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MAUNA LOA MACADAMIA PARTNERS, L.P.
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MAUNA LOA MACADAMIA PARTNERS, L.P. 828 Fort Street, Suite 205
Honolulu, HI 96813
Telephone: (808) 532-4130
Fax: (808) 532-4131
Monday, June 15, 1998
Dear Mauna Loa Unitholder:
Recently you may have received a letter from Channing Lushbough, which discussed
the merger of Mauna Loa Macadamia Partners, L.P. and C. Brewer Homes, Inc.
("Homes"), and recommends against the merger. As President of the Managing
Partner, I wanted to take this opportunity to respond to many of the incorrect
assertions contained in the Lushbough letter.
First of all, prior to seeing this letter, I had never heard of Channing
Lushbough. Mr. Lushbough has never attempted to contact the company to
understand the company or the company's strategy. Typically, financial analysts
at the very least have a discussion with management about management's
strategies and objectives. Since this never occurred, I am skeptical about Mr.
Lushbough's depth of knowledge. I believe that Mr. Lushbough's letter is
inspired by a pending lawsuit, which, unfortunately, is typical in merger
transactions. That lawsuit was brought by Mr. Lushbough's partnership, Waterside
Partners, which bought most of its 7,000 units after the merger was announced.
The Lushbough letter asserts that "C. Brewer Homes faces bankruptcy." UNTRUE.
Homes recently reported positive operating income for the Quarter ended March
31, 1998. Also, Homes is rapidly repaying debt, which is lower by $3.3 million
since December 31, 1997. There is no evidence, based upon the Company's
performance and asset values, that Homes faces bankruptcy.
The Lushbough letter states that Homes' business "depends upon Asian customers."
UNTRUE. Virtually all of the Company's real estate projects are sold to Hawaii
and United States mainland buyers. In particular, the majority of Homes'
properties are on Maui, which is the very best economic region in the State of
Hawaii at present. Even the visitor industry on Maui is mostly oriented toward
the U.S. mainland and Canadian visitor market. Furthermore, the locations of the
Maui lands which Homes owns are some of the very best on Maui, with valuable
residential and commercial zoning which took 12 years to procure.
The Lushbough letter asserts that the Jefferies & Co. analysis of Homes was
"flawed." May I disagree. First of all, Jefferies & Co. is a highly regarded
investment banking company, which is expert at evaluating businesses and
mergers. More importantly, each of the analytic methods used
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MAUNA LOA UNITHOLDER
Monday, June 15, 1998
Page Two
by Jefferies took account of current market conditions. The Jefferies analysis
of Homes can be summarized as follows:
<TABLE>
<CAPTION>
TOTAL VALUE VALUE PER SHARE
(MILLIONS) OF HOMES
------------- ---------------
<S> <C> <C>
A. Discounted Cash Flow.................................... $26.7 - $44.5 $3.23 - $5.39
B. Comparable Company...................................... $30.0 - $41.9 $3.63 - $5.08
C. Adjusted Book Value..................................... $41.9 $5.08
</TABLE>
This compares favorably to the bargain price of the acquisition by the
Partnership of approximately $20 million or $2.40 per Homes' Share. It is
definitely true that the Hawaii economy has been weak and that Homes' share
price has been battered. However, this weakness represents the very opportunity
the Partnership can exploit by the bargain purchase of Homes' valuable lands.
Lushbough also states that Jefferies will receive a large fee, implying that
this will be paid only if a merger is consummated. Jefferies will receive a fee
for its fairness opinion, irrespective of whether the merger is approved;
however, a substantial portion of this fee is in the form of a stock option,
which only has value if the price of Mauna Loa's stock exceeds $5/share.
Finally, Lushbough states that the Partnership will "jeopardize its tax status"
by merging with Homes. This is completely contrary to the opinion of the
Company's tax expert, Carlsmith, Ball, Wichman, Case & Ichiki (Honolulu). This
is also contrary to the opinion of Homes' tax advisor, Brobeck, Phleger &
Harrison (San Francisco).
In summary, Management and the Partnership's financial advisor believe this
merger is fair. Your management and the Partnership's Board of Directors,
including all of the independent directors, believe this transaction will
increase shareholder value. It is hard to conceive how the Partnership can grow
the business or the value of the units by maintaining the status quo. The Homes
acquisition is an essential part of our plan to make your Partnership a growing,
vibrant business and thus more valuable. Please vote "FOR" the merger today.
Thank you,
[LOGO]
Kent T. Lucien
President of Mauna Loa Resources Inc.
