copies or excerpts of the books and
records of the Partnership as is provided to Limited Partners until all amounts
due the General Partner as of the date the General Partner ceased to be a
General Partner have been paid.  The
General Partner shall be a creditor of the Partnership as to all such amounts
owed to it by the Partnership, and shall not have any portion of its interest
as General Partner converted to an interest as a Limited Partner or Assignee
except as provided in Sections 7.11, 7.12 and 14.11.  As to any Class A Units so held or
received, the General Partner shall be entitled to exercise all of the voting
rights provided under this Agreement as a Partner.

 

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

 

 

obligations theretofore incurred by the Departing
Partner, as General Partner of the Partnership, except for the liabilities
which the Managing General Partner has incurred as a result of its own
negligence or misconduct.

 

14.8                          Successor and Predecessor General Partners.  Unless
a General Partner has ceased to be a General Partner pursuant to Sections 14.2
and 14.3, the General Partner shall have the right to transfer its business,
including a transfer by operation of law, as provided in Section 12.2(C),
and any Person continuing the business of the General Partner shall immediately
become a General Partner of this Partnership and any successor or reconstituted
partnership and shall have the exclusive right to possess Partnership Property
to continue the Partnership and shall continue the business of the Partnership
pursuant to the terms and provisions of this Agreement without any action or
vote of any Person.  If the Partnership dissolves
because a General Partner ceases to be a General Partner, then this Partnership
shall be reformed and reconstituted and its business continued as provided in
this Section 14.8, Section 14.9 and Article 15.  lf it is necessary or advisable to reform and
reconstitute this Partnership and to continue its business, the remaining and
successor General Partners shall elect to reform and reconstitute the
Partnership and to continue its business. 
When any Person ceases to be a General Partner under this Agreement or a
partner, director or officer of a General Partner, that Person shall continue
to have the benefit of any provisions of this Agreement providing for
indemnity, exculpation or insurance which protected the Person as a General
Partner or a partner, director or officer of a General Partner, or which
limited or defined the liability of the Person with respect to activities in
which such Person engaged as a General Partner.

 

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

 

14.10                    Vote on Continuation of Partnership.  Unless
a higher vote is required by the Delaware Act, upon an event of dissolution
described in Section 15.1(A), the Partnership shall thereafter be
terminated unless a Majority Interest (and all Partners hereby expressly
consent that such an election may be effected upon written consent of a
Majority Interest) pursuant to 

Section 6.9(A)(5) elects to continue the Partnership.  Unless an election to continue the
Partnership is made within ninety (90) days of the event of dissolution, the
Partnership shall conduct only activities necessary to wind up its
affairs.  If such an election to continue
the Partnership is made then:

 

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

 

(b)                                 the
Partnership shall continue; and

 

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

 

 

14.11                    Interest of Departing Partner
and Successor.

 

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

 

(B)                               If
the successor to a Departing Partner does not exercise the option described in Section 12.12(A) or,
in the case of the Special General Partner, if no successor has been selected,
the interest of the Departing Partner as a General Partner of the Partnership
shall be converted into Class A Units on a basis agreed by the Partnership
and the Departing Partner.

 

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

 

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

 

14.12                    Managing General Partner.  The Managing General Partner shall
be MLR and any successor to MLR which becomes a General Partner of the
Partnership pursuant to Section 14.8. If there is no such successor, then
the Special General Partner shall be Managing General Partner until the
Partners have elected a successor to serve as Managing General Partner.

 

ARTICLE XV.

DISSOLUTION, WINDING UP AND LIQUIDATION

 

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

 

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

 

(B)                               an
election to dissolve the Partnership by the Managing General Partner which is

 

 

approved by
the affirmative vote of a Majority Interest;

 

(C)                               The
Partnership becomes insolvent or bankrupt;

 

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

 

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

 

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

 

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

 

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

 

(A)                             Those
to creditors, in the order of priority as provided by law, except those to
secured creditors the obligations owed to whom will be assumed or otherwise
transferred on liquidation of Partnership assets;

 

(B)                               Those
amounts deemed necessary by the General Partner or the Persons winding up the
affairs of the Partnership for any contingent liabilities or obligations of the
Partnership shall be set aside as a reserve for contingent liabilities to be
distributed as such time and in such manner hereunder as the Persons winding up
the affairs of the Partnership shall determine in their sole discretion;

 

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

 

 

15.5                          No Recourse Against General Partners.  The
Limited Partners and Assignees shall look solely to the assets of the
Partnership for the payment of any income allocated to the Limited Partners or
Assignees or the Return of Capital, and if the assets of the Partnership
remaining after payment or discharge of the debts and liabilities of the
Partnership are insufficient to return the Capital Contribution, they shall
have no recourse against any General Partner, any director, officer, employee
or partner of a General Partner or any Limited Partner or Assignee for such
purpose.

 

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

 

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

 

ARTICLE XVI.

POWER OF ATTORNEY

 

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

 

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

 

The foregoing
grant of authority:

 

 

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

 

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

 

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

 

ARTICLE XVII.

MISCELLANEOUS PROVISIONS

 

17.1                          Notices.  All notices or
other communications required or permitted to be given pursuant to this
Agreement shall, in the case of notices or communications required or permitted
to be given to Limited Partners, be in writing and shall be considered as
properly given or made if personally delivered or if mailed by United States
first class mail, postage prepaid, or if sent by prepaid telegram, and
addressed to such Limited Partner’s address for notices as it appears on the
records of the Partnership, and, in the case of notices or communications
required or permitted to be given to a General Partner, shall be in writing and
shall be considered as properly given or made if personally delivered, or if
sent by prepaid telegram, or if mailed by United States certified or registered
mail return receipt requested, postage prepaid, and addressed to a General
Partner at 827 Fort Street, Honolulu, Hawaii 96813.  Any Limited Partner may change the address
for notices, by giving notice of such change to the Partnership, and a General
Partner may change its address for notices by giving notice of such change to
all Limited Partners.  Commencing on the
tenth (10th) day after the giving of such notice, such newly designated address
shall be such Partner’s address for the purpose of all notices or other
communications required or permitted to be given pursuant to this
Agreement.  Any notice or other
communication shall be deemed to have been given as of the date on which it is
personally delivered or, if mailed or telegraphed, the date on which it is
deposited in the United States mails or transmitted, in each case in compliance
with the terms of this Section 17.1, except that any notice or other
communication mailed or telegraphed to a General Partner which is not received
by the General Partner within ten (10) days after the date of its mailing
or transmission shall be deemed to have been given as of the date actually
received by the General Partner.

 

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

 

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

 

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

 

	
   

  	
  GENERAL
  PARTNER:

  
	
   

  	
   

  
	
   

  	
  ML
  RESOURCES, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Dennis
  J. Simonis

  
	
   

  	
   

  	
  Dennis J.
  Simonis

  
	
   

  	
   

  	
  President

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Wayne W.
  Roumagoux

  
	
   

  	
   

  	
  Wayne W.
  Roumagoux

  
	
   

  	
   

  	
  Secretary

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  ML RESOURCES, INC.

  
	
   

  	
   

  	
  as attorney-in-fact for each
  of the Limited

  Partners

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Dennis J. Simonis

  
	
   

  	
   

  	
   

  	
  Dennis J. Simonis

  
	
   

  	
   

  	
   

  	
  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By

  	
  :  /s/ Wayne W.
  Roumagoux

  
	
   

  	
   

  	
   

  	
  Wayne W. Roumagoux

  
	
   

  	
   

  	
   

  	
  Secretaryex10122.htm

    Exhibit
      10.122

    [Free
      Translation from
      Hebrew]

    

    Agreement
      of Principles

    

    Entered
      into and signed on March 17, 2008

    

    
      By
        and between 

    

     

    
      Tiv
        Taam Holdings 1 Ltd.
(Public Company 52-004118-7) 

    

    
      Industrial
        Zone, Emek Hefer, P.O. Box 1140 Hadera 38811 

    

    
      (hereinafter
        - the "Seller")

    

    

    
      of
        the first part;

    

    

    
      And:
        

    

     

    
      Xfone
        018 Ltd. (P.C.
        51-353343-0) 

    

    
      1
        Odem
        St., Petach Tikva 49170 

    

    
      (hereinafter–
        the "Buyer")   

       

        of
        the second part;

    

    

    
      	
              Whereas

            	
              The
                Seller holds 14,497,847 shares of Robomatix Technologies Ltd. (Public
                Company 52-004037-9) (hereinafter - the "Company"), which
                constitute 88.8% of the Company's issued share capital (approximately
                68.54% of the Company's share capital in full dilution, assuming
                conversion of all the convertible securities, including options,
                into the
                Company's shares); and 

            

    

     

    
      	
              Whereas

            	
              The
                Company is registered with the Registrar of Companies in Israel and
                was
                traded in the past in a stock exchange in the United States; and
                

            

    

     

    
      	
              Whereas

            	
              At
                the date of execution of this Agreement of Principles, the Company
                does
                not have independent business activity, to the exclusion of its holdings
                as described below; and 

            

    

     

    
      	
              Whereas

            	
              The
                Company holds 90% of the issued share capital of Tadiran Telecom
                -
                Communication Services In Israel Ltd. (P.C. 51-358880-6) (hereinafter
                -
                "Tadiran
                Telecom"), in full dilution, including options; and
                

            

    

     

    
      
         

      

      
        -1-

        
          

        

      

      
         

      

    

     

    
      	
              Whereas

            	
              Tadiran
                Telecom is the general partner in Tadiran Telecom - Communication
                Services
                In Israel – Limited Partnership (No. 55-021770-7) (hereinafter - the
                "Partnership");
                and 

            

    

     

    
      	
              Whereas

            	
              The
                Company is a limited partner in the Partnership and its share in
                the
                Company's capital is at 90% of the Partnership's capital; and
                

            

    

     

    
      	
              Whereas

            	
              The
                Partnership is in the business of distribution, sale, maintenance
                and
                service of business communications switchboards and auxiliary equipment
                for switchboards in Israel; and 

            

    

     

    
      	
              Whereas

            	
              The
                Seller presented to the Buyer copies of A. the Company's articles
                of
                association and Tadiran Telecom's articles of association, B. The
                shareholders agreement dated April 21, 2005 between the Company and
                Man
                Capital Investments Ltd., C. an agreement between the Partnership
                and Gill
                & A.R. Telecom Systems – Registered Partnership, and correspondence
                with respect to the aforementioned agreement between the Company
                and Mark
                Zaltzman's counsel, D. the draft of the Partnership's financial statements
                for December 31, 2007. The Buyer represents that he is aware of the
                contents and provisions the aforementioned documents A-D; and
                

            

    

     

    
      	
              Whereas

            	
              The
                Seller wishes to sell to the Buyer all the Company's shares that
                he owns,
                and the Buyer wishes to acquire from the Seller all the Company shares
                owned by the Seller, free and clear of any debt, pledge, lien or
                any third
                party right, and through these shares to acquire control of the Company,
                of Tadiran Telecom and of the Partnership, as the term "Control"
                is
                defined in the Securities Law, 5728-1968; and

            

    

     

    
      	
              Whereas

            	
              The
                Seller represents as follows: 

            

    

     

    
      	
               

            	
              A.

            	
              He
                is not a party to any voting agreement in the Company and/or in Tadiran
                Telecom and/or in the Partnership (to the exclusion of documents
                a-c
                above, if and insofar that they constitute a voting agreement);
                

            

    

     

    
      	
               

            	
              B.

            	
              He
                holds more than one half of the voting rights at the general meeting
                of
                the Company, and through it at the general meeting of Tadiran Telecom
                and
                at the parallel body of the Partnership;

            

    

     

    
      	
               

            	
              C.

            	
              He
                holds more than one half of the rights for the appointment of directors
                at
                the Company, and through it at Tadiran Telecom and at the parallel
                body of
                the Partnership; and 

            

    

     

    
      	
              Whereas

            	
              The
                Buyer intends to acquire all of Man Capital Investments Ltd.'s holdings
                in
                Tadiran Telecom, and its full rights in the Partnership;
                

            

    

     

    
      
         

      

      
        -2-

        
          

        

      

      
         

      

    

     

    Now,
      Therefore, the Parties have Agreed, Stipulated and Represented as
      Follows:

     

    
      	
              1.

            	
              Acquisition
                of the Seller's Shares in the Company

            

    

     

    
      	
               

            	
              1.1.

            	
              The
                Seller will sell to the Buyer 14,497,847 of the Company's ordinary
                shares,
                which constitute 100% (one hundred percent) of the Seller's shares
                in the
                Company (hereinafter – the "Acquired Shares"). In
                consideration for the Acquired Shares and for fulfillment of the
                Seller's
                undertakings in accordance with Section 2.1 below, the Buyer will
                pay the
                Seller a sum of NIS 44 (forty four) million, subject to adjustments
                as
                stated in Section 3.2 below (hereinafter – the "Acquisition Amount").
                

            

    

     

    
      	
               

            	
              1.2.

            	
              On
                the date of the transaction's closing (as this term is defined below),
                the
                Buyer will pay the Seller, on account of the Acquisition Amount,
                the sum
                of NIS 15.5 (fifteen and a half) million, through a cashier’s check to the
                order of the Seller (hereinafter – the "First Installment").
                

            

    

     

    
      	
               

            	
              1.3.

            	
              An
                additional sum of NIS 15.5 (fifteen and a half) million linked to
                the
                Consumer Price Index as stated in Section 1.6 below (hereinafter
– the
                "Second
                Installment"), will be paid by the Buyer to the Seller until
                November 20, 2008. The sum of the Second Installment is subject to
                adjustments as stated in Section 3.2 below.

            

    

     

    
      	
               

            	
              1.4.

            	
              The
                balance of the Acquisition Amount, an amount of NIS 13 (thirteen)
                million,
                linked to the Consumer Price Index as stated in Section 1.6 below
                (hereinafter – the "Third
                Installment"), will be paid by the Buyer to the Seller until
                November 1, 2009. At the date of the transaction's closing, the Buyer
                will
                deliver to the Seller a postdated check made to the order of the
                Seller
                due to the Third Installment, payable on November 1, 2009.
                

            

    

     

    
      	
               

            	
              1.5.

            	
              To
                ensure the performance of the Second Installment, the Buyer will
                deposit
                in the hands of the parties' counsel, Adv. Nir Oren and Adv. Ofer
                Yuval,
                who shall serve as the parties' trustees, in joint trust (jointly,
                hereinafter – the "Trustee"), a postdated
                check made to the order of the Seller in the sum of NIS 15.5 million,
                payable on November 20, 2008, according to a letter of instructions
                to the
                Trustee which will be signed by the parties on the date of closing
                of the
                transaction. 

            

    

     

    
      	
               

            	
              1.6.

            	
              The
                sums of the Second and Third Installments will be linked to the Consumer
                Price Index. A change to the Consumer Price Index will be calculated
                according to the last known index on the date of the transaction's
                closing
                in comparison to the last known index on the day of actual payment.
                In the
                event the sums of the Second and Third Installments, or any of them,
                increase as a result of linkage differentials as aforesaid, the Buyer
                will
                pay the linkage differentials to the Seller on the dates of the Second
                and/or Third Installment, respectively. In the event that the sums
                of the
                Second and Third Installments, or any of them, decrease as a result
                of
                linkage as aforesaid, the mechanism described in Section 1.10 below
                will
                apply to the decreased sum, mutatis mutandis.
                

            

    

     

    
      	
               

            	
              1.7.

            	
              In
                exchange for delivering the cashier’s check and the checks as
                aforementioned in Sections 1.2-1.5 above to the Seller and the Trustee,
                as
                the case may be, and at the time of delivery thereof, the Seller
                will
                deliver to the Buyer signed share transfer deeds which address the
                transfer of all the Acquired Shares (14,497,847 shares) as well as
                the
                rest of the documents required for the performance of the share transfer
                as aforesaid in accordance with the law and/or the Company's articles
                of
                association. In addition, the Seller will deliver to the Buyer resignation
                letters of all the Company's directors, as well as resignation letters
                of
                the directors who were appointed on behalf of the Company or according
                to
                its recommendation in Tadiran Telecom.

            

    

     

    
      	
               

            	
              1.8.

            	
              For
                the avoidance of any doubt, failure to pay the Second Installment
                and the
                Third Installment by the Buyer in full and on time, will constitute
                a
                material breach of this Agreement of Principles. Without derogating
                from
                the aforesaid and from any remedy and/or right of the Seller according
                to
                law and by virtue of an agreement, for every day of delay in payment
                of
                the Second and/or Third Installment, the Buyer will pay the Seller
                a
                linked interest at a rate of 1% per month, for the sum in arrears,
                which
                shall be added to the sum in arrears on a monthly basis.
                

            

    

     

    
      
         

      

      
        -3-

        
          

        

      

      
         

      

    

     

    
      	
               

            	
              1.9.

            	
              To
                ensure the performance of each of the Second and/or Third Installments,
                the Buyer will deliver to the Seller on the date of the transaction's
                closing a letter of guarantee from the Buyer's parent company, Xfone
                Inc.,
                in the language agreed upon between the parties until the date of
                the
                transaction's closing. In the event that the parties do not reach
                an
                agreement with respect to the language of the letter of guarantee
                to the
                satisfaction of the Seller until the date of the transaction's closing,
                the Seller will be entitled to inform the Buyer that he is withdrawing
                from fulfillment of the transaction. For the avoidance of doubt,
                it is
                clarified that the Seller gave his agreement to the language of the
                guarantee attached as Annex B to this
                Agreement of
                Principles. 

            

    

    
       

      
        	
                 

              	
                1.10.

              	 

      

    

     

    
      	
               

            	
              1.10.1.

            	
              Upon
                presentation of the approval of the Buyer's bank for the performance
                of an
                irrevocable transfer of the Second Installment in full (including
                linkage
                differentials thereon) until November 20, 2008, to the Seller's bank
                account, the Trustee will return the check aforementioned in Section
                1.5
                to the hands of the Buyer. 

            

    

     

    
      	
               

            	
              1.10.2.

            	
              In
                the event that the Acquisition Amount is decreased as aforementioned
                in
                Sections 3.2 and 3.3, the Buyer will pay to the Seller the sum of
                the
                Second Installment less the consideration reduction amount, and upon
                presentation of the approval of the Buyer's bank for the performance
                of an
                irrevocable transfer of the Installment as aforesaid, the Trustee
                will
                return to the Buyer the check aforementioned in Section 1.5.
                

            

    

     

    
      	
               

            	
              1.10.3.

            	
              In
                the event that the Trustee was not presented with the approval from
                the
                Buyer's bank for the performance of an irrevocable transfer of the
                Second
                Installment or for the performance of the reduced Second Installment
                (in
                the event that the Acquisition Amount was reduced) until November
                23,
                2008, the Trustee will transfer the check aforementioned in Section
                1.5 to
                the Seller who will be entitled to clear it (in whole or in part,
                as the
                case may be), without derogating from any remedy and/or right of
                the
                Seller according to law and/or by virtue of an agreement.
                

            

    

     

    
      	
               

            	
              1.10.4.

            	
              It
                is agreed that apart for the adjustment of the sum of the Second
                Installment in accordance with Section 3.2 below, the Buyer will
                not be
                entitled to deduct and/or offset any sum from the Second Installment
                and
                from the Third Installment and/or avoid and/or postpone the payment
                date
                of the Second Installment and the Third Installment, for any reason
                whatsoever, including due to a claim that the Seller breached any
                of the
                provisions of this Agreement of Principles.

            

    

    
       

      
        	
                 

              	
                1.11.

              	
                
                  For
                    the avoidance of doubt, it is clarified that upon performance
                    of the First
                    Installment, the Buyer will be entitled to all the rights accompanying
                    all
                    the Acquired Shares, including appointment of directors, voting
                    rights
                    etc. in accordance with the provisions of the law and the Company's
                    articles of association.

                

              

      

      
        
           

        

        
          -4-

          
            

          

        

        
           

        

      

    

     

    
      	
              2.

            	
              Liability
                for the Company's Debts and Undertakings

            

    

     

    
      	
               

            	
              2.1.

            	
              The
                Seller will bear all the Company's debts to the tax authorities with
                respect to the period until the date of the transaction's closing,
                if and
                insofar that such debts exist and/or shall exist, and he will indemnify
                the Company due to any debt paid by it as aforesaid. In his contacts
                with
                the tax authorities with respect to the Company's debts and even
                before
                the issuance of final assessments for the Company, the Seller will
                be
                entitled to use the Company's accumulated losses which are related
                to the
                period until the date of the transaction's closing, provided that
                such use
                will be subject to and in accordance with any law and with the purpose
                of
                reducing the Company's debts to the tax authorities. For the aforesaid
                purpose, and as a condition for the Seller's liability according
                to this
                Section 2, the Seller, or whoever he determines for this purpose,
                will
                represent the Company in the contacts with the tax authorities and
                in any
                legal proceeding (including an appeal and/or a motion for leave to
                appeal
                the results of the proceeding until a conclusive judgment) with respect
                to
                the tax assessment for the period until the date of the transaction's
                closing and will be the Company's power of attorney for this matter,
                and
                the Buyer undertakes to act in his capacity as a shareholder in the
                Company so that the Company will sign any document required for that
                purpose and to provide the Seller with the required assistance for
                the
                representation of the Company as aforesaid. It is clarified that
                the
                Seller will bear all the costs involved in the contacts with the
                tax
                authorities and in any legal proceeding as aforesaid, if any. If
                for any
                reason whatsoever, to the exclusion of the breach of the Buyer's
                undertakings determined in this Sub-section above, the Seller will
                not use
                the Company's accumulated losses as aforesaid, the Seller will not
                be
                entitled to any compensation from the Buyer, the Company, Tadiran
                Telecom
                or the Partnership. Without derogating from the aforesaid, the Company
                will not settle with the tax authorities and will not consent to
                the
                referral of the legal proceeding, if any, to arbitration and/or mediation
                in accordance with Section 79A of the Courts Law [Consolidated Version]
                without the prior written consent of the Seller.
                

            

    

     

    
      	
               

            	
              2.2.

            	
              It
                is agreed that the Seller, on behalf of the Company, will conduct
                and bear
                the costs of an arbitration proceeding/a legal proceeding that is
                held/will be held opposite Hachsharat Hayishuv with respect to sums
                which
                are allegedly due to the Company from Hachsharat Hayishuv in the
                event
                that any intakes are received from the aforesaid proceedings, they
                will be
                paid to the Seller. The Seller will also bear any sum decided against
                the
                Company in the context of an arbitration proceeding/legal proceeding
                as
                aforesaid according to a judgment which is not subject to a stay
                of
                execution, and will indemnify the Company due to any adjudicated
                sum paid
                by the Company in the context of the aforesaid proceedings, all subject
                to
                the Company signing any document required for its representation
                by the
                Seller and/or anyone on his behalf (including in appeal proceedings
                and/or
                an MLA on the results of the proceeding until a conclusive judgment)
                and
                subject to the Company and/or the Buyer not settling and not consenting
                to
                the transfer of the legal proceeding to arbitration and/or settlement
                in
                accordance with Section 79a of the Courts Law [Consolidated Version]
                without the prior written consent of the Seller.
                

            

    

     

    
      	
               

            	
              2.3.

            	
              It
                is also agreed that the Seller will not be responsible for the debts
                of
                the Company and/or of Tadiran Telecom and/or of the Partnership,
                as the
                case may be, to the employees of any of the aforesaid corporations
                (hereinafter: the "Employees"), whether
                created before the date of execution of this Agreement of Principles
                and
                whether created after. The Buyer represents and undertakes that he
                will
                not have any claim against the Seller due to undertakings vis-à-vis the
                Employees, including, but not only, undertakings following the transfer
                of
                control in the Company and/or in Tadiran Telecom and/or in the
                Partnership. The Buyer undertakes to indemnify the Seller if he is
                charged
                by a judgment (which is not subject to a stay of execution) given
                in a
                suit filed, if any, against the Seller due to payments and/or rights
                that
                are due to any of the Employees due to their status as employees
                (including, but not only, rights which are granted to any of them
                following the transfer of control in the Company and/or in Tadiran
                Telecom
                and/or in the Partnership). A condition for an indemnification as
                aforesaid is that the Seller will enable the Buyer and/or the Company
                and/or Tadiran Telecom and/or the Partnership to defend against the
                suit
                in his name (including in appeal proceedings and/or an MLA on the
                results
                of the proceeding until a conclusive judgment) and will sign any
                document
                required for that purpose, and subject to the Seller not settling
                or
                consenting to the transfer of the legal proceeding to arbitration
                and/or
                settlement in accordance with Section 79a of the Courts Law [Consolidated
                Version] without the prior written consent of the Buyer. The aforesaid
                does not derogate from the Buyer's rights according to Section 3
                below.
                

            

    

     

    
      
         

      

      
        -5-

        
          

        

      

      
         

      

    

     

    
      	
               

            	
              2.4.

            	
              It
                is agreed that from the date of execution of this Agreement of Principles
                and until the earliest of: (a) the date of the transaction's closing
                or
                (b) the cancellation and/or termination of this Agreement of Principles,
                the Seller will act in his capacity as a holder of control in the
                Company
                so that there will be no material action in the Company, in Tadiran
                Telecom or in the Partnership, that deviates from the ordinary course
                of
                business without consulting with the Buyer and receiving his prior
                written
                consent, a consent which shall not be denied, unless for reasonable
                reasons which will be described in a notice delivered to the Seller
                in
                writing within three business days. For this matter, "a material
                action
                which deviates from the ordinary course of business" means – a
                distribution of dividend, grant of options for the acquisition of
                securities in the Company and/or in Tadiran Telecom and/or in the
                Partnership, an increase in the undertakings beyond the undertakings
                which
                derive from the corporation's current activity, a share allotment,
                a
                change in the rights accompanying the shares and the sale of material
                assets other than in the ordinary course of business.
                

            

    

     

    
      	
               

            	
              2.5.

            	
              The
                Seller undertakes that starting the date of execution of this Agreement
                of
                Principles he will not make an offer and/or conduct negotiations
                and/or
                conduct contacts with respect to the sale of the Acquired Shares,
                until
                the earliest of: (a) the date of the transaction's closing or (b)
                the
                cancellation and/or termination of this Agreement of Principles.
                

            

    

     

    
      	
               

            	
              2.6.

            	
              It
                is agreed that the Seller will indemnify the Company and/or Tadiran
                Telecom and/or the Partnership, as the case may be, due to any sum
                decided
                by a competent court (in a judgment which is not subject to a stay
                of
                execution) against any of them with respect to a demand and/or claim
                which
                the Seller knew of and which was not disclosed by him to the Buyer
                until
                the date of the completion of the Due Diligence Examination, as it
                is
                defined below. A condition for an indemnification as aforesaid is
                that the
                Company and/or Tadiran Telecom and/or the Partnership will enable
                the
                Seller to defend against the suit in their name (including in appeal
                proceedings and/or an MLA on the results of the proceeding until
                a
                conclusive judgment) and will sign any document required for that
                purpose,
                subject to the Company and/or the Buyer not settling and not consenting
                to
                the transfer of the legal proceeding to arbitration and/or settlement
                in
                accordance with Section 79a of the Courts Law [Consolidated Version]
                without the prior written consent of the Seller.
                

            

    

     

    
      	
              3.

            	
              A
                Due Diligence Examination and the Closing of the Transaction

            

    

     

    
      	
               

            	
              3.1.

            	
              No
                later than 60 days from the date of execution of this Agreement of
                Principles, the Buyer will complete a legal and accounting due diligence
                examination of the Company, Tadiran Telecom and the Partnership (above
                and
                hereinafter – the "Due
                Diligence Examination"). For the purpose of conducting the Due
                Diligence Examination the Seller will deliver to the Buyer immediately
                after the execution of this Agreement of Principles, the material
                reports
                and documents related to the aforementioned corporations and which
                had not
                been delivered to him previously. The Seller will also deliver to
                the
                Buyer, at his request, additional documents and authorities with
                respect
                to the aforementioned corporations and/or will cause them to be forwarded
                to the Buyer. It is agreed that the delivery of all the information
                to the
                Buyer for the purpose of the Due Diligence Examination is subject
                to an
                undertaking to maintain confidentiality which has been signed by
                the Buyer
                and is attached as Annex
                A to this Agreement of Principles.

            

    

     

    
      
         

      

      
        -6-

        
          

        

      

      
         

      

       

    

    
      	
               

            	
              3.2.

            	
              The
                parties agree that the aggregate sum of the equity balance of the
                Company,
                Tadiran Telecom and the Partnership, as of December 31, 2007, as
                shall
                appear in the audited financial statements for December 31, 2007
                of the
                Company, Tadiran Telecom and the Partnership (hereinafter – the "Equity Balance") serves
                as a basis for the Acquisition Amount. In the event that following
                the Due
                Diligence Examination it is discovered that there are adverse changes
                to
                the Equity Balance in a sum that exceeds NIS 500,000, the Buyer will
                be
                entitled to reduce the Acquisition Amount accordingly. The parties
                agree
                that adverse changes to the Equity Balance of the Company and/or
                Tadiran
                Telecom will not include the impact of the changes to the equity
                balance
                of held companies as it is reflected/will be reflected in the financial
                statements of the Company and/or Tadiran Telecom by way of equity
                profits
                or partnership profits. 

               

              In the event that following the
                Due
                Diligence Examination, adverse changes to the Equity Balance in a
                sum
                which exceeds NIS 4 million will be discovered, the Buyer will be
                entitled
                to inform the Seller that he is withdrawing from the performance
                of the
                transaction, and the Seller will be entitled to inform the Buyer
                that he
                is withdrawing from the performance of the transaction. In the event
                the
                Seller or the Buyer delivered a notice as aforesaid, this Agreement
                of
                Principles will no longer have any binding effect (without derogating
                from
                the provisions of the confidentiality undertaking in Annex A above),
                and
                it will be considered null and void and no party will have any claim
                in
                this respect against the other party.

            

    

     

    
      	
               

            	
              3.3.

            	
              Until
                the passage of 5 business days after the completion of the Due Diligence
                Examination the Buyer will inform the Seller (with a copy to the
                Trustee)
                about his position with respect to the price adjustment and/or the
                right
                of cancellation as aforesaid in Section 3.2. Within 5 business days
                after
                receipt of the Buyer's notice, the Seller will disclose to the Buyer
                (with
                a copy to the Trustee) his position with respect to the Buyer's position.
                In the event that there is a disagreement between the Seller and
                the Buyer
                with respect to the reduction of the Acquisition Amount and/or the
                right
                of cancellation, the parties will act as follows:
                

            

    

     

    
      	
               

            	
              3.3.1.

            	
              The
                financial managers on behalf of both parties will meet and try to
                reach an
                agreement with respect to the reduction of the Acquisition Amount
                and its
                amount. In the event that the parties reach an agreement, its details
                shall be disclosed to the Trustee. 

            

    

     

    
      	
               

            	
              3.3.2.

            	
              In
                the event that the parties' financial managers do not reach an agreement
                within 7 days, Mr. Guy Nissenson on behalf of the Buyer will meet
                Mr. Kobi
                Traibitsh on behalf of the Seller and they will try to reach an agreement
                with respect to the reduction of the Acquisition Amount and its amount.
                In
                the event that the parties reach an agreement, its details will be
                disclosed to the Trustee. 

            

    

     

    
      	
               

            	
              3.3.3.

            	
              In
                the event that the parties do not reach an agreement as aforesaid
                within
                14 additional days, the parties will turn to an accountant whose
                identity
                will be agreed upon between the parties until the date of the
                transaction's closing, and at the absence of an agreement – to an
                accountant who shall be appointed by the President of the Institute
                of
                Certified Public Accountants in Israel (hereinafter: the "Deciding Adjudicator")
                who will decide with respect to the reduction of the Acquisition
                Amount
                and its amount, after hearing the parties' arguments on the matter.
                The
                Deciding Adjudicator's judgment will be given within 14 days of the
                date
                on which he was addressed and will be final and binding, and a copy
                of it
                will be given to the Trustee.  

            

    

     

    
      
         

      

      
        -7-

        
          

        

      

      
         

      

    

     

    
      	
               

            	
              3.3.4.

            	
              It
                is agreed that insofar that the disagreements between the parties
                as
                aforesaid in Section 3.3 will impact the right of the Buyer or the
                Seller
                to cancel the Agreement in accordance with the provisions of Section
                3.2
                above, the date of the transaction's closing will be postponed until
                the
                end of 5 business days after resolving the disagreement as aforementioned.
                

            

    

     

    
      	
               

            	
              3.4.

            	
              It
                is agreed that until the passage of 5 business days after the completion
                of the Due Diligence Examination the Buyer will be entitled to withdraw
                from the fulfillment of the transaction at the occurrence of one
                of the
                cases described below (without derogating from his confidentiality
                undertakings as aforementioned in Annex A of this Agreement of
                Principles). In the event that the Buyers informs that he is withdrawing
                from the fulfillment of the transaction, this Agreement of Principles
                will
                be null and void and none of the parties shall have any demands and/or
                rights and/or claims with respect to this Agreement of Principles
                and/or
                its cancellation: 

            

    

     

    
      	
               

            	
              3.4.1.

            	
              The
                Buyer's right to cancel the transaction was activated in accordance
                with
                his right according to any provision of the provisions of this Agreement
                of Principles above and hereinafter.

            

    

     

    
      	
               

            	
              3.4.2.

            	
              The
                Buyer discovered a material finding with respect to the Acquired
                Shares
                and/or with respect to the rights accompanying the Acquired Shares
                and/or
                with respect to the Company and/or with respect to Tadiran Telecom
                and/or
                with respect to the Partnership and/or with respect to the assets
                of any
                one of them and/or with respect to the rights of any one of them
                and/or
                with respect to the undertakings of any one of them and/or any other
                material finding related to any one of them, and which significantly
                prejudices the profitability of the transaction for the Buyer (for
                this
                matter it is clarified that any finding which means an adverse change
                to
                the Equity Balance will not entitle the Buyer to a right of cancellation
                as aforesaid unless the adverse change to the Equity Balance accumulates
                to a sum which exceeds NIS 4 million in which case the cancellation
                will
                be in accordance with Section 3.2 and 3.3 above).
                

            

    

     

    
      	
               

            	
              3.4.3.

            	
              In
                the context of the Due Diligence Examination, the Buyer did not receive
                material documents requested by him.

            

    

     

    
      	
               

            	
              3.4.4.

            	
              The
                Buyer discovered that a representation of the Seller's representations
                in
                this Agreement of Principles is untrue.

            

    

     

    
      	
               

            	
              3.5.

            	
              Immediately
                after the execution of this Agreement of Principles the parties will
                file
                with the General Director of the Antitrust Authority (hereinafter
– the
                "General
                Director") suitable requests for receiving the approval of the
                General Director for the transaction which is the subject matter
                of this
                Agreement of Principles. The parties will also file, immediately
                after the
                execution of this Agreement of Principles, any request to any governmental
                authority (such as the Ministry of Communication) the approval of
                which is
                required by any law for the purpose of performance of the transaction
                (hereinafter – the "Authority"), if and
                insofar that it is required. 

            

    

     

    
      
         

      

      
        -8-

        
          

        

      

      
         

      

    

    
      	
               

            	
              3.6.

            	
              The
                transaction which is the subject matter of this Agreement of Principles
                will be completed within 75 days of the date of execution of this
                Agreement of Principles or within 15 days of the date on which the
                approval of the General Director or the approval of the Authority
                is
                received (if and insofar that such an approval is required), at the
                latest
                of all these (above and hereinafter – the "Date of the Transaction's
                Closing"). 

               

              In the event that the approvals
                of the
                General Director or of the Authority were not received (insofar that
                it
                was required) within 120 days of the date of execution of this Agreement
                of Principles, or a reserved approval was received or an approval
                under
                conditions which make it burdensome on the Buyer or significantly
                prejudice the profitability of the transaction for the Buyer, this
                Agreement of Principles will be null and void as if it was never
                executed
                (without derogating from the Buyer's undertakings for confidentiality
                as
                aforesaid in Annex A of this Agreement of Principles) and no party
                will
                have any claim in this respect against the other party, unless an
                act
                and/or omission of a party to this Agreement of Principles was the
                cause
                of not giving the approval as aforesaid.

            

    

     

    
      	
              4.

            	
              Miscellaneous:

            

    

     

    
      	
               

            	
              4.1.

            	
              Each
                party, by signing this Agreement of Principles, represents and confirms
                that his entering into this Agreement of Principles was approved
                by the
                organs authorized to approve it in that party and that there is no
                lawful
                or contractual impediment to his entering into this Agreement of
                Principles and to the fulfillment of all of his undertakings in accordance
                with this Agreement of Principles. The Seller represents and undertakes
                that his signature on this Agreement of Principles and/or the sale
                of his
                holdings in the Company is not contradictory to any agreement between
                the
                Seller and/or the Company and/or Tadiran Telecom and/or the Partnership
                and any third party. 

            

    

     

    
      	
               

            	
              4.2.

            	
              Subject
                to the right to cancel this Agreement of Principles which is established
                in the provisions of this Agreement of Principles above, and apart
                from
                the explicit representations given by the Seller in this Agreement
                of
                Principles and the representations which will be given in the context
                of
                the Due Diligence Examination, the Buyer is buying the Acquired Shares
                according to the status of the Company and of Tadiran Telecom and
                of the
                Partnership As Is and the Buyer does not have and will not have any
                demand
                and/or claim against the Seller to the exclusion of with respect
                to the
                incorrectness and/or incompleteness of the explicit representations
                given
                by the Seller as aforesaid in this Section and/or the breach of this
                Agreement of Principles by the Seller.

            

    

     

    
      	
               

            	
              4.3.

            	
              The
                laws of the State of Israel will apply to this Agreement of Principles
                (including, for the avoidance of doubt, to the guarantee mentioned
                in
                Section 1.9 above). The courts of the city of Tel Aviv shall have
                sole and
                exclusive jurisdiction to discuss and decide on any disagreement
                arising
                between the parties with respect to all matters related to this Agreement
                of Principles, its interpretation and fulfillment.
                

            

    

     

    
      	
               

            	
              4.4.

            	
              No
                change and/or amendment to this Agreement of Principles shall be
                in effect
                unless made in writing and signed by all parties to this Agreement
                of
                Principles. 

            

    

     

    
      	
               

            	
              4.5.

            	
              For
                the avoidance of doubt it is clarified that in any case in which
                this
                Agreement of Principles is cancelled and/or considered to be cancelled,
                for any reason whatsoever, the Buyer's undertaking to maintain
                confidentiality as aforesaid in Annex A of this Agreement of Principles
                shall continue to apply. 

            

    

     

    
      
         

      

      
        -9-

        
          

        

      

      
         

      

    

    In
      witness whereof, the Parties have hereto set their hands on:

     

    
      
        	 	 	 	 	 
	
                /s/
                  Tiv Taam Holdings 1 Ltd. 

              	 	 	
                /s/
                  Xfone 018 Ltd. 

              	 
	
                Tiv
                  Taam Holdings 1 Ltd. 

              	 	 	
                Xfone
                  018 Ltd. 

              	 
	
                The
                  Seller

              	 	 	
                The
                  Buyer

              	 
	Represented
                by: 	 	 	
                Represented
                  by: Roni Haliva - CEO

              	 

      

    

     

    
 

    
      
         

      

      
        -10-

        
          

        

      

      
         

      

    

     

    Annex
      A

    
       

      Confidentiality
        Undertaking

      

      To

      Tiv
        Taam
        Holdings 1 Ltd.

      Emek
        Hefer Industrial Zone, P.O.B 1140 Hadera 38811

      

      Since
        you
        intend to provide us with Confidential Information with respect to the Company
        and its activity (including with respect to any corporation controlled by
        the
        Company and its activity) for the purpose of performing a due diligence
        examination (the “Due Diligence
        Examination”), we therefore irrevocably undertake as follows:

       

      
        	
                1.

              	
                In
                  this undertaking, the “Confidential
                  Information” means: any information of any kind whatsoever that
                  shall be disclosed to us, to our employees and/or anyone on our
                  behalf by
                  you in the context of the Due Diligence Examination, including
                  and without
                  derogating from the generality of the aforesaid, any information
                  regarding
                  any of the Company’s shareholders, the Company’s officers, the Company’s
                  customers (including potential customers), to the business of any
                  of the
                  Company’s shareholders, to the Company’s future plans regarding the manner
                  of conduct of its business, including any information directly
                  or
                  indirectly related to the Company’s business, the Company’s internal
                  procedures, commercial contacts and affairs, economic and financial
                  planning, volume of activity, pricelists, market prices, key personnel
                  therein, employee training and qualification methods that the Company
                  uses
                  and/or will use during employee training, marketing methods, information
                  regarding the products manufactured and/or to be manufactured by
                  the
                  Company or the development, manufacture or marketing thereof, to
                  the
                  Company’s work methods, the Company’s calculations, information regarding
                  the Company’s data, suppliers, sales, investors, employees, information
                  regarding the relations between the Company and its customers and
                  suppliers, its customers’ demands, its assets and liabilities, know-how
                  regarding past, existing or future projects, including all information
                  pertaining to the Company’s intellectual property rights including
                  know-how, perceptions, tests, registrations, formulas, compositions,
                  designs, inventions and ideas, existing and future developments,
                  patents,
                  copyrights and the technology used or developed by the Company
                  in
                  connection with its products, and the documents, sketches, accounts,
                  specifications, printouts, floppy discs, magnetic tapes, software,
                  computer programs, CDs, work papers and any document or database
                  that
                  includes the Confidential Information, in whole or in part, whether
                  prepared by the Company or therefore, and any document of any kind
                  whatsoever that will serve us, our employees and/or anyone on our
                  behalf
                  in connection with the Due Diligence Examination.
                  

              

      

       

      In
        this Section, the term “Company”
includes the Company and anycorporation
        controlled by the Company.

       

      
        	
                2.

              	
                By
                  signing this letter of undertaking , we undertake to you on our
                  behalf and
                  on behalf of our employees and/or anyone on our behalf as follows:
                  

              

      

       

      
        
           

        

        
          Annex
            A -1
            -

          
            

          

        

        
           

        

      

       

      
        	
                 

              	
                2.1

              	
                To
                  maintain in strict confidence and not to disclose or transfer to
                  another,
                  either directly or indirectly, the Confidential Information or
                  any part
                  thereof. 

              

      

       

      
        	
                 

              	
                2.2

              	
                Not
                  to make any use, exploitation or application of the Confidential
                  Information or any part thereof except for the use necessary for
                  the
                  application of the purpose for which the Confidential Information
                  was
                  delivered to us by the Company (namely for performing the Due Diligence
                  Examination). 

              

      

       

      
        	
                 

              	
                2.3

              	
                Not
                  to publish the Confidential Information or any part thereof in
                  any way.
                  

              

      

       

      
        	
                 

              	
                2.4

              	
                To
                  take the maximum precautions that are reasonable in these circumstances
                  in
                  order to prevent the presence and/or reaching of the Confidential
                  Information to any third party. 

              

      

       

      
        	
                 

              	
                2.5

              	
                We
                  undertake to ensure, through every reasonable means, that all of
                  our
                  employees and/or anyone on our behalf, having access to the Confidential
                  Information, shall be bound by a confidentiality undertaking according
                  to
                  the provisions of this undertaking, and we shall be fully responsible
                  to
                  you and to the Company for our employees and/or anyone on our behalf
                  maintaining confidentiality. 

              

      

       

      
        	
                 

              	
                2.6

              	
                Not
                  to copy and/or photocopy and/or duplicate and/or otherwise create
                  copies
                  of the Confidential Information or any part thereof, including
                  through
                  computer copying, other than as required solely for the application
                  of the
                  purpose for which the Confidential Information shall have been
                  delivered
                  to us (namely for performing the Due Diligence Examination).
                  

              

      

       

      
        	
                 

              	
                2.7

              	
                To
                  return to the Company the Confidential Information, including any
                  copy
                  made thereof, upon your first demand, without our retaining any
                  copies of
                  the Confidential Information, including computer-made copies.
                  

              

      

       

      
        	
                3.

              	
                We
                  further declare, on our behalf and on behalf of our employees and/or
                  anyone on our behalf, as follows: 

              

      

       

      
        	
                 

              	
                3.1

              	
                The
                  Company reserves all rights to every invention, patent, trademarks,
                  service signs, drawings, moral right, copyright, and any other
                  intellectual property right invented or planned by the Company
                  and/or
                  anyone on its behalf in connection with the Confidential Information.
                  

              

      

       

      
        	
                 

              	
                3.2

              	
                The
                  disclosure of the Confidential Information to us, to our employees
                  and/or
                  anyone on our behalf and the use thereof do not grant us, our employees
                  and/or anyone on our behalf, under any circumstances, any right
                  or license
                  in respect of the Confidential Information, beyond the right to
                  use the
                  Confidential Information for the purpose of application of the
                  purpose for
                  which the Confidential Information was delivered to us (namely
                  for
                  performing the Due Diligence Examination).

              

      

       

      
        
           

        

        
          Annex
            A -2
            -

          
            

          

        

        
           

        

      

       

      
        	
                 

              	
                3.3

              	
                Our
                  mere exposure to the Confidential Information does not constitute,
                  directly or indirectly, the granting of a license and/or the granting
                  of
                  any right regarding a trademark, patent, copyright, trade secret
                  and/or
                  any other intellectual property right, of any kind whatsoever which
                  will
                  be based on the Confidential Information.

              

      

       

      
        	
                4.

              	
                Our
                  undertakings according to this undertaking shall not apply with
                  respect to
                  any details included in the Confidential Information, which constitute
                  information being in the public domain or having come into the
                  public
                  domain other than as a result of any breach of our undertakings;
                  shall not
                  apply to any Confidential Information received by us from third
                  parties
                  other than through any breach of our undertakings; shall not apply
                  to
                  Confidential Information required by law to be disclosed (a condition
                  precedent thereto is that in such a case we will give you an advance
                  notice in writing 10 (ten) days before such disclosure, to the
                  extent
                  possible and feasible). 

              

      

       

      
        	
                5.

              	
                We
                  will not be allowed to assign or transfer our rights and/or undertakings
                  according to this undertaking. 

              

      

       

      
        	
                6.

              	
                This
                  undertaking will remain in effect until the Date of the Transaction's
                  Closing as this term is defined in the Agreement.
                  

              

      

       

      
        	
                7.

              	
                For
                  the avoidance of doubt, it is clarified that in the event that
                  the
                  Transaction shall not be closed for any reason, this undertaking
                  will
                  remain in effect indefinitely. 

              

      

      
 

      Sincerely,

       

      /s/
        Xfone 018 Ltd.

      Xfone
        018
        Ltd.

       

    

     

    
      
         

      

      
        Annex
          A -3
          -

        
          

        

      

      
         

      

    

     

    Annex
      B

    

    Date
      ________________

    

    FROM:
      Xfone, Inc.

    IN
      FAVOUR OF:
      Tiv Taam
      Holdings 1 Ltd. (the "Seller")

    

    Dear
      Sirs/Madam,

    

    
      	
               

            	
              1.

            	
              With
                reference to the agreement dated March 16 2008, between the Seller
                and
                Xfone 018 Ltd. (the "Buyer"), for
                the sale of
                shares of Robomatix Technologies Ltd. (the "Agreement"), the
                undersigned, Xfone, Inc., hereby irrevocably and unconditionally
                undertakes to pay to the Seller, upon receipt of the Seller’s first
                written demand stating that the amount claimed has become due to
                the
                Seller and remained unpaid, (i) The Second Payment of the Purchase
                Amount
                under the Agreement, in an amount of NIS 15,500,000 (fifteen million
                five
                hundred thousand NIS) subject to any adjustment in accordance with
                the
                provisions of the Agreement and any arrear interest accrued thereon,
                and
                (ii) The Third Payment of the Purchase Amount under the Agreement,
                in an
                amount of NIS 13,000,000 (thirteen million NIS) and any arrear interest
                accrued thereon, all in accordance with the provisions of the Agreement.
                In addition the undersigned undertakes to reimburse you for any reasonable
                legal expenses which shall be incurred by you in connection with
                the
                enforcement of the Agreement and this guarantee.
                

            

    

    

    
      	
               

            	
              2.

            	
              the
                undersigned hereby acknowledges the content of the Agreement, its
                provisions and all obligations assumed by the Buyer there under.
                

            

    

    

    
      	
               

            	
              3.

            	
              This
                guarantee shall remain valid until the full payment of the Second
                Payment
                and the Third Payment of the Purchase Amount under the Agreement.
                

            

    

    

    
      	
               

            	
              4.

            	
              The
                undersigned will act upon the Seller’s first written demand, regardless if
                such demand was or was not addressed to the Buyer prior to the Seller's
                demand appointed to the undersigned. Furthermore, the Seller is not
                required to give the undersigned any prior-notice and/or extension
                period
                as a precondition to its undertakings hereunder.
                

            

    

    

    
      	
               

            	
              5.

            	
              Any
                notice required or permitted hereunder, including, without limitation,
                service of process in connection with this guarantee, shall be delivered
                to the undersigned at the offices of Xfone 018 Ltd. at 1st
                Ha’odem St., Kiriat Matalon, Petach Tikva, Israel and any document
                delivered at such address shall be deemed legally binding and received
                upon the date of delivery. 

            

    

    

    
      	
               

            	
              6.

            	
              This
                guarantee shall be governed and construed in accordance with the
                laws of
                the state of Israel, without reference to conflicts of laws principles.
                

            

    

    

    
      	
               

            	
              7.

            	
              Any
                and all disputes in relation to this guarantee shall be exclusively
                resolved by the competent courts in the city of Tel Aviv, Israel.
                

            

    

    

    

    _________________________

    

    Xfone,
      Inc.

    

    
      
         

      

      
        Annex
          B
          -1 -

        
          

        

      

      
         

      

    

    

    

    I
      hereby
      confirm, that Xfone, Inc. ("Xfone") is the
      holder  of 69% of the issued share capital of Xfone 018 Ltd., and that
      this guarantee was signed on behalf of Xfone by Mr._____________, ID number
      __________ whose signature binds Xfone for the all purposes hereof. I further
      confirm that Xfone has the capacity and authority to execute this guarantee
      and
      that this guarantee constitutes valid and legally binding obligations of Xfone,
      enforceable in accordance with its terms.

     

     

    _________________________            _________________________

    Date                                                                           
      Signature

    

     

    
      
         

      

      
        Annex
          B
          -2 -

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